KEMPER INTERNATIONAL BOND FUND
485BPOS, 1995-07-28
Previous: IBJ FUNDS TRUST, NSAR-A, 1995-07-28
Next: BRIAR FUNDS TRUST, NSAR-A, 1995-07-28



<PAGE>
 
     
  AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1995.     
 
                                             1933 ACT REGISTRATION NO. 33-85096
                                             1940 ACT REGISTRATION NO. 811-8818
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ---------------
 
                                   FORM N-1A
 
<TABLE>       
      <S>                               <C>
      REGISTRATION STATEMENT UNDER THE
       SECURITIES ACT OF 1933           [_]
      Pre-Effective Amendment No.       [_]
      Post-Effective Amendment No. 1    [X]
 
                                    and/or
 
      REGISTRATION STATEMENT UNDER THE
       INVESTMENT COMPANY ACT OF 1940   [_]
      Amendment No. 2                   [X]
</TABLE>    
 
                       (Check appropriate box or boxes)
 
                               ---------------
 
                        KEMPER INTERNATIONAL BOND FUND
 
              (Exact name of Registrant as Specified in Charter)
 
 120 South LaSalle Street, Chicago,                      60603
              Illinois                                (Zip Code)
   (Address of Principal Executive
               Office)
 
      Registrant's Telephone Number, including Area Code: (312) 781-1121
 
          Philip J. Collora                         With a copy to:
                                                   Charles F. Custer
  Vice President and Secretary     
   Kemper International Bond Fund          Vedder, Price, Kaufman & Kammholz
      120 South LaSalle Street                 222 North LaSalle Street
       Chicago, Illinois 60603                  Chicago, Illinois 60601
   (Name and Address of Agent for                          
              Service)                                        
   
  Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended December 31,
1995 will be filed on or about February 23, 1996.     
   
  It is proposed that this filing will become effective (check appropriate
box)     
       
    [_] immediately upon filing pursuant to paragraph (b)     
       
    [X] on July 31, 1995 pursuant to paragraph (b)     
       
    [_] 60 days after filing pursuant to paragraph (a)(1)     
       
    [_] on (date) pursuant to paragraph (a)(1)     
       
    [_] 75 days after filing pursuant to paragraph (a)(2)     
 
    [_] on (date) pursuant to paragraph (a)(2) of Rule 485
 
  If appropriate, check the following box:
 
    [_] this post-effective amendment designates a new effective date for a
      previously filed post-effective amendment.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
                         KEMPER INTERNATIONAL BOND FUND
 
                             CROSS-REFERENCE SHEET
                       BETWEEN ITEMS ENUMERATED IN PART A
                          OF FORM N-1A AND PROSPECTUS
 
<TABLE>   
<CAPTION>
 ITEM NUMBER OF FORM N-1A      LOCATION IN PROSPECTUS
 ------------------------      ----------------------
 <C> <S>                       <C>
 1.  Cover Page..............  Cover Page
 2.  Synopsis................  Summary; Summary of Expenses
 3.  Condensed Financial
     Information.............  Performance; Supplement
 4.  General Description of
     Registrant..............  Summary; Investment Objectives and Policies
 5.  Management of the Fund..  Summary; Investment Objectives and Policies;
                               Supplement
 5A. Management's Discussion
     of Financial
     Performance.............  Inapplicable
 6.  Capital Stock and Other   Summary; Dividends and Taxes; Purchase of
     Securities..............  Shares; Capital Structure
 7.  Purchase of Securities    Summary; Investment Manager and Underwriter; Net
     Being Offered...........  Asset Value; Purchase of Shares
 8.  Redemption or
     Repurchase..............  Summary; Redemption or Repurchase of Shares
 9.  Pending Legal
     Proceedings.............  Inapplicable
</TABLE>    
<PAGE>
 
                         
                      KEMPER INTERNATIONAL BOND FUND     
                            
                         SUPPLEMENT TO PROSPECTUS     
                             
                          DATED FEBRUARY 1, 1995     
 
                               ---------------
   
FINANCIAL HIGHLIGHTS     
   
  The table below shows financial information for the Kemper International
Bond Fund expressed in terms of one share outstanding throughout the period.
The unaudited financial statements contained in the Fund's Semiannual Report
to Shareholders for the period ended June 30, 1995, are incorporated herein by
reference and may be obtained by writing or calling the Fund.     
 
<TABLE>   
<CAPTION>
                                                               FEBRUARY 1, 1995
                                                                      TO
                                                                JUNE 30, 1995
                                                               ----------------
<S>                                                            <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period..........................     $   9.00
Net investment income.........................................          .02
Net realized and unrealized gain on investments and foreign
 currency transactions........................................          .40
                                                                   --------
Net asset value, end of period................................     $   9.42
                                                                   ========
TOTAL RETURN (%)..............................................         4.67
RATIOS TO AVERAGE NET ASSETS (%):
Expenses......................................................          .94
Net investment income.........................................         6.87
SUPPLEMENTAL DATA:
Net assets at end of period...................................     $104,722
Portfolio turnover rate (%)...................................           60
</TABLE>    
- -------
   
NOTE:     
   
  Ratios have been determined on an annualized basis. Total return is not
annualized.     
   
INVESTMENT MANAGER AND UNDERWRITER     
   
  Kemper Corporation, the parent of Kemper Financial Services, Inc. ("KFS,"
the investment manager for the Fund), has entered into an agreement with an
investor group led by Zurich Insurance Company ("Zurich") pursuant to which
Kemper Corporation would be acquired by the investor group in a merger
transaction. As part of the transaction, Zurich or an affiliate would purchase
KFS. The Kemper Corporation and Zurich boards have approved the transaction.
       
  Consummation of the transaction is subject to a number of contingencies,
including approval by the stockholders of Kemper Corporation and regulatory
approvals. Because the transaction would constitute an assignment of the
Fund's investment management agreement with KFS under the Investment Company
Act of 1940, and therefore a termination of such agreement, KFS has received
approval of a new agreement from the Fund's board and is seeking approval from
the Fund's shareholders prior to consummation of the transaction. The
transaction is expected to close in the fourth quarter of 1995 or early in
1996.     
   
July 31, 199_____________________________________printed5on recycled paper     
                                                         LOGO
   
KIBF-1D 7/95     
<PAGE>
 
<TABLE>
<S>                                 <C>
TABLE OF CONTENTS
- ---------------------------------------
Summary                               1
- ---------------------------------------
Summary of Expenses                   2
- ---------------------------------------
Investment Objective and Policies     2
- ---------------------------------------
Investment Manager and Underwriter   10
- ---------------------------------------
Dividends and Taxes                  11
- ---------------------------------------
Net Asset Value                      12
- ---------------------------------------
Purchase of Shares                   13
- ---------------------------------------
Redemption or Repurchase of Shares   14
- ---------------------------------------
Tax-Sheltered Retirement Plans       15
- ---------------------------------------
Performance                          16
- ---------------------------------------
Capital Structure                    17
- ---------------------------------------
</TABLE>
 
This prospectus contains information about the Fund that a prospective in-
vestor should know before investing and should be retained for future refer-
ence. A Statement of Additional Information dated February 1, 1995, has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. It is available upon request without charge from the Fund at the
address or telephone number on this cover or the firm from which this prospec-
tus was received.
 
The Fund's shares are not deposits or obligations of, or guaranteed or en-
dorsed by, any bank, nor are they federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board or any other agency. Investment
in the Fund's shares involves risk, including the possible loss of principal.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
 
                                                                           LOGO
 
KEMPER
INTERNATIONAL BOND FUND
 
PROSPECTUS FEBRUARY 1, 1995
 
KEMPER INTERNATIONAL BOND FUND
120 South LaSalle Street, Chicago, Illinois 60603
1-800-621-1048
 
The objective of Kemper International Bond Fund is to provide a total return,
a combination of income and capital appreciation. The Fund pursues its objec-
tive by investing primarily in a portfolio of investment grade foreign debt
securities. There is no assurance that the Fund's objective will be achieved.
 
Shares of the Fund are offered primarily for investment by pension and profit
sharing plans and other employee benefit plans, endowments, foundations, cor-
porations, banks, insurance companies and other institutions and high net
worth individuals. Shares are offered for sale at net asset value with no
sales charge. The minimum initial investment is $1 million.
<PAGE>
 
KEMPER INTERNATIONAL BOND FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
 
SUMMARY
 
INVESTMENT OBJECTIVE. Kemper International Bond Fund (the "Fund") is an open-
end, non-diversified, management investment company. The Fund's investment
objective is to provide a total return, a combination of income and capital
appreciation. The Fund pursues its objective by investing primarily in a
portfolio of investment grade foreign debt securities. The Fund may also
engage in options, financial futures, delayed delivery and foreign currency
transactions and may lend its portfolio securities. There is no assurance that
the Fund's objective will be achieved.
 
RISK FACTORS. The Fund may invest without limit in securities of foreign
issuers. Foreign investments involve risk and opportunity considerations not
typically associated with investing in domestic securities. The U.S. Dollar
value of a foreign security tends to decrease when the value of the U.S.
Dollar rises against the foreign currency in which the security is denominated
and tends to increase when the value of the U.S. Dollar falls against such
currency. Thus, the U.S. Dollar value of foreign securities in the Fund's
portfolio, and the Fund's net asset value, may change in response to changes
in currency exchange rates even though the value of the foreign securities in
local currency terms may not have changed. While the Fund's investments in
foreign securities will principally be in developed countries, the Fund may
invest a small portion of its assets in developing or "emerging" markets,
which involve exposure to economic structures that are generally less diverse
and mature than in the United States, and to political systems that may be
less stable. As a "non-diversified" investment company, the Fund will be able
to invest a relatively high percentage of its assets in a limited number of
issuers, therefore making the Fund more susceptible to a single economic,
political or regulatory occurrence than a diversified company. Thus, an
investment in the Fund should not be considered as a complete investment
program. There are special risks associated with options, financial futures
and foreign currency transactions and there is no assurance that use of those
investment techniques will be successful. The Fund's returns and net asset
value will fluctuate. See "Investment Objectives and Policies."
 
PURCHASES AND REDEMPTIONS. Shares of the Fund are offered primarily for
investment by pension and profit sharing plans and other employee benefit
plans, endowments, foundations, corporations, banks, insurance companies and
other institutions and high net worth individuals. Shares are offered at net
asset value with no sales charge. The minimum initial investment is $1
million. Shares are redeemable at net asset value, which may be more or less
than original cost. See "Purchase of Shares" and "Redemption or Repurchase of
Shares."
 
INVESTMENT MANAGER AND UNDERWRITER. Kemper Financial Services, Inc. ("KFS") is
the Fund's investment manager. KFS is paid by the Fund an annual investment
management fee, payable monthly, on a graduated basis ranging from .75 of 1%
of the first $250 million of average daily net assets of the Fund to .62 of 1%
of average daily net assets of the Fund over $12.5 billion. The expenses of
the Fund, and of other investment companies investing in foreign securities,
can be expected to be higher than for investment companies investing primarily
in domestic securities since the costs of operation are higher, including
custody and transaction costs for foreign securities and investment management
fees. Kemper Distributors, Inc. ("KDI"), an affiliate of KFS, is the principal
underwriter of the Fund and acts as agent of the Fund in the sale of its
shares. See "Investment Manager and Underwriter."
 
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains. Income and
capital gain dividends of the Fund are automatically reinvested in additional
shares of the Fund, without a sales charge, unless the investor makes a
different election. See "Dividends and Taxes."
 
                                                                              1
<PAGE>
 
SUMMARY OF EXPENSES
 
<TABLE>
<CAPTION>
<S>                                                                         <C>
SHAREHOLDER TRANSACTION EXPENSES(/1/)
Sales Charge on Purchases.................................................. None
Sales Charge on Reinvested Dividends....................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
Deferred Sales Charge...................................................... None
</TABLE>
- -------
(/1/Investment)dealers and other firms may independently charge fees for
    shareholder transactions or for advisory services; please see their
    materials for details.
 
<TABLE>
<S>                                                                  <C>   <C>
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net
 assets)
Management Fees.....................................................  .75%
12b-1 Fees.......................................................... None
Other Expenses (estimated)..........................................  .20%
                                                                     ----
Total Operating Expenses............................................  .95%
                                                                     ====
</TABLE>
 
EXAMPLE
 
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time period:
<TABLE>
<CAPTION>
                               1 YEAR 3 YEARS
                          <S>  <C>    <C>
                                $10     $30
</TABLE>
 
 
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. "Other Expenses" have been estimated for the current fiscal year.
The Fund's management fee is higher than that paid by most other investment
companies including money market funds and funds that invest primarily in
domestic securities.
 
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
 
INVESTMENT OBJECTIVE AND POLICIES
 
OBJECTIVE. The objective of the Fund is to provide a total return, a
combination of income and capital appreciation. In seeking to achieve its
objective, the Fund will invest primarily in investment grade foreign debt
securities. In managing the Fund's portfolio, the investment manager will be
seeking to protect net asset value and to provide investors with a total
return, which is measured by changes in net asset value as well as income
earned. In an effort to reduce volatility and increase returns, the investment
manager may, as is discussed more fully below, adjust the Fund's portfolio
across various foreign markets, maturity ranges, quality ratings and issuers
based upon its view of interest rates and other market conditions prevailing
throughout the world.
 
FOREIGN INVESTING. As an international fund, the Fund may invest in securities
issued by any foreign issuer and denominated in any foreign currency and may
hold foreign currency. Securities of issuers within a given country may be
denominated in the currency of that country or another country, or in
multinational currency units such as the European Currency Unit ("ECU"). Since
the Fund invests primarily in foreign securities, the net asset value of the
Fund will be affected by fluctuations in currency exchange rates. See "Special
Risk Factors" below.
 
 
2
<PAGE>
 
The Fund may seek to capitalize on investment opportunities presented
throughout the world and in international financial markets influenced by the
increasing interdependence of economic cycles and currency exchange rates.
Currently, more than 50% of the value of the world's debt securities is
represented by securities denominated in currencies other than the U.S.
Dollar. Over the past ten years, debt securities offered by certain foreign
governments have generally provided higher investment returns than U.S.
Government debt securities. Such returns reflect interest rates prevailing in
those countries and the effect of gains and losses in the denominated
currencies, which have had a substantial impact on investment in foreign debt
securities. The relative performance of various countries' bond markets
historically has reflected wide variations relating to the unique
characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time. The investment manager
believes that investment of a portion of assets in an international portfolio
can provide investors with more opportunities for attractive returns than
investment exclusively in U.S. debt securities. Also, the flexibility to
invest in bond markets around the world can reduce risk since, as noted above,
different world markets have often performed, at a given time, in radically
different ways.
 
The Fund will allocate its assets among securities of various issuers,
geographic regions, and currency denominations in a manner that is consistent
with its objective based upon relative interest rates among currencies, the
outlook for changes in these interest rates, and anticipated changes in
worldwide exchange rates. In considering these factors, a country's economic
and political state, including such factors as inflation rate, growth
prospects, global trade patterns and government policies, will be evaluated.
 
It is currently anticipated that the Fund's assets will be invested
principally within Australia, Canada, Japan, New Zealand and Western Europe,
and in securities denominated in the currencies of these countries or
denominated in multinational currency units such as the ECU. The Fund may also
acquire securities and currency in developing or "emerging" countries. It is
currently intended that no more than 5% of the Fund's net assets will be
invested in developing or emerging market countries during the coming year.
Under normal conditions, the Fund, as a fundamental policy, will invest at
least 65% of its total assets in securities of issuers in not less than three
different foreign countries. The Fund may, from time to time, have more than
25% of its assets invested in any major industrial or developed country that,
in the view of the investment manager, poses no unique investment risk.
 
The Fund may invest in debt securities of supranational entities denominated
in any currency. A supranational entity is an entity designated or supported
by the national governments of two or more countries. Examples of
supranational entities include, among others, the World Bank, the European
Investment Bank and the Asian Development Bank. The Fund may, in addition,
invest in debt securities denominated in the ECU of an issuer in any country
(including supranational issuers). The Fund is further authorized to invest in
"semi-governmental securities," which are debt securities issued by entities
owned by either a national, state or equivalent government or are obligations
of such a government jurisdiction that are not backed by its full faith and
credit and general taxing powers.
 
The Fund is authorized to invest in the securities of any foreign issuer.
Investments by the Fund in "bonds" may include obligations such as bonds,
debentures, convertible debt instruments, notes, certificates of deposit,
bankers' acceptances, time deposits, commercial paper, repurchase agreements
and other debt instruments. Under normal market conditions, the Fund, as a
fundamental policy, will invest at least 65%, and may invest up to 100%, of
its total assets in bonds denominated in foreign currencies. Such securities
may, without limitation, include obligations issued or guaranteed by foreign
governments (including foreign states, provinces and municipalities) or their
agencies and instrumentalities; obligations issued or guaranteed by
supranational entities; and obligations of foreign corporations, banks and
other business organizations. Although investments in repurchase agreements
are not limited, the Fund currently does not intend to invest more than 5% of
its net assets in repurchase agreements during the coming year. The Fund may
also invest a portion of its assets in preferred stocks and may hold cash and
cash equivalents. Some of the Fund's investments may be convertible into
common stock or be traded together with warrants for the purchase of common
stock, and the Fund may convert such securities into
 
                                                                              3
<PAGE>
 
equities and hold them as equity upon conversion. Investments may include
securities issued by enterprises that have undergone or are currently
undergoing privatization. It is currently intended that no more than 5% of the
Fund's net assets will be invested during the current year in securities of
enterprises that have been privatized recently, i.e., have had an initial
public offering within the preceding twelve months.
 
The securities in which the Fund may invest will be "investment grade"
securities. Investment grade securities are those rated at the time of
purchase within the four highest grades assigned by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), IBCA Limited
(including its affiliate IBCA, Inc.) ("IBCA") or any other Nationally
Recognized Statistical Rating Organization ("NRSRO"); or that are unrated but
are of comparable quality in the opinion of the investment manager. Most
foreign fixed income securities are unrated. After the Fund has bought a
security, its quality level may fall below the minimum required for purchase
by the Fund. That would not require the Fund to sell the security, but the
investment manager will consider such an event in determining whether the Fund
should continue to hold the security in its portfolio. Investors should note
that investments in below investment grade securities entail relatively
greater risk of loss of income and principal than investments in higher
quality securities and market prices of such securities may fluctuate more
than market prices of higher quality securities. The characteristics of the
securities in the Fund's portfolio, such as the maturity and the type of
issuer, will affect yields and yield differentials, which vary over time. The
actual yield realized by the investor is subject, among other things, to the
Fund's expenses and the investor's transaction costs.
 
When the investment manager deems it appropriate to invest for temporary
defensive purposes, such as during periods of adverse market conditions, or
when relative yields in other securities are not deemed attractive, part or
all of the Fund's assets may be invested in cash (including foreign or U.S.
Dollar currency) or foreign or domestic cash equivalent short-term
obligations, either rated as high quality by an NRSRO or of comparable quality
in the opinion of the investment manager; including, but not limited to,
certificates of deposit, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, and repurchase agreements secured thereby. In particular,
for defensive purposes a significant portion of the Fund's assets may be
invested temporarily in U.S. Dollar-denominated obligations to reduce the
risks inherent in non-U.S. Dollar-denominated assets.
 
The Fund will adjust its portfolio as considered advisable in view of
prevailing or anticipated market conditions and the Fund's investment
objective. Accordingly, the Fund may sell portfolio securities in anticipation
of a rise in interest rates and purchase securities for inclusion in its
portfolio in anticipation of a decline in interest rates. As an international
fund, the Fund will have ongoing opportunities to adjust its portfolio across
various markets and may experience a high portfolio turnover rate. See
"Additional Investment Information" below.
 
The Fund may purchase and sell options on securities, index options, financial
futures contracts and options on financial futures contracts, may enter into
forward foreign currency exchange contracts, foreign currency options and
foreign currency futures contracts and options thereon and may engage in
delayed delivery transactions. See "Additional Investment Information" below.
 
SPECIAL RISK FACTORS. There are risks inherent in investing in any security,
including shares of the Fund. The investment manager attempts to reduce risk
through fundamental research; however, there is no guarantee that such efforts
will be successful and the Fund's returns and net asset value will fluctuate
over time. There are special risks associated with the Fund's investments that
are discussed below.
 
Foreign Currency Risks. The U.S. Dollar value of a foreign security tends to
decrease when the value of the U.S. Dollar rises against the foreign currency
in which the security is denominated, and it tends to increase when the value
of the U.S. Dollar falls against such currency. Fluctuations in exchange rates
may also affect the earning power and asset value of the foreign entity
issuing the security. Dividend and interest payments may be repatriated
 
4
<PAGE>
 
based upon the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
 
Foreign securities may be subject to foreign government taxes that reduce
their attractiveness. Other risks of investing in such securities include
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possible imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic securities and the markets for such securities may be less
liquid. In addition, there may be less publicly available information about
foreign issuers than about domestic issuers. Many foreign issuers are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic issuers. There is generally less
regulation of stock exchanges, brokers, banks and listed companies abroad than
in the United States. Settlement of foreign securities trades may take longer
and present more risk than for domestic securities. With respect to certain
foreign countries, there is a possibility of expropriation or diplomatic
developments that could affect investment in these countries.
 
Fixed Income. Since most foreign fixed income securities are not rated, the
Fund will invest in foreign fixed income securities based upon the investment
manager's analysis without relying on published ratings. Since such
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of the Fund's goals may depend more upon
the abilities of the investment manager than would otherwise be the case.
 
The value of the fixed income securities held by the Fund, and thus the net
asset value of the Fund's shares, generally will fluctuate with (a) changes in
the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which the Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation
will depend on various factors, such as the average maturity of the Fund's
investments in foreign fixed income securities, and the extent to which the
Fund hedges its interest rate, credit and currency exchange rate risks. Many
of the foreign fixed income obligations in which the Fund will invest will
have intermediate maturities (three to ten years). A longer average maturity
generally is associated with a higher level of volatility in the market value
of such securities in response to changes in market conditions, and relative
currency values.
 
Non-Diversified Status. The Fund has registered as a "non-diversified"
investment company so that it will be able to invest more than 5% of its
assets in the obligations of an issuer, subject to the diversification
requirements of Subchapter M of the Internal Revenue Code applicable to the
Fund. This allows the Fund, as to 50% of its assets, to invest more than 5% of
its assets, but not more than 25%, in the fixed income securities of an
individual foreign government or corporate issuer. Currently, the Fund does
not intend to invest more than 5% of its assets in any individual corporate
issuer. Since the Fund may invest a relatively high percentage of its assets
in the obligations of a limited number of issuers, the Fund may be more
susceptible to any single economic, political or regulatory occurrence than a
diversified investment company. See "Investment Restrictions" in the Statement
of Additional Information.
 
Portfolio Quality. As noted above, the Fund may invest in securities that are
rated within the four highest grades by S&P, Moody's, IBCA or any other NRSRO
or, if unrated, are of comparable quality as determined by the investment
manager. Securities rated within the four highest grades are generally
considered to be "investment grade." Like higher rated securities, securities
rated in the fourth grade are considered to have adequate capacity to pay
principal and interest, although they may have fewer protective provisions
than higher rated securities and thus may be adversely affected by severe
economic circumstances and are considered to have speculative characteristics.
The characteristics of the rating categories are described in the Statement of
Additional Information under "Appendix--Ratings of Investments."
 
General. Since interest rates vary with changes in economic, market, political
and other conditions, there can be no assurance that past interest rates are
indicative of future rates. The values of fixed income securities in the
 
                                                                              5
<PAGE>
 
Fund's portfolio will fluctuate depending upon market factors and inversely
with current interest rate levels. The Fund may engage in options, financial
futures, foreign currency and delayed delivery transactions and may lend its
portfolio securities. For a description of special risks associated with these
investment techniques, see "Additional Investment Information" below.
 
ADDITIONAL INVESTMENT INFORMATION. It is anticipated that, under normal
circumstances, the portfolio turnover rate for the Fund will not exceed 400%.
The Fund will have ongoing opportunities to adjust its portfolio across
various markets and may experience a high portfolio turnover rate (over 100%),
which involves correspondingly greater brokerage or other transaction costs.
Higher portfolio turnover may result in the realization of greater net short-
term capital gains. In order to continue to qualify as a regulated investment
company for federal income tax purposes, less than 30% of the annual gross
income of the Fund must be derived from the sale or other disposition of
securities and certain other investments held by the Fund for less than three
months. See "Dividends and Taxes" in the Statement of Additional Information.
 
The Fund may take full advantage of the entire range of maturities of fixed
income securities and may adjust the average maturity of its portfolio from
time to time, depending upon its assessment of relative yields on securities
of different maturities and its expectations of future changes in interest
rates. Thus, the average maturity of the Fund's portfolio may be relatively
short (under five years, for example) at some times and relatively long (over
10 years, for example) at other times. Generally, since shorter term debt
securities tend to be more stable than longer term debt securities, the
portfolio's average maturity will be shorter when interest rates are expected
to rise and longer when interest rates are expected to fall. Since in most
foreign markets debt securities generally are issued with maturities of ten
years or less, it is currently anticipated that the average maturity of the
Fund's portfolio will normally be in the intermediate range (three to ten
years).
 
The Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes, and then only in an amount up to one-third of the value
of its total assets, in order to meet redemption requests without immediately
selling any portfolio securities or other assets. If, for any reason, the
current value of the Fund's total assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Fund will,
within three days (not including Sundays and holidays), reduce its
indebtedness to the extent necessary. The Fund will not borrow for leverage
purposes. The Fund may pledge up to 15% of its total assets to secure any such
borrowings.
 
The Fund will not purchase illiquid securities, including repurchase
agreements maturing in more than seven days, if, as a result thereof, more
than 15% of the Fund's net assets valued at the time of the transaction would
be invested in such securities. See "Investment Policies and Techniques--Over-
the-Counter Options" in the Statement of Additional Information for a
description of the extent to which over-the-counter traded options are in
effect considered as illiquid for purposes of the Fund's limit on illiquid
securities.
 
The Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and which, together with
the investment objective and any policies of the Fund specifically designated
in this prospectus as fundamental, cannot be changed without approval by
holders of a majority of its outstanding voting shares. As defined in the
Investment Company Act of 1940, this means the lesser of the vote of (a) 67%
of the shares of the Fund present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the outstanding shares of the Fund. Policies of the Fund that are neither
designated as fundamental nor incorporated into any of the fundamental
investment restrictions referred to above may be changed by the Board of
Trustees of the Fund without shareholder approval.
 
Options and Financial Futures Transactions. The Fund may deal in options on
securities, securities indexes and foreign currencies, which options may be
listed for trading on a national securities exchange or traded over-the-
counter. The Fund may write (sell) covered call options and secured put
options on up to 25% of its net assets and may purchase put and call options
provided that no more than 5% of its net assets may be invested in premiums on
such options.
 
6
<PAGE>
 
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise
price during the option period. A put option gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying security or other
asset at the exercise price during the option period. The writer of a covered
call owns securities or other assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible securities or other assets to the extent that it is obligated as a
writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying
security or other asset over the exercise price plus the premium received. In
writing puts, there is a risk that the Fund may be required to take delivery
of the underlying security or other asset at a disadvantageous price.
 
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which
event the Fund may experience material losses. However, in writing options the
premium is paid in advance by the dealer. OTC options are available for a
greater variety of securities and other assets, and a wider range of
expiration dates and exercise prices, than are exchange traded options.
 
The Fund may engage in financial futures transactions. Financial futures
contracts are commodity contracts that obligate the long or short holder to
take or make delivery of a specified quantity of a financial instrument, such
as a security, or an amount of a foreign currency, or the cash value of a
securities index during a specified future period at a specified price. The
Fund will "cover" futures contracts sold by the Fund and maintain in a
segregated account certain liquid assets in connection with futures contracts
purchased by the Fund as described under "Investment Policies and Techniques"
in the Statement of Additional Information. The Fund will not enter into a
futures contract or option on a futures contract if the aggregate market value
of the outstanding futures contracts of the Fund and futures contracts subject
to outstanding options written by the Fund would exceed 50% of total Fund
assets.
 
The Fund may engage in financial futures transactions and may use index
options in an attempt to hedge against the effects of fluctuations in interest
rates and other market conditions. For example, if the Fund owned long-term
bonds and interest rates were expected to rise, it could sell financial
futures contracts or the cash value of a securities index. If interest rates
did increase, the value of the bonds in the Fund would decline, but this
decline would be offset in whole or in part by an increase in the value of the
Fund's futures contracts or the cash value of the securities index. If, on the
other hand, long-term interest rates were expected to decline, the Fund could
hold short-term debt securities and benefit from the income earned by holding
such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus,
the Fund could take advantage of the anticipated rise in the value of long-
term bonds without actually buying them. The futures contracts and short-term
debt securities could then be liquidated and the cash proceeds used to buy
long-term bonds.
 
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet margin requirements, distortions in
the normal relationship between the assets and futures market could result.
Price distortions also could result if investors in futures contracts decide
to make or take delivery of underlying securities or other assets rather than
engage in closing transactions because of the resultant reduction in the
liquidity of the futures market. In addition, because, from the point of view
of speculators, margin requirements in the futures market are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of securities or
other assets and movements in the prices of futures contracts, a correct
forecast of market trends
 
                                                                              7
<PAGE>
 
by the investment manager still may not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
The costs incurred in connection with futures transactions could reduce the
Fund's return.
 
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
 
The Fund may engage in futures transactions only on commodities exchanges or
boards of trade. The Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities or other assets that the Fund owns or
intends to purchase.
 
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions in connection with its investments in foreign securities. The
Fund will not speculate in foreign currency exchange. The value of the foreign
securities investments of the Fund measured in U.S. Dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
 
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar
cost or proceeds, as the case may be. By entering into a forward contract in
U.S. Dollars for the purchase or sale of the amount of foreign currency
involved in an underlying security transaction, the Fund is able to protect
itself against a possible loss between trade and settlement dates resulting
from an adverse change in the relationship between the U.S. Dollar and such
foreign currency. However, this tends to limit potential gains which might
result from a positive change in such currency relationships. The Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
 
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against another currency, it may
enter into a forward contract to sell the foreign currency expected to decline
and purchase the currency that is expected to increase against the currency
sold in an amount approximating the value of some or all of the Fund's
portfolio securities denominated in the foreign currency sold. In this
situation the Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. Dollar amount where the
investment manager believes that the U.S. Dollar value of the currency to be
sold pursuant to the forward contract will fall whenever there is a decline in
the U.S. Dollar value of the currency in which portfolio securities of the
Fund are denominated ("cross-hedge"). The Fund's foreign currency transactions
may involve the purchase or sale of a foreign currency against the U.S. Dollar
or may involve two foreign currencies, including currencies in which no
portfolio securities are denominated. The forecasting of short-term currency
market movement is extremely difficult and whether such a short-term hedging
strategy will be successful is highly uncertain.
 
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign
currency in settlement of a forward contract. Conversely, it may be necessary
to sell on the spot market some of the foreign currency received upon the sale
of the portfolio security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
 
8
<PAGE>
 
The Fund will not speculate in foreign currency exchange. The Fund does not
enter into forward contracts or maintain a net exposure in such contracts
where the Fund would be obligated to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets (a)
denominated in that currency or (b), in the case of a "cross-hedge,"
denominated in a currency or currencies that the investment manager believes
will have price movements that tend to correlate closely with that currency.
There is no limitation as to the percentage of the Fund's assets that may be
committed to forward contracts for the purchase of a foreign currency. The
Fund segregates cash or liquid high-grade securities in an amount not less
than the value of the Fund's total assets committed to forward foreign
currency exchange contracts entered into for the purchase of a foreign
currency for U.S. Dollars. If the value of the securities segregated declines,
additional cash or securities are added so that the segregated amount is not
less than the amount of the Fund's commitments with respect to such contracts.
A Fund generally does not enter into a forward contract with a term longer
than one year.
 
Risk Considerations. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures and foreign currency transactions. See "Investment Policies and
Techniques" in the Statement of Additional Information. The principal risks
are: (a) possible imperfect correlation between movements in the prices of
options or futures contracts and movements in the prices of the securities or
currencies hedged or used for cover; (b) lack of assurance that a liquid
secondary market will exist for any particular option or futures contract at
any particular time; (c) the need for additional skills and techniques beyond
those required for normal portfolio management; (d) losses on futures
contracts resulting from market movements not anticipated by the investment
manager; and (e) the possible need to defer closing out certain options or
futures contracts in order to continue to qualify for beneficial tax treatment
afforded "regulated investment companies" under the Internal Revenue Code.
 
Delayed Delivery Transactions. The Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. The value of fixed income
securities to be delivered in the future will fluctuate as interest rates
vary. Because the Fund is required to set aside cash or liquid high grade
securities at least equal in value to its commitments to purchase when-issued
or delayed delivery securities, flexibility to manage the Fund's investments
may be limited if commitments to purchase when-issued or delayed delivery
securities were to exceed 25% of the value of its assets.
 
To the extent the Fund engages in when-issued or delayed purchases, it will do
so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed basis with the
intention of actually acquiring the securities, but the Fund reserves the
right to sell these securities before the settlement date if deemed advisable.
 
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities (principally to
broker-dealers) without limit where such loans are callable at any time and
are continuously secured by segregated collateral (cash or U.S. Government
securities) equal to no less than the market value, determined daily, of the
securities loaned. The Fund will receive amounts equal to dividends or
interest on the securities loaned. It also will earn income for having made
the loan. Any cash collateral pursuant to these loans will be invested in
short-term money market instruments. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. However, the loans would be
made only to firms deemed by the Fund's investment manager to be of good
standing, and when the Fund's investment manager believes the potential
earnings to justify the attendant risk. Management will limit such lending to
not more than one-third of the value of the Fund's total assets.
 
                                                                              9
<PAGE>
 
INVESTMENT MANAGER AND UNDERWRITER
 
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. KFS is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-five years.
 
KFS and its affiliates provide investment advice and manage investment
portfolios for the Kemper Funds, the Kemper insurance companies, Kemper
Corporation and other corporate, pension, profit-sharing and individual
accounts representing approximately $60 billion under management. KFS acts as
investment manager for 24 open-end and seven closed-end investment companies,
with 56 separate investment portfolios representing more than 3 million
shareholder accounts. KFS is a wholly-owned subsidiary of Kemper Financial
Companies, Inc., which is a financial services holding company that is more
than 95% owned by Kemper Corporation, a diversified insurance and financial
services holding company.
 
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by KFS.
The investment management agreement provides that KFS shall act as the Fund's
investment adviser, manage its investments and provide it with various
services and facilities. KFS will utilize the services of Kemper Investment
Management Company Limited, 1 Fleet Place, London EC4M 7RQ, a wholly owned
subsidiary of KFS, with respect to foreign securities investments of the Fund
including analysis, research, execution and trading services.
 
Gordon K. Johns is the portfolio manager of the Fund. He has served in this
capacity since the Fund commenced operations in 1995. Mr. Johns joined Kemper
Investment Management Company Limited ("KIM") in September 1988 and is
currently an Executive Vice President of KFS, a Director and Managing Director
of KIM and a Vice President of the Fund. He received a B.A. in law from
Balliol College in Oxford, United Kingdom. As reflected above, KIM is an
affiliate of KFS that provides services to KFS with respect to the Fund's
foreign investments.
 
KFS has a Fixed Income Investment Committee that determines overall investment
strategy for fixed income portfolios managed by KFS. The Fixed Income
Committee is currently comprised of the following members: J. Patrick
Beimford, Jr., Frank E. Collecchia, George Klein, Sandy A. Lincoln, Michael A.
McNamara, Christopher J. Mier, Frank J. Rachwalski, Jr., Harry E. Resis, Jr.,
Robert H. Schumacher, John E. Silvia, Kenneth T. Urbaszewski and Christopher
T. Vincent. The portfolio managers work together as a team with the Fixed
Income Committee and various fixed income analysts and traders to manage the
Fund's investments. Analysts provide market, economic and financial research
and analysis that is used by the Fixed Income Committee to establish broad
parameters for fixed income portfolios, including duration and cash levels. In
addition, credit research by analysts is used by portfolio managers in
selecting securities appropriate for the Fund's policies. The KFS
International Fixed Income Investments area, directed by Gordon K. Johns,
provides research and analysis regarding foreign investments to the portfolio
managers. After investment decisions are made, fixed income traders execute
the portfolio manager's instructions through various broker-dealer firms.
 
The Fund pays KFS an investment management fee, payable monthly, at the annual
rate of .75 of 1% of the first $250 million of its average daily net assets,
 .72 of 1% of average daily net assets between $250 million and $1 billion, .70
of 1% of average daily net assets between $1 billion and $2.5 billion, .68 of
1% of average daily net assets between $2.5 billion and $5 billion, .65 of 1%
of average daily net assets between $5 billion and $7.5 billion, .64 of 1% of
average daily net assets between $7.5 billion and $10 billion, .63 of 1% of
average daily net assets between $10 billion and $12.5 billion and .62 of 1%
of its average daily net assets over $12.5 billion. The expenses of the Fund,
and of other investment companies investing in foreign securities, can be
expected to be higher than for investment companies investing primarily in
domestic securities since the costs of operation are higher, including custody
and transaction costs for foreign securities and investment management fees.
 
PRINCIPAL UNDERWRITER. Pursuant to an underwriting agreement ("underwriting
agreement") with the Fund, Kemper Distributors, Inc. ("KDI"), an affiliate of
KFS, is the principal underwriter of the Fund's shares and acts as
 
10
<PAGE>
 
agent of the Fund in the sale of its shares. KDI bears all its expenses of
providing services pursuant to the underwriting agreement. KDI provides for
the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than shareholders. KDI
bears the cost of qualifying and maintaining the qualification of Fund shares
for sale under the securities laws of the various states and the Fund bears
the expense of registering its shares with the Securities and Exchange
Commission. KDI may enter into related agreements with various financial
services firms, including affiliates of KDI, that provide distribution
services to investors. KDI also may provide some of the distribution services.
KDI receives no compensation from the Fund as principal underwriter for the
Fund and pays all expenses of distribution of the Fund's shares under the
underwriting agreement not otherwise paid by dealers or other financial
services firms.
 
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. The Chase Manhattan Bank, N.A., Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of the Fund held outside the United States. Investors
Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri
64105, as custodian, and the United Missouri Bank, n.a., Tenth and Grand
Streets, Kansas City, Missouri 64105 and State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110, as sub-custodians, have
custody of all securities and cash of the Fund maintained in the United
States. They attend to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Fund. IFTC
also is the Fund's transfer agent and dividend-paying agent. IFTC is owned
equally by KFS and DST Systems, Inc. ("DST"), a company that is not affiliated
with KFS. On September 27, 1994, KFS and DST entered into an agreement with
State Street Boston Corporation for it to acquire IFTC. Pursuant to a services
agreement with IFTC, Kemper Service Company, an affiliate of KFS, serves as
"Shareholder Service Agent" of each Fund and, as such, performs all of IFTC's
duties as transfer agent and dividend-paying agent. For a description of
custodian, transfer agent and shareholder service agent fees payable to IFTC
and the Shareholder Service Agent, see "Investment Manager and Underwriter" in
the Statement of Additional Information.
 
PORTFOLIO TRANSACTIONS. KFS places all orders for purchases and sales of the
Fund's securities. Subject to seeking best execution of orders, KFS may
consider sales of shares of the Fund and other funds managed by KFS as a
factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.
 
DIVIDENDS AND TAXES
 
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains.
 
Income dividends and capital gain dividends, if any, of the Fund will be
credited to shareholder accounts in full and fractional shares of the Fund at
net asset value except that, upon written request to the Shareholder Service
Agent, a shareholder may select one of the following options:
 
(1) To receive income and short-term capital gain dividends in cash and long-
    term capital gain dividends in shares at net asset value; or
 
(2) To receive income and capital gain dividends in cash.
 
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code") and, if so qualified, will
not be liable for federal income taxes to the extent its earnings are
distributed. Dividends derived from net investment income and net short-term
capital gains are taxable to shareholders as ordinary income and long-term
capital gain dividends are taxable to shareholders as long-term capital gain
regardless of how long the shares have been held and whether received in cash
or shares. Long-term capital gain dividends received by individual
shareholders are taxed at a maximum federal rate of 28%. Dividends declared in
October, November or December to shareholders of record as of a date in one of
those months and paid during the following January are treated as paid on
December 31 of the calendar year declared. It is anticipated that only a small
portion, if any, of the ordinary income dividends paid by the Fund will
qualify for the dividends received deduction available to corporate
shareholders.
 
                                                                             11
<PAGE>
 
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value
of shares were reduced below the shareholder's cost by dividends representing
gains realized on sales of securities, such dividends would be a return of
investment though taxable as stated above.
 
The Fund may qualify for and may make the election permitted under Section 853
of the Code. If this election is made, shareholders will be able to claim a
credit or deduction on their income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
the income taxes paid by the Fund to foreign countries (which taxes relate
primarily to investment income). The shareholders of the Fund may claim a
credit by reason of the Fund's election, subject to certain limitations
imposed by Section 904 of the Code. Also, under the Code, no deduction for
foreign taxes may be claimed by individual shareholders who do not elect to
itemize deductions on their federal income tax returns; although such a
shareholder may claim a credit for foreign taxes and in any event will be
treated as having taxable income in the amount of the shareholder's pro rata
share of foreign taxes paid by the Fund.
 
Gains and losses attributable to fluctuations in the value of foreign
currencies will be characterized generally as ordinary gain or loss under
Section 988 of the Code. For example, if the Fund sold a foreign bond and part
of the gain or loss on the sale were attributable to an increase or decrease
in the value of a foreign currency, then the currency gain or loss would be
treated as ordinary income or loss. If such transactions result in greater net
ordinary income, the dividends paid by the Fund will be increased; if the
result of such transactions is lower net ordinary income, a portion of
dividends paid could be classified as a return of capital.
 
The Fund is required by law to withhold 31% of taxable dividends and
redemption proceeds paid to certain shareholders who do not furnish a correct
taxpayer identification number (in the case of individuals, a social security
number) and in certain other circumstances. Trustees of qualified retirement
plans and 403(b)(7) accounts are required by law to withhold 20% of the
taxable portion of any distribution that is eligible to be "rolled over." The
20% withholding requirement does not apply to distributions from Individual
Retirement Accounts ("IRAs") or any part of a distribution that is transferred
directly to another qualified retirement plan, 403(b)(7) account, or IRA.
Shareholders should consult with their tax advisers regarding the 20%
withholding requirement.
 
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that confirmations will be
sent quarterly for dividend reinvestment and periodic investment and
redemption programs. In addition, the statement will show the details of prior
transactions in the account during the calendar year. Information for income
tax purposes will be provided after the end of the calendar year. Shareholders
are encouraged to retain copies of their account confirmation statements or
year-end statements for tax reporting purposes. However, those who have
incomplete records may obtain historical account transaction information at a
reasonable fee.
 
NET ASSET VALUE
 
The net asset value per share of the Fund is determined by dividing the value
of the Fund's net assets by the number of shares outstanding. Portfolio
securities that are primarily traded on a domestic securities exchange are
valued at the last sale price on the exchange or, if there is no recent last
sale price available, at the last current bid quotation. Portfolio securities
that are primarily traded on foreign securities exchanges are generally valued
at the preceding closing values of such securities on their respective
exchanges where primarily traded. A security that is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security by the Board of Trustees or its
delegates. Securities not so traded or listed are valued at the last current
bid quotation if market quotations are available. Fixed income securities are
valued by using market quotations, or independent pricing services that use
prices provided by market makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Exchange traded fixed income options are valued at the last sale price unless
there is no sale price, in which event current prices provided by market
makers are used. Over-the-counter traded fixed income options are valued based
 
12
<PAGE>
 
upon current prices provided by market makers. Financial futures and options
thereon are valued at the settlement price established each day by the board
of trade or exchange on which they are traded. Other securities and assets are
valued at fair value as determined in good faith by the Board of Trustees.
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
necessarily take place contemporaneously with the determination of the prices
of the majority of the portfolio securities. For purposes of determining the
Fund's net asset value, all assets and liabilities initially expressed in
foreign currency values will be converted into U.S. Dollar values at the mean
between the bid and offered quotations of such currencies against U.S. Dollars
as last quoted by any recognized dealer. If an event were to occur after the
value of a security was so established but before the net asset value per
share was determined, which was likely to materially change the net asset
value, then that security would be valued using fair value considerations by
the Board of Trustees or its delegates. On each day the New York Stock
Exchange (the "Exchange") is open for trading, the net asset value is
determined as of the earlier of 3:00 p.m. Chicago time or the close of the
Exchange.
 
PURCHASE OF SHARES
 
Shares of the Fund are available for purchase from KDI or from selected
financial services firms having agreements with KDI. Such firms receive no
selling concessions, distribution fees or transaction fees from KDI pursuant
to such agreements. The public offering price of shares is the next determined
net asset value per share. No initial or contingent deferred sales charge is
applicable. The Fund's shares are not subject to any Rule 12b-1 distribution
fees or administrative services fees. Shares of the Fund are offered primarily
for investment by pension and profit sharing plans and other employee benefit
plans, endowments, foundations, corporations, banks, insurance companies and
other institutions and high net worth individuals.
 
The minimum initial investment for the Fund is $1 million which amount may be
changed at any time in management's discretion. Subsequent investments may be
made in any amount.
 
Share certificates will not be issued unless requested in writing. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer if
share certificates have been issued. A lost or destroyed certificate is
difficult to replace and can be expensive to the shareholder (a bond worth 2%
or more of the certificate value is normally required).
 
GENERAL. Orders for the purchase of shares of the Fund will be confirmed at a
price equal to the net asset value of the Fund next determined after receipt
by KDI of the order accompanied by payment. However, orders received by
dealers or other firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will
be confirmed at a price based on the net asset value effective on that day.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.
Dealers and other financial services firms are obligated to transmit orders
promptly. Collection may take significantly longer for a check drawn on a
foreign bank than for a check drawn on a domestic bank. Therefore, if an order
is accompanied by a check drawn on a foreign bank, funds must normally be
collected before shares will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
 
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem Fund shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge fees to their clients for such services,
which charges would reduce the clients' return. Firms also may hold Fund
shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no
information with respect to or control over accounts of specific shareholders.
Such shareholders may obtain access to their accounts and information about
their accounts only from their firm. Certain of these firms may receive
compensation from the Fund's Shareholder Service Agent for recordkeeping and
other expenses relating to these nominee accounts; however, no such fees have
yet been approved. In addition, certain privileges with respect to the
purchase and redemption of shares or the reinvestment of dividends may not be
available through such firms. Some firms may participate in a program allowing
them access to their clients'
 
                                                                             13
<PAGE>
 
accounts for servicing including, without limitation, transfers of
registration and dividend payee changes; and may perform functions such as
generation of confirmation statements and disbursement of cash dividends. Such
firms, including affiliates of KFS, may receive compensation from the Fund
through the Shareholder Service Agent for these services; however, no such
fees have yet been approved. This prospectus should be read in connection with
such firms' material regarding their fees and services.
 
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders. Also, from time to time, the
Fund may temporarily suspend the offering of its shares to new investors.
During the period of such suspension, persons who are already shareholders of
such Fund normally are permitted to continue to purchase additional shares and
to have dividends reinvested.
 
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they
received this prospectus.
 
REDEMPTION OR REPURCHASE OF SHARES
 
GENERAL. Any shareholder may require the Fund to redeem his or her shares.
When shares are held for the account of a shareholder by the Fund's transfer
agent, the shareholder may redeem them by sending a written request with
signatures guaranteed to Kemper Mutual Funds, Attention: Redemption
Department, P.O. Box 419557, Kansas City, Missouri 64141-6557. When
certificates for shares have been issued, they must be mailed to or deposited
with the Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a
stock power must be endorsed by the account holder with signatures guaranteed
by a commercial bank, trust company, savings and loan association, federal
savings bank, member firm of a national securities exchange or other eligible
financial institution. The redemption request and stock power must be signed
exactly as the account is registered including any special capacity of the
registered owner. Additional documentation may be requested from institutional
and fiduciary account holders, such as corporations, custodians (e.g., under
the Uniform Transfers to Minors Act), executors, administrators, trustees or
guardians including, for corporate accounts, a current certificate of
incumbency and a certified board resolution and, for fiduciary accounts, an
appropriate verification of fiduciary capacity.
 
The redemption price for shares of the Fund will be the net asset value per
share of the Fund next determined following receipt by the Shareholder Service
Agent of a properly executed request with any required documents as described
above. Payment for shares redeemed will be made in cash as promptly as
practicable but in no event later than seven days after receipt of a properly
executed request accompanied by any outstanding share certificates in proper
form for transfer. When the Fund is asked to redeem shares for which it may
not have yet received good payment, it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for
the purchase of such shares, which will be up to 15 days from receipt by the
Fund of the purchase amount.
 
As an aid to maintaining low operating costs, the Fund reserves the right to
redeem an account that falls below the applicable minimum investment level,
currently $1 million, as a result of redemptions. A shareholder will be
notified in writing and will be allowed 60 days to make additional purchases
to bring the account value up to the minimum investment level before the Fund
redeems the shareholder account.
 
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions for individual and institutional accounts and pre-
authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application
or by contacting the Shareholder Service Agent for appropriate instructions.
Neither the Fund nor its agents will be liable for any loss, expense or cost
arising out of any telephone request pursuant to these privileges, including
any fraudulent or unauthorized request, and THE SHAREHOLDER WILL BEAR THE RISK
OF LOSS, so long as the Fund or its agent reasonably believes, based upon
reasonable verification procedures, that the telephonic instructions are
genuine. The verification procedures include recording instructions, requiring
certain identifying information before acting upon instructions and sending
written confirmations.
 
14
<PAGE>
 
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $25,000 or less
and the proceeds are payable to the shareholder of record at the address of
record, normally a telephone request or a written request by any one account
holder without signature guarantee is sufficient for redemptions by individual
or joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders may exercise this special privilege of redeeming
shares by telephone request or written request without signature guarantee
subject to the same conditions as individual account holders and subject to
the limitations on liability described under "General" above, provided that
this privilege has been pre-authorized by the institutional account holder by
written instruction to the Shareholder Service Agent with signatures
guaranteed. Telephone requests may be made by calling 1-800-621-1048. Shares
purchased by check may not be redeemed under this privilege of redeeming
shares by telephone request until such shares have been owned for at least 15
days. This privilege of expedited redemption of shares by telephone request or
by written request without a signature guarantee may not be used to redeem
shares held in certificated form and may not be used if the shareholder's
account has had an address change within 60 days of the redemption request.
During periods when it is difficult to contact the Shareholder Service Agent
by telephone, it may be difficult to use the telephone redemption privilege,
although investors can still redeem by mail. The Fund reserves the right to
terminate or modify this privilege at any time.
 
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other
firms may charge customary commissions for their services. Dealers and other
financial services firms are obligated to transmit orders promptly. The
repurchase price will be the net asset value next determined after receipt of
a request by KDI. However, requests for repurchases received by dealers or
other firms prior to the determination of net asset value (see "Net Asset
Value") and received by KDI prior to the close of KDI's business day will be
confirmed at the net asset value effective on that day. The offer to
repurchase may be suspended at any time. Requirements as to stock powers,
certificates, payments and delay of payments are the same as for redemptions.
 
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage
or bank account, shares of the Fund can be redeemed and proceeds sent by
federal wire transfer to a single previously designated account. Requests
received by the Shareholder Service Agent prior to the determination of net
asset value will result in shares being redeemed that day at the net asset
value effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption request of $250,000 or more may be delayed by the Fund for up
to seven days if KFS deems it appropriate under then current market
conditions. Once authorization is on file, the Shareholder Service Agent will
honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability described under "General" above. The Fund is not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Fund currently does not charge
the account holder for wire transfers. The account holder is responsible for
any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum. To change the designated account to receive wire
redemption proceeds, send a written request to the Shareholder Service Agent
with signatures guaranteed as described above or contact the firm through
which shares of the Fund were purchased. Shares purchased by check may not be
redeemed by wire transfer until such shares have been owned for at least 15
days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the
expedited redemption privilege. The Fund reserves the right to terminate or
modify this privilege at any time.
 
TAX-SHELTERED RETIREMENT PLANS
 
KFS provides retirement plan services and documents and can establish investor
accounts in any of the following types of retirement plans:
 
                                                                             15
<PAGE>
 
 . Individual Retirement Accounts ("IRAs") trusteed by IFTC. This includes
  Simplified Employee Pension Plan ("SEP") IRA accounts and prototype
  documents.
 
 . 403(b)(7) Custodial Accounts also trusteed by IFTC. This type of plan is
  available to employees of most non-profit organizations.
 
 . Prototype money purchase pension and profit-sharing plans may be adopted by
  employers. The maximum annual contribution per participant is the lesser of
  25% of compensation or $30,000.
 
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from KFS upon request. The brochures for plans trusteed by
IFTC describe the current fees payable to IFTC for its services as trustee.
Investors should consult with their own tax advisers before establishing a
retirement plan.
 
PERFORMANCE
 
The Fund may advertise several types of performance information, including
"average annual total return," "total return" and "yield." Each of these
figures is based upon historical results and is not representative of the
future performance of the Fund.
 
The Fund's yield is a measure of the net investment income per share earned
over a specific one month or 30-day period expressed as a percentage of the
net asset value of the Fund's shares. Yield is an annualized figure, which
means that it is assumed that the Fund generates the same level of net
investment income over a one year period. Net investment income is assumed to
be compounded semiannually when it is annualized.
 
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio for the period in question, assuming the reinvestment of all
dividends. Thus, these figures reflect the change in the value of an
investment in the Fund during a specified period. Average annual total return
will be quoted for at least the one, five and ten year periods ending on a
recent calendar quarter (or if such periods have not yet elapsed, at the end
of a shorter period corresponding to the life of the Fund). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
 
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes such as the Salomon Brothers High Grade
Corporate Bond Index, the Lehman Brothers Government/Corporate Bond Index, the
Salomon Brothers Non-U.S. Dollar World Government Bond Index and the J.P.
Morgan Government Bond Index (Non-U.S.) and may also be compared to the
performance of other mutual funds or mutual fund indexes as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested. Also, investors may want to compare
the historical returns of various global securities markets. Such returns
would not be representative of the future performance of such markets or of
the performance of the Fund.
 
The Fund may quote information from publications such as Morningstar, Inc.,
The Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The
Chicago Tribune, USA Today, Institutional Investor and Registered
Representative. Also, investors may want to compare the historical returns of
various investments, performance indexes of those investments or economic
indicators, including but not limited to stocks, bonds, certificates of
deposit, money market funds and U.S. Treasury obligations. Bank product
performance may be based upon, among other things, the BANK RATE MONITOR
National IndexTM or various certificate of deposit indexes. Money market fund
performance may be based upon, among other things, the IBC/Donoghue's Money
Fund AveragesTM (All Taxable). Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
 
16
<PAGE>
 
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
 
The Fund may include in its sales literature and shareholder reports a
quotation of the current "distribution rate" of the Fund. Distribution rate is
simply a measure of the level of dividends distributed for a specified period.
It differs from yield, which is a measure of the income actually earned by the
Fund's investments, and from total return, which is a measure of the income
actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of such investments during the period.
Distribution rate is, therefore, not intended to be a complete measure of
performance. Distribution rate may sometimes be greater than yield since, for
instance, it may include gains from the sale of options or other short-term
and possibly long-term gains (which may be non-recurring) and may not include
the effect of amortization of bond premiums. As reflected under "Investment
Objectives and Policies--Additional Investment Information," option writing
can limit the potential for capital appreciation.
 
The Fund's returns and net asset value will fluctuate and shares of the Fund
are redeemable by an investor at the then current net asset value, which may
be more or less than original cost. Additional information concerning the
Fund's performance appears in the Statement of Additional Information.
Additional information about the Fund's performance will also appear in the
Fund's Annual Report to Shareholders which may be obtained without charge from
the Fund when it is available.
 
CAPITAL STRUCTURE
 
The Fund is open-end management investment company, organized as a separate
business trust under the laws of Massachusetts. The Fund was organized as a
business trust under the laws of Massachusetts on March 2, 1990. The Fund may
issue an unlimited number of shares of beneficial interest in one or more
series, all having no par value. Currently, the Fund offers shares of a single
series. The Board of Trustees may authorize the issuance of additional series
if deemed desirable, each with its own investment objective, policies and
restrictions. Since the Fund may offer multiple series, it is known as a
"series company." Shares of a series have equal noncumulative
voting rights and equal rights with respect to dividends, assets and
liquidation of such series and are subject to any preferences, rights or
privileges of any classes of shares of a series. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Fund is not required to hold annual
shareholder meetings and does not intend to do so. However, it will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. Subject to the Agreement and Declaration of Trust of the Fund,
shareholders may remove trustees. If shares of more than one series are
outstanding, shareholders will vote by series and not in the aggregate except
when voting in the aggregate is required under the Investment Company Act of
1940, such as for the election of trustees. Any series of the Fund may be
divided by the Board of Trustees into classes of shares, subject to receipt of
an appropriate order from the Securities and Exchange Commission. The Fund's
shares currently are not divided into classes. Shares of a series would be
subject to any preferences, rights or privileges of any classes of shares of
the series. Generally each class of shares issued by a particular series of
the Fund would differ as to the allocation of certain expenses of the series
such as distribution and administrative expenses permitting, among other
things, different levels of service or methods of distribution among various
classes.
 
                                                                             17
<PAGE>
 
                    INSTITUTIONAL ACCOUNT APPLICATION GUIDE
                        KEMPER INTERNATIONAL BOND FUND
INSTRUCTIONS
Please make sure you are using the correct application. Use the Institutional
Account Application for Corporate, Trust or other Fiduciary accounts. Use the
Individual Account Application for Individual, Joint Owners and Transfer to
Minor accounts.
THIS APPLICATION CANNOT BE USED TO ESTABLISH A RETIREMENT ACCOUNT WITH
INVESTORS FIDUCIARY TRUST COMPANY AS TRUSTEE. This application also cannot be
used for any modification of an existing account. To obtain an application for
Retirement Accounts, or forms to modify your account, call 1-800-621-1048.
 .Please print information exactly as you wish it to appear on the account.
 .Please check the box that is applicable to the type of account you are
opening.
 .PLEASE BE SURE TO COMPLETE BOTH SECTIONS I AND II.
 .PLEASE BE SURE TO SIGN THIS APPLICATION.
 .Signature(s) of authorized person(s) are required.
 
                        READ THIS IMPORTANT INFORMATION
FUND FEATURES
Wire Redemptions. If you elect this option:
          . You are authorizing the Fund or its agents to honor telephone or
            other instructions from ANY PERSON for the redemption of Fund
            shares. Proceeds will be wire transferred to the bank account
            referenced on the application.
          . Shares held in certificated form may not be redeemed under this
            privilege.
          . The amount redeemed must be at least $1,000.
Telephone Redemptions. If you elect this option:
          . You are authorizing the Fund or its agents to honor telephone or
            other instructions from ANY PERSON for the redemption of Fund
            shares. Redemptions may not exceed $25,000 and proceeds are to be
            payable to the shareholder of record and mailed to the address of
            record.
          . Shares held in certificated form may not be redeemed under this
            privilege.
 
CERTIFICATION
The account holders certify that they have the power and authority to
establish this account and select the privileges requested. Account holders
can request the following telephone privileges on this application: expedited
wire transfer redemptions and pre-authorized telephone redemption
transactions. Neither the Fund nor its agents will be liable for any loss,
expense or cost arising out of any telephone request pursuant to these
privileges, including any fraudulent or unauthorized request, and THE ACCOUNT
HOLDER WILL BEAR THE RISK OF LOSS, so long as the Fund or its agent reasonably
believes, based upon reasonable verification procedures, that the telephonic
instructions are genuine. The verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations. The account holders certify
that the current prospectus for the Fund has been received and read and that
the authorizations hereon shall continue until the Fund receives written
notice of a modification signed by all appropriate parties or a termination
signed by any party. This account is subject to the terms of the Fund's
prospectus, as amended from time to time, and the terms herein set forth, and
is subject to acceptance by the Fund and to the laws of Illinois. All terms
shall be binding upon the heirs, representatives, successors and assigns of
the account holders.
All persons signing as representatives warrant as individuals that each person
signing is an authorized representative of the account holder, that the
account and privileges selected have been duly authorized, that all signatures
hereon are genuine and that the persons indicated hereon are authorized to
sign.
The account holders authorize the Fund to provide the trustees or custodian of
their tax-deferred retirement plan any information necessary to administer
such a plan.
 
QUESTIONS
Shareholders may call 1-800-621-1048 to speak with a Kemper Shareholder
Services Representative.
Financial Representatives may call 1-800-621-5027 to speak with a Kemper Sales
Support Representative.
<PAGE>
 
                                                                            LOGO
INSTITUTIONAL ACCOUNT APPLICATION--SECTION I OF II
KEMPER INTERNATIONAL BOND FUND
 
MAIL TO: KEMPER MUTUAL FUNDS, ATTENTION: NEW APPLICATIONS, P.O. BOX 419356,
KANSAS CITY, MO 64141-6356
- --------------------------------------------------------------------------------
 
1. YOUR ACCOUNT REGISTRATION.
NAME OF TRUSTEE(S)/AUTHORIZED SIGNER(S)
 
          FIRST NAME _________________________________________ M.I.  LAST NAME
 
          FIRST NAME _________________________________________ M.I.  LAST NAME
 
NAME OF
ORGANIZATION
          ---------------------------------------------------------------------
          ---------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
2. IS THIS A RETIREMENT PLAN*? [_] Yes [_] No. If Yes, designate type below. If
No, complete Item 3.
            [_] Self Directed IRA            [_] Defined Benefit
 
            [_] Profit Sharing Plan          [_] Target Benefit
 
            [_] Money Purchase Pension Plan  [_] 401(k) Salary Deferral
 
                                             [_] Other ________________________
 
*If each participant is to have a separate account for the contributions, call
1-800-621-1048 for special forms.
- --------------------------------------------------------------------------------
 
3. TYPE OF ORGANIZATION (COMPLETE IF ANSWER TO ITEM 2 ABOVE IS NO.).
            [_] Corporation      [_] Sole Proprietorship[_] Other _____________
 
            [_] Partnership      [_] Trust
                                      Trust Date (required)
- --------------------------------------------------------------------------------
 
4. MAILING ADDRESS.
            Street Address ____________________________________________________
 
            City __________________________  State _______________________ Zip
 
            Tax ID No. ____________________
- --------------------------------------------------------------------------------
 
                                          Please Do Not Write In This Space
5. AMOUNT INVESTED AND FUND SELECTION.
 
Make checks payable to Kemper International Bond Fund.
                                       ----------------------------------------
The minimum initial investment is $1 million.
 
- --------------------------------------------------------------------------------
                      AMOUNT
 
Kemper                $
International Bond    ----
Fund
6. YOUR BROKER/DEALER.                       Representative's Phone Number ____
 
Dealer Number _______________ Branch Number  Representative's Number __________
 
Firm Name __________________________________ Representative's Last Name _______
 
Branch Address _________________________________________________________________
<PAGE>
 
INSTITUTIONAL ACCOUNT APPLICATION--SECTION II OF II
- -------------------------------------------------------------------------------
7. DIVIDENDS.
Choose how you wish to receive dividends. IF NO BOXES ARE CHECKED, OPTION A
WILL BE ASSIGNED.
A.[_] All income and capital gains dividends REINVESTED in the account.
B.[_] All income and short-term capital gains dividends IN CASH and long-term
   capital gains REINVESTED in the account. (COMPLETE CASH DIVIDENDS SECTION
   BELOW.)
C.[_] All income and capital gains dividends paid IN CASH. (COMPLETE CASH
DIVIDENDS SECTION BELOW.)
PLEASE SEND CASH DIVIDENDS TO (if no special payee, cash dividends will be
sent to the account registration address):
 
[_] Account registration address.[_] Special Payee as follows:
 
Name of Payee ____________________________________ Account No. (if applicable)
 
Street Address ________________________________________________________________
 
City _______________________________________________ State  Zip
- -------------------------------------------------------------------------------
 
8. WIRE REDEMPTIONS (OPTIONAL).
                 PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from ANY PERSON for the redemption of Fund shares. Proceeds are to be wire
transferred to the bank account referenced below. ($1,000 minimum per
redemption.)
 
Name of Depositor _____________________________________________________________
(as shown on bank records)
 
Name of Bank ________________________________________________ Bank Account No.
(a savings and loan or credit union may not be able to receive wire
   redemptions)
 
Address of Bank _______________________________________________________________
 
City ______________________________________________                 State  Zip
- -------------------------------------------------------------------------------
 
9. TELEPHONE REDEMPTIONS (OPTIONAL).  [_] Yes [_] No
                                     PLEASE CROSS OUT THIS SECTION IF THIS
                                     PRIVILEGE IS NOT WANTED.
The Fund or its agents are authorized to honor telephone or other instructions
from ANY PERSON for the redemption of Fund shares. The amount of the
redemption shall not exceed $25,000 and the proceeds are to be payable to the
shareholder of record and mailed to the address of record.
- -------------------------------------------------------------------------------
 
10. CERTIFICATION AND SIGNATURE (SUBJECT TO CERTIFICATION SHOWN ON APPLICATION
GUIDE).
 
Under penalties of perjury, the account owner hereby certifies (1) that the
Tax I.D. Number above is correct and (2) that the account owner is not subject
to backup withholding because (a) the account owner has not been notified of
being subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the I.R.S. has provided notification that the
account owner is no longer subject to backup withholding. (Cross out (2) if it
is not correct.)
 
X ____________________________________   X ____________________________________
Authorized Signature           Title     Authorized Signature           Title
______________________________________   X ____________________________________
Date                Daytime Phone #      Authorized Signature           Title
 
SIGNATURE GUARANTEE: REQUIRED ONLY IF ITEM 8 (WIRE REDEMPTIONS) OR ITEM 9
(TELEPHONE REDEMPTIONS) IS SELECTED. A signature guarantee must be supplied by
a commercial bank, trust company, savings and loan association, federal
savings bank, member of a national securities exchange or other eligible
financial institution.
                        AFFIX SIGNATURE GUARANTEE STAMP
 
_______________________________________________________________________________
       Signature Guaranteed by                    Authorized Signature
<PAGE>
 
                     INDIVIDUAL ACCOUNT APPLICATION GUIDE
                        KEMPER INTERNATIONAL BOND FUND
INSTRUCTIONS
 
Please make sure you are using the correct application. Use the Individual
Account Application for Individual, Joint Owners and Transfer to Minor
accounts. Use the Institutional Account Application for Corporate, Trust or
other Fiduciary accounts. This application cannot be used for any modification
of an existing account. This application also cannot be used to establish an
Individual Retirement Account (IRA) with Investors Fiduciary Trust Company as
trustee. To obtain an IRA application, or forms to modify your account, call
1-800-621-1048.
 
 . Please print information exactly as you wish it to appear on the account.
 
 . Please check the box that is applicable to the type of account you are
  opening.
 
 . Please insure that the social security number for a joint account is for the
  first named registrant and for a transfer to minor account is for the minor.
 
 . PLEASE BE SURE TO COMPLETE BOTH SECTIONS I AND II.
 
 . PLEASE BE SURE TO SIGN THIS APPLICATION. If the account is registered in the
  name of:
          . an individual, the individual must sign.
          . joint owners, all must sign.
          . a custodian for a minor, the custodian must sign.
 
                        READ THIS IMPORTANT INFORMATION
FUND FEATURES
 
Wire Redemptions. If you elect this option:
          . You are authorizing the Fund or its agents to honor telephone or
            other instructions from ANY PERSON for the redemption of Fund
            shares. Proceeds will be wire transferred to the bank account
            referenced on the application.
          . Shares held in certificated form may not be redeemed under this
            privilege.
          . The amount redeemed must be at least $1,000.
 
CERTIFICATION
 
The account holders certify that they have the power and authority to
establish this account and select the privileges requested. Account holders
can request the following telephone privilege on this application: expedited
wire transfer redemption. Neither the Fund nor its agents will be liable for
any loss, expense or cost arising out of any telephone request pursuant to
this privilege, including any fraudulent or unauthorized request, and THE
ACCOUNT HOLDER WILL BEAR THE RISK OF LOSS, so long as the Fund or its agent
reasonably believes, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The verification procedures include
recording instructions, requiring certain identifying information before
acting upon instructions, and sending written confirmations. The account
holders certify that the current prospectus for the Fund has been received and
read and that the authorizations hereon shall continue until the Fund receives
written notice of a modification signed by all appropriate parties or a
termination signed by any party. This account is subject to the terms of the
Fund's prospectus, as amended from time to time, and the terms herein set
forth, and is subject to acceptance by the Fund and to the laws of Illinois.
All terms shall be binding upon the heirs, representatives and assigns of the
account holders.
 
QUESTIONS
 
Shareholders may call 1-800-621-1048 to speak with a Kemper Shareholder
Services Representative.
 
Financial Representatives may call 1-800-621-5027 to speak with a Kemper Sales
Support Representative.
<PAGE>
 
INDIVIDUAL ACCOUNT APPLICATION--SECTION I OF I                              LOGO
KEMPER INTERNATIONAL BOND FUND
MAIL TO: KEMPER MUTUAL FUNDS, ATTENTION: NEW APPLICATIONS, P.O. BOX 419356,
KANSAS CITY, MO 64141-6356
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION.
[_] INDIVIDUAL
           FIRST NAME______________ M.I.______________ LAST NAME______________
 
 OR        FIRST NAME______________ M.I.______________ LAST NAME______________
 
[_] JOINT TENANT*
           FIRST NAME______________ M.I.______________ LAST NAME______________
*Joint accounts will be registered as joint tenants with rights of survivorship
unless otherwise indicated.
- --------------------------------------------------------------------------------
[_] TRANSFER TO A
           Custodian's Name_________________ Minor's Name______________________
 MINOR     (only one permitted)              (only one permitted)
- --------------------------------------------------------------------------------
2. YOUR MAILING ADDRESS.
 
Street Address_______________________________Apt. #____________________________
 
City_________________ State__________________Zip_______________________________
 
I am a citizen of [_] U.S.  [_] Other        Social Security No. ______________
(Please specify)_____________________________(for first registrant or minor)
- --------------------------------------------------------------------------------
3. AMOUNT INVESTED AND FUND.
Make checks payable to Kemper              Please Do Not Write In This Space
Mutual Funds. The minimum initial
investment is $1 million.
 
- --------------------------------------------------------------------------------
 
4. DIVIDENDS.
                    AMOUNT
Choose how you wish to receive dividends. IF NO BOXES ARE CHECKED, OPTION A
WILL BE ASSIGNED.
Kemper International Bond Fund
                    $
                    ----
A.[_] All income and capital gains dividends REINVESTED in my account.
B.[_] All income and short-term capital gains dividends IN CASH and long-term
   capital gains REINVESTED in my account. (COMPLETE CASH DIVIDENDS SECTION
   BELOW.)
C.[_] All income and capital gains dividends paid to me IN CASH. (COMPLETE CASH
DIVIDENDS SECTION BELOW.)
                                                        Account Number_________
PLEASE SEND CASH DIVIDENDS TO (if no special payee, cash dividends will be sent
to the account registration address):
[_] Account registration address.  [_] Special Payee as follows:
 
Name of Payee_______________________________  Account No. (if applicable)______
 
Street Address__________________________________________________________________
 
City__________________________________________State_____ Zip_______________
- --------------------------------------------------------------------------------
5. YOUR BROKER/DEALER.
 
                                            Representative's Phone Number______
 
Dealer Number________ Branch Number________
 
                                            Representative's Number____________
 
Firm Name__________________________________
 
                                            Representative's Last Name_________
Branch Address__________________________________________________________________
- --------------------------------------------------------------------------------
6. WIRE REDEMPTIONS (OPTIONAL).
                  PLEASE CROSS OUT THIS SECTION IF THIS PRIVILEGE IS NOT WANTED.
I authorize the Fund or its agents to honor telephone or other instructions
from ANY PERSON for the redemption of Fund shares. Proceeds are to be wire
transferred to the bank account referenced below. ($1,000 minimum per
redemption.)
Name of Depositor ___________________________
(as shown on bank records)
Name of Bank ________________________________ Bank Account No. ________________
(a savings and loan or credit union may not be able to receive wire
redemptions)
Address of Bank ________________________________________________________________
City ________________________________________ State  Zip ______________________
- --------------------------------------------------------------------------------
7. CERTIFICATION AND SIGNATURE (SUBJECT TO CERTIFICATION SHOWN ON APPLICATION
GUIDE).
Under penalties of perjury, the undersigned hereby certify (1) that the Social
Security Number above is correct and (2) that the account owner is not subject
to backup withholding because (a) the account owner has not been notified of
being subject to backup withholding as a result of a failure to report all
interest or dividends, or (b) the I.R.S. has provided notification that the
account owner is no longer subject to backup withholding. (Cross out (2) if it
is not correct.)
X __________________________________  X __________________________________
Signature                             Co-Owner (if applicable)
_________________  _________________  X __________________________________
Date               Daytime Phone #    Co-Owner (if applicable)
<PAGE>
 
 
 
 
INVESTMENT MANAGER
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
1-800-621-1048
 
KIBF-I 2/95LOGO
              printed on recycled paper
 KEMPER
 INTERNATIONAL
 BOND
 FUND
 
PROSPECTUS
AND APPLICATION
 
February 1, 1995
LOGO
- -------------------------------------------------------------------------------
KEMPER
<PAGE>
 
                         KEMPER INTERNATIONAL BOND FUND
 
                             CROSS-REFERENCE SHEET
                       BETWEEN ITEMS ENUMERATED IN PART B
              OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
 
<TABLE>   
<CAPTION>
                                   LOCATION IN
     ITEM NUMBER                   STATEMENT OF
     OF FORM N-1A                  ADDITIONAL INFORMATION
     ------------                  ----------------------
 <C> <S>                           <C>
 10. Cover Page..................  Cover Page
 11. Table of Contents...........  Table of Contents
 12. General Information and
     History.....................  Inapplicable
 13. Investment Objectives and     Investment Restrictions; Investment Policies
     Policies....................  and Techniques; Appendix--Ratings of
                                   Investments
 14. Management of the Fund......  Investment Manager and Underwriter; Officers
                                   and Trustees; Supplement
 15. Control Persons and
     Principal Holders of
     Securities..................  Officers and Trustees
 16. Investment Advisory and
     Other Services..............  Investment Manager and Underwriter
 17. Brokerage Allocation and
     Other Practices.............  Portfolio Transactions
 18. Capital Stock and Other
     Securities..................  Dividends and Taxes; Shareholder Rights
 19. Purchase, Redemption and
     Pricing of Securities Being
     Offered.....................  Purchase and Redemption of Shares
 20. Tax Status..................  Dividends and Taxes
 21. Underwriters................  Investment Manager and Underwriter
 22. Calculation of Performance
     Data........................  Performance
 23. Financial Statements........  Financial Statements; Report of Independent
                                   Auditors; Statement of Net Assets; Supplement
</TABLE>    
<PAGE>
 
                         
                      KEMPER INTERNATIONAL BOND FUND     
                      
                   SUPPLEMENT TO STATEMENT OF ADDITIONAL     
                                   
                                INFORMATION     
                             
                          DATED FEBRUARY 1, 1995     
 
                                ----------------
   
FINANCIAL STATEMENTS     
   
  The financial statements (unaudited) appearing in the Fund's Semiannual
Report to Shareholders for the period ended June 30, 1995 are incorporated into
the Statement of Additional Information by reference. The Fund's Semiannual
Report accompanies the Statement of Additional Information. All adjustments
necessary for a fair statement of the results of operations for the period
covered by such report are included. All such adjustments are of a normal
recurring nature.     
   
OFFICERS AND TRUSTEES     
   
  Stephen B. Timbers, a Trustee of the Fund, has been elected President of the
Fund replacing Charles M. Kierscht. Mr. Timbers (120 S. LaSalle St., Chicago,
Illinois) is Chairman, Chief Executive Officer, Chief Investment Officer and a
Director of Kemper Financial Services, Inc. ("KFS"); President, Chief Operating
Officer and a Director of Kemper Corporation; and a Director of Kemper
Financial Companies, Inc. ("KFC") and several other Kemper Corporation
subsidiaries. Mr. Timbers also serves as a Director of Gillett Holdings, Inc.
and LTV Corporation.     
   
  David B. Mathis has been elected a Trustee of the Fund replacing Charles M.
Kierscht. Mr. Mathis (Kemper Center, Long Grove, Illinois) is Chairman, Chief
Executive Officer and a Director of Kemper Corporation; and a Director of KFS
and KFC. Mr. Mathis also serves as a Director of IMB Global Inc. and Lumbermens
Mutual Casualty Company.     
   
  Mr. Timbers is the President and Trustee of 31 investment companies managed
by KFS, and Mr. Mathis is a Trustee of 28 such investment companies.     
                                            
July 31, 1995                               LOGO  printed on recycled paper 

KIBF-13D 7/95     
<PAGE>
 
                      STATEMENT OF ADDITIONAL INFORMATION
                               FEBRUARY 1, 1995
 
                        KEMPER INTERNATIONAL BOND FUND
               120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
                                1-800-621-1048
 
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Kemper International Bond Fund (the
"Fund"). It should be read in conjunction with the prospectus of the Fund
dated February 1, 1995. The prospectus may be obtained without charge from the
Fund.
 
                               ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
       <S>                                                                  <C>
       Investment Restrictions............................................. B-1
       Investment Policies and Techniques.................................. B-2
       Dividends and Taxes................................................. B-12
       Performance......................................................... B-13
       Investment Manager and Underwriter.................................. B-17
       Portfolio Transactions.............................................. B-18
       Purchase and Redemption of Shares................................... B-19
       Officers and Trustees............................................... B-20
       Shareholder Rights.................................................. B-22
       Report of Independent Auditors...................................... B-23
       Statement of Net Assets............................................. B-24
       Appendix--Ratings of Investments.................................... B-24
</TABLE>
 
 
KIBF-13 2/95
               LOGO
                    printed on recycled paper
<PAGE>
 
INVESTMENT RESTRICTIONS
 
The Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of the Fund,
cannot be changed without approval of a "majority" of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the
lesser of (1) 67% of the Fund's shares present at a meeting where more than
50% of the outstanding shares are present; or (2) more than 50% of the Fund's
outstanding shares.
 
The Fund may not, as a fundamental policy:
 
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the total value of the Fund's assets would be
invested in securities of that issuer except that, with respect to 50% of the
Fund's total assets, the Fund may invest up to 25% of its total assets in
securities of any one issuer.
 
(2) Purchase more than 10% of any class of voting securities of any issuer.
 
(3) Make loans to others provided that the making of time or demand deposits
with banks and the purchase of debt securities such as bonds, debentures,
commercial paper, repurchase agreements and short-term obligations are not
prohibited and the Fund may lend its portfolio securities.
 
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's
total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, the Fund will, within three days (not
including Sundays and holidays), reduce its indebtedness to the extent
necessary. The Fund will not borrow for leverage purposes and will not
purchase securities or make investments while borrowings are outstanding.
 
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction 4
above. (The collateral arrangements with respect to options, financial
futures, delayed delivery and currency transactions and any margin payments in
connection therewith are not deemed to be pledges or other encumbrances.)
 
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
 
(7) Make short sales of securities or other assets or maintain a short
position for the account of the Fund unless at all times when a short position
is open it owns an equal amount of such securities or other assets or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities or other assets of the same
issue as, and equal in amount to, the securities or other assets sold short
and unless not more than 10% of the Fund's total assets is held as collateral
for such sales at any one time.
 
(8) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may the Fund purchase put or
call options if more than 5% of the Fund's net assets would be invested in
premiums on put and call options, combinations thereof or similar options;
however, the Fund may buy or sell options on financial futures contracts.
 
(9) Purchase securities (other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) if as a result of such
purchase 25% or more of the Fund's total assets would be invested in any one
industry.
 
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts, and engage
in foreign currency transactions; or in real estate (including real estate
 
                                      B-1
<PAGE>
 
limited partnerships), although it may invest in securities which are secured
by real estate and securities of issuers which invest or deal in real estate
including real estate investment trusts.
 
(11) Underwrite securities issued by others except to the extent the Fund may
be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
 
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
 
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund
has no present intention of borrowing during the current year. The Fund has
adopted the following non-fundamental restrictions, which may be changed by
the Board of Trustees without shareholder approval. The Fund may not:
 
(i) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more
than 5% of the securities of such issuer.
 
(ii) Invest for the purpose of exercising control or management of another
issuer.
 
(iii) Invest in interests in oil or gas exploration or development programs,
although it may invest in the securities of issuers which invest in or sponsor
such programs.
 
(iv) Invest more than 15% of its net assets in illiquid securities.
 
(v) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American
Stock Exchanges. Warrants acquired in units or attached to securities may be
deemed to be without value for such purposes.
 
(vi) Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
 
(vii) Invest in oil, gas or other mineral leases.
 
(viii) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities) which with their predecessors have a record of
less than three years continuous operation, and equity securities of issuers
which are not readily marketable.
 
(ix) Invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 that have been determined to be liquid
pursuant to procedures adopted by the Board of Trustees, provided that the
total amount of Fund assets invested in restricted securities will not exceed
15% of total assets.
 
(x) Invest more than 10% of its total assets in securities of real estate
investment trusts.
 
 
INVESTMENT POLICIES AND TECHNIQUES
 
GENERAL. The Fund may engage in futures and options transactions in accordance
with its investment objective and policies. The Fund intends to engage in such
transactions if it appears to the investment manager to be advantageous to do
so, in order to pursue its investment objective, to hedge against the effects
of fluctuating interest rates and to stabilize the value of its assets and not
for speculation. The use of futures and options, and possible benefits and
attendant risks, are discussed below, along with information concerning
certain other investment policies and techniques.
 
                                      B-2
<PAGE>
 
FINANCIAL FUTURES CONTRACTS. The Fund may enter into contracts for the future
delivery of a financial instrument, such as a security, or an amount of
foreign currency, or the cash value of a securities index or other appropriate
index, as available, such as a foreign currency index. This investment
technique is designed primarily to hedge (i.e., protect) against anticipated
future changes in market conditions or foreign exchange rates which otherwise
might adversely affect the value of securities or other assets which the Fund
holds or intends to purchase. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the underlying securities
or the cash value of an index or foreign currency called for by the contract
at a specified price during a specified delivery period. A "purchase" of a
futures contract means the undertaking of a contractual obligation to acquire
the underlying securities or cash value of an index or foreign currency at a
specified price during a specified delivery period. At the time of delivery in
the case of fixed income securities pursuant to the contract, adjustments are
made to recognize differences in value arising from the delivery of securities
with a different interest rate than that specified in the contract. In some
cases, securities called for by a futures contract may not have been issued at
the time the contract was written.
 
Although some financial futures contracts by their terms call for the actual
delivery or acquisition of securities or other assets, in most cases a party
will close out the contractual commitment before delivery without having to
make or take delivery of the underlying assets by purchasing (or selling, as
the case may be) on a commodities exchange an identical futures contract
calling for delivery in the same month. Such a transaction, if effected
through a member of an exchange, cancels the obligation to make or take
delivery of the underlying securities or other assets. All transactions in the
futures market are made, offset or fulfilled through a clearing house
associated with the exchange on which the contracts are traded. The Fund will
incur brokerage fees when it purchases or sells contracts, and will be
required to maintain margin deposits. At the time the Fund enters into a
futures contract, it is required to deposit with its custodian, on behalf of
the broker, a specified amount of cash or eligible securities, called "initial
margin." The initial margin required for a futures contract is set by the
exchange on which the contract is traded. Subsequent payments, called
"variation margin," to and from the broker are made on a daily basis as the
market price of the futures contract fluctuates. The costs incurred in
connection with futures transactions could reduce the Fund's return. Futures
contracts entail risks. If the investment manager's judgment about the general
direction of interest rates, markets or exchange rates is wrong, the overall
performance may be poorer than if no such contracts had been entered into.
 
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions also could result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage
in closing transactions because of the resultant reduction in the liquidity of
the futures market. In addition, because, from the point of view of
speculators, margin requirements in the futures market are less onerous than
margin requirements in the cash market, increased participation by speculators
in the futures market could cause temporary price distortions. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities or other
assets and movements in the prices of futures contracts, a correct forecast of
market trends by the investment manager still may not result in a successful
hedging transaction. If any of these events should occur, the Fund could lose
money on the financial futures contracts and also on the value of its
portfolio assets.
 
OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase and write call
and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
 
                                      B-3
<PAGE>
 
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial margin and maintenance
margin with respect to put and call options on futures contracts written by
it. The Fund will establish segregated accounts or will provide cover with
respect to written options on financial futures contracts in a manner similar
to that described under "Options on Securities." Options on futures contracts
involve risks similar to those risks relating to transactions in financial
futures contracts described above. Also, an option purchased by the Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.
 
OPTIONS ON SECURITIES. The Fund may write (sell) "covered" call options on
securities as long as it owns the underlying securities subject to the option
or an option to purchase the same underlying securities, having an exercise
price equal to or less than the exercise price of the "covered" option, or
will establish and maintain for the term of the option a segregated account
consisting of cash, U.S. Government securities or other liquid high-grade debt
obligations ("eligible securities") having a value at least equal to the
fluctuating market value of the optioned securities. The Fund may write
"covered" put options provided that, as long as the Fund is obligated as a
writer of a put option, the Fund will own an option to sell the underlying
securities subject to the option, having an exercise price equal to or greater
than the exercise price of the "covered" option, or it will deposit and
maintain in a segregated account eligible securities having a value equal to
or greater than the exercise price of the option. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price during the option period. A put
option gives the purchaser the right to sell, and the writer has the
obligation to buy, the underlying security at the exercise price during the
option period. The premium received for writing an option will reflect, among
other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the price volatility
of the underlying security, the option period, supply and demand and interest
rates. The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is
written. The Fund may write or purchase spread options, which are options for
which the exercise price may be a fixed dollar spread or yield spread between
the security underlying the option and another security it does not own, but
that is used as a bench mark. The buyer of a put who also owns the related
security is protected by ownership of a put option against any decline in that
security's price below the exercise price less the amount paid for the option.
The ability to purchase put options allows the Fund to protect capital gains
in an appreciated security it owns, without being required to actually sell
that security. At times the Fund would like to establish a position in a
security upon which call options are available. By purchasing a call option,
the Fund is able to fix the cost of acquiring the security, this being the
cost of the call plus the exercise price of the option. This procedure also
provides some protection from an unexpected downturn in the market because the
Fund is only at risk for the amount of the premium paid for the call option
which it can, if it chooses, permit to expire.
 
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying asset rise
in value, and the secured put writer retains the risk of loss should the
underlying asset decline in value. For the covered call writer, substantial
appreciation in the value of the underlying asset would result in the asset
being "called away." For the secured put writer, substantial depreciation in
the value of the underlying asset would result in the asset being "put to" the
writer. If a covered call option expires unexercised, the writer realizes a
gain and the buyer a loss in the amount of the premium. If the covered call
option writer has to sell the underlying asset because of the exercise of the
call option, it realizes a gain or loss from the sale of the underlying asset,
with the proceeds being increased by the amount of the premium.
 
If a secured put option expires unexercised, the writer realizes a gain and
the buyer a loss in the amount of the premium. If the secured put writer has
to buy the underlying asset because of the exercise of the put option, the
 
                                      B-4
<PAGE>
 
secured put writer incurs an unrealized loss to the extent that the current
market value of the underlying asset is less than the exercise price of the
put option minus the premium received.
 
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives and Policies"), the Fund may deal in over-the-counter traded
options ("OTC options"). OTC options differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options the premium is
paid in advance by the dealer. OTC options are available for a greater variety
of securities, and a wider range of expiration dates and exercise prices, than
are exchange traded options. Since there is no exchange, pricing is normally
done by reference to information from market makers, which information is
carefully monitored by the investment manager and verified in appropriate
cases.
 
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for
any particular option at any specific time. Consequently, the Fund may be able
to realize the value of an OTC option it has purchased only by exercising it
or entering into a closing sale transaction with the dealer that issued it.
Similarly, when the Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying asset until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to
sell an underlying asset even though it might otherwise be advantageous to do
so. Likewise, a secured put writer of an OTC option may be unable to sell the
assets pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in
the absence of a secondary market.
 
The Fund understands the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment
manager disagrees with this position and has found the dealers with which it
engages in OTC options transactions generally agreeable to and capable of
entering into closing transactions. The Fund has adopted procedures for
engaging in OTC options for the purpose of reducing any potential adverse
effect of such transactions upon the liquidity of the Fund's portfolio. A
brief description of such procedures is set forth below.
 
The Fund will only engage in OTC options transactions with dealers approved by
the investment manager pursuant to procedures adopted by the Fund's Board of
Trustees. The investment manager believes that the approved dealers should be
able to enter into closing transactions if necessary and, therefore, present
minimal credit risks to the Fund. The investment manager will monitor the
creditworthiness of the approved dealers on an ongoing basis. The Fund
currently will not engage in OTC options transactions if the amount invested
by the Fund in OTC options, plus a "liquidity charge" related to OTC options
written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets. The "liquidity charge"
referred to above is computed as described below.
 
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no
greater than a price established under the agreements (the "Repurchase
Price"). The "liquidity charge" referred to above for a specific OTC option
transaction will be the Repurchase Price related to the OTC option less the
intrinsic value of the OTC option. The intrinsic value of an OTC call option
for such purposes will be the
 
                                      B-5
<PAGE>
 
amount by which the current market value of the underlying security exceeds
the exercise price. In the case of an OTC put option, intrinsic value will be
the amount by which the exercise price exceeds the current market value of the
underlying security. If there is no such agreement requiring a dealer to allow
the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
 
OPTIONS ON SECURITIES INDICES. The Fund also may purchase and write call and
put options on securities indices in an attempt to hedge against market
conditions affecting the values of securities that the Fund owns or intends to
purchase, and not for speculation. Through the writing or purchase of index
options, the Fund can achieve many of the same objectives as through the use
of options on individual securities. Options on securities indices are similar
to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the securities index upon which the option is
based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of
the option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends upon price movements in the
market generally (or in a particular industry or segment of the market),
rather than upon price movements in individual securities. Price movements in
securities that the Fund owns or intends to purchase will probably not
correlate perfectly with movements in the level of an index since the prices
of such securities may be affected by somewhat different factors and,
therefore, the Fund bears the risk that a loss on an index option would not be
completely offset by movements in the price of such securities.
 
The Fund will cover call options written on a securities index by owning
securities whose price changes, in the opinion of the Fund's investment
manager, are expected to be similar to those of the index, or in such other
manner as may be in accordance with applicable laws, regulations and exchange
rules. Price changes of the securities owned will probably not be perfectly
correlated with the index. The Fund will secure put options written on a
securities index by segregating liquid high-grade securities equal to the
exercise price, or in such other manner as may be in accordance with
applicable laws, regulations and exchange rules. When the Fund writes an
option on a securities index, it will segregate and mark-to-market eligible
securities equal in value to at least 100% of the exercise price in the case
of a put, or the contract value in the case of a call. In addition, if the
Fund writes a call option on a securities index at a time when the contract
value exceeds the exercise price, the Fund will segregate and mark-to-market,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess.
 
The Fund may also purchase and write (sell) options on other appropriate
indices, as available, such as foreign currency indices. Options on futures
contracts and index options involve risks similar to those risks relating to
transactions in financial futures contracts described above. Also, an option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid therefor.
 
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option buyer
with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while
a put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options any
time prior to expiration.
 
                                      B-6
<PAGE>
 
A call rises in value if the underlying currency appreciates. Conversely, a
put rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in
the value of a foreign currency, it does not limit the gain which might result
from a favorable movement in the value of such currency. For example, if the
Fund were holding securities denominated in an appreciating foreign currency
and had purchased a foreign currency put to hedge against a decline in the
value of the currency, it would not have to exercise its put. Similarly, if
the Fund has entered into a contract to purchase a security denominated in a
foreign currency and had purchased a foreign currency call to hedge against a
rise in value of the currency but instead the currency had depreciated in
value between the date of purchase and the settlement date, the Fund would not
have to exercise its call but could acquire in the spot market the amount of
foreign currency needed for settlement.
 
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of its financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Fund may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
 
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized
as to amount and delivery period and are traded on boards of trade and
commodities exchanges. It is anticipated that such contracts may provide
greater liquidity and lower cost than forward foreign currency exchange
contracts.
 
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days ("term") from
the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers. The investment
manager believes that it is important to have the flexibility to enter into
such forward contracts when it determines that to do so is in the best
interests of a Fund. The Fund will not speculate in foreign currency exchange.
 
If the Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or
a loss (as described below) to the extent that there has been movement in
forward contract prices. If the Fund engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of foreign currency and the date
it enters into an offsetting contract for the purchase of the foreign
currency, the Fund would realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund would suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell. Although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase. The Fund will have to convert its
holdings of foreign currencies into U.S. Dollars from time to time. Although
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies.
 
The returns available from foreign currency denominated debt instruments can
be adversely affected by changes in exchange rates. The investment manager
believes that the use of foreign currency hedging techniques, including
"cross-hedges," can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders, and against declines in the
net asset value of the Fund's shares resulting from adverse changes in
 
                                      B-7
<PAGE>
 
currency exchange rates. For example, the return available from securities
denominated in a particular foreign currency would diminish if the value of
the U.S. Dollar increased against that currency. Such a decline could be
partially or completely offset by the increased value of a cross-hedge
involving a forward foreign currency exchange contract to sell a different
foreign currency, if that contract were available on terms more advantageous
to the Fund than a contract to sell the currency in which the position being
hedged is denominated. The Fund's investment manager believes that cross-
hedges can therefore provide significant protection of net asset value in the
event of a general rise in the U.S. Dollar against foreign currencies. For
example, the Fund may invest in high yielding securities denominated in a
Western European currency, such as the French Franc, and seek to hedge against
the effect of an increase in the value of the U.S. Dollar against that
currency by entering into a forward exchange contract to sell the lower
yielding German Mark, which has historically had price movements that tend to
correlate closely with those of the French Franc. However, a cross-hedge
cannot provide assured protection against exchange rate risks and, if the
Fund's investment manager misjudges future exchange rate relationships, the
Fund could be in a less advantageous position than if such a hedge had not
been established.
 
The Fund will not enter into forward contracts or maintain a net exposure in
such contracts when the Fund would be obligated to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets (a) denominated in that currency or (b), in the case of a "cross-
hedge" (see "Investment Objectives and Policies" in the prospectus),
denominated in a currency or currencies that the investment manager believes
will tend to correlate closely with that currency with regard to price
movements. The investment manager will normally seek to select currencies for
sale under a forward contract for a "cross-hedge" that would reflect a price
movement correlation of .8 or higher with respect to the currency being hedged
(1 reflects a perfect correlation, 0 reflects a random relationship and -1
reflects a diametrically opposite correlation). There is, of course, no
assurance that any specific correlation can be maintained for any specific
transaction. There is no limitation as to the percentage of the Fund's assets
that may be committed to forward contracts for the purchase of a foreign
currency. A Fund segregates cash or liquid high-grade securities in an amount
not less than the value of the Fund's total assets committed to forward
foreign currency exchange contracts entered into for the purchase of a foreign
currency for U.S. Dollars. If the value of the securities segregated declines,
additional cash or securities is added so that the segregated amount is not
less than the amount of the Fund's commitments with respect to such contracts.
A Fund generally does not enter into a forward contract with a term longer
than one year. As indicated in the prospectus, the Fund's foreign currency
transactions may involve the purchase or sale of a foreign currency against
the U.S. Dollar or may involve two currencies, including currencies in which
no portfolio securities are denominated. See "Foreign Currency Transactions"
under "Investment Objectives and Policies--Additional Investment Information"
in the prospectus.
 
DELAYED DELIVERY TRANSACTIONS. The Fund may purchase or sell portfolio
securities on a when-issued or delayed delivery basis. When-issued or delayed
delivery transactions involve a commitment by the Fund to purchase or sell
securities with payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. When the Fund enters into a delayed
delivery purchase, it becomes obligated to purchase securities and it has all
the rights and risks attendant to ownership of a security, although delivery
and payment occur at a later date. The value of fixed income securities to be
delivered in the future will fluctuate as interest rates vary. At the time the
Fund makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the liability for
the purchase and the value of the security in determining its net asset value.
Likewise, at the time the Fund makes the commitment to sell a security on a
delayed delivery basis, it will record the transaction and include the
proceeds to be received in determining its net asset value; accordingly, any
fluctuations in the value of the security sold pursuant to a delayed delivery
commitment are ignored in calculating net asset
 
                                      B-8
<PAGE>
 
value so long as the commitment remains in effect. The Fund generally has the
ability to close out a purchase obligation on or before the settlement date,
rather than take delivery of the security.
 
To the extent the Fund engages in when-issued or delayed delivery purchases,
it will do so for the purpose of acquiring portfolio securities consistent
with the Fund's investment objective and policies and not for investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to sell these securities before the settlement date if deemed
advisable.
 
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward foreign currency exchange
purchase for U.S. Dollars, a Fund will maintain in a segregated account cash,
U.S. Government securities or liquid high-grade debt obligations equal to the
value of such contracts. A Fund will use cover in connection with selling a
futures contract.
 
A Fund will not engage in transactions in financial futures contracts or
options thereon for speculation, but only to attempt to hedge against changes
in market conditions affecting the values of securities or other assets which
the Fund holds or intends to purchase.
 
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the
Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying securities and loss
of income. The securities underlying a repurchase agreement will be marked-to-
market every business day so that the value of such securities is at least
equal to the investment value of the repurchase agreement, including any
accrued interest thereon. Currently, the Fund will treat the issuer of the
underlying security as the issuer for purposes of diversification and
concentration.
 
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for
the purpose of deferring realization of gain or loss for federal income tax
purposes. A short sale "against-the-box" is a short sale in which the Fund
owns at least an equal amount of the securities or other assets sold short or
securities convertible into or exchangeable for, without payment of any
further consideration, securities or other assets of the same issue as, and at
least equal in amount to, the securities or other assets sold short. The Fund
may engage in such short sales only to the extent that not more than 10% of
the Fund's total assets (determined at the time of the short sale) is held as
collateral for such sales. The Fund currently does not intend, however, to
engage in such short sales to the extent that more than 5% of its net assets
will be held as collateral therefor during the current year.
 
EMERGING MARKETS. While the Fund's investments in foreign securities will
principally be in developed countries, the Fund may make investments in
developing or "emerging" countries, which involve exposure to economic
structures that are generally less diverse and mature than in the United
States, and to political systems that may be less stable. A developing country
or emerging market country can be considered to be a country that is in the
initial stages of its industrialization cycle. Currently, emerging markets
generally include every country in the world other than the United States,
Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and most Western
European countries. Currently, investing in many emerging markets may not be
desirable or feasible because of the lack of adequate custody arrangements for
the Fund's assets, overly burdensome repatriation and similar restrictions,
the lack of organized and liquid securities markets, unacceptable political
risks or other reasons. As opportunities to invest in securities in emerging
markets develop, the Fund may expand and further
 
                                      B-9
<PAGE>
 
broaden the group of emerging markets in which it invests. In the past,
markets of developing countries have been more volatile than the markets of
developed countries; however, such markets often have provided higher rates of
return to investors. The investment manager believes that these
characteristics can be expected to continue in the future.
 
Many of the risks described in the prospectus (see "Investment Objective and
Policies") relating to foreign securities generally will be greater for
emerging markets than for developed countries. For instance, economies in
individual developing markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging markets have
experienced substantial rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very
negative effects on the economies and securities markets of certain developing
markets. Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be
affected adversely by trade barriers, exchange controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also have
been and may continue to be affected adversely by economic conditions in the
countries with which they trade.
 
Also, the securities markets of developing countries are substantially
smaller, less developed, less liquid and more volatile than the securities
markets of the United States and other more developed countries. Disclosure,
regulatory and accounting standards in many respects are less stringent than
in the United States and other developed markets. There also may be a lower
level of monitoring and regulation of developing markets and the activities of
investors in such markets, and enforcement of existing regulations has been
extremely limited.
 
In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States; this is particularly true with respect to emerging markets.
Such markets have different settlement and clearance procedures. In certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct
such transactions. Such settlement problems may cause emerging market
securities to be illiquid. The inability of the Fund to make intended
securities purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security caused by settlement problems could result either in losses to the
Fund due to subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Certain emerging markets may lack
clearing facilities equivalent to those in developed countries. Accordingly,
settlements can pose additional risks in such markets and ultimately can
expose the Fund to the risk of losses resulting from the Fund's inability to
recover from a counterparty.
 
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for the Fund's portfolio securities in such
markets may not be readily available. The Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
 
Investment in certain emerging market securities is restricted or controlled
to varying degrees. These restrictions or controls may at times limit or
preclude foreign investment in certain emerging market securities and increase
the costs and expenses of the Fund. Emerging markets may require governmental
approval for the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if a deterioration
occurs in an emerging market's balance of payments, the market could impose
temporary restrictions on foreign capital remittances.
 
 
                                     B-10
<PAGE>
 
PRIVATIZED ENTERPRISES. The governments of certain foreign countries have, to
varying degrees, embarked on privatization programs contemplating the sale of
all or part of their interests in state enterprises. The Fund's investments in
the securities of privatized enterprises include privately negotiated fixed
income securities issued by a government- or state-owned or controlled company
or enterprise that has not yet conducted an initial equity offering and
investments in fixed income securities of a former state enterprise following
or concurrent with its initial equity offering.
 
In certain jurisdictions, the ability of foreign entities, such as the Fund,
to participate in privatizations may be limited by local law, or the price or
terms on which the Fund may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that governments
that have embarked on privatization programs will continue to divest their
ownership of state enterprises, that proposed privatizations will be
successful or that governments will not re-nationalize enterprises that have
been privatized.
 
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result
in a management team that does not function as well as the enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
 
Prior to privatization, most of the state enterprises in which the Fund may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or
experience bankruptcy due to such competition.
 
SOVEREIGN DEBT. Investments in certain sovereign debt, particularly Brady
Bonds, involve special risks. Brady Bonds are debt securities issued under a
plan implemented to allow debtor nations to restructure their outstanding
commercial bank indebtedness. Foreign governmental issuers of debt, or the
governmental authorities that control the repayment of the debt, may be unable
or unwilling to repay principal or pay interest when due. In the event of
default, there may be limited or no legal recourse in that, generally,
remedies for defaults must be pursued in the courts of the defaulting party.
Political conditions, especially a sovereign entity's willingness to meet the
terms of its fixed income securities, are of considerable significance. Also,
there can be no assurance that the holders of commercial bank loans to the
same sovereign entity may not contest payments to the holders of sovereign
debt in the event of default under commercial bank loan agreements. In
addition, there is no bankruptcy proceeding with respect to sovereign debt on
which a sovereign has defaulted; and the Fund may be unable to collect all or
any part of its investment in a particular issue. Foreign investment in
certain sovereign debt is restricted or controlled to varying degrees,
including requiring governmental approval for the repatriation of income,
capital or proceeds of sales by foreign investors. These restrictions or
controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of the Fund. A portion of
the sovereign debt in which the Fund may invest is issued as part of debt
restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and
private entities issuing Brady Bonds. All or a portion of the interest
payments and/or principal repayment with respect to Brady Bonds may be
uncollateralized. As reflected in the prospectus (see "Foreign Investing"
under "Investment Objective and Policies"), it is currently intended that no
more than 5% of the Fund's net assets will be invested in developing or
emerging markets (which may include certain sovereign debt issues) with
respect to which these considerations are of particular significance.
 
                                     B-11
<PAGE>
 
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated in the
prospectus, the Fund may because of a downgrade, hold a portion of its assets
in fixed income securities that are in the lower rating categories (below the
fourth category) of recognized rating agencies or are non-rated. These lower
rated and non-rated fixed income securities are considered, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories.
Lower rated and non-rated securities, which are commonly referred to as "junk
bonds," have widely varying characteristics and quality. The market values of
such securities tend to reflect individual corporate developments to a greater
extent than do those of higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Such lower rated
securities also are more sensitive to economic conditions than are higher
rated securities. Adverse publicity and investor perceptions regarding lower
rated bonds, whether or not based upon fundamental analysis, may depress the
prices for such securities. These and other factors adversely affecting the
market value of high yield securities will adversely affect the Fund's net
asset value. Although some risk is inherent in all securities ownership,
holders of fixed income securities have a claim on the assets of the issuer
prior to the holders of common stock. Therefore, an investment in fixed income
securities generally entails less risk than an investment in common stock of
the same issuer. The Fund may have difficulty disposing of certain high yield
securities because they may have a thin trading market. The lack of a liquid
secondary market may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing
these assets.
 
DIVIDENDS AND TAXES
 
DIVIDENDS. The Fund normally distributes annual dividends of net investment
income and any net realized short-term and long-term capital gains.
 
The Fund may at any time vary the foregoing dividend practice and, therefore,
reserves the right from time to time either to distribute or to retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under then current circumstances. In particular, and without
limiting the foregoing, the Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained in the Internal Revenue Code (the "Code").
Dividends will be reinvested in shares of the Fund paying such dividends
unless shareholders indicate in writing that they wish to receive them in cash
or in shares of other Kemper Funds as provided in the prospectus.
 
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code and, if so qualified, will not be liable for federal
income taxes to the extent its earnings are distributed. One of the Subchapter
M requirements to be satisfied is that less than 30% of the Fund's gross
income during the fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. The Fund may be limited in its
options, futures and foreign currency transactions in order to prevent
recognition of such gains.
 
The Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain
gains or losses, change the character of certain gains or losses, or alter the
holding periods of certain of the Fund's securities.
 
The mark-to-market rules of the Code may require the Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts and futures contracts
on foreign currency are marked-to-market, the gain or loss is
 
                                     B-12
<PAGE>
 
generally ordinary under Section 988 of the Code. In addition, the straddle
rules of the Code would require deferral of certain losses realized on
positions of a straddle to the extent that the Fund had unrealized gains in
offsetting positions at year end.
 
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one
year period ended October 31 in the prior calendar year, minus any
overdistribution in the prior calendar year. For purposes of calculating the
required distribution, foreign currency gains or losses occurring after
October 31 are taken into account in the following calendar year. The Fund may
elect as its measuring period for capital gain net income and foreign
currency, its fiscal year end. The Fund intends to declare or distribute
dividends during the appropriate periods of an amount sufficient to prevent
imposition of the 4% excise tax.
 
It is anticipated that only a small portion, if any, of the ordinary income
dividends from the Fund will be eligible for the dividends received deduction
available to corporate shareholders. The aggregate amount eligible for the
dividends received deduction may not exceed the aggregate qualifying dividends
received by the Fund for the fiscal year.
 
A shareholder who redeems shares of the Fund will recognize capital gain or
loss for federal income tax purposes measured by the difference between the
value of the shares redeemed and the basis of the shares. Any loss recognized
on the redemption of Fund shares held six months or less will be treated as
long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. If a shareholder realizes a
loss on the redemption of the Fund's shares and reinvests in shares of the
Fund within 30 days before or after the redemption, the transactions may be
subject to the wash sale rules resulting in a postponement of the recognition
of such loss for federal income tax purposes.
 
Investments in foreign securities may be subject to foreign taxes. Because the
amount of the Fund's investments in various countries will change from time to
time, it is not possible to determine the effective rate of such taxes in
advance.
 
Shareholders who are non-resident aliens are subject to U.S. withholding tax
on ordinary income dividends (whether received in cash or shares) at a rate of
30% or such lower rate as prescribed by any applicable tax treaty.
 
PERFORMANCE
 
As described in the prospectus, the Fund's historical performance or return
may be shown in the form of "average annual total return," "total return" and
"yield" figures. These various measures of performance are described below.
 
Yield is a measure of the net investment income per share earned over a
specific one month or 30-day period expressed as a percentage of the net asset
value of the Fund's shares at the end of the period. Average annual total
return and total return measure both the net investment income generated by,
and the effect of any realized or unrealized appreciation or depreciation of,
the underlying investments in the Fund's portfolio.
 
The Fund's yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. The Fund's
yield is computed by dividing the net investment income per share earned
during the specified one month or 30-day period by the maximum offering price
per share (which is net asset value) on the last day of the period, according
to the following formula:
 
                        YIELD = 2[(  a - b  +1)/6/- 1]
                                       cd
 
                                     B-13
<PAGE>
 
Where: a = dividends and interest earned during the period.
 
   b = expenses accrued for the period (net of reimbursements).
 
   c = the average daily number of shares outstanding during the period that
     were entitled to receive dividends.
 
   d = the maximum offering price per share on the last day of the period
     (which is net asset value).
 
In computing the foregoing yield, the Fund follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that the Fund uses
to prepare its annual and interim financial statements in conformity with
generally accepted accounting principles.
 
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for the Fund for a specific period
is found by first taking a hypothetical $1,000 investment ("initial
investment") in the Fund's shares on the first day of the period, and
computing the "redeemable value" of that investment at the end of the period.
The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period.
 
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements. Total return performance for a specific
period is calculated by first taking an investment (assumed below to be
$10,000) ("initial investment") in the Fund's shares on the first day of the
period, and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
 
The Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. Returns and net asset value
will fluctuate. Factors affecting the Fund's performance include general
market conditions, operating expenses and investment management. Any
additional fees charged by a dealer or other financial services firm would
reduce returns described in this section. Shares of the Fund are redeemable at
the then current net asset value, which may be more or less than original
cost.
 
Investors may want to compare the Fund's performance to that of certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of the deposit prior to maturity will normally
be subject to a penalty. Rates offered by banks and other depository
institutions are subject to change at any time specified by the issuing
institution. The shares of the Fund are not insured and net asset value as
well as yield will fluctuate. Shares of the Fund are redeemable at net asset
value which may be more or less than original cost. The bonds in the Fund's
portfolio are generally of longer term than most certificates of deposit and
may reflect longer term market interest rate fluctuations.
 
                                     B-14
<PAGE>
 
Investors may also want to compare the Fund's performance to that of U.S.
Treasury Bills, Notes or Bonds. Rates of Treasury obligations are fixed at the
time of issuance and payment of principal and interest is backed by the full
faith and credit of the U.S. Treasury. The market value of such instruments
will generally fluctuate inversely with interest rates prior to maturity and
will equal par value at maturity. Shares of the Fund are redeemable at net
asset value, which may be more or less than original cost. The Fund's returns
will also fluctuate.
 
In order to appreciate more fully the opportunities for income throughout the
world and the potential advantages of investing in the Fund, investors may
want to compare the historical performance of various bond markets around the
world. Such performance, of course, would not be representative of future
actual or relative performance of such markets, or of the past or future
performance of the Fund.
 
The table below reflects the relative returns of certain unmanaged domestic
bond indexes and a foreign bond index over the periods indicated.
 
                           BOND INDEX TOTAL RETURNS
                            (PERIODS ENDED 12/31/94)
<TABLE>
<CAPTION>
                                                            3
                                                   1 Yr.  Yrs.   5 Yrs.  10 Yrs.
                                                   -----  -----  ------  -------
<S>                                                <C>    <C>    <C>     <C>
Salomon Non-U.S. Bond Index(1)....................  5.99% 27.84% 71.28%  305.82%
J.P. Morgan Government Bond Index (2) (non-U.S.)..  4.93  22.08  63.59      n/a
Salomon High Grade Corp. Bond Index(3)............ -5.74  16.72  49.43   198.97
Merrill Lynch Govt./Corp. Bond Index(4)........... -3.27  15.68  45.45   157.17
Lehman Brothers Govt./Corp. Bond Index(5)......... -3.51  15.26  44.93   155.53
</TABLE>
- -------
(1) The Salomon Brothers Non-U.S. Dollar World Government Bond Index is on a
    U.S. dollar total return basis with all dividends reinvested and is
    comprised of non-U.S. government bonds with maturities of one year or
    greater and is weighted on the basis of market capitalization. This index
    is unmanaged. Source is Lipper Analytical Services, Inc.
(2) The J.P. Morgan Government Bond Index (non-U.S.) is on a U.S. dollar total
    return basis with all dividends reinvested and is comprised of non-U.S.
    government bonds with maturities of one year or greater and is weighted on
    the basis of market value. Source is J.P. Morgan Securities, Inc.
(3) The Salomon Brothers High Grade Corporate Bond Index is on a total return
    basis with all dividends reinvested and is comprised of high grade long-
    term industrial and utility bonds rated in the top two rating categories.
    This index is unmanaged. Source is Lipper Analytical Services, Inc.
(4) The Merrill Lynch Government/Corporate Bond Index is based upon the total
    return with all dividends reinvested of 4,000 corporate and 300 government
    bond issues with an intermediate average maturity and an average quality
    rating of Aa (Moody's Investors Service, Inc.) or AA (Standard & Poor's
    Corporation). This index is unmanaged. Source is Lipper Analytical
    Services, Inc.
(5) The Lehman Brothers Government/Corporate Bond Index is on a total return
    basis and is comprised of all publicly issued, nonconvertible, domestic
    debt of the U.S. Government or any agency thereof, quasi-federal
    corporation, or corporate debt guaranteed by the U.S. Government and all
    publicly issued, fixed-rate, non-convertible, domestic debt of the three
    major corporate classifications: industrial, utility, and financial. Only
    notes and bonds with a minimum outstanding principal amount of $1,000,000
    and a minimum of one year to maturity are included. Bonds included must
    have a rating of at least Baa by Moody's Investors Services, Inc., BBB by
    Standard & Poor's Corporation or in the case of bank bonds not rated by
    either Moody's or S&P, BBB by Fitch Investors Services. This index is
    unmanaged. Source is Lipper Analytical Services, Inc.
 
                                     B-15
<PAGE>
 
The following table depicts the best performing world government bond market
for each year during the period 1983-1994. The performance of these markets is
compared in each case to the performance of long-term U.S. Government bonds
for the same period. As shown in this table, the U.S. market, as represented
by U.S. Government bonds, was the best performing market in only one of the
past ten years. Performance is on a U.S. Dollar total return basis with all
dividends reinvested.
 
                 BEST WORLD BOND MARKETS VS. U.S. BOND MARKET
                                   1983-1994
 
<TABLE>
<CAPTION>
                                          Top Foreign Government  Long-Term U.S.
Year                                             Returns          Govt. Returns
- ----                                      ----------------------  --------------
<S>                                       <C>             <C>     <C>
1983..................................... Japan            12.56%      4.09%
1984..................................... Canada            8.82      14.27
1985..................................... France           52.78      28.49
1986..................................... Japan            43.55      21.01
1987..................................... United Kingdom   47.57      -1.37
1988..................................... Australia        30.34       8.14
1989..................................... Canada           17.97      17.40
1990..................................... United Kingdom   29.16       7.47
1991..................................... Australia        26.70      17.97
1992..................................... Japan            11.96       7.78
1993..................................... Japan            27.58      10.69
1994..................................... Belgium          12.22      -3.36
</TABLE>
- -------
Source: Salomon Brothers World Government Bond Index.
 
The following table depicts the available yields from various global markets
as of January 10, 1995 and shows the wide range of yields among various
markets. Yield is a measure of the income generated by an investment and is
not a complete measure of performance. Yield does not include the effect of
appreciation or depreciation of the underlying investment due to changes in
interest rates or currency valuations or other market conditions, which may
vary from one global market to another. Thus, it is possible for a lower
yielding investment to outperform a higher yielding investment on a total
return basis.
 
                     AVAILABLE YIELDS: INTERNATIONAL BONDS
 
<TABLE>
<CAPTION>
                                                               Long-Term Gov'ts.
                                                               -----------------
<S>                                                            <C>
Australia.....................................................       10.42%
Belgium.......................................................        8.32
Canada........................................................        9.33
France........................................................        8.16
Germany.......................................................        7.48
Holland.......................................................        7.60
Italy.........................................................       12.26
Japan.........................................................        4.65
Spain.........................................................       13.41
Sweden........................................................       10.90
Switzerland...................................................        5.21
Britain.......................................................        8.71
United States.................................................        7.83
</TABLE>
- -------
Source: The Economist. The Economist obtains its yield information from the
following sources: Banco Bilbao Vizcaya, Chase Manhattan, Belgium Bankers
Association, Royal Bank of Canada, Westpac Banking Corp., Credit Lyonnais,
Bank Nederland, Svenska Handelsbanken, CFSB, and the WEFA Group.
 
                                     B-16
<PAGE>
 
INVESTMENT MANAGER AND UNDERWRITER
 
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the Fund's investment manager. Pursuant to
the investment management agreement, KFS acts as the Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, bookkeeping and
administrative services and permits any of its officers or employees to serve
without compensation as trustees or officers of the Fund if elected to such
positions. The investment management agreement provides that the Fund shall
pay the charges and expenses of its operations, including the fees and
expenses of the trustees (except those who are officers or employees of KFS),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and
membership dues. The Fund bears the expenses of registration of its shares
with the Securities and Exchange Commission, while Kemper Distributors, Inc.,
as principal underwriter, pays the cost of qualifying and maintaining the
qualification of each Fund's shares for sale under the securities laws of the
various states. KFS has agreed to reimburse the Fund to the extent required by
applicable state expense limitations should all operating expenses of the
Fund, including the investment management fees of KFS but excluding taxes,
interest, distribution services fees, extraordinary expenses, brokerage
commissions or transaction costs and any other properly excludable expenses,
exceed the applicable state expense limitations. The investment manager
believes that the most restrictive state expense limitation currently in
effect would require that such operating expenses not exceed 2.5% of the first
$30 million of average daily net assets, 2% of the next $70 million and 1.5%
of average daily net assets over $100 million. Under such state expense
limitation, custodian costs attributable to foreign securities that are in
excess of similar domestic custodian costs are excluded from operating
expenses. The Fund may elect to seek an exemption from any otherwise
applicable state expense limitation and, if any such exemption were obtained,
the Fund would be subject to such limitations as may be required by such
exemption.
 
The investment management agreement provides that KFS shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of KFS in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under each agreement.
 
The Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by (a) a
majority of the trustees who are not parties to such agreement or interested
persons of any such party except in their capacity as trustees of the Fund and
(b) by the shareholders or the Board of Trustees of the Fund. The Fund's
investment management agreement may be terminated at any time upon 60 days'
notice by either party, or by a majority vote of the outstanding shares of the
Fund, and will terminate automatically upon assignment. If additional series
become subject to the investment management agreement, the provisions
concerning continuation, amendment and termination shall be on a series by
series basis. Additional series may be subject to a different agreement.
 
PRINCIPAL UNDERWRITER. Pursuant to an underwriting agreement ("underwriting
agreement"), Kemper Distributors, Inc. ("KDI"), an affiliate of KFS, is the
principal underwriter for the shares of the Fund and acts as agent of the Fund
in the continuous offering of its shares. KDI bears all of its expenses of
providing services pursuant to the underwriting agreement. The Fund pays the
cost for the prospectus and shareholder reports to be set in type and printed
for existing shareholders, and KDI pays for the printing and distribution of
copies thereof used in connection with the offering of shares to prospective
investors. KDI also pays for supplementary sales literature and advertising
costs.
 
                                     B-17
<PAGE>
 
The underwriting agreement continues in effect from year to year so long as
such continuance is approved at least annually by a vote of the Board of
Trustees of the Fund, including the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its
assignment and may be terminated at any time without penalty by the Fund or by
KDI upon six months' notice. Termination by the Fund may be by vote of a
majority of the Board of Trustees, or a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the agreement, or a "majority of the outstanding voting
securities" of the Fund, as defined under the Investment Company Act of 1940.
 
Certain trustees or officers of the Fund are also directors or officers of
KFS, KDI or Kemper Investment Management Company Limited, a wholly owned
subsidiary of KFS, as indicated under "Officers and Trustees."
 
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. The Chase Manhattan Bank, N.A., Chase
MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of all
securities and cash of the Fund held outside the United States. Investors
Fiduciary Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri
64105, as custodian, and the United Missouri Bank, n.a., Tenth and Grand
Streets, Kansas City, Missouri 64105 and State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110, as sub-custodians, have
custody of all securities and cash of the Fund maintained in the United
States. They attend to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Fund. IFTC is
also the Fund's transfer agent and dividend-paying agent. Pursuant to a
services agreement with IFTC, Kemper Service Company ("KSvC"), an affiliate of
KFS, serves as "Shareholder Service Agent." IFTC receives an annual fee as
custodian for each Fund of $.10 per $1,000 of average monthly net assets plus
certain transaction charges and out-of-pocket expense reimbursement. IFTC
receives as transfer agent, and pays to KSvC, annual account fees of $6 per
account plus account set up, transaction, maintenance and disaster recovery
charges, and out-of-pocket expense reimbursement. IFTC's fee is reduced by
certain earnings credits in favor of the Fund.
 
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to
do so by the Fund. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.
 
PORTFOLIO TRANSACTIONS
 
KFS is the investment manager for the Kemper Funds and KFS and its affiliates
furnish investment management services to other clients including Kemper
Corporation and the Kemper insurance companies. KFS is the sole shareholder of
Kemper Asset Management Company and Kemper Investment Management Company
Limited. These three entities share some common research and trading
facilities. At times investment decisions may be made to purchase or sell the
same investment securities for the Fund and for one or more of the other
clients managed by KFS. When two or more of such clients are simultaneously
engaged in the purchase or sale of the same security, the transactions are
allocated as to amount and price in a manner considered equitable to each and
so that each receives, to the extent practicable, the average price of such
transactions.
 
National securities exchanges have established limitations governing the
maximum number of options in each class which may be written by a single
investor or group of investors acting in concert. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions. These position limits may restrict the number
of options the Fund will be able to write on a particular security.
 
                                     B-18
<PAGE>
 
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities and options and futures contracts available to the Fund.
On the other hand, the ability of the Fund to participate in volume
transactions may produce better executions for the Fund in some cases. The
Board of Trustees of the Fund believes that the benefits of KFS's organization
outweigh any limitations that may arise from simultaneous transactions or
position limitations.
 
KFS, in effecting purchases and sales of portfolio securities for the account
of the Fund, will implement the Fund's policy of seeking best execution of
orders, which includes best net prices, except to the extent that KFS may be
permitted to pay higher brokerage commissions for research services as
described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which
include execution, clearance procedures, wire service quotations and
statistical and other research information provided to the Fund and KFS. Any
research benefits derived are available for all clients, including clients of
affiliated companies. Since it is only supplementary to KFS's own research
efforts and must be analyzed and reviewed by KFS' staff, the receipt of
research information is not expected to materially reduce expenses. In
selecting among firms believed to meet the criteria for handling a particular
transaction, KFS may give consideration to those firms that have sold or are
selling shares of the Fund and of other funds managed by KFS, as well as to
those firms that provide market, statistical and other research information to
the Fund and KFS, although KFS is not authorized to pay higher commissions or,
in the case of principal trades, higher prices to firms that provide such
services, except as provided below.
 
KFS may in certain instances be permitted to pay higher brokerage commissions
(not including principal trades) solely for receipt of market, statistical and
other research services. Subject to Section 28(e) of the Securities Exchange
Act of 1934 and procedures that may be adopted by the Board of Trustees of the
Fund, the Fund could pay a firm that provides research services to KFS a
commission for effecting a securities transaction for the Fund in excess of
the amount other firms would have charged for the transaction if KFS
determines in good faith that the greater commission is reasonable in relation
to the value of the research services provided by the executing firm viewed in
terms either of a particular transaction or KFS's overall responsibilities to
the Fund or other clients. Not all of such research services may be useful or
of value in advising the Fund. Research benefits will be available for all
clients of KFS and its subsidiaries. The investment management fee paid by the
Fund to KFS is not reduced because KFS receives these research services.
 
PURCHASE AND REDEMPTION OF SHARES
 
As described in the prospectus, Fund shares are sold at their public offering
price, which is the net asset value next determined after an order is received
in proper form. The minimum initial investment is $1 million which amount may
be changed at any time. Subsequent investments may be made in any amount. An
order for the purchase of shares that is accompanied by a check drawn on a
foreign bank (other than a check drawn on a Canadian bank in U.S. Dollars)
will not be considered in proper form and will not be processed unless and
until the Fund determines that it has received payment of the proceeds of the
check. The time required for such a determination will vary and cannot be
determined in advance. The amount received by a shareholder upon redemption or
repurchase may be more or less than the amount paid for such shares depending
on the market value of a Fund's portfolio securities at the time.
 
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described in the Fund's prospectus. When the
Fund is asked to redeem shares for which it may not yet have received good
payment, it may delay the mailing of a redemption check until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days.
 
                                     B-19
<PAGE>
 
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments
is not reasonably practicable, or (ii) it is not reasonably practicable for
the Fund to determine the value of its net assets, or (c) for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of the Fund's shareholders. The amount received by a shareholder
upon redemption or repurchase may be more or less than the amount paid for
such shares depending on the market value of the Fund's portfolio securities
at the time.
 
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy the redemption request in whole or in part by a distribution of
portfolio securities in lieu of cash, in conformity with the applicable rules
of the Securities and Exchange Commission, taking such securities at the same
value used to determine net asset value, and selecting the securities in such
manner as the Board of Trustees may deem fair and equitable. If such a
distribution occurred, shareholders receiving securities and selling them
could receive less than the redemption value of such securities and in
addition would incur certain transaction costs. Such a redemption would not be
so liquid as a redemption entirely in cash. The Fund has elected to be
governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the net assets of the Fund during any 90-day period for
any one shareholder of record.
 
OFFICERS AND TRUSTEES
 
The officers and trustees of the Fund, their principal occupations and their
affiliations, if any, with Kemper Financial Services, Inc., the investment
manager, and Kemper Distributors, Inc., the principal underwriter, are as
follows (The number following each person's title is the number of Kemper
Investment Companies in which he or she holds similar positions):
 
CHARLES M. KIERSCHT, President and Trustee* (31), 120 South LaSalle Street,
Chicago, Illinois; Chairman of the Board, Chief Executive Officer, President
and Director, Kemper Financial Services, Inc. and Kemper Financial Companies,
Inc.; Executive Vice President and Director, Kemper Corporation; Director,
Kemper Distributors, Inc.
 
ARTHUR R. GOTTSCHALK, Trustee (10), 10642 Brookridge Drive, Frankfort,
Illinois; Retired; formerly, President, Illinois Manufacturers Association;
Trustee, Illinois Masonic Medical Center; Member, Board of Governors,
Heartland Institute/Illinois; formerly, Illinois State Senator.
 
FREDERICK T. KELSEY, Trustee (10), 3133 Laughing Gull Court, John's Island,
South Carolina; Retired; formerly, consultant to Goldman, Sachs & Co.;
formerly, President, Treasurer and Trustee of Institutional Liquid Assets and
its affiliated mutual funds, presently comprising the Goldman Sachs Funds
Group, and currently Trustee of certain funds in that Group.
 
STEPHEN B. TIMBERS, Vice President and Trustee* (31), Kemper Center, Long
Grove, Illinois; President, Chief Operating Officer and Director, Kemper
Corporation; Director, Kemper Financial Services, Inc., Kemper Financial
Companies, Inc. and Kemper Securities, Inc.
 
JOHN B. TINGLEFF, Trustee (10), 2015 South Lake Shore Drive, Harbor Springs,
Michigan; President, Tingleff & Associates (management consulting firm);
formerly, Senior Vice President, Continental Illinois National Bank & Trust
Company.
 
                                     B-20
<PAGE>
 
JOHN G. WEITHERS, Trustee (10), 311 Springlake, Hinsdale, Illinois; formerly,
Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange;
Director, Federal Life Insurance Company; Vice Chairman and Trustee, DePaul
University.
 
SANDY A. LINCOLN, Vice President* (31), 120 South LaSalle Street, Chicago,
Illinois; Chief Investment Officer, Senior Executive Vice President and
Director, Kemper Financial Services, Inc.; Senior Vice President and Chief
Investment Officer, Kemper Corporation.
 
JOHN E. PETERS, Vice President* (31), 120 South LaSalle Street, Chicago,
Illinois; Senior Executive Vice President, Kemper Financial Services, Inc.;
President and Director, Kemper Distributors, Inc.
 
J. PATRICK BEIMFORD, JR., Vice President* (24), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President and Director of the Fixed Income
Investments, Kemper Financial Services, Inc.
 
GORDON K. JOHNS, Vice President* (3), 1 Fleet Place, London EC4M 7RQ, Director
and Managing Director, Kemper Investment Management Company Limited; Executive
Vice President and Director of International Fixed Income Investments, Kemper
Financial Services, Inc.; formerly, Director and Head of Fixed Investment
Management, Lazard Investors, Ltd., a London based investment manager.
 
CHARLES F. CUSTER, Vice President and Assistant Secretary* (31), 222 North
LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman & Kammholz
(attorneys), Legal Counsel to the Fund.
 
JEROME L. DUFFY, Treasurer* (31), 120 South LaSalle Street, Chicago, Illinois;
Senior Vice President, Kemper Financial Services, Inc.
 
PHILIP J. COLLORA, Vice President and Assistant Secretary* (31), 120 South
LaSalle Street, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, Kemper Financial Services, Inc.
 
ELIZABETH C. WERTH, Assistant Secretary* (23), 120 South LaSalle Street,
Chicago, Illinois; Vice President and Director of State Registrations, Kemper
Financial Services, Inc.
 
*Interested persons as defined in the Investment Company Act of 1940.
 
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund, except that Mr. Custer's law firm
receives fees from the Fund as counsel to the Fund. The table below shows
amounts estimated to be paid or accrued to those trustees who are not
designated "interested persons" during the Fund's 1995 fiscal year except that
the information in the last column is for calendar year 1994. The Fund pays
trustees who are not designated above as "interested persons" an annual
retainer of $1,500 plus an attendance fee of $200 per Board meeting and $100
per committee meeting attended.
 
<TABLE>
<CAPTION>
                                                                       TOTAL
                                                    PENSION OR      COMPENSATION
                                    AGGREGATE   RETIREMENT BENEFITS KEMPER FUNDS
                                   COMPENSATION ACCRUED AS PART OF    PAID TO
NAME OF TRUSTEE                     FROM FUND      FUND EXPENSES     TRUSTEES**
- ---------------                    ------------ ------------------- ------------
<S>                                <C>          <C>                 <C>
Arthur R. Gottschalk*.............    $2,500             $0           $61,000
Frederick T. Kelsey*..............    $2,500             $0           $60,600
John B. Tingleff..................    $2,500             $0           $62,500
John G. Weithers..................    $2,500             $0           $64,300
</TABLE>
- -------
*Includes current fees deferred and interest pursuant to deferred compensation
 agreements with the Fund. Deferred amounts accrue interest monthly at a rate
 equal to the yield of Kemper Money Market Fund -- Money Market Portfolio.
**Includes compensation for service as a trustee for twenty-one fund
 portfolios for calendar year 1994. Also includes estimated amounts for new
 funds that assume the fund existed at the beginning of the year.
 
As of January 27, 1995, the trustees and officers as a group owned less than
1% of the then outstanding shares of the Fund and KFS owned of record all of
the outstanding shares of the Fund.
 
                                     B-21
<PAGE>
 
SHAREHOLDER RIGHTS
 
The Fund generally is not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of the Fund ("Declaration of
Trust"), however, shareholder meetings will be held in connection with the
following matters: (a) the election or removal of trustees if a meeting is
called for such purpose; (b) the adoption of any contract for which approval
by shareholders is required by the Investment Company Act of 1940 ("1940
Act"); (c) any termination of the Fund or a series or class to the extent and
as provided in the Declaration of Trust; (d) any amendment of the Declaration
of Trust (other than amendments changing the name of the Fund, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); and (e) such additional matters
as may be required by law, the Declaration of Trust, the By-laws of the Fund,
or any registration of the Fund with the Securities and Exchange Commission or
any state, or as the trustees may consider necessary or desirable. The
shareholders also would vote upon changes in fundamental investment
objectives, policies or restrictions.
 
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by
a majority vote of the shares entitled to vote (as described below) or a
majority of the trustees. In accordance with the 1940 Act (a) the Fund will
hold a shareholder meeting for the election of trustees at such time as less
than a majority of the trustees have been elected by shareholders, and (b) if,
as a result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled
only by a vote of the shareholders.
 
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon the written request of ten or more shareholders
who have been such for at least six months and who hold shares constituting at
least 1% of the outstanding shares of the Fund stating that such shareholders
wish to communicate with the other shareholders for the purpose of obtaining
the signatures necessary to demand a meeting to consider removal of a trustee,
the Fund has undertaken to disseminate appropriate materials at the expense of
the requesting shareholders.
 
The Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote
on a matter shall constitute a quorum. Thus, a meeting of shareholders of the
Fund could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority
of a quorum, such as the election of trustees and ratification of the
selection of independent auditors. Some matters requiring a larger vote under
the Declaration of Trust, such as termination or reorganization of the Fund
and certain amendments of the Declaration of Trust, would not be affected by
this provision; nor would matters which under the 1940 Act require the vote of
a "majority of the outstanding voting securities" as defined in the 1940 Act.
 
The Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any series or class by notice to the shareholders
without shareholder approval.
 
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration
 
                                     B-22
<PAGE>
 
of Trust provides for indemnification out of Fund property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund and the Fund will be covered by insurance which the trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered by
KFS remote and not material, since it is limited to circumstances in which a
disclaimer is inoperative and the Fund itself is unable to meet its
obligations.
 
REPORT OF INDEPENDENT AUDITORS
 
The Board of Trustees and Shareholder
Kemper International Bond Fund
 
We have audited the accompanying statement of net assets of Kemper
International Bond Fund as of December 16, 1994. This statement of net assets
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
 
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of net assets is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of net
assets. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of net assets presentation. We believe that our audit of the
statement of net assets provides a reasonable basis for our opinion.
 
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper International Bond
Fund at December 16, 1994 in conformity with generally accepted accounting
principles.
 
 
                                                     Ernst & Young LLP
 
Chicago, Illinois
December 16, 1994
 
                                     B-23
<PAGE>
 
KEMPER INTERNATIONAL BOND FUND
STATEMENT OF NET ASSETS--DECEMBER 16, 1994
 
                                    ASSETS
<TABLE>
<S>                                                                   <C>
Cash................................................................. $100,000
                                                                      --------
 
                                  NET ASSETS
 
Net assets, applicable to 11,111.111 shares of beneficial interest
 outstanding, equivalent to $9.00 per share (unlimited number of
 shares authorized, no par value).................................... $100,000
                                                                      --------
 
                             THE PRICING OF SHARES
 
Net asset value, offering price and redemption price per share
 ($100,000 / 11,111.111 shares
 outstanding)........................................................ $   9.00
                                                                      --------
</TABLE>
 
NOTES:
 
The Fund was organized as a business trust under the laws of The Commonwealth
of Massachusetts on March 2, 1990. 11,111.111 shares of beneficial interest of
the Fund were issued to Kemper Financial Services, Inc. ("KFS"), the
investment manager for the Fund, on December 16, 1994 for $100,000 cash. The
Fund has no prior operating history.
 
The cost of organization of Kemper International Bond Fund will be paid by
KFS.
 
APPENDIX--RATINGS OF INVESTMENTS
 
                  STANDARD & POOR'S CORPORATION BOND RATINGS
 
AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
 
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
 
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
 
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
 
BB, B, CCC, CC AND C. Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
 
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
 
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
 
                                     B-24
<PAGE>
 
                 MOODY'S INVESTORS SERVICE, INC., BOND RATINGS
 
AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
 
AA. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
 
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
 
BAA. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
 
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
 
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
 
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
 
CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
 
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
 
                           IBCA LIMITED BOND RATINGS
 
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
 
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
 
A. Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
 
BBB. Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are
more likely to lead to increased investment risk than for obligations in
higher categories.
 
                                     B-25
<PAGE>
 




                     Kemper International Bond Fund

                   Semiannual Report to Shareholders

                             June 30, 1995


<PAGE>
 

Kemper International Bond Fund
- -------------------------------------------------
    
<TABLE> 
<CAPTION> 
Statement of Net Assets
June 30, 1995

=================================================
<S>                                      <C>  
Assets
- -------------------------------------------------
Federal Home Loan Mortgage Corporation
5.88%, due 7/05/1995, $140,000 par
(Cost: $139,909)                         $139,916
- -------------------------------------------------

Cash                                        2,613
- -------------------------------------------------

Interest receivable                        38,154
- -------------------------------------------------

Total assets                              180,683
- -------------------------------------------------


Liabilities and Net Assets
- -------------------------------------------------
Payable for:
Investments purchased                      73,819
- -------------------------------------------------

Other                                       2,142
- -------------------------------------------------

Total liabilities                          75,961
- -------------------------------------------------

Net assets applicable to 11,111 
shares outstanding, no par value, 
equivalent to $9.42 per share            $104,722
=================================================

Analysis of Net Assets
- -------------------------------------------------
Accumulated net realized gain on 
investments and foreign currency 
transactions                               97,918
- -------------------------------------------------
Unrealized appreciation of 
investments and foreign currency 
transactions                                  402
- -------------------------------------------------
Undistributed net investment income         6,402
- -------------------------------------------------
Net assets applicable to shares 
outstanding                              $104,722
=================================================

The Pricing of Shares
- -------------------------------------------------
Net asset value, offering and 
redemption price per share
($104,722/11,111 shares outstanding)        $9.42
=================================================
</TABLE>     

See accompanying Notes to Financial Statements.


                                      (1)
<PAGE>

Kemper International Bond Fund
- --------------------------------------------
<TABLE> 
<CAPTION> 
Statement of Operations
For the Period from February 1, 1995
(initial public offering) to June 30, 1995

- --------------------------------------------
<S>                                <C>                             


Interest income                     $107,119
- --------------------------------------------

Expenses
- --------------------------------------------

  Management fee                      10,326
- --------------------------------------------

  Other                                2,673
- --------------------------------------------

    Total expenses                    12,999
- --------------------------------------------

Net investment income                 94,120
- --------------------------------------------


Net realized and unrealized gain
on investments
- --------------------------------------------
  Net realized gain on 
  investments and foreign 
  currency transactions              134,745
- --------------------------------------------
  Net change in unrealized 
  appreciation of investments 
  and foreign currency 
  transactions                           402
- --------------------------------------------
Net gain on investments              135,147
- --------------------------------------------
Net increase in assets resulting
from operations                     $229,267
============================================


- --------------------------------------------
Statement of Changes in Net Assets
For the Period from February 1, 1995
(initial public offering) to June 30, 1995

- --------------------------------------------



Operations
- --------------------------------------------

   Net investment income           $  94,120
- --------------------------------------------
   Net realized gain on 
   investments and foreign 
   currency transactions             134,745
- --------------------------------------------
   Net change in unrealized
   appreciation                          402
- --------------------------------------------
Net increase in net assets
resulting from operations            229,267
- --------------------------------------------

Net equalization charges             (87,718)
- --------------------------------------------
Net decrease from capital
share transactions                  (136,827)
- --------------------------------------------

Total increase in net assets           4,722
- --------------------------------------------

Net assets
- --------------------------------------------
Beginning of period                  100,000
- --------------------------------------------
End of period (including
undistributed net investment
income of $6,402)                  $ 104,722
============================================
</TABLE> 

See accompanying Notes to Financial Statements.


                                      (2)
<PAGE>
 

Kemper International Bond Fund
- --------------------------------------------------------------------------

Notes to Financial Statements

===========================================================================

1. Significant accounting policies

Investment valuation

Investments are stated at value. Fixed income securities are valued by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Portfolio securities
that are traded on a domestic securities exchange are valued at the last sale
price on the exchange where primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio securities that are primarily traded
on foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges where primarily traded.
Forward foreign currency contracts and foreign currencies are valued at the
forward and current exchange rates, respectively, prevailing on the day of
valuation. Other securities and assets are valued at fair value as determined in
good faith by the Board of Trustees.


Currency translation

The books and records of the Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values at the mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a recognized dealer. If such
quotations are not readily available, the rate of exchange is determined in good
faith by the Board of Trustees.

Income and expenses and purchases and sales of investments are translated into
U.S. dollars at the rate of exchange prevailing on the respective dates of such
transactions. The Fund includes that portion of the results of operations
resulting from changes in foreign exchange rates with net realized and
unrealized gain or loss from investments and foreign currency transactions, as
appropriate.


Investment transactions and investment income

Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis; it
includes premium and discount amortization on money market instruments and
discount amortization on long-term fixed income securities. Realized gains and
losses from investment transactions are reported on an identified cost basis.


Fund share valuation

Fund shares are sold and redeemed on a continuous basis at net asset value. On
each day the New York Stock Exchange is open for trading, the net asset value
per share is determined as of the earlier of 3:00 p.m. Chicago time or the close
of the Exchange by dividing the net assets by the number of outstanding shares.
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 and dividends to shareholders

The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies and therefore no federal income tax provision
is required.
    
Distributions to shareholders are determined in accordance with income tax
principles, which may treat certain transactions different than generally
accepted accounting principles.     

                                      (3)
<PAGE>


Kemper International Bond Fund
- -------------------------------------------------------------------------------



===============================================================================

Equalization accounting

A portion of proceeds from sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment income so that income per
share available for distribution is not affected by sales or redemptions of
shares.


2.  Transactions with affiliates

Management agreement

The Fund has a management agreement with Kemper Financial Services, Inc. (KFS),
and pays a management fee at an annual rate of .75% of the first $250 million of
average daily net assets declining gradually to .62% of average daily net assets
in excess of $12.5 billion. For the period ended June 30, 1995, the Fund
incurred a management fee of $10,326.


Officers and Trustees

Certain officers or trustees of the Fund are also officers or directors of KFS.
During the period ended June 30, 1995, the Fund made no direct payments to its
officers or independent trustees.


3.  Investment transactions

For the period ended June 30, 1995, investment transactions (excluding short-
term instruments) are as follows:

Purchases                          $9,238,351
Proceeds from sales                 9,380,468


4.  Capital share transactions

The following table summarizes the activity in capital shares of the Fund:


<TABLE> 
<CAPTION> 
                                          Period ended
                                          June 30, 1995
                                          -------------
                                     Shares            Amount
                                     ------            ------
<S>                                 <C>            <C>  
                          
Shares sold                           770,926       $ 7,000,000
- -----------------------------------------------------------------
Shares redeemed                      (770,926)       (7,136,827)
- -----------------------------------------------------------------
Net decrease from capital                      
share transactions                                  $  (136,827)
=================================================================
</TABLE> 



                                      (4)
<PAGE>
 
Kemper International Bond Fund
- -----------------------------------------------------------------------
<TABLE> 
<CAPTION> 
Financial Highlights
For the period from February 1, 1995 (initial public
offering) to June 30, 1995
<S>                                                     <C>  
=======================================================================



- -----------------------------------------------------------------------
Per Share Operating Performance:

Net asset value, beginning of period                              $9.00
- -----------------------------------------------------------------------

  Net investment income                                             .02
- -----------------------------------------------------------------------
  Net realized and unrealized gain on investments
  and foreign currency transactions                                 .40
- -----------------------------------------------------------------------
Net asset value, end of period                                    $9.42
=======================================================================

Total Return (%):                                                  4.67
=======================================================================

Ratios to Average Net Assets (%):

Expenses                                                            .94
- -----------------------------------------------------------------------

Net investment income                                              6.87
=======================================================================

Supplemental Data:

Net assets at end of period                                    $104,722
- -----------------------------------------------------------------------

Portfolio Turnover Rate (%)                                          60
=======================================================================


Note:
Ratios have been determined on an annualized basis while total return is
not annualized.

========================================================================
</TABLE> 


                                                                (5)
<PAGE>
 
                        KEMPER INTERNATIONAL BOND FUND
 
                                    PART C.
 
                               OTHER INFORMATION
 
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
 
  (a) Financial Statements
 
    (i) Financial statements included in Part A of the Registration
    Statement:
 
      None.
 
    (ii) Financial statements included in Part B of the Registration
    Statement:
         
      Statement of Net Assets--December 16, 1994.     
 
      Report of Independent Auditors.
         
      Statement of Net Assets--June 30, 1995 (unaudited).     
         
      Statement of Operations for the period from February 1, 1995 to June
      30, 1995 (unaudited).     
         
      Statement of Changes in Net Assets for the period from February 1,
      1995 to June 30, 1995 (unaudited).     
         
      Notes to Financial Statements.     
       
    Schedule I has been omitted as the required information is presented in
    the Statement of Net Assets at June 30, 1995.     
       
    Schedules II, III, IV, V, VI and VII are omitted as the required
    information is not present.     
 
  (b) Exhibits
<TABLE>       
     <C>         <S>
     99.b1.      Amended and Restated Agreement and Declaration of Trust.
     99.b2.      By-Laws.
     99.b3.      Inapplicable.
     99.b4.      Text of Share Certificate.
     99.b5.      Investment Management Agreement.
     99.b6.      (a) Underwriting Agreement.
                 (b) Form of Selling Group Agreement.
     99.b7.      Inapplicable.
     99.b8.      (a) Custody Agreement.
                 (b) Custody Agreement.
     99.b9.      Agency Agreement.
     99.b10.     Inapplicable.
     99.b11.     Consent of Independent Auditors.
     99.b12.     Inapplicable.
     99.b13.     Subscription Agreement.
     99.b14.     Inapplicable.
     99.b15.     Inapplicable.
     99.b16.     Inapplicable.
     99.b24.     Powers of Attorney.
     99.b485.(b) Representation of Counsel (Rule 485(b)).
     27.         Financial Data Schedule.
</TABLE>    
 
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
 
  Inapplicable.
 
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
   
  As of July 14, 1995, there was no holder of record of Kemper International
Bond Fund.     
 
                                      C-1
<PAGE>
 
ITEM 27. INDEMNIFICATION
 
  Article VIII of the Registrant's Agreement and Declaration of Trust (Exhibit
1 hereto, which is incorporated herein by reference) provides in effect that
the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the
Agreement and Declaration of Trust does not protect any person against any
liability to the Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
 
  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
 
ITEM 28.(A) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
 
  Information pertaining to business and other connections of the Registrant's
investment adviser is hereby incorporated by reference to the section of the
Prospectus captioned "Investment Manager and Underwriter," and to the section
of the Statement of Additional Information captioned "Investment Manager and
Underwriter."
   
  Kemper Financial Services, Inc., investment adviser of the Registrant, is
investment adviser of the following:     
 
Kemper Mutual Funds:                   Kemper Global Income Fund
Kemper Technology Fund                 Kemper Target Equity Fund
Kemper Total Return Fund               Cash Account Trust
Kemper Growth Fund                     Investors Cash Trust
Kemper Small Capitalization Equity FundTax-Exempt New York Money Market Fund
Kemper Income and Capital Preservation Fund
 
Kemper Money Market Fund               Kemper Closed-End Funds:
   
Kemper National Tax-Free Income Series     
                                       Kemper High Income Trust
Kemper Diversified Income Fund         Kemper Intermediate Government Trust
Kemper High Yield Fund                 Kemper Municipal Income Trust
Cash Equivalent Fund                   Kemper Multi-Market Income Trust
Kemper U.S. Government Securities Fund Kemper Strategic Municipal Income
Kemper International Fund              Trust
Kemper Portfolios                      The Growth Fund of Spain, Inc.
Kemper State Tax-Free Income Series    Kemper Strategic Income Fund
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
   
  Kemper Financial Services, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors
Fund and Sterling Funds.     
 
                                      C-2
<PAGE>
 
Item 28(b) Business and Other Connections of Officers and Directors of Kemper
Financial Services Inc., the Investment Advisor

BORIS, JAMES R. 
  Director, Kemper Financial Services, Inc. 
  Director, INVEST Financial Corporation 
  Director, INVEST Financial Corporation Holding Company 
  Executive Vice President, Kemper Corporation 
  Director, Executive Vice President, Kemper Financial Companies, Inc. 
  Director, Kemper Investors Life Insurance Company 
  Director, Kemper Sales Company 
  Director, Chairman and CEO, Kemper Securities, Inc.

MATHIS, DAVID B.
  Director, Kemper Financial Services, Inc.                           
  Director, Federal Kemper Life Assurance Company                     
  Director, Fidelity Life Association                                 
  Director, Chairman and Chief Executive Officer, Kemper              
  Corporation                                                         
  Director, Kemper Financial Companies, Inc.                          
  Director, Kemper Investors Life Insurance Company                   
  Director, Kemper Securities Holdings, Inc.                          
  Director, Kemper Securities, Inc.                                   
  Director, IMC Global, Inc.                                          
  Trustee, Kemper Mutual Funds                                        
  Trustee, Kemper Closed-End Funds                                    
  Trustee, Kemper International Bond Fund                             

TIMBERS, STEPHEN B.                                                 
  Director, Chairman, Chief Executive Officer and Chief Investment    
  Officer, Kemper Financial Services, Inc.                            
  Director, Kemper Advisors, Inc.                                     
  Director, Vice President, Kemper Asset Holdings, Inc.               
  Director, Kemper Distributors, Inc.                                 
  Director, Chairman, Kemper Asset Management Company                 
  Director, Chairman, Kemper Service Company                          
  Director, Federal Kemper Life Assurance Company                     
  Director, Vice President, FKLA Loire Court, Inc.                   
  Director, Vice President, FKLA Realty Corporation                  
  Director, President, Galaxy Offshore, Inc.                          
  Director, Vice President, FLA First Nationwide, Inc.               
  Director, Vice President, FLA Plate Building, Inc.                
  Director, Vice President, FLA Realty Corp.                         
  Trustee and President, Kemper Closed-End Funds                      
  Director, President and Chief Operating Officer, Kemper Corporation
  Director, Chairman, President and Chief Executive Officer, Kemper   
  Financial Companies, Inc.                                           
  Director, President, Kemper International Management, Inc.          
  Trustee and Vice President, Kemper Investors Fund                  
  Director, Kemper Investors Life Insurance Company                    
<PAGE>
 
  Trustee and President, Kemper Mutual Funds                                
  Director, Vice President, Kemper Portfolio Corp.                     
  Director, Vice President, Kemper Real Estate, Inc.                   
  Director, Kemper Securities, Inc.                                    
  Director, Kemper Securities Holdings, Inc.                           
  Director, Vice President, Kemper/Cymrot Management, Inc.             
  Director, Vice President, Kemper/Cymrot, Inc.                        
  Director, Vice President, KFC Portfolio Corp.                        
  Director, Vice President, KID Aaron Rents, Inc.                      
  Director, Vice President, KI Arnold Industrial, Inc.                 
  Director, Vice President, KI Canyon Park, Inc.                       
  Director, Vice President, KI Dublin Boulevard, Inc.                  
  Director, Vice President, KI LaFiesta Square, Inc.                   
  Director, Vice President, KI Monterey Research, Inc.                 
  Director, Vice President, KI Olive Street, Inc.                      
  Director, Vice President, KI Sutter Street, Inc.                     
  Director, Vice President, KI Thornton Boulevard, Inc.                
  Director, Vice President, KILICO Realty Corporation                  
  Director, Vice President, KR 77 Fitness Center, Inc.                 
  Director, Vice President, KR Avondale Redmond, Inc.                  
  Director, Vice President, KR Black Mountain, Inc.                    
  Director, Vice President, KR Brannan Resources, Inc.                 
  Director, Vice President, KR Clay Capital, Inc.                      
  Director, Vice President, KR Cranbury, Inc.                          
  Director, Vice President, KR Delta Wetlands, Inc.                    
  Director, Vice President, KR Gainesville, Inc.                       
  Director, Vice President, KR Hotels, Inc.                            
  Director, Vice President, KR Lafayette Apartments, Inc.              
  Director, Vice President, KR Lafayette BART, Inc.                    
  Director, Vice President, KR Palm Plaza, Inc.                        
  Director, Vice President, KR Red Hill Associates, Inc.               
  Director, Vice President, KR Seagate/Gateway North, Inc.             
  Director, Vice President, KR Venture Way, Inc.                       
  Director, Vice President, KR Walnut Creek, Inc.                      
  Trustee, Vice President, Sterling Funds                              
  Director, The LTV Corporation                                        
  Director, Gillett Holdings, Inc.                                     
  Director, Investment Analysts Society of Chicago                     

NEAL, JOHN E.                                                        
  Director, President and Chief Operating Officer, Kemper Financial    
  Services, Inc.                                                       
  Director, President, Kemper Advisors, Inc.                           
  Director, President, Kemper Service Company                          
  Director, Kemper Distributors, Inc.                                  
  Director, Kemper Asset Management Company                            
  Director, Supervised Service Company                                 
  Director, Ardenwood Financial Corporation                            
  Director, Avondale Redmond, Inc.                                     
  Director, Bedford Holding Company                                    
  Director, Black Mountain, Inc.                                       
  Director, Brannan Resources, Inc.                                    
  Director, Butterfield Financial Corporation                          
  Director, Camelot Financial Corporation                               
<PAGE>
 
  Director, Clay Capital, Inc.                                                  
  Director, Concord Aviation, Inc.                                             
  Director, Coast Broadcasting Company                                         
  Director, Crow Canyon, Inc.                                                  
  Director, Hawaii Kai Development Company                                     
  Director, Kacor Gateway, Inc.                                                
  Director, Kailua Associates, Inc.                                            
  Director, Kacor Trust Deed Company                                           
  Director, Community Investment Corporation                                   
  Director, Continental Community Development Corporation                      
  Director, President, FKLA Loire Court, Inc.                                  
  Director, President, FKLA Realty Corporation                                 
  Director, President, FLA First Nationwide, Inc.                              
  Director, President, FLA Plate Building, Inc.                                
  Director, President, FLA Realty Corporation                                  
  Director, Kemper/Lumbermens Properties, Inc.                                 
  Director, Senior Vice President, Kemper Real Estate Management Company       
  Director, KRDC, Inc. 
  Director, Lafayette Apartments                          
  Director, Lafayette Hills, Inc.                                              
  Director, Margarita Village Retirement Community                             
  Director, Mesa Homes 
  Director, Mesa Homes Brokerage Company                  
  Director, Mount Doloroes Corporation                                         
  Director, Montgomery Gallery, Inc.                                           
  Director, Monterey Research Park, Inc.                                       
  Director, One Business Centre                                                
  Director, Pacific Homes, Inc.                                                
  Director, Palomar Triad, Inc.                                                
  Director, Pine/Battery Properties, Inc.                                      
  Director, Rancho and Industrial Property Brokerage, Inc.                     
  Director, Rancho California, Inc.                                            
  Director, Rancho Regional Shopping Center, Inc.                              
  Director, Red Hill Associates, Inc.                                          
  Director, Seagate Associates, Inc.                                           
  Director, Seattle Gateway, Inc.                                              
  Director, Sutter Street, Inc.                                                
  Director, Technology Way, Inc.                                               
  Director, Time DC, Inc. 
  Director, Tourelle, Inc.                             
  Director, Two Corporate Center                                               
  Director, Venture Way, Inc.                                                  
  Director, President, Kemper Portfolio Corporation                            
  Director, President, KFC Portfolio Corporation                               
  Director, President, KILICO Realty Corporation                               
  Director, President, KI Arnold Industrial, Inc.                              
  Director, President, KI Canyon Park, Inc.                                    
  Director, President, KI Dublin Boulevard, Inc.                               
  Director, President, KI LaFiesta Square, Inc.                                
  Director, President, KI Lafayette BART, Inc.                                 
  Director, President, KI Monterey Research, Inc.                              
  Director, President, KI Olive Street, Inc.                                   
  Director, President, KI Thornton Boulevard, Inc.                              
<PAGE>
 
  Director, President, KI Sutter Street, Inc.       
  Director, President, KR 77 Fitness Center, Inc.   
  Director, President, KR Avondale Redmond, Inc.     
  Director, President, KR Black Mountain, Inc.      
  Director, President, KR Brannan Resources, Inc.   
  Director, President, KR Clay Capital, Inc.        
  Director, President, KR Cranbury, Inc.            
  Director, President, KR Delta Wetlands, Inc.      
  Director, President, KR Gainesville, Inc.         
  Director, President, KR Hotels, Inc.              
  Director, President, KR Lafayette Apartments, Inc.
  Director, President, KR Palm Plaza, Inc.          
  Director, President, KR Red Hill Associates, Inc. 
  Director, President, KR Seagate/Gateway North, Inc.
  Director, President, KR Venture Way, Inc.         
  Director, President, KR Walnut Creek, Inc.        
  Director, K-P Greenway, Inc.                      
  Director, K-P Enterprise Centers, Inc.            
  Director, K-P Plaza Dallas, Inc.                  
  Director, Kemper/Prime Acquisition Fund, Inc.     
  Director, KRDC, Inc. 
  Director, RespiteCare        
  Director, President, SMS Realty Corp.             
  Director, Urban Shopping Centers, Inc.             

PETERS, JOHN E.
  Director, Senior Executive Vice President, Kemper Financial
  Services, Inc.                                             
  Director, Senior Vice President, Kemper Advisors, Inc.     
  Director, President, Kemper Distributors, Inc.             
  Director, President, Kemper Sales Company                  
  Vice President, Kemper Asset Management Company            
  Vice President, Kemper Closed-End Funds                    
  Vice President, Kemper International Bond Fund             
  Vice President, Kemper Investors Fund                      
  Vice President, Kemper Mutual Funds                        
  Vice President, Kemper Target Equity Fund                  
  Director, Kemper Service Company                           
  Vice President, Sterling Funds                              

FITZPATRICK, JOHN H. 
  Director, Chief Financial Officer, Kemper Financial Services, Inc.     
  Director, Ardenwood Financial Corporation                              
  Director, Camelot Financial Corporation 
  Director, Crow Canyon, Inc.    
  Director, Hawaii Kai Development Company                               
  Director, Kacor Gateway, Inc.                                          
  Director, Kacor Trust Deed Company                                     
  Director, Senior Vice President and Chief Financial Officer, 
  Federal Kemper Life Assurance Company 
  Senior Vice President, Chief Financial Officer, Fidelity Life 
  Association                   
  Director, Vice President, FKLA Loire Court, Inc.                        
<PAGE>
 
  Director, Vice President, FLA First Nationwide, Inc.                        
  Director, Vice President, FLA Plate Building, Inc.                          
  Director, Executive Vice President and Chief Financial Officer,              
  Kemper Corporation                                                          
  Director, Executive Vice President and Chief Financial 
  Officer, Kemper Financial Companies, Inc. 
  Senior Vice President, Kemper Investors Life Insurance Company   
  Director, Senior Vice President, Kemper Real Estate Management 
  Company      
  Director, Vice President, Kemper/Cymrot Management, Inc.                    
  Director, Vice President, Kemper/Cymrot, Inc. 
  Director, Vice President, Kemper/Lumbermens Properties, Inc. 
  Director, Senior Vice President, Kemper Real Estate Management 
  Company      
  Director, KRDC, Inc. 
  Director, Margarita Retirement Community, Inc.         
  Director, Mesa Homes 
  Director, Mesa Homes Brokerage Company                 
  Director, Montgomery Gallery, Inc.                                          
  Director, One Corporate Centre, Inc.                                        
  Director, Pacific Homes, Inc.                                               
  Director, Palomar Triad, Inc.                                               
  Director, Pine/Battery Property, Inc.                                       
  Director, Rancho and Industrial Property Brokerage, Inc.                    
  Director, Rancho California, Inc.                                           
  Director, Rancho Regional Shopping Center, Inc.                             
  Director, Seattle Gateway, Inc.                                             
  Director, SMS Realty Corporation                                            
  Director, Sutter Street, Inc.                                               
  Director, Time DC, Inc.                                                     
  Director, Two Corporate Center                                              
  Director, Vice President, KFC Portfolio Corp.                               
  Director, Vice President, KI Aaron Rents, Inc.                              
  Director, Vice President, KI Arnold Industrial, Inc.                        
  Director, Vice President, KI Canyon Park, Inc.                              
  Director, Vice President, KI Dublin Boulevard, Inc.                         
  Director, Vice President, KI Lafayette BART, Inc.                           
  Director, Vice President, KI LaFiesta Square, Inc.                          
  Director, Vice President, KI Monterey Research, Inc.                        
  Director, Vice President, KI Olive Street, Inc.                             
  Director, Vice President, KI Thornton Boulevard, Inc.                       
  Director, Vice President, KILICO Realty Corporation                         
  Director, Vice President, KR 77 Fitness Center, Inc.                        
  Director, Vice President, KR Avondale Redmond, Inc.                         
  Director, Vice President, KR Black Mountain, Inc. 
  Director, Vice President, KR Brannan Resources, Inc.        
  Director, Vice President, KR Clay Capital, Inc.             
  Director, Vice President, KR Cranbury, Inc.                  
  Director, Vice President, KR Delta Wetlands, Inc.           
  Director, Vice President, KR Gainesville, Inc.              
  Director, Vice President, KR Hotels, Inc.                   
  Director, Vice President, KR Lafayette Apartments, Inc.     
  Director, Vice President, KR Palm Plaza, Inc.               
  Director, Vice President, KR Red Hill Associates, Inc.        
<PAGE>
 
  Director, Vice President, KR Seagate/Gateway North, Inc. 
  Director, Vice President, KR Venture Way, Inc. 
  Director, Vice President, KR Walnut Creek, Inc.

BEIMFORD, JR., JOSEPH P.
  Executive Vice President, Kemper Financial Services, Inc.
  Vice President, Cash Account Trust
  Vice President, Cash Equivalent Fund
  Vice President, Galaxy Offshore, Inc.
  Vice President, Investors Cash Trust
  Vice President, Kemper Adjustable Rate U.S. Government Fund
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper Global Income Fund
  Vice President, Kemper High Income Trust
  Vice President, Kemper High Yield Fund
  Vice President, Kemper Income and Capital Preservation Fund
  Vice President, Kemper Intermediate Government Trust
  Vice President, Kemper International Bond Fund
  Vice President, Kemper Investors Fund
  Vice President, Kemper Money Market Fund
  Vice President, Kemper Multi-Market Income Trust
  Vice President, Kemper Municipal Income Trust
  Vice President, Kemper National Tax-Free Income Series
  Vice President, Kemper Portfolios
  Vice President, Kemper State Tax-Free Income Series
  Vice President, Kemper Strategic Income Fund
  Vice President, Kemper Strategic Municipal Income Trust
  Vice President, Kemper U.S. Government Securities Fund
  Vice President, Sterling Funds
  Vice President, Tax-Exempt California Money Market Fund
  Vice President, Tax-Exempt New York Money Market Fund

CHAPMAN II, WILLIAM E. 
  Executive Vice President, Kemper Financial Services, Inc.
  Director, Executive Vice President, Kemper Distributors, Inc.

COTNER, C. BETH
  Executive Vice President, Kemper Financial Services, Inc.
  Trustee, Kemper Financial Services, Inc., Profit Sharing Plan
  Vice President, Kemper Blue Chip Fund
  Vice President, Kemper Growth Fund
  Vice President, Kemper Investors Fund
  Vice President, Kemper Small Capitalization Equity Fund
  Vice President, Kemper Target Equity Fund
  Vice President, Kemper Technology Fund
  Vice President, Kemper Total Return Fund
  Vice President, Sterling Funds

COXON, JAMES H.
  Executive Vice President, Kemper Financial Services, Inc.
  Director, Vice President, Galaxy Offshore, Inc.
  Executive Vice President, Kemper Asset Management Company

<PAGE>
 
FERRO, DENNIS H. 
  Executive Vice President, Kemper Financial Services, Inc. 
  Vice President, Kemper International Fund 
  Director, Managing Director-Equities, Kemper Investment 
  Management Company Limited 
  Vice President, Kemper Investors Fund 
  Vice President, Kemper Target Equity Fund 
  Vice President, The Growth Fund of Spain, Inc.

GREENAWALT, JAMES L.
  Executive Vice President, Kemper Financial Services, Inc.
  Director, Executive Vice President, Kemper Distributors, Inc.
  Director, Kemper Sales Company

JOHNS, GORDON K.
  Executive Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Global Income Fund
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper International Bond Fund
  Vice President, Kemper International Management, Inc.
  Managing Director and Joint Secretary, Kemper Investment
  Management Company Limited
  Vice President, Kemper Multi-Market Income Trust
  Director, Thames Heritage Parade Limited

LANGBAUM, GARY A.
  Executive Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Total Return Fund
  Vice President, Kemper Investors Fund

SILIGMUELLER, DALE S. 
  Executive Vice President, Kemper Financial Services, Inc.
  Director, Executive Vice President, Kemper Service Company 
  Director, Executive Vice President, Supervised Service Company, Inc. 
  Director, Kemper Advisors, Inc.

BUKOWSKI, DANIEL J. 
  Senior Vice President, Kemper Financial Services, Inc.
    
BUTLER DAVID H.      
  Senior Vice President, Kemper Financial Services, Inc.

CERVONE, DAVID M. 
  Senior Vice President, Kemper Financial Services, Inc.

CESSINE, ROBERT S.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Income and Capital Preservation Fund
  Vice President, Kemper Diversified Income Fund

CHESTER, TRACY McCORMICK
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Blue Chip Fund
<PAGE>
 
  Vice President, Kemper Target Equity Fund

COLLECCHIA, FRANK E.
  Senior Vice President, Kemper Financial Services, Inc.
  Senior Investment Officer, Federal Kemper Life Assurance Company 
  Senior Investment Officer, Fidelity Life Association 
  Vice President, FKLA Loire Court, Inc. 
  Vice President, FLA First Nationwide, Inc. 
  Vice President, FLA Plate Building, Inc. 
  Vice President, Galaxy Offshore, Inc. 
  Senior Investment Officer, Kemper Investors Life Insurance Company 
  Vice President, KI Aaron Rents, Inc. 
  Vice President, KI Arnold Industrial, Inc. 
  Vice President, KI Canyon Park, Inc. 
  Vice President, KI Dublin Boulevard, Inc. 
  Vice President, KI Lafayette BART, Inc. 
  Vice President, KI LaFiesta Square, Inc. 
  Vice President, KI Monterey Research, Inc. 
  Vice President, KI Olive Street, Inc. 
  Vice President, KI Thornton Boulevard, Inc. 
  Vice President, KR 77 Fitness Center, Inc. 
  Vice President, KR Avondale Redmond, Inc. 
  Vice President, KR Black Mountain, Inc. 
  Vice President, KR Brannan Resources, Inc. 
  Vice President, KR Clay Capital, Inc. 
  Vice President, KR Cranbury, Inc. 
  Vice President, KR Delta Wetlands, Inc. 
  Vice President, KR Gainesville, Inc. 
  Vice President, KR Gulf Coast Factory Shops, Inc. 
  Vice President, KR Halawa Associates, Inc.
  Vice President, KR Hotels, Inc. 
  Vice President, KR Lafayette Apartments, Inc. 
  Vice President, KR Palm Plaza, Inc. 
  Vice President, KR Red Hill Associates, Inc.
  Vice President, KR Seagate/Gateway North, Inc. 
  Vice President, KR Venture Way, Inc. 
  Vice President, KR Walnut Creek, Inc.

COLLORA, PHILIP J.
  Senior Vice President and Assistant Secretary, Kemper Financial Services, Inc.
  Vice President and Secretary, Kemper Closed-End Funds
  Assistant Secretary, Kemper International Management, Inc.
  Vice President and Secretary, Kemper Investors Fund
  Vice President and Secretary, Kemper Mutual Funds
  Vice President and Secretary, Kemper Target Equity Fund
  Vice President and Secretary, Sterling Funds
  Vice President and Secretary, Kemper International Bond Fund

DIERENFELDT, DAVID F.
  Senior Vice President, Associate General Counsel,
  Assistant Secretary and Compliance Officer, Kemper Financial
<PAGE>
 
  Services, Inc. 
  Secretary, Kemper Advisors, Inc. 
  Vice President and Secretary, Kemper Distributors, Inc. 
  Assistant Secretary, Galaxy Offshore, Inc. 
  Director, Secretary, INVEST Financial Corporation 
  Secretary, INVEST Financial Corporation Holding Company 
  Assistant Secretary, Investors Brokerage Services Insurance Agency, Inc. 
  Assistant Secretary, Investors Brokerage Services, Inc. 
  Secretary, Kemper Asset Management Company 
  Assistant Secretary, Kemper International Management, Inc. 
  Assistant Secretary, Kemper Investment Management Company Limited 
  Vice President and Assistant Secretary, Kemper Investors Fund
  Secretary, Kemper Sales Company 
  Secretary, Kemper Service Company 
  Secretary, Supervised Service Company, Inc.

DUDASIK, PATRICK H.
  Senior Vice President, Kemper Financial Services, Inc.
  Treasurer, Kemper Advisors, Inc.
  Vice President and Treasurer, Kemper Asset Management Company
  Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
  Director, Treasurer and Chief Financial Officer, Kemper Sales Company
  Treasurer and Chief Financial Officer, Kemper Service Company
  Treasurer and Chief Financial Officer, Supervised Service Company, Inc.
  Director and Treasurer, Kemper Investment Management Company Limited

DUFFY, JEROME L.
  Senior Vice President, Kemper Financial Services, Inc.
  Treasurer, Kemper Closed-End Funds
  Treasurer, Kemper International Bond Fund
  Treasurer, Kemper Investors Fund
  Treasurer, Kemper Mutual Funds
  Treasurer, Kemper Target Equity Fund
  Treasurer, Sterling Funds

GLASSMAN, HARVEY 
  Senior Vice President, Kemper Financial Services, Inc.

GOERS, RICHARD A.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Technology Fund

GUENTHER, HAROLD E. 
  Senior Vice President, Kemper Financial Services, Inc. 
  Vice President, Galaxy Offshore, Inc.

HUSSEY, KAREN A.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Investors Fund
<PAGE>
 
  Vice President, Kemper Small Capitalization Equity Fund

INNES, BRUCE D.
  Vice President, Kemper Financial Services, Inc.
  Co-President, International Association of Corporate and Professional 
  Recruiters

KLEIN, GEORGE
  Senior Vice President, Kemper Financial Services, Inc.
  Director, Executive Vice President, Kemper Asset Management Company

KORTH, FRANK D.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Technology Fund

McNAMARA, MICHAEL A.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper High Income Trust
  Vice President, Kemper High Yield Fund
  Vice President, Kemper Investors Fund

MIER, CHRISTOPHER J.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper National Tax-Free Income Series
  Vice President, Kemper Municipal Income Trust
  Vice President, Kemper State Tax-Free Income Series
  Vice President, Kemper Strategic Municipal Income Trust
  Vice President, Sterling Funds

MURRIHY, MAURA J.
  Senior Vice President, Kemper Financial Services, Inc.

NATHANSON, IRA
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Corporation

NEEL, JAMES R.
  Senior Vice President, Kemper Financial Services, Inc.
  Executive Vice President, Kemper Asset Management Company

RACHWALSKI, JR. FRANK J.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Cash Account Trust
  Vice President, Cash Equivalent Fund
  Vice President, Investors Cash Trust
  Vice President, Kemper Investors Fund
  Vice President, Kemper Money Market Fund
  Vice President, Kemper Portfolios
  Vice President, Sterling Funds
  Vice President, Tax-Exempt California Money Market Fund
  Vice President, Tax-Exempt New York Money Market Fund
<PAGE>
 
REGNER, THOMAS M.
  Senior Vice President, Kemper Financial Services, Inc.

RESIS, JR., HARRY E.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper High Income Trust
  Vice President, Kemper High Yield Fund
  Vice President, Kemper Investors Fund

SCHUMACHER, ROBERT T.
  Senior Vice President, Kemper Financial Services, Inc.

SLOAN, PAUL F.
  Senior Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Investors Fund
  Vice President, Kemper Intermediate Government Trust
  Vice President, Kemper Multi-Market Income Trust
  Vice President, Kemper Strategic Income Fund
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper Portfolios
  Vice President, Kemper U.S. Government Securities Fund
  Vice President, Kemper Adjustable Rate U.S. Government Fund

BURROW, DALE R.
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Strategic Municipal Income Trust

BYRNES, ELIZABETH A.
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Adjustable Rate U.S. Government Fund
  Vice President, Kemper Intermediate Government Trust

CHIEN, CHRISTINE
  First Vice President, Kemper Financial Services, Inc.

DeMAIO, CHRIS C.
  First Vice President, Kemper Financial Services, Inc.
  Vice President and Chief Accounting Officer, Kemper Service Company
  Vice President and Chief Accounting Officer, Supervised Service Company, Inc.

DEXTER, STEPHEN P.
  First Vice President, Kemper Financial Services, Inc.

DOYLE, DANIEL J.
  First Vice President, Kemper Financial Services, Inc.

FENGER, JAMES E.
  First Vice President, Kemper Financial Services, Inc.

FISHER, REMY M.
  First Vice President, Kemper Financial Services, Inc.
<PAGE>
 
HALE, DAVID D.
  First Vice President, Kemper Financial Services, Inc.

HARRINGTON, MICHAEL E.
  First Vice President, Kemper Financial Services, Inc.

HORTON, ROBERT J.
  First Vice President, Kemper Financial Services, Inc.

JACOBS, PETER M.
  First Vice President, Kemper Financial Services, Inc.

KEELEY, MICHELLE M.
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Intermediate Government Trust
  Vice President, Kemper Portfolios

KIEL, CAROL L.
  First Vice President, Kemper Financial Services, Inc.

LAUGHLIN, ANN M.
  First Vice President, Kemper Financial Services, Inc.

LENTZ, MAUREEN P.
  First Vice President, Kemper Financial Services, Inc.

McCRINDLE-PETRARCA, SUSAN
  First Vice President, Kemper Financial Services, Inc.

PAYNE, III, ROBERT D.
  First Vice President, Kemper Financial Services, Inc.

PANOZZO, ROBERTA L.
  First Vice President, Kemper Financial Services, Inc.

RATEKIN, DIANE E.
     
  First Vice President, Assistant General Counsel and Assistant     
  Secretary, Kemper Financial Services, Inc.
  Assistant Secretary, Kemper Distributors, Inc.

SILVIA, JOHN E.
  First Vice President, Kemper Financial Services, Inc.

STUEBE, JOHN W.
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Cash Account Trust
  Vice President, Cash Equivalent Fund

THOUIN-LEERKAMP, EDITH A.
  First Vice President, Kemper Financial Services, Inc.
  Director-European Equities, Kemper Investment Management Company Limited

TRUTTER, JONATHAN W.
<PAGE>
 
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Diversified Income Fund
  Vice President, Kemper Multi-Market Income Trust
  Vice President, Kemper Strategic Income Fund

VINCENT, CHRISTOPHER T.
  First Vice President, Kemper Financial Services, Inc.
  First Vice President, Kemper Asset Management Company

WILLSON, STEPHEN R.
  First Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Strategic Municipal Income Trust

WITTNEBEL, MARK E.
  First Vice President, Kemper Financial Services, Inc.

CARNEY, ANNE T.
  Vice President, Kemper Financial Services, Inc.

COHEN, JERRI I.
  Vice President, Kemper Financial Services, Inc.

GERACI, AUGUST L.
  Vice President, Kemper Financial Services, Inc.

GERICKE, KATHLEEN E.
  Vice President, Kemper Financial Services, Inc.

GOLAN, JAMES S.
  Vice President, Kemper Financial Services, Inc.

HESS, THOMAS L.
  Vice President, Kemper Financial Services, Inc.

HUOT, LISA L.
  Vice President, Kemper Financial Services, Inc.

KARWOWSKI, KENNETH F.
  Vice President, Kemper Financial Services, Inc.

KNAPP, WILLIAM M.
  Vice President, Kemper Financial Services, Inc.

KOCH, DEBORAH L.
  Vice President, Kemper Financial Services, Inc.

KOVACS, WILLIAM P.
  Vice President and Assistant Secretary, Kemper Financial Services, Inc.

KRANZ, KATHY J.
  Vice President, Kemper Financial Services, Inc.
<PAGE>
 
KRUEGER, PAMELA D.
  Vice President, Kemper Financial Services, Inc.

LeFEBVRE, THOMAS J.
  Vice President, Kemper Financial Services, Inc.

MANGIPUDI, V. RAO
  Vice President, Kemper Financial Services, Inc.

McGOVERN, KAREN B.
  Vice President, Kemper Financial Services, Inc.

MILLER, MAUREEN A.
  Vice President, Kemper Financial Services, Inc.

MINER, EDWARD
  Vice President, Kemper Financial Services, Inc.

MITCHELL, KATHERINE H.
  Vice President, Kemper Financial Services, Inc.

PANOZZO, ALBERT R.
  Vice President, Kemper Financial Services, Inc.

PONTECORE, SUSAN E.
  Vice President, Kemper Financial Services, Inc.

QUADRINI, LISA L.
  Vice President, Kemper Financial Services, Inc.

RADIS, STEVE A.
  Vice President, Kemper Financial Services, Inc.

ROKOSZ, PAUL A.
  Vice President, Kemper Financial Services, Inc.

SMITH, ROBERT G.
  Vice President, Kemper Financial Services, Inc.

TEPPER, SHARYN A.
  Vice President, Kemper Financial Services, Inc.

WERTH, ELIZABETH C.
  Vice President, Kemper Financial Services, Inc.
  Vice President, Kemper Distributors, Inc.
  Assistant Secretary, Kemper Mutual Funds
  Assistant Secretary, Kemper International Bond Fund
  Assistant Secretary, Kemper Target Equity Fund
  Assistant Secretary, Sterling Funds

WIZER, BARBARA K.
  Vice President, Kemper Financial Services, Inc.

ZURAWSKI, CATHERINE N.
  Vice President, Kemper Financial Services, Inc.
<PAGE>
 
ITEM 29. PRINCIPAL UNDERWRITERS
   
  (a) Kemper Distributors, Inc. acts as principal underwriter and distributor
of the Registrant's shares, and acts as principal underwriter of the Kemper
Mutual Funds, Kemper Investors Fund and Sterling Funds.     
 
  (b) Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The principal
business address is 120 South LaSalle Street, Chicago, Illinois 60603.
 
<TABLE>   
<CAPTION>
                                                            POSITIONS AND
                                                            OFFICES WITH
NAME               POSITIONS AND OFFICES WITH UNDERWRITER   REGISTRANT
- ----               --------------------------------------   -------------------
<S>                <C>                                      <C>
John E. Peters     Principal, President                     Vice President
William E.         Director, Executive Vice President       None
Chapman, II
James L.           Director, Executive Vice President       None
Greenawalt
John E. Neal       Director                                 None
Stephen B.         Director                                 President, Trustee
Timbers
Patrick H.         Financial Principal, Treasurer and Chief None
Dudasik            Financial Officer
Linda A. Bercher   Senior Vice President                    None
Terry Cunningham   Senior Vice President                    None
Daniel T. O'Lear   Senior Vice President                    None
John H. Robison,   Senior Vice President                    None
Jr.
Henry J.           Senior Vice President                    None
Schulthesz
David F.           Vice President, Secretary                None
Dierenfeldt
Thomas V. Bruns    Vice President                           None
Carlene D. Merold  Vice President                           None
Jeff M. Warland    Vice President                           None
Elizabeth C.       Vice President                           Assistant Secretary
Werth
Kathleen A.        Assistant Secretary                      None
Gallichio
Diane E. Ratekin   Assistant Secretary                      None
</TABLE>    
 
  (c) Not applicable.
 
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
   
  All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Kemper
Financial Services, Inc., 120 South LaSalle Street, Chicago, Illinois 60603,
at the offices of the Registrant's principal underwriter, Kemper Distributors,
Inc., 120 South LaSalle Street, Chicago, Illinois 60603, at the offices of the
custodian and transfer agent, Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri 64105, at the offices of the custodian, The
Chase Manhattan Bank, Chase MetroTech Center, Brooklyn, New York 11245 or at
the offices of the shareholder services agent, Kemper Service Company, 811
Main Street, Kansas City, Missouri 64105.     
 
ITEM 31. MANAGEMENT SERVICES
 
  Not applicable.
 
ITEM 32. UNDERTAKINGS
 
  (a) Not applicable.
   
  (b) Not applicable.     
 
  (c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
 
                                     C-17
<PAGE>
 
                                   
                                SIGNATURES     
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO
RULE 485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS, ON
THE 24TH DAY OF JULY, 1995.     
                                          
                                       Kemper International Bond Fund     
                                                
                                             /s/ Stephen B. Timbers        
                                          
                                       By _______________________________     
                                              
                                           Stephen B. Timbers, President     
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON JULY 24, 1995 ON BEHALF OF THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.     
 
<TABLE>   
<CAPTION>
                 SIGNATURE                                     TITLE
                 ---------                                     -----
 
 
<S>                                         <C>
        /s/ Stephen B. Timbers              President (Principal Executive Officer) and
___________________________________________  Trustee
            Stephen B. Timbers
 
       /s/ Arthur R. Gottschalk*            Trustee
___________________________________________
           Arthur R. Gottschalk
 
       /s/ Frederick T. Kelsey*             Trustee
___________________________________________
            Frederick T. Kelsey
 
         /s/ David B. Mathis*               Trustee
___________________________________________
              David B. Mathis
 
         /s/ John B. Tingleff*              Trustee
___________________________________________
             John B. Tingleff
 
         /s/ John G. Weithers*              Trustee
___________________________________________
             John G. Weithers
 
         /s/ Jerome L. Duffy*               Treasurer (Principal Financial and
___________________________________________  Accounting Officer)
              Jerome L. Duffy
</TABLE>    
   
   * Philip J. Collora signs this document pursuant to powers of attorney
     filed herewith.     
                                              
                                           /s/ Philip J. Collora         
                                       ---------------------------------------
                                                  
                                               Philip J. Collora     
 
<PAGE>
 
                               INDEX TO EXHIBITS
 
<TABLE>   
<CAPTION>
  EXHIBITS
  --------
 <C>         <S>                                                        <C>
  99.b1.     Amended and Restated Agreement and Declaration of Trust.
  99.b2.     By-Laws.
  99.b3.     Inapplicable.
  99.b4.     Text of Share Certificate.
  99.b5.     Investment Management Agreement.
  99.b6.     (a) Underwriting Agreement.
             (b) Form of Selling Group Agreement.
  99.b7.     Inapplicable.
  99.b8.     (a) Custody Agreement.
             (b) Custody Agreement.
  99.b9.     Agency Agreement.
 99.b10.     Inapplicable.
 99.b11.     Consent of Independent Auditors.
 99.b12.     Inapplicable.
 99.b13.     Subscription Agreement.
 99.b14.     Inapplicable.
 99.b15.     Inapplicable.
 99.b16.     Inapplicable.
 99.b24.     Powers of Attorney.
 99.b485.(b) Representation of Counsel (Rule 485(b)).
 27.         Financial Data Schedule.
</TABLE>    

<PAGE>
 
                                                                 EXHIBIT 99.b1

                                   KEMPER TRUST #19

                                 AMENDED AND RESTATED
                          AGREEMENT AND DECLARATION OF TRUST
                          ----------------------------------



               WHEREAS, Article IX, Section 4 of the Agreement and
          Declaration of Trust of Kemper Trust #19 dated March 1, 1990
          provides that the Agreement and Declaration of Trust may be
          amended at any time by an instrument in writing signed by a
          majority of the then Trustees when authorized so to do by vote of
          Shareholders holding a majority of the Shares entitled to vote;
          and

               WHEREAS, the holders of a majority of the Shares entitled to
          vote have authorized this Amendment and Restatement of said
          Agreement and Declaration of Trust;

               NOW, THEREFORE, said Agreement and Declaration of Trust is
          amended and restated to read in its entirety as follows:



                                      WITNESSETH


               WHEREAS, this Trust has been formed for the purposes of
          carrying on the business of a management investment company; and

               WHEREAS, in furtherance of such purposes, the Trustees have
          acquired and may hereafter acquire assets and properties, to hold
          and manage as trustees of a Massachusetts voluntary asociation
          with transferable shares in accordance with the provisions
          hereinafter set forth;

               NOW, THEREFORE, the Trustees hereby declare that they will
          hold all cash, securities and other assets and properties which
          they may from time to time acquire in any manner as Trustees
          hereunder IN TRUST to manage and dispose of the same upon the
          following terms and conditions for the pro rata benefit of the
          holders from time to time of shares in this Trust as hereinafter
          set forth.
<PAGE>
 
                                      ARTICLE I
                                      ---------

                                 Name and Definitions
                                 --------------------

          Name and Registered Agent
          -------------------------

               Section 1.  This Trust shall be known as Kemper
          International Bond Fund and the Trustees shall conduct the
          business of the Trust under that name or any other name as they
          may from time to time determine.  The registered agent for the
          Trust in Massachusetts shall be CT Corporation System whose
          address is 2 Oliver Street, Boston, Massachusetts or such other
          person as the Trustees may from time to time designate.

          Definitions
          -----------

               Section 2.  Whenever used herein, unless otherwise required
          by the context or specifically provided:

               (a)  The "Trust" refers to the Massachusetts voluntary
          association established by this Agreement and Declaration of
          Trust, as amended from time to time, pursuant to Massachusetts
          General Laws, Chapter 182;

               (b)  "Trustees" refers to the Trustees of the Trust named
          herein or elected in accordance with Article IV and then in
          office;

               (c)  "Shares" mean the equal proportionate transferable
          units of interest into which the beneficial interest in the Trust
          shall be divided from time to time or, if more than one series or
          class of shares is authorized under or pursuant to Article III,
          the equal proportionate transferable units of interest into which
          each such series or class shall be divided from time to time;

               (d)  "Shareholder" means a record owner of Shares;

               (e)  The "1940 Act" refers to the Investment Company Act of
          1940 (and any successor statute) and the Rules and Regulations
          thereunder, all as amended from time to time;

               (f)  The terms "Affiliated Person", "Assignment",
          "Commission", "Interested Person", "Principal Underwriter" and
          "vote of a majority of the outstanding voting securities" shall
          have the meanings given them in the 1940 Act;

               (g)  "Declaration of Trust" shall mean this Agreement and
          Declaration of Trust as amended or restated from time to time;

                                          2
<PAGE>
 
               (h)  "By-Laws" shall mean the By-Laws of the Trust as
          amended from time to time;

               (i)  "Net asset value" shall have the meaning set forth in
          Section 6 of Article VI hereof;

               (j)  The terms "series" or "series of Shares" refers to the
          one or more separate investment portfolios of the Trust
          authorized under or pursuant to Article III into which the assets
          and liabilities of the Trust may be divided and the Shares of the
          Trust representing the beneficial interest of Shareholders in
          such respective portfolios; and

               (k)  The terms "class" or "class of Shares" refers to the
          division of Shares representing any series into two or more
          classes authorized under or pursuant to Article III.


                                      ARTICLE II
                                      ----------

                                  Nature and Purpose
                                  ------------------

               The Trust is a voluntary association (commonly known as a
          business trust) of the type referred to in Chapter 182 of the
          General Laws of the Commonwealth of Massachusetts.  The Trust is
          not intended to be, shall not be deemed to be, and shall not be
          treated as, a general or a limited partnership, joint venture,
          corporation or joint stock company, nor shall the Trustees or
          Shareholders or any of them for any purpose be deemed to be, or
          be treated in any way whatsoever as though they were, liable or
          responsible hereunder as partners or joint venturers.  The
          purpose of the Trust is to engage in, operate and carry on the
          business of an open-end management investment company and to do
          any and all acts or things as are necessary, convenient,
          appropriate, incidental or customary in connection therewith.


                                          3
<PAGE>
 
                                     ARTICLE III
                                     -----------

                                        Shares
                                        ------

          Division of Beneficial Interest
          -------------------------------

               Section 1.  The Shares of the Trust shall be issued in one
          or more series as the Trustees may, without Shareholder approval,
          authorize from time to time.  Each series shall be preferred over
          all other series in respect of the assets allocated to that
          series as hereinafter provided.  The beneficial interest in each
          series shall at all times be divided into Shares (without par
          value) of such series, each of which shall, except as provided in
          the following sentence, represent an equal proportionate interest
          in such series with each other Share of the same series, none
          having priority or preference over another Share of the same
          series.  The Trustees may, without Shareholder approval, divide
          the Shares of any series into two or more classes, Shares of each
          such class having such preferences and special or relative rights
          or privileges (including conversion rights, if any) as the
          Trustees may determine.  The number of Shares authorized shall be
          unlimited, and the Shares so authorized may be represented in
          part by fractional Shares.  The Trustees may from time to time
          divide or combine the shares of any series or class into a
          greater or lesser number without thereby changing the
          proportionate beneficial interests in the series or class. 
          Without limiting the authority of the Trustees set forth in this
          Section 1 to establish and designate any further series or class,
          the Trustees hereby establish and designate three series of
          Shares to be known, respectively, as:  the "Money Market
          Portfolio," the "Government Securities Portfolio"  and the "Tax-
          Exempt Portfolio."  The establishment and designation of any
          series or class of Shares in addition to the foregoing shall be
          effective upon the execution by a majority of the then Trustees
          of an instrument setting forth such establishment and designation
          and the relative rights and preferences of such series or class. 
          As provided in Article IX, Section 1 hereof, any series or class
          of Shares (whether or not there shall then be Shares outstanding
          of said series or class) may be terminated by the Trustees by
          written notice to the Shareholders of such series or class or by
          the vote of the Shareholders of such series or class entitled to
          vote more than fifty percent (50%) of the votes entitled to be
          cast on the matter.  In the event of any such termination, a
          majority of the then Trustees shall execute an instrument setting
          forth the termination of such series or class.


                                          4
<PAGE>
 
          Ownership of Shares
          -------------------

               Section 2.  The ownership and transfer of Shares shall be
          recorded on the books of the Trust or its transfer or similar
          agent.  No certificates certifying the ownership of Shares shall
          be issued except as the Trustees may otherwise determine from
          time to time.  The Trustees may make such rules as they consider
          appropriate for the issuance of Share certificates, the transfer
          of Shares and similar matters.  The record books of the Trust as
          kept by the Trust or any transfer or similar agent of the Trust,
          as the case may be, shall be conclusive as to who are the
          Shareholders of each series or class and as to the number of
          Shares of each series or class held from time to time by each
          Shareholder.

          Investment in the Trust; Assets of a Series
          -------------------------------------------

               Section 3.  The Trustees may issue Shares of the Trust to
          such persons and on such terms and, subject to any requirements
          of law, for such consideration, which may consist of cash or
          tangible or intangible property or a combination thereof, as they
          may from time to time authorize.

               All consideration received by the Trust for the issue or
          sale of Shares of a particular series, together with all income,
          earnings, profits, and proceeds thereof, including any proceeds
          derived from the sale, exchange or liquidation thereof, and any
          funds or payments derived from any reinvestment of such proceeds
          in whatever form the same may be, shall, irrevocably belong to
          such series of Shares for all purposes, subject only to the
          rights of creditors, and shall be so handled upon the books of
          account of the Trust and are herein referred to as "assets of"
          such series.  Any allocation of the assets of a series among any
          classes of Shares of such series shall be made in a manner
          consistent with the preferences and special or relative rights or
          privileges of such classes.

          Right to Refuse Orders
          ----------------------

               Section 4.  The Trust by action of its Trustees shall have
          the right to refuse to accept any subscription for its Shares at
          any time without any cause or reason therefore whatsoever. 
          Without limiting the foregoing, the Trust shall have the right
          not to accept subscriptions under circumstances or in amounts as
          the Trustees in their sole discretion consider to be
          disadvantageous to existing Shareholders and the Trust may from
          time to time set minimum and/or maximum amounts which may be
          invested in Shares by a subscriber.


                                          5
<PAGE>
 
          Order in Proper Form
          --------------------

               Section 5.  The criteria for determining what constitutes an
          order in proper form and the time of receipt of such an order by
          the Trust shall be prescribed by resolution of the Trustees.

          When Shares Become Outstanding
          ------------------------------

               Section 6.  Shares subscribed for and for which an order in
          proper form has been received shall be deemed to be outstanding
          as of the time of acceptance of the order therefor and the
          determination of the net price thereof, which price shall be then
          deemed to be an asset of the Trust.

          Merger or Consolidation
          -----------------------

               Section 7.  In connection with the acquisition of all or
          substantially all the assets or stock of another investment
          company, investment trust, or of a company classified as a
          personal holding company under Federal Income Tax laws, the
          Trustees may issue or cause to be issued Shares of a series or
          class and accept in payment therefor, in lieu of cash, such
          assets at their market value, or such stock at the market value
          of the assets held by such investment company or investment
          trust, either with or without adjustment for contingent costs or
          liabilities.

          No Preemptive Rights, Etc.
          --------------------------

               Section 8.  Shareholders shall have no preemptive or other
          right to receive, purchase or subscribe for any additional Shares
          or other securities issued by the Trust.  The Shareholders shall
          have no appraisal rights with respect to their Shares and, except
          as otherwise determined by the Trustees in their sole discretion,
          shall have no exchange or conversion rights with respect to their
          Shares.

          Status of Shares and Limitation of Personal Liability
          -----------------------------------------------------

               Section 9.  Shares shall be deemed to be personal property
          giving only the rights provided in this instrument.  Every
          Shareholder by virtue of having become a Shareholder shall be
          held to have expressly assented and agreed to the terms of the
          Declaration of Trust and to have become a party thereto.  The
          death of a Shareholder during the continuance of the Trust shall
          not operate to terminate the same nor entitle the representative
          of any deceased Shareholder to an accounting or to take any

                                          6
<PAGE>
 
          action in court or elsewhere against the Trust or the Trustees,
          but only to the rights of said decedent under this Trust. 
          Ownership of Shares shall not entitle the Shareholder to any
          title in or to the whole or any part of the Trust property or
          right to call for a partition or division of the same or for an
          accounting, nor shall the ownership of Shares constitute the
          Shareholders partners.  Neither the Trust nor the Trustees, nor
          any officer, employee or agent of the Trust shall have any power
          to bind personally any Shareholder, nor except as specifically
          provided herein to call upon any Shareholder for the payment of
          any sum of money or assessment whatsoever other than such as the
          Shareholder may at any time personally agree to pay.

          Shareholder Inspection Rights
          -----------------------------

               Section 10.  Any Shareholder or his agent may inspect and
          copy during normal business hours any of the following documents
          of the Trust:  By-Laws, minutes of the proceedings of the
          Shareholders and annual financial statements of the Trust,
          including a balance sheet and financial statements of operations. 
          The foregoing rights of inspection of Shareholders of the Trust
          are the exclusive and sole rights of the Shareholders with
          respect thereto and no Shareholder of the Trust shall have, as a
          Shareholder, the right to inspect or copy any of the books,
          records or other documents of the Trust except as specifically
          provided in this Section 10 of this Article III or except as
          otherwise determined by the Trustees.


                                      ARTICLE IV
                                      ----------

                                     The Trustees
                                     ------------

          Number, Designation, Election, Term, Etc.
          -----------------------------------------

          Section 1.

               (a)  Initial Trustee.  Philip J. Collora, the initial
          Trustee, elected other Trustees pursuant to subsection (c) of
          this Section 1 and then resigned.

               (b)  Number.  The Trustees serving as such, whether named
          above or hereafter becoming Trustees, may increase or decrease
          the number of Trustees to a number other than the number
          theretofore determined which number shall not be less than three
          nor more than fifteen except during the period that the initial
          Trustee named above is sole Trustee.  No decrease in the number
          of Trustees shall have the effect of removing any Trustee from

                                          7
<PAGE>
 
          office prior to the expiration of his term, but the number of
          Trustees may be decreased in conjunction with the removal of a
          Trustee pursuant to subsection (e) of this Section 1.

               (c)  Term and Election.  Each Trustee, whether named above
          or hereafter becoming a Trustee, shall serve as a Trustee until
          the next meeting of Shareholders, if any, called for the purpose
          of considering the election or re-election of such Trustee or of
          a successor to such Trustee, and until the election and
          qualification of his successor, if any, elected at such meeting,
          or until such Trustee sooner dies, resigns, retires or is
          removed.  Upon the election and qualification of a new Trustee,
          the Trust estate shall vest in the new Trustee (together with the
          continuing or other new Trustees) without any further act or
          conveyance.  Prior to any sale of Shares pursuant to any public
          offering, the initial Trustee named above shall have the right to
          appoint other persons as Trustees each to serve as Trustees as
          aforesaid until the first meeting of Shareholders called for the
          purpose of the election or re-election of such Trustee or of a
          successor to such Trustee.

               (d)  Resignation and Retirement.  Any Trustee may resign his
          trust or retire as a Trustee, by written instrument signed by him
          and delivered to the other Trustees or to the Chairman of the
          Board, if any, the President or the Secretary of the Trust, and
          such resignation or retirement shall take effect upon such
          delivery or upon such later date as is specified in such
          instrument.

               (e)  Removal.  Any Trustee may be removed for cause at any
          time by  written instrument, signed by at least a majority of the
          number of Trustees prior to such removal, specifying the date
          upon which such removal shall become effective.  Any Trustee may
          be removed with or without cause (i) by the vote of the
          Shareholders entitled to vote more than fifty percent (50%) of
          the votes entitled to be cast on the matter voting together
          without regard to series or class at any meeting called for such
          purpose, or (ii) by a written consent filed with the custodian of
          the Trust's portfolio securities and executed by the Shareholders
          entitled to vote more than fifty percent (50%) of the votes
          entitled to be cast on the matter voting together without regard
          to series or class.

               Whenever ten or more Shareholders of record who have been
          such for at least six months preceding the date of application,
          and who hold in the aggregate Shares constituting at least one
          percent of the outstanding Shares of the Trust, shall apply to
          the Trustees in writing, stating that they wish to communicate
          with other Shareholders with a view to obtaining signatures to a
          request for a meeting to consider removal of a Trustee and
          accompanied by a form of communication and request that they wish
          to transmit, the Trustees shall within five business days after

                                          8
<PAGE>
 
          receipt of such application inform such applicants as to the
          approximate cost of mailing to the Shareholders of record the
          proposed communication and form of request.  Upon the written
          request of such applicants, accompanied by a tender of the
          material to be mailed and of the reasonable expenses of mailing,
          the Trustees shall, within reasonable promptness, mail such
          material to all Shareholders of record at their addresses as
          recorded on the books of the Trust.  Notwithstanding the
          foregoing, the Trustees may refuse to mail such material on the
          basis and in accordance with the procedures set forth in the last
          two paragraphs of Section 16(c) of the 1940 Act.

               (f)  Vacancies.  Any vacancy or anticipated vacancy
          resulting from any reason, including without limitation the
          death, resignation, retirement, removal or incapacity of any of
          the Trustees, or resulting from an increase in the number of
          Trustees by the other Trustees may (but so long as there are at
          least three remaining Trustees, need not unless required by the
          1940 Act) be filled either by a majority of the remaining
          Trustees, even if less than a quorum, through the appointment in
          writing of such other person as such remaining Trustees in their
          discretion shall determine or, whenever deemed appropriate by the
          remaining Trustees, by the election by the Shareholders, at a
          meeting called for such purpose, of a person to fill such
          vacancy.  Upon the appointment or election and qualification of a
          new Trustee as aforesaid, the Trust estate shall vest in the new
          Trustee, together with the continuing Trustees, without any
          further act or conveyance, except that any such appointment or
          election in anticipation of a vacancy to occur by reason of
          retirement, resignation, or increase in number of Trustees to be
          effective at a later date shall become effective only at or after
          the effective date of said retirement, resignation, or increase
          in number of Trustees.

               (g)  Mandatory Election by Shareholders.  Notwithstanding
          the foregoing provisions of this Section 1, the Trustees shall
          call a meeting of the Shareholders for the election of one or
          more Trustees at such time or times as may be required in order
          that the provisions of the 1940 Act may be complied with, and the
          authority hereinabove provided for the Trustees to appoint any
          successor Trustee or Trustees shall be restricted if such
          appointment would result in failure of the Trust to comply with
          any provision of the 1940 Act.

               (h)  Effect of Death, Resignation, Etc.  The death,
          resignation, retirement, removal or incapacity of the Trustees,
          or any one of them, shall not operate to annul or terminate the
          Trust or to revoke or terminate any existing agency or contract
          created or entered into pursuant to the terms of this Declaration
          of Trust.

                                          9
<PAGE>
 
               (i)  No Accounting.  Except under circumstances which would
          justify his removal for cause, no person ceasing to be a Trustee
          as a result of his death, resignation, retirement, removal or
          incapacity (nor the estate of any such person) shall be required
          to make an accounting to the Shareholders or remaining Trustees
          upon such cessation.

          Powers
          ------

               Section 2.  The Trustees, subject only to the specific
          limitations contained in this Declaration of Trust or otherwise
          imposed by the 1940 Act or other applicable law, shall have,
          without further or other authorization and free from any power or
          control of the Shareholders, full, absolute and exclusive power,
          control and authority over the Trust assets and the business and
          affairs of the Trust to the same extent as if the Trustees were
          the sole and absolute owners thereof in their own right and to do
          all such acts and things as in their sole judgment and discretion
          are necessary and incidental to, or desirable for the carrying
          out of any of the purposes of the Trust or conducting the
          business of the Trust.  Any determination made in good faith by
          the Trustees of the purposes of the Trust or the existence of any
          power or authority hereunder shall be conclusive.  In construing
          the provisions of this Declaration of Trust, there shall be a
          presumption in favor of the grant of power and authority to the
          Trustees. Without limiting the foregoing, the Trustees may adopt
          By-Laws not inconsistent with this Declaration of Trust
          containing provisions relating to the business of the Trust,  the
          conduct of its affairs, its rights or powers and the rights or
          powers of its Shareholders, Trustees, officers, employees and
          other agents and may amend and repeal them to the extent that
          such By-Laws do not reserve that right to the Shareholders; fill
          vacancies in their number, including vacancies resulting from
          increases in their number, unless a vote of the Trust's
          Shareholders is required to fill such vacancies pursuant to the
          1940 Act; elect and remove such officers and appoint and
          terminate such agents as they consider appropriate; appoint from
          their own number, and terminate, any one or more committees
          consisting of two or more Trustees, including an executive
          committee which may, when the Trustees are not in session,
          exercise some or all of the powers and authority of the Trustees
          as the Trustees may determine; appoint an advisory board, the
          members of which shall not be Trustees and need not be
          Shareholders; employ one or more investment advisers or managers
          as provided in Section 6 of this Article IV; employ one or more
          custodians of the assets of the Trust and authorize such
          custodians to employ subcustodians and to deposit all or any part
          of such assets in a system or systems for the central handling of
          securities; retain a transfer agent or a Shareholder services
          agent, or both; provide for the distribution of Shares by the
          Trust, through one or more principal underwriters or otherwise;

                                          10
<PAGE>
 
          set record dates for the determination of Shareholders with
          respect to various matters; and in general delegate such
          authority as they consider desirable to any officer of the Trust,
          to any committee of the Trustees and to any agent or employee of
          the Trust or to any such custodian or underwriter.

               In furtherance of and not in limitation of the foregoing,
          the Trustees shall have power and authority:

               (a)  To invest and reinvest in, to buy or otherwise acquire,
          to hold, for investment or otherwise, to sell or otherwise
          dispose of, to lend or to pledge, to trade in or deal in
          securities or interests of all kinds, however evidenced, or
          obligations of all kinds, however evidenced, or rights, warrants,
          or contracts to acquire such securities, interests, or
          obligations, of any private or public company, corporation,
          association, general or limited partnership, trust or other
          enterprise or organization, foreign or domestic,  or issued or
          guaranteed by any national or state government, foreign or
          domestic, or their agencies, instrumentalities or subdivisions
          (including but not limited to, bonds, debentures, bills, time
          notes and all other evidences of indebtedness); negotiable or
          non-negotiable instruments; any and all futures contracts;
          government securities and money market instruments (including but
          not limited to, bank certificates of deposit, finance paper,
          commercial paper, bankers acceptances, and all kinds of
          repurchase agreements);

               (b)  To invest and reinvest in, to buy or otherwise acquire,
          to hold, for investment or otherwise, to sell or otherwise
          dispose of foreign currencies, and funds and exchanges, and make
          deposits in banks, savings banks, trust companies, and savings
          and loan associations, foreign or domestic;

               (c)  To acquire (by purchase, lease or otherwise) and to
          hold, use, maintain, develop, and dispose of (by sale or
          otherwise) any property, real or personal, and any interest
          therein;

               (d)  To sell, exchange, lend, pledge, mortgage, hypothecate,
          write options on and lease any or all of the assets of the Trust;

               (e)  To vote or give assent, or exercise any rights of
          ownership, with respect to stock or other securities or property;
          and to execute and deliver proxies or powers of attorney to such
          person or persons as the Trustees shall deem proper, granting to
          such person or persons such power and discretion with relation to
          securities or property as the Trustees shall deem proper;

               (f)  To exercise powers and rights of subscription or
          otherwise which in any manner arise out of ownership of
          securities;

                                          11
<PAGE>
 
               (g)  To hold any security or property in a form not
          indicating any trust, whether in bearer, unregistered or other
          negotiable form, or in the name of the Trustees or of the Trust
          or in the name of a custodian, subcustodian or other depositary
          or a nominee or nominees or otherwise;

               (h)  Subject to the provisions of Article III, to allocate
          assets, liabilities, income and expenses of the Trust to a
          particular series of Shares or to apportion the same among two or
          more series, provided that any liabilities or expenses incurred
          by a particular series shall be payable solely out of the assets
          of that series;  and to the extent necessary or appropriate to
          give effect to the preferences and special or relative rights or
          privileges of any classes of Shares, to allocate assets,
          liabilities, income and expenses of a series to a particular
          class of Shares of that series or to apportion the same among two
          or more classes of Shares of that series;

               (i)  To consent to or participate in any plan for the
          reorganization, consolidation or merger of any corporation or
          issuer, any security or property of which is or was held in the
          Trust; to consent to any contract, lease, mortgage, purchase or
          sale of property by such corporation or issuer, and to pay calls
          or subscriptions with respect to any security held in the Trust;

               (j)  To join with other security holders in acting through a
          committee, depositary, voting trustee or otherwise, and in that
          connection to deposit any security with, or transfer any security
          to, any such committee, depositary or trustee, and to delegate to
          them such power and authority with relation to any security
          (whether or not so deposited or transferred) as the Trustees
          shall deem proper, and to agree to pay, and to pay, such portion
          of the expenses and compensation of such committee, depositary or
          trustee as the Trustees shall deem proper;

               (k)  To compromise, arbitrate or otherwise adjust claims in
          favor of or against the Trust or any matter in controversy,
          including but not limited to claims for taxes;

               (l)  To enter into joint ventures, general or limited
          partnerships and any other combinations or associations;

               (m)  To borrow funds;

               (n)  To endorse or guarantee the payment of any notes or
          other obligations of any person; to make contracts of guaranty or
          suretyship, or otherwise assume liability for payment thereof;
          and to mortgage and pledge the Trust property or any part thereof
          to secure any of or all such obligations;

               (o)  To purchase and pay for entirely out of Trust property
          such insurance as they may deem necessary or appropriate for the

                                          12
<PAGE>
 
          conduct of the business, including, without limitation, insurance
          policies insuring the assets of the Trust and payment of
          distribution and principal on its portfolio investments, and
          insurance policies insuring the Shareholders, Trustees, officers,
          employees, agents, investment advisers or managers, principal
          underwriters, or independent contractors of the Trust
          individually against all claims and liabilities of every nature
          arising by reason of holding, being or having held any such
          office or position, or by reason of any action alleged to have
          been taken or omitted by any such person as Shareholder, Trustee,
          officer, employee, agent, investment adviser or manager,
          principal underwriter, or independent contractor, including any
          action taken or omitted that may be determined to constitute
          negligence, whether or not the Trust would have the power to
          indemnify such person against such liability; and

               (p)  To pay pensions for faithful service, as deemed
          appropriate by the Trustees, and to adopt, establish and carry
          out pension, profit-sharing, share bonus, share purchase,
          savings, thrift and other retirement, incentive and benefit
          plans, trusts and provisions, including the purchasing of life
          insurance and annuity contracts as a means of providing such
          retirement and other benefits, for any or all of the Trustees,
          officers, employees and agents of the Trust.

               The Trustees shall not in any way be bound or limited by any
          present or future law or custom in regard to investments by
          trustees of common law trusts.  Except as otherwise provided
          herein or from time to time in the By-Laws, any action to be
          taken by the Trustees may be taken by a majority of the Trustees
          present at a meeting of Trustees (if a quorum by present), within
          or without Massachusetts, including any meeting held by means of
          a conference telephone or other communications equipment by means
          of which all persons participating in the meeting can communicate
          with each other simultaneously and participation by such means
          shall constitute presence in person at a meeting, or by written
          consents of a majority of the Trustees then in office.

          Payment of Expenses, Allocation of Liabilities
          ----------------------------------------------

               Section 3.  The Trustees are authorized to pay or to cause
          to be paid out of the principal or income of the Trust, or partly
          out of principal and partly out of income, as they deem fair, all
          expenses, fees, charges, taxes and liabilities incurred or
          arising in connection with the Trust, or in connection with the
          management thereof, including, but not limited to, the Trustees'
          compensation and such expenses and charges for the services of
          the Trust's officers, employees, investment adviser or manager,
          principal underwriter, auditor, counsel, custodian, transfer
          agent, shareholder servicing agent, and such other agents or


                                          13
<PAGE>
 
          independent contractors and such other expenses and charges as
          the Trustees may deem necessary or proper to incur.

               The assets of a particular series of Shares shall be charged
          with the liabilities (including, in the discretion of the
          Trustees or their delegate, accrued expenses and reserves)
          incurred in respect of such series (but not with liabilities
          incurred in respect of any other series) and such series shall
          also be charged with its share of any other liabilities.  Any
          allocation of the liabilities of a series among classes of Shares
          of that series shall be done in a manner consistent with the
          preferences and special or relative rights or privileges of such
          classes.  The determination of the Trustees shall be final and
          conclusive as to the amount of liabilities to be charged to one
          or more particular series or class.  The Trustees may delegate
          from time to time the power to make such allocation to one or
          more Trustees or to an agent of the Trust appointed for such
          purpose.  The liabilities with which a series is so charged are
          herein referred to as the "liabilities of" such series.

               Section 4.  The Trustees shall have the power, as frequently
          as they may determine, to cause each Shareholder to pay directly,
          in advance or arrears, for charges for the Trust's custodian or
          transfer or shareholder service or similar agent, an amount fixed
          from time to time by the Trustees, by setting off such charges
          due from such Shareholder from declared but unpaid dividends owed
          such Shareholder and/or by reducing the number of Shares in the
          account of such Shareholder by that number of full and/or
          fractional shares which represents the outstanding amount of such
          charges due from such Shareholder.

          Ownership of Assets of the Trust
          --------------------------------

               Section 5.  Title to all of the assets of each series of the
          Trust and of the Trust shall at all times be considered as vested
          in the Trustees.

          Advisory, Management and Distribution
          -------------------------------------

               Section 6.  Subject to a favorable vote of a majority of the
          outstanding voting securities of a series of the Trust, the
          Trustees may on behalf of such series, at any time and from time
          to time, contract for exclusive or nonexclusive advisory and/or
          management services for such series with a corporation, trust,
          association or other organization, every such contract to comply
          with such requirements and restrictions as may be set forth in
          the By-Laws; and any such contract may contain such other terms
          interpretive of or in addition to said requirements and
          restrictions as the Trustees may determine, including, without
          limitation, authority to determine from time to time what

                                          14
<PAGE>
 
          investments shall be purchased, held, sold or exchanged and what
          portion, if any, of the assets of such series shall be held
          uninvested and to make changes in such series' investments.  The
          Trustees may also, at any time and from time to time, contract
          with a corporation, trust, association or other organization,
          appointing it exclusive or nonexclusive distributor or principal
          underwriter for the Shares, every such contract to comply with
          such requirements and restrictions as may be set forth in the By-
          Laws; and any such contract may contain such other terms
          interpretive of or in addition to said requirements and
          restrictions as the Trustees may determine.

               The fact that:

                    (a) any of the Shareholders, Trustees or officers of
               the Trust is a shareholder, director, officer, partner,
               trustee, employee, manager, advisor, principal underwriter,
               or distributor or agent of or for any corporation, trust,
               association, or other organization, or of or for any parent
               or affiliate of any organization, with which an advisory or
               management or principal underwriter's or distributor's
               contract, or transfer, shareholder services or other agency
               contract may have been or may hereafter be made, or that any
               such organization, or any parent or affiliate thereof, is a
               Shareholder or has an interest in the Trust, or that

                    (b)  any corporation, trust, association or other
               organization with which an advisory or management or
               principal underwriter's or distributor's contract, or
               transfer, shareholder services or other agency contract may
               have been or may hereafter be made also has an advisory or
               management contract, or principal underwriter's or
               distributor's contract, or transfer, shareholder services or
               other agency contract with one or more other corporations,
               trusts, associations, or other organizations, or has other
               businesses or interests shall not affect the validity of any
               such contract or disqualify any Shareholder, Trustee or
               officer of the Trust from voting upon or executing the same
               or create any liability or accountability to the Trust or
               its Shareholders.

                                      ARTICLE V
                                      ---------

                       Shareholders' Voting Powers and Meetings
                       ----------------------------------------

          Voting Powers
          -------------

               Section 1.  Subject to the voting provisions of one or more
          classes of Shares, the Shareholders shall have power to vote

                                          15
<PAGE>
 
          only: (a) for the election or removal of Trustees as provided in
          Article IV, Section 1; (b) with respect to any investment advisor
          or manager as provided in Article IV, Section 6; (c) with respect
          to any termination or reorganization of the Trust or any series
          or class thereof to the extent and as provided in Article IX,
          Section 1; (d) with respect to any amendment of this Declaration
          of Trust to the extent and as provided in Article IX, Section 4;
          and (e) with respect to such additional matters relating to the
          Trust as may be required by law, the 1940 Act, this Declaration
          of Trust, the By-Laws or any registration of the Trust with the
          Securities and Exchange Commission (or any successor agency) or
          any state, or as the Trustees may consider necessary or desir-
          able.

               Each whole Share shall be entitled to one vote as to any
          matter on which it is entitled to vote and each fractional Share
          shall be entitled to a proportionate fractional vote. Notwith-
          standing any other  provision of the Declaration of Trust, on any
          matter submitted to a vote of Shareholders all Shares of the
          Trust then entitled to vote shall, except to the extent otherwise
          required or permitted by the preferences and special or relative
          rights or privileges of any clases of Shares, be voted by
          individual series and not in the aggregate or by class, except
          (a) when required by the 1940 Act, Shares shall be voted in the
          aggregate and not by individual series; and (b) when the Trustees
          have determined that the matter affects only the interests of one
          or more series or classes, then only Shareholders of such series
          or class shall be entitled to vote thereon.  There shall be no
          cumulative voting in the election of Trustees.  Shares may be
          voted in person or by proxy.

               A proxy with respect to Shares held in the name of two or
          more persons shall be valid if executed by any one of them unless
          at or prior to the exercise of the proxy the Trust receives a
          specific written notice to the contrary from any one of them.  A
          proxy purporting to be executed by or on behalf of a Shareholder
          shall be deemed valid unless challenged at or prior to its
          exercise and the burden of proving invalidity shall rest on the
          challenger.

               Until Shares of any series or class are issued, the Trustees
          may exercise all rights of Shareholders and may take any action
          required by law, this Declaration of Trust or the By-Laws to be
          taken by Shareholders of such series or class.

          Shareholder Meetings
          --------------------

               Section 2.  Meetings of Shareholders (including meetings
          involving only one or more but less than all series or classes)
          may be called and held from time to time for the purpose of
          taking action upon any matter requiring the vote or authority of

                                          16
<PAGE>
 
          the Shareholders as herein provided or upon any other matter
          deemed by the Trustees to be necessary or desirable.  Such
          meetings shall be held at the principal office of the Trust as
          set forth in the By-Laws of the Trust or at any such other place
          within the United States as may be designated in the call
          thereof, which call shall be made by the Trustees or the
          President of the Trust.  Meetings of Shareholders may be called
          by the Trustees or such other person or persons as may be
          specified in the By-Laws upon written application by Shareholders
          holding at least twenty-five percent (25%) (or ten percent (10%)
          if the purpose of the meeting is to determine if a Trustee is to
          be removed from office) of the Shares then outstanding of all
          series and classes entitled to vote at such meeting requesting a
          meeting be called for a purpose requiring action by the Share-
          holders as provided herein or in the By-Laws which purpose shall
          be specified in any such written application.

               Shareholders shall be entitled to at least seven days'
          written notice of any meeting of the Shareholders.

          Quorum and Required Vote
          ------------------------

               Section 3.  The presence at a meeting of Shareholders in
          person or by proxy of Shareholders entitled to vote at least
          thirty percent (30%) of all votes entitled to be cast at the
          meeting of each series or class entitled to vote as a series or
          class shall be a quorum for the transaction of business at a
          Shareholders' meeting, except  that where any provision of law or
          of this Declaration of Trust permits or requires that the holders
          of Shares shall vote in the aggregate and not as a series or
          class, then the presence in person or by proxy of Shareholders
          entitled to vote at least thirty percent (30%) of all votes
          entitled to be cast at the meeting (without regard to series or
          class) shall constitute a quorum.  Any lesser number, however,
          shall be sufficient for adjournments.  Any adjourned session or
          sessions may be held within a reasonable time after the date set
          for the original meeting without the necessity of further notice.

               Except when a larger vote is required by any provisions of
          the 1940 Act, this Declaration of Trust or the By-Laws, a
          majority of the Shares of each series or class voted on the
          matter shall decide that matter insofar as that series or class
          is concerned, provided that where any provision of law, this
          Declaration of Trust or the By-Laws permits or requires that the
          holders of Shares vote in the aggregate and not as a series or
          class, then a majority of the Shares voted on any matter (without
          regard to series or class) shall decide such matter and a
          plurality shall elect a Trustee.

                                          17
<PAGE>
 
          Action by Written Consent
          -------------------------

               Section 4.  Any action taken by Shareholders may be taken
          without a meeting if Shareholders entitled to vote more than
          fifty percent (50%) of the votes entitled to be cast on the
          matter of each series or class or, where any provision of law,
          this Declaration of Trust or the By-Laws permits or requires that
          the holders of Shares vote in the aggregate and not as a series
          or class, if Shareholders entitled to vote more than fifty
          percent (50%) of the votes entitled to be cast thereon (without
          regard to series or class) (or in either case such larger vote as
          shall be required by any provision of this Declaration of Trust
          or the By-Laws) consent to the action in writing and such written
          consents are filed with the records of the meetings of Sharehold-
          ers.  Such consent shall be treated for all purposes as a vote
          taken at a meeting of Shareholders.

          Additional Provisions
          ---------------------

               Section 5.  The By-Laws may include further provisions for
          Shareholders' votes and meetings and related matters not
          inconsistent with the provisions hereof.


                                      ARTICLE VI
                                      ----------


                     Distributions, Redemptions and Repurchases,
                         and Determination of Net Asset Value
                         ------------------------------------

          Distributions
          -------------

               Section 1.  The Trustees may in their sole discretion from
          time to time distribute to the Shareholders of any series such
          income and gains, accrued or realized, as the Trustees may
          determine, after providing for actual and accrued expenses and
          liabilities of such series (including such reserves as the
          Trustees may establish) determined in accordance with this
          Declaration of Trust and good accounting practices.  The Trustees
          shall have full discretion to determine which items shall be
          treated as income and which items as capital and their determina-
          tion shall be binding upon the Shareholders.  Distributions to
          any series, if any be made, shall be in Shares of such series, in
          cash or otherwise and on a date or dates determined by the
          Trustees.  At any time and from time to time in their discretion,
          the Trustees may distribute to the Shareholders of any series as
          of a record date or dates determined by the Trustees, in Shares

                                          18
<PAGE>
 
          of such series, in cash or otherwise, all or part of any gains
          realized on the sale or disposition of property of the series or
          otherwise, or all or part of any other principal of the Trust
          attributable to the series.  Except to the extent otherwise
          required or permitted by the preferences and special or relative
          rights or privileges of any classes of Shares of that series,
          each  distribution pursuant to this Section 1 shall be made
          ratably according to the number of Shares of the series held by
          the several Shareholders on the applicable record date thereof,
          provided that distributions from assets of a series may only be
          made to the holders of the Shares of such series and provided
          that no distributions need be made on Shares purchased pursuant
          to orders received, or for which payment is made, after such time
          or times as the Trustees may determine.  Any distribution to the
          Shareholders of a particular class of Shares shall be made to
          such Shareholders prorata in proportion to the number of Shares
          of such class held by each of them.  Any distribution paid in
          Shares will be paid at the net asset value thereof as determined
          in accordance with this Declaration of Trust.  The Trustees have
          the power, in their discretion, to distribute for any year
          amounts sufficient to enable the Trust to qualify as a "regulated
          investment company" under the Internal Revenue Code as amended
          (or any successor thereto) to avoid any liability for federal
          income tax in respect of that year.

          Redemptions and Repurchases
          ---------------------------

               Section 2.  Any holder of Shares of the Trust may, by
          presentation of a request in proper form, together with his
          certificates, if any, for such Shares, in proper form for
          transfer to the Trust or duly authorized agent of the Trust,
          request redemption of his shares for the net asset value thereof
          determined and computed in accordance with the provisions of this
          Section 2 and the provisions of Section 6 of this Article VI.

               Upon receipt by the Trust or its duly authorized agent, as
          the case may be, of such a request for redemption of Shares in
          proper form, such Shares shall be redeemed at the net asset value
          per share of the particular series or class next determined after
          such request is received or determined as of such other time
          fixed by the Trustees as may be permitted or required by the 1940
          Act.  The criteria for determining what constitutes a request for
          redemption in proper form and the time of receipt of such request
          shall be fixed by the Trustees.

               The obligation of the Trust to redeem its Shares as set
          forth above in this Section 2 shall be subject to the condition
          that such obligation may be suspended by the Trust by or under
          authority of the Trustees during any period or periods when and
          to the extent permissible under the 1940 Act.  If there is such a
          suspension, any Shareholder may withdraw any request for

                                          19
<PAGE>
 
          redemption which has been received by the Trust during any such
          period and the applicable net asset value with respect to which
          would but for such suspension be calculated as of a time during
          such period.  Upon such withdrawal, the Trust shall return to the
          Shareholder the certificates therefor, if any.

               The Trust may also purchase, repurchase or redeem Shares in
          accordance with such other methods, upon such other terms and
          subject to such other conditions as the Trustee may from time to
          time authorize at a price not exceeding the net asset value of
          such Shares in effect when the purchase or repurchase or any
          contract to purchase or repurchase is made.  Shares redeemed or
          repurchased by the Trust hereunder shall be cancelled upon such
          redemption or repurchase without further action by the Trust or
          the Trustees and the number of issued and outstanding Shares of
          the relevant series and class shall thereupon by reduced by such
          amount.

          Payment for Shares Redeemed
          ---------------------------

               Section 3.  Payment of the redemption price for Shares
          redeemed pursuant to this Article VI shall be made by the Trust
          or its duly authorized agent after receipt by the Trust or its
          duly authorized agent of a request for redemption in proper form
          (together with any certificates for such Shares as provided in
          Section 2 above)  in accordance with procedures and subject to
          conditions prescribed by the Trustees; provided, however, that
          payment may be postponed during the period in which the redemp-
          tion of Shares is suspended under Section 2 above.  Subject to
          any generally applicable limitation imposed by the Trustees, any
          payment on redemption, purchase or repurchase by the Trust of
          Shares may, if authorized by the Trustees, be made wholly or
          partly in kind, instead of in cash.  Such payment in kind shall
          be made by distributing securities or other property, constitut-
          ing, in the opinion of the Trustees, a fair representation of the
          various types of securities and other property then held by the
          series of Shares being redeemed, purchased or repurchased (but
          not necessarily involving a portion of each of the series'
          holdings) and taken at their value used in determining the net
          asset value of the Shares in respect of which payment is made.

          Redemptions at the Option of the Trust
          --------------------------------------

               Section 4.  The Trust shall have the right at its option and
          at any time and from time to time to redeem Shares of any
          Shareholder at the net asset value thereof as determined in
          accordance with Section 6 of this Article VI, if at such time
          such Shareholder owns fewer shares of a series or class than, or
          Shares of a series or class having an aggregate net asset value
          of less than, an amount determined from time to time by the

                                          20
<PAGE>
 
          Trustees.  Any such redemption at the option of the Trust shall
          be made in accordance with such other criteria and procedures for
          determining the Shares to be redeemed, the redemption date and
          the means of effecting such redemption as the Trustees may from
          time to time authorize.

          Additional Provisions Relating to Dividends, Redemptions and
          ------------------------------------------------------------
          Repurchases
          -----------

               Section 5.  The completion of redemption, purchase or
          repurchase of Shares shall constitute a full discharge of the
          Trust and the Trustees with respect to such Shares.  No dividend
          or distribution (including, without limitation, any distribution
          paid upon termination of the Trust or of any series or class)
          with respect to, nor any redemption or repurchase of, the Shares
          of any series or class shall be effected by the Trust other than
          from the assets of such series.

          Determination of Net Asset Value
          --------------------------------

               Section 6.  The term "net asset value" of each Share of a
          series or class as of any particular time shall be the quotient
          obtained by dividing the value, as at such time, of the net
          assets of such series or class (i.e., the value of the assets of
          such series or class less the liabilities of such series or
          class, exclusive of liabilities represented by the Shares of such
          series or class) by the total number of Shares of such series or
          class outstanding at such time, all determined and computed in
          accordance with the Trust's current prospectus.

               The Trustees, or any officer, or officers or agent of the
          Trust designated for the purpose by the Trustees shall determine
          the net asset value of the Shares of each series or class, and
          the Trustees shall fix the time or times as of which the net
          asset value of the Shares of each series or class shall be
          determined and shall fix the periods during which any such net
          asset value shall be effective as to sales, redemptions and
          repurchases of, and other transactions in, the Shares of such
          series or class, except as such times and periods for any such
          transaction may be fixed by other provisions of this Declaration
          of Trust or by the By-Laws.

               Determinations in accordance with this Section 6 made in
          good faith shall be binding on all parties concerned.

                                          21
<PAGE>
 
          How Long Shares are Outstanding
          -------------------------------

               Section 7.  Shares of the Trust surrendered to the Trust for
          redemption by it pursuant to the provisions of Section 2 of this
          Article VI shall be deemed to be outstanding until the redemption
          price thereof is determined pursuant to this Article VI and,
          thereupon and until paid, the redemption price thereof shall be
          deemed to be a liability of the Trust.  Shares of the Trust
          purchased by the Trust in the open market shall be deemed to be
          outstanding until confirmation of purchase thereof by the Trust
          and, thereupon and until paid, the purchase price thereof shall
          be deemed to be a liability of the Trust.  Shares of the Trust
          redeemed by the Trust pursuant to Section 4 of this Article VI
          shall be deemed to be outstanding until said Shares are deemed to
          be redeemed in accordance with procedures adopted by the Trustees
          pursuant to said Section 4.


                                     ARTICLE VII
                                     -----------

               Compensation and Limitation of Liability of Trustees and
               --------------------------------------------------------
                                     Shareholders
                                     ------------

               Section 1.  The Trustees as such shall be entitled to
          reasonable compensation from the Trust if the rate thereof is
          prescribed by such Trustees.  Nothing herein shall in any way
          prevent the employment of any Trustee for advisory, management,
          legal, accounting, investment banking or other services and
          payment for the same by the Trust, it being recognized that such
          employment may result in such Trustee being considered an
          Affiliated Person or an Interested Person.

          Limitation of Liability
          -----------------------

               Section 2.  The Trustees shall not be responsible or liable
          in any event for any neglect or wrongdoing of any officer, agent,
          employee, investment advisor or manager, principal underwriter or
          custodian, nor shall any Trustee be responsible for the act or
          omission of any other Trustee.  Nothing in this Declaration of
          Trust shall protect any Trustee against any liability to which
          such Trustee would otherwise be subject by reason of willful
          misfeasance, bad faith, gross negligence or reckless disregard of
          the duties involved in the conduct of the office of Trustee.

               Every note, bond, contract, instrument, certificate, Share
          or undertaking and every other act or thing whatsoever executed
          or done by or on behalf of the Trust or the Trustee or any of

                                          22
<PAGE>
 
          them in connection with the Trust shall be conclusively deemed to
          have been executed or done only in or with respect to their or
          his capacity as Trustees or Trustee and neither such Trustees or
          Trustee nor the Shareholders shall be personally liable thereon.

               Every note, bond, contract, instrument, certificate or
          undertaking made or issued by the Trustees or by any officers or
          officer shall give notice that this Declaration of Trust is on
          file with the Secretary of State of The Commonwealth of Massachu-
          setts and shall recite that the same was executed or made by or
          on behalf of the Trust by them as Trustees or Trustee or as
          officers or officer and not individually and that the obligations
          of such instrument are not binding upon any of them or the
          Shareholders individually but are binding only upon the assets
          and property of the Trust or a particular series of Shares, and
          may contain such further recital as he or they may deem appropri-
          ate, but the omission thereof shall not operate to bind any
          Trustees or Trustee or officers or officer or Shareholders or
          Shareholder individually.

               All persons extending credit to, contracting with or having
          any claim against the Trust or a particular series of Shares
          shall look only to the assets of the Trust or the assets of that
          particular series of Shares, as the case may be, for payment
          under such credit, contract or claim; and neither the Sharehold-
          ers nor the Trustees, nor any of the Trust's officers, employees
          or agents, whether past, present or future, shall be personally
          liable therefor.

          Trustees' Good Faith Action, Expert Advice, No Bond or Surety
          -------------------------------------------------------------

               Section 3.  The exercise by the Trustees of their powers and
          discretions hereunder shall be binding upon everyone interested. 
          A Trustee shall be liable only for his own willful misfeasance,
          bad faith, gross negligence or reckless disregard of the duties
          involved in the conduct of the office of Trustee, and for nothing
          else, and shall not be liable for errors of judgment or mistakes
          of fact or law.  The Trustees may take advice of counsel or other
          experts with respect to the meaning and operation of this
          Declaration of Trust and their duties as Trustees hereunder, and
          shall be under no liability for any act or omission in accordance
          with such advice or for failing to follow such advice.  In
          discharging their duties, the Trustees, when acting in good
          faith, shall be entitled to rely upon the books of account of the
          Trust and upon written reports made to the Trustees by any
          officer appointed by them, any independent public accountant and
          (with respect to the subject matter of the contract involved) any
          officer, partner or responsible employee of any other party to
          any contract entered into pursuant to Section 2 of Article IV. 
          The Trustees shall not be required to give any bond as such, nor
          any surety if a bond is required.

                                          23
<PAGE>
 
          Liability of Third Persons Dealing with Trustees
          ------------------------------------------------

               Section 4.   No person dealing with the Trustees shall be
          bound to make any inquiry concerning the validity of any
          transaction made or to be made by the Trustees or to see to the
          application of any payments made or property transferred to the
          Trust or upon its order.


                                     ARTICLE VIII
                                     ------------

                                   Indemnification
                                   ---------------


               Subject to the exceptions and limitations contained in this
          Article, every person who is, or has been, a Trustee or officer
          of the Trust (including persons who serve at the request of the
          Trust as directors, officers or trustees of another organization
          in which the Trust has an interest as a shareholder, creditor or
          otherwise) hereinafter referred to as a "Covered Person", shall
          be indemnified by the Trust to the fullest extent permitted by
          law against liability and against all expenses reasonably
          incurred or paid by him in connection with any claim, action,
          suit or proceeding in which he becomes involved as a party or
          otherwise by virtue of his being or having been such a Trustee,
          director or officer and against amounts paid or incurred by him
          in settlement thereof.

               No indemnification shall be provided hereunder to a Covered
          Person:

                    (a) against any liability to the Trust or its
               Shareholders by reason of a final adjudication by the court
               or other body before which the proceeding was brought that
               he engaged in willful misfeasance, bad faith, gross
               negligence or reckless disregard of the duties involved in
               the conduct of his office;

                    (b) with respect to any matter as to which he shall
               have been finally adjudicated not to have acted in good
               faith in the reasonable belief that his action was in the
               best interest of the Trust; or

                    (c) in the event of a settlement or other disposition
               not involving a final adjudication (as provided in paragraph
               (a) or (b)) and resulting in a payment by a Covered Person,
               unless there has been either a determination that such
               Covered Person did not engage in willful misfeasance, bad
               faith, gross negligence or reckless disregard of the duties

                                          24
<PAGE>
 
               involved in the conduct of his office by the court or other
               body approving the settlement or other disposition or a
               reasonable determination, based on a review of readily
               available facts (as opposed to a full trial-type inquiry)
               that he did not engage in such conduct:

                         (i)  by a vote of a majority of the Disinterested
                    Trustees acting on the matter (provided that a majority
                    of the Disinterested Trustees then in office act on the
                    matter); or

                         (ii) by written opinion of independent legal
                    counsel.

               The rights of indemnification herein provided may be insured
          against by policies maintained by the Trust, shall be severable,
          shall not affect any other rights to which any Covered Person may
          now or hereafter be entitled, shall continue as to a person who
          has ceased to be such a Covered Person and shall inure to the
          benefit of the heirs, executors and administrators of such a
          person.  Nothing contained herein shall affect any rights to
          indemnification to which Trust personnel other than Covered
          Persons may be entitled by contract or otherwise under law.

          Expenses of preparation and presentation of a defense to any
          claim, action, suit or proceeding subject to a claim for
          indemnification under this Article shall be advanced by the Trust
          prior to final disposition thereof upon receipt of an undertaking
          by or on behalf of the recipient to repay such amount if it is
          ultimately determined that he is not entitled to indemnification
          under this Article, provided that either:

                    (a)  such undertaking is secured by a surety bond or
               some other appropriate security or the Trust shall be
               insured against losses arising out of any such advances; or

                    (b)  a majority of the Disinterested Trustees acting on
               the matter (provided that a majority of the Disinterested
               Trustees then in office act on the matter) or independent
               legal counsel in a written opinion shall determine, based
               upon a review of the readily available facts (as opposed to
               a full trial-type inquiry), that there is reason to believe
               that the recipient ultimately will be found entitled to
               indemnification.

               As used in this Article, a "Disinterested Trustee" is one
          (a) who is not an "interested person" of the Trust, as defined in
          the 1940 Act (including anyone who has been exempted from being
          an "interested person" by any rule, regulation or order of the
          Commission), and (b) against whom none of such actions, suits or
          other proceedings or another action, suit or other proceeding on
          the same or similar grounds is then or has been pending.

                                          25
<PAGE>
 
               As used in this Article, the words "claim", "action", "suit"
          or "proceeding" shall apply to all claims, actions, suits or
          proceedings (civil, criminal or other, including appeals), actual
          or threatened; and the words "liability" and "expenses" shall
          include without limitation, attorneys' fees, cost, judgments,
          amounts paid in settlement, fines, penalties and other liabili-
          ties.

               In case any Shareholder or former Shareholder shall be held
          to be personally liable solely by reason of his or her being or
          having been a Shareholder and not because of his or her acts or
          omissions or for some other reason, the Shareholder or former
          Shareholder (or his or her heirs, executors, administrators or
          other legal representatives or in the case of a corporation or
          other entity,  its corporate or other general successor) shall be
          entitled to be held harmless from and indemnified against all
          loss and expense arising from such liability but only out of the
          assets of the particular series of Shares of which he or she is
          or was a Shareholder; provided, however, there shall be no
          liability or obligation of the Trust arising hereunder to
          reimburse any Shareholder for taxes paid by reason of such
          Shareholder's ownership of Shares or for losses suffered by
          reason of any changes in value of any Trust assets.


                                      ARTICLE IX
                                      ----------

                                    Miscellaneous
                                    -------------

          Duration, Termination and Reorganization of Trust
          -------------------------------------------------

               Section 1.  Unless terminated as provided herein, the Trust
          shall continue without limitation of time.  The Trust may be
          terminated at any time by the Trustees by written notice to the
          Shareholders without a vote of the Shareholders of the Trust or
          by the vote of the Shareholders entitled to vote more than fifty
          percent (50%) of the votes of each series or class entitled to be
          cast on the matter.  Any series or class of Shares may be
          terminated at any time by the Trustees by written notice to the
          Shareholders of such series or class without a vote of the
          Shareholders of such series or class or by the vote of the
          Shareholders of such series or class entitled to vote more than
          fifty percent (50%) of the votes entitled to be cast on the
          matter.

               Upon termination of the Trust or of any one or more series
          or classes of Shares, after paying or otherwise providing for all
          charges, taxes, expenses and liabilities, whether due or accrued
          or anticipated, of the particular series or class as may be

                                          26
<PAGE>
 
          determined by the Trustees, the Trust shall in accordance with
          such procedures as the Trustees consider appropriate reduce to
          the extent necessary the remaining assets of the particular
          series to distributable form in cash or other securities, or any
          combination thereof, and distribute the proceeds to the Share-
          holders of the series or class involved, ratably according the
          number of Shares of such series or class held by the several
          Shareholders of such series or class on the date of termination. 
          Any such distributions with respect to any series which has one
          or more classes of Shares outstanding shall be made ratably to
          such classes in the same proportion as the number of Shares of
          each class bears to the total number of Shares of the series,
          except to the extent otherwise required or permitted by the
          preferences and special or relative rights or privileges of any
          classes of Shares of any such series.

               At any time by the affirmative vote of the Shareholders of
          the affected series entitled to vote more than fifty percent
          (50%) of the votes entitled to be cast on the matter, the
          Trustees may sell, convey and transfer the assets of the Trust,
          or the assets belonging to any one or more series, to another
          trust, partnership, association or corporation organized under
          the laws of any state of the United States, or to the Trust to be
          held as assets belonging to another series of the Trust, in
          exchange for cash, shares or other securities (including, in the
          case of a transfer to another series of the Trust, Shares of such
          other series) with such transfer being made subject to or with
          the assumption by the transferee of, the liabilities belonging to
          each series the assets of which are so distributed.  Following
          such transfer, the Trustees shall distribute such cash, shares or
          other securities (giving due effect to the assets and liabilities
          belonging to and any other differences among the various series
          the assets belonging to which have so been transferred) among the
          Shareholders of the series the assets belonging to which have
          been so transferred; and if all the assets of the Trust have been
          so distributed, the Trust shall be terminated.

          Filing of Copies, References, Headings
          --------------------------------------

               Section 2.  The original or a copy of this instrument and of
          each amendment hereto shall be kept at the office of the Trust
          where it may be inspected by any Shareholder.  A copy of this
          instrument and of each amendment hereto shall be filed by the
          Trust with the Secretary of State of The Commonwealth of
          Massachusetts and with the Boston City Clerk, as well as any
          other governmental office where such filing may from time to time
          be required.  Anyone dealing with the Trust may rely on a
          certificate by any officer of the Trust as to whether or not any
          such amendments have been made and as to any matters in connec-
          tion with the Trust hereunder; and, with the same effect as if it
          were the original, may rely on a copy certified by an officer of

                                          27
<PAGE>
 
          the Trust to be a copy of this instrument or of any such
          amendments.  In this instrument and in any such amendment,
          references to this instrument, and all expressions like "herein",
          "hereof", and "hereunder", shall be deemed to refer to this
          instrument as amended from time to time.  Headings are placed
          herein for convenience of reference only and shall not be taken
          as a part hereof or control or affect the meaning, construction
          or effect of this instrument.  This instrument may be executed in
          any number of counterparts each of which shall be deemed an
          original.

          Applicable Law
          --------------

               Section 3.  This Declaration of Trust is made in The
          Commonwealth of Massachusetts, and it is created under and is to
          be governed by and construed and administered according to the
          laws of said Commonwealth.  The Trust shall be of the type
          commonly called a Massachusetts business trust, and without
          limiting the provisions hereof, the Trust may exercise all powers
          which are ordinarily exercised by such a trust.

          Amendments
          ----------

               Section 4.  This Declaration of Trust may be amended at any
          time by an instrument in writing signed by a majority of the then
          Trustees when authorized so to do by vote of Shareholders holding
          more than fifty percent (50%) of the Shares of each series
          entitled to vote, except that an amendment which in the determi-
          nation of the Trustees shall affect the holders of one or more
          series or classes of Shares but not the holders of all outstand-
          ing series and classes shall be authorized by vote of the
          Shareholders holding more than fifty percent (50%) of the Shares
          entitled to vote of each series or class affected and no vote of
          Shareholders of a series or class not affected shall be required. 
          Amendments having the purpose of changing the name of the Trust
          or any series or class or of supplying any omission, curing any
          ambiguity or curing, correcting or supplementing any provision
          which is defective or inconsistent with the 1940 Act or with the
          requirements of the Internal Revenue Code and the regulations
          thereunder for the Trust's obtaining the most favorable treatment
          thereunder available to regulated investment companies shall not
          require authorization by Shareholder vote.

                                          28
<PAGE>
 
               IN WITNESS WHEREOF, the undersigned have hereunto set their
          hands and seal for himself and his assigns, as of this 2nd day of
          September, 1994. 


                                      /s/ Philip J. Collora
                                      ______________________________
          (SEAL)                      Philip J. Collora, Trustee
                                      
                                      Residence Address:

                                      2734 Lawndale Avenue
                                      Evanston, Illinois  60201

                                      Address of Trust:
                                      c/o Kemper Financial Services, Inc.
                                      120 South LaSalle Street
                                      Chicago, IL  60603




          STATE OF ILLINOIS )
                            ) SS
          COUNTY OF COOK    )


               Then personally appeared the above-named Philip J. Collora
          who acknowledged the foregoing instrument to be his free act and
          deed, before me this 2nd day of September, 1994.


                                      /s/ Sandra K. Pelletier
                                      _______________________________
                                             NOTARY PUBLIC



                                          29

<PAGE>
 
                                                                   EXHIBIT 99.b2

                                  BY-LAWS OF
                        KEMPER INTERNATIONAL BOND FUND


                   Section 1.  Agreement and Declaration of
                          Trust and Principal Office

          1.1  Agreement and Declaration of Trust.  These By-Laws shall be
          subject to the Agreement and Declaration of Trust, as from time
          to time in effect (the "Declaration of Trust"), of Kemper
          International Bond Fund, the Massachusetts business trust
          established by the Declaration of Trust (the "Trust").

          1.2  Principal Office of the Trust; Resident Agent.  The
          principal office of the Trust shall be located in Chicago,
          Illinois.  Its resident agent in Massachusetts shall be CT
          Corporation System, 2 Oliver Street, Boston, Massachusetts or
          such other person as the Trustees may from time to time select.


                           Section 2.  Shareholders

          2.1  Shareholder Meetings.  Meetings of the shareholders may be
          called at any time by the Trustees, by the President or, if the
          Trustees and the President shall fail to call any meeting of
          shareholders for a period of 30 days after written application of
          one or more shareholders who hold at least 25% of all shares
          issued and outstanding and entitled to vote at the meeting (or
          10% if the purpose of the meeting is to determine if a Trustee
          shall be removed from office), then such shareholders may call
          such meeting.  Each call of a meeting shall state the place,
          date, hour and purposes of the meeting.

          2.2  Place of Meetings.  All meetings of the shareholders shall
          be held at the principal office of the Trust, or, to the extent
          permitted by the Declaration of Trust, at such other place within
          the United States as shall be designated by the Trustees or the
          President of the Trust.
                                       
          2.3  Notice of Meetings.  A written notice of each meeting of
          shareholders, stating the place, date and hour and the purposes
          of the meeting, shall be given at least seven days before the
          meeting to each shareholder entitled to vote thereat by leaving
          such notice with him or at his residence or usual place of
          business or by mailing it, postage prepaid, and addressed to such
          shareholder at his address as it appears in the records of the
          Trust.  Such notice shall be given by the Secretary or an
          Assistant Secretary or by an officer designated by the Trustees. 
          No notice of any meeting of shareholders need be given to a
          shareholder if a written waiver of notice, executed before or
<PAGE>
 
          after the meeting by such shareholder or his attorney thereunto
          duly authorized, is filed with the records of the meeting.
                                      
          2.4  Ballots.  No ballot shall be required for any election
          unless requested by a shareholder present or represented at the
          meeting and entitled to vote in the election.

          2.5  Proxies and Voting.  Shareholders entitled to vote may vote
          either in person or by proxy in writing dated not more than six
          months before the meeting named therein, which proxies shall be
          filed with the Secretary or other person responsible to record
          the proceedings of the meeting before being voted.  Unless
          otherwise specifically limited by their terms, such proxies shall
          entitle the holders thereof to vote at any adjournment of such
          meeting but shall not be valid after the final adjournment of
          such meeting.  At all meetings of shareholders, unless the voting
          is conducted by inspectors, all questions relating to the
          qualification of voters, the validity of proxies and the
          acceptance or rejection of votes shall be decided by the chairman
          of the meeting.


                             Section 3.  Trustees

          3.1  Committees and Advisory Board.  The Trustees may appoint
          from their number an executive committee and other committees. 
          Any such committee may be abolished and reconstituted at any time
          and from time to time by the Trustees.  Except as the Trustees
          may otherwise determine, any such committee may make rules for
          the conduct of its business.  The Trustees may appoint an
          advisory board to consist of not less than two nor more than five
          members.  The members of the advisory board shall be compensated
          in such manner as the Trustees may determine and shall confer
          with and advise the Trustees regarding the investments and other
          affairs of the Trust.  Each member of the advisory board shall
          hold office until the first meeting of the Trustees following the
          meeting of the shareholders, if any, next following his
          appointment and until his successor is appointed and qualified,
          or until he sooner dies, resigns, is removed, or becomes
          disqualified, or until the advisory board is sooner abolished by
          the Trustees.

          3.2  Regular Meetings.  Regular meetings of the Trustees may be
          held without call or notice at such places and at such times as
          the Trustees may from time to time determine, provided that
          notice of the first regular meeting following any such
          determination shall be given to absent Trustees.  A regular
          meeting of the Trustees may be held without call or notice
          immediately after and at the same place as any meeting of the
          shareholders.                     



                                       2
<PAGE>
                                      
          3.3  Special Meetings.  Special meetings of the Trustees may be
          held at any time and at any place designated in the call of the
          meeting, when called by the Chairman of the Board or by two or
          more Trustees, sufficient notice thereof being given to each
          Trustee by the Secretary or an Assistant Secretary or by the
          officer or one of the Trustees calling the meeting.

          3.4  Notice.  It shall be sufficient notice to a Trustee to send
          notice by mail at least three days or by telegram at least
          twenty-four hours before the meeting addressed to the Trustee at
          his or her usual or last known business or residence address or
          to give notice to him or her in person or by telephone at least
          twenty-four hours before the meeting.  Notice of a meeting need
          not be given to any Trustee if a written waiver of notice,
          executed by him or her before or after the meeting, is filed with
          the records of the meeting, or to any Trustee who attends the
          meeting without protesting prior thereto or at its commencement
          the lack of notice to him or her.  Neither notice of a meeting
          nor a waiver of a notice need specify the purposes of the
          meeting.

          3.5  Quorum.  At any meeting of the Trustees, one-third of the
          Trustees then in office shall constitute a quorum; provided,
          however, a quorum (unless the Board of Trustees consists of two
          or fewer persons) shall not be less than two.  Any meeting may be
          adjourned from time to time by a majority of the votes cast upon
          the question, whether or not a quorum is present, and the meeting
          may be held as adjourned without further notice.


                        Section 4.  Officers and Agents

          4.1  Enumeration; Qualification.  The officers of the Trust shall
          be a President, a Treasurer, a Secretary and such other officers,
          if any, as the Trustees from time to time may in their discretion
          elect or appoint.  The Trust may also have such agents, if any,
          as the Trustees from time to time may in their discretion
          appoint.  Any officer may be but none need be a Trustee or
          shareholder.  Any two or more offices may be held by the same
          person.

          4.2  Powers.  Subject to the other provisions of these By-Laws,
          each officer shall have, in addition to the duties and powers
          herein and in the Declaration of Trust set forth, such duties and
          powers as are commonly incident to his or her office as if the
          Trust were organized as a Massachusetts business corporation and
          such other duties and powers as the Trustees may from time to
          time designate.

          4.3  Election.  The President, the Treasurer and the Secretary
          shall be elected annually by the Trustees at their first meeting

                                       3
<PAGE>
                                 
          in each calendar year or at such later meeting in such year as
          the Trustees shall determine. Other officers or agents, if any,
          may be elected or appointed by the Trustees at said meeting or at
          any other time.

          4.4  Tenure.  The President, Treasurer and Secretary shall hold
          office until the first meeting of Trustees in each calendar year
          and until their respective successors are chosen and qualified,
          or in each case until he or she sooner dies, resigns, is removed
          or becomes disqualified.  Each other officer shall hold office
          and each agent shall retain his or her authority at the pleasure
          of the Trustees.

          4.5  Chairman of the Board.  The Chairman of the Board of
          Trustees, if one is so appointed, shall be chosen from among the
          Trustees and may hold office only so long as he continues to be a
          Trustee.  The Chairman of the Board, if any is so appointed,
          shall preside at all meetings of the shareholders and of the
          Trustees at which he is present; and shall have such other duties
          and powers as specified herein and as may be assigned to him by
          the Trustee.

          4.6  President and Vice Presidents.  The President shall be the
          chief executive officer of the Trust.  The President shall,
          subject to the control of the Trustees, have general charge and
          supervision of the Trust and shall perform such other duties and
          have such other powers as the Trustees shall prescribe from time
          to time.  Any Vice President shall at the request or in the
          absence or disability of the President exercise the powers of the
          President and perform such other duties and have such other
          powers as shall be designated from time to time by the Trustees.
                            
          4.7  Treasurer and Controller.  The Treasurer shall be the chief
          financial officer of the Trust and, subject to any arrangement
          made by the Trustees with a bank or trust company or other
          organization as custodian or transfer or shareholder services
          agent, shall be in charge of its valuable papers and shall have
          such other duties and powers as may be designated from time to
          time by the Trustees or by the President.  If at any time there
          shall be no Controller, the Treasurer shall also be the chief
          accounting officer of the Trust and shall have the duties and
          power prescribed herein for the Controller.  Any Assistant
          Treasurer shall have such duties and powers as shall be
          designated from time to time by the Trustees.

          The Controller, if any be elected, shall be the chief accounting
          officer of the Trust and shall be in charge of its books of
          account and accounting records.  The Controller shall be
          responsible for preparation of financial statements of the Trust
          and shall have such other duties and powers as may be designated
          from time to time by the Trustees or the President.


                                       4
<PAGE>
 
          4.8  Secretary and Assistant Secretaries.  The Secretary shall
          record all proceedings of the shareholders and the Trustees in
          books to be kept therefor, which books shall be kept at the
          principal office of the Trust.  In the absence of the Secretary
          from any meeting of shareholders or Trustees, an Assistant
          Secretary, or if there be none or if he or she is absent, a
          temporary clerk chosen at the meeting shall record the
          proceedings thereof in the aforesaid books.

                                    
                     Section 5.  Resignations and Removals

          Any Trustee may resign his trust or retire as a Trustee in
          accordance with procedures set forth in the Declaration of Trust. 
          Any officer or advisory board member may resign at any time by
          delivering his or her resignation in writing to the Chairman of
          the Board, the President or the Secretary or to a meeting of the
          Trustees.  The Trustees may remove any officer or advisory board
          member elected or appointed by them with or without cause by the
          vote of a majority of the Trustees then in office.  Except to the
          extent expressly provided in a written agreement with the Trust,
          no Trustee, officer, or advisory board member resigning, and no
          officer or advisory board member removed, shall have any right to
          any compensation for any period following his or her resignation
          or removal, or any right to damages on account of such removal.


                             Section 6.  Vacancies

          A vacancy in the office of Trustee shall be filed in accordance
          with the Declaration of Trust.  Vacancies resulting from the
          death, resignation, incapacity or removal of any officer may be
          filled by the Trustees.  Each successor of any such officer shall
          hold office for the unexpired term, and in the case of the
          President, the Treasurer and the Secretary, until his or her
          successor is chosen and qualified, or in each case until he or
          she sooner dies, resigns, is removed or becomes disqualified.


                   Section 7.  Shares of Beneficial Interest

          7.1  Share Certificates.  No certificates certifying the
          ownership of shares shall be issued except as the Trustees may
          otherwise authorize.  In the event that the Trustees authorize
          the issuance of share certificates, subject to the provisions of
          Section 7.3, each shareholder shall be entitled to a certificate
          stating the number of shares owned by him or her, in such form as
          shall be prescribed from time to time by the Trustees.  Such
          certificate shall be signed by the President or a Vice President
          and by the Treasurer, Assistant Treasurer, Secretary or Assistant
          Secretary.  Such signatures may be facsimiles if the certificate
          is signed by a transfer or shareholder services agent or by a

                                       5
<PAGE>
                                       
          registrar, other than a Trustee, officer or employee of the
          Trust.  In case any officer who has signed or whose facsimile
          signature has been placed on such certificate shall have ceased
          to be such officer before such certificate is issued, it may be
          issued by the Trust with the same effect as if he or she were
          such officer at the time of its issue.

          In lieu of issuing certificates for shares, the Trustees or the
          transfer or shareholder services agent may either issue receipts
          therefor or may keep accounts upon the books of the Trust for the
          record holders of such shares, who shall in either case be
          deemed, for all purposes hereunder, to be the holders of
          certificates for such shares as if they had accepted such
          certificates and shall be held to have expressly assented and
          agreed to the terms hereof.

          7.2  Loss of Certificates.  In the case of the alleged loss or
          destruction or the mutilation of a share certificate, a duplicate
          certificate may be issued in place thereof, upon such terms as
          the Trustees may prescribe.

          7.3  Discontinuance of Issuance of Certificates.  The Trustees
          may at any time discontinue the issuance of share certificates
          and may, by written notice to each shareholder, require the
          surrender of share certificates to the Trust for cancellation. 
          Such surrender and cancellation shall not affect the ownership of
          shares in the Trust.


                            Section 8.  Record Date

          The Trustees may fix in advance a time, which shall not be more
          than 90 days before the date of any meeting of shareholders or
          the date for the payment of any dividend or making of any other
          distribution to shareholders, as the record date for determining
          the shareholders having the right to notice and to vote at such
          meeting and any adjournment thereof or the right to receive such
          dividend or distribution, and in such case only shareholders of
          record on such record date shall have such right, notwithstanding
          any transfer of shares on the books of the Trust after the record
          date.


                               Section 9.  Seal

          The seal of the Trust shall, subject to alteration by the
          Trustees, consist of a flat-faced circular die with the word
          "Massachusetts" together with the name of the Trust, cut or
          engraved thereon; but, unless otherwise required by the Trustees,
          the seal shall not be necessary to be placed on, and its absence
          shall not impair the validity of, any document, instrument, or
          other paper executed and delivered by or on behalf of the Trust.
                                   
                                       6
<PAGE>
 
                       Section 10.  Execution of Papers
                                             
          Except as the Trustees may generally or in particular cases
          authorize the execution thereof in some other manner, all deeds,
          leases, transfers, contracts, bonds, notes, checks, drafts and
          other obligations made, accepted or endorsed by the Trust shall
          be signed, and any transfers of securities standing in the name
          of the Trust shall be executed, by the President or by one of the
          Vice Presidents or by the Treasurer or by whomsoever else shall
          be designated for that purpose by the vote of the Trustees and
          need not bear the seal of the Trust.


                           Section 11.  Fiscal Year

          The fiscal year of the Trust shall end on such date in each year
          as the Trustees shall from time to time determine.


                            Section 12.  Amendments

          These By-Laws may be amended or repealed, in whole or in part, by
          a majority of the Trustees then in office at any meeting of the
          Trustees, or by one or more writings signed by such majority.











                                       7

<PAGE>
 
                                                                   EXHIBIT 99.b4
                                         
          [Name] 
          is the owner of            [number]                        shares
          of beneficial interest in the above noted Fund (the "FUND"), of
          the series and class, if any, specified, fully paid and
          nonassessable, the said shares being issued and held subject to
          the provisions of the Agreement and Declaration of Trust of the
          Fund, and all amendments thereto, copies of which are on file
          with the Secretary of The Commonwealth of Massachusetts.  The
          said owner by accepting this certificate agrees to and is bound
          by all of the said provisions.  The shares represented hereby are
          transferable in writing by the owner thereof in person or by
          attorney upon surrender of this certificate to the Fund properly
          endorsed for transfer.  This certificate is executed on behalf of
          the Trustees of the Fund as Trustees and not individually and the
          obligations hereof are not binding upon any of the Trustees,
          officers or shareholders individually but are binding only upon
          the assets and property of the Fund or, if applicable, the
          specified series of the Fund.  The shares may be subject to a
          contingent deferred sales charge.  This certificate is not valid
          unless countersigned by the Transfer Agent.




<PAGE>
 
                                                                   EXHIBIT 99.b5


                        INVESTMENT MANAGEMENT AGREEMENT


               AGREEMENT made this 1st day of February, 1995, by and
          between KEMPER INTERNATIONAL BOND FUND, a Massachusetts business
          trust (the "Fund"), and KEMPER FINANCIAL SERVICES, INC., a
          Delaware corporation (the "Adviser").

               WHEREAS, the Fund is an open-end management investment
          company registered under the Investment Company Act of 1940, the
          shares of beneficial interest ("Shares") of which are registered
          under the Securities Act of 1933;

               WHEREAS, the Fund is authorized to issue Shares in separate
          series or portfolios with each representing the interests in a
          separate portfolio of securities and other assets;

               WHEREAS, the Fund currently offers or intends to offer
          Shares in one portfolio, the Initial Portfolio, together with any
          other Fund portfolios which may be established later and served
          by the Adviser hereunder, being herein referred to collectively
          as the "Portfolios" and individually referred to as a
          "Portfolio"; and

               WHEREAS, the Fund desires at this time to retain the Adviser
          to render investment advisory and management services to the
          Initial Portfolio, and the Adviser is willing to render such
          services;

               NOW THEREFORE, in consideration of the mutual covenants
          hereinafter contained, it is hereby agreed by and between the
          parties hereto as follows:

          1.     The Fund hereby employs the Adviser to act as the
          investment adviser for the Initial Portfolio and other Portfolios
          hereunder and to manage the investment and reinvestment of the
          assets of each such Portfolio in accordance with the applicable
          investment objectives and policies and limitations, and to
          administer the affairs of each such Portfolio to the extent
          requested by and subject to the supervision of the Board of
          Trustees of the Fund for the period and upon the terms herein set
          forth, and to place orders for the purchase or sale of portfolio
          securities for the Fund's account with brokers or dealers
          selected by it; and, in connection therewith, the Adviser is
          authorized as the agent of the Fund to give instructions to the
          Custodian of the Fund as to the deliveries of securities and
          payments of cash for the account of the Fund.  In connection with
          the selection of such brokers or dealers and the placing of such
          orders, the Adviser is directed to seek for the Fund best
          execution of orders.  Subject to such policies as the Board of
<PAGE>
 
          Trustees of the Fund determines, the Adviser shall not be deemed
          to have acted unlawfully or to have breached any duty, created by
          this Agreement or otherwise, solely by reason of its having
          caused the Fund to pay a broker or dealer an amount of commission
          for effecting a securities transaction in excess of the amount of
          commission another broker or dealer would have charged for
          effecting that transaction, if the Adviser determined in good
          faith that such amount of commission was reasonable in relation
          to the value of the brokerage and research services provided by
          such broker or dealer viewed in terms of either that particular
          transaction or the Adviser's overall responsibilities with
          respect to the clients of the Adviser as to which the Adviser
          exercises investment discretion.  The Fund recognizes that all
          research services and research that the Adviser receives or
          generates are available for all clients, and that the Fund and
          other clients may benefit thereby.  The investment of funds shall
          be subject to all applicable restrictions of the Agreement and
          Declaration of Trust and By-Laws of the Fund as may from time to
          time be in force.

               The Adviser accepts such employment and agrees during such
          period to render such services, to furnish office facilities and
          equipment and clerical, bookkeeping and administrative services
          for the Fund, to permit any of its officers or employees to serve
          without compensation as trustees or officers of the Fund if
          elected to such positions and to assume the obligations herein
          set forth for the compensation herein provided.  The Adviser
          shall for all purposes herein provided be deemed to be an
          independent contractor and, unless otherwise expressly provided
          or authorized, shall have no authority to act for or represent
          the Fund in any way or otherwise be deemed an agent of the Fund. 
          It is understood and agreed that the Adviser, by separate
          agreements with the Fund, may also serve the Fund in other
          capacities.

          2.     In the event that the Fund establishes one or more
          portfolios other than the Initial Portfolio with respect to which
          it desires to retain the Adviser to render investment advisory
          and management services hereunder, it shall notify the Adviser in
          writing.  If the Adviser is willing to render such services, it
          shall notify the Fund in writing whereupon such portfolio or
          portfolios shall become a Portfolio or Portfolios hereunder.

          3.     For the services and facilities described in Section 1,
          the Fund will pay to the Adviser at the end of each calendar
          month, an investment management fee for each Portfolio computed
          by applying the following annual rates to the applicable average
          daily net assets of the Portfolio:




                                       2
<PAGE>
 
          <TABLE>
          <CAPTION>         
                   Applicable Average
                    Daily Net Assets
                      (Thousands)                    Annual Rate

               <S>                                   <C>
                        $0 - $   250,000             .75 of 1%
               $   250,000 - $ 1,000,000             .72 of 1%
               $ 1,000,000 - $ 2,500,000             .70 of 1%
               $ 2,500,000 - $ 5,000,000             .68 of 1%
               $ 5,000,000 - $ 7,500,000             .65 of 1%
               $ 7,500,000 - $10,000,000             .64 of 1%
               $10,000,000 - $12,500,000             .63 of 1%
                        Over $12,500,000             .62 of 1%

          </TABLE>

               The fee as computed above shall be computed separately for,
          and charged as an expense of, each Portfolio based upon the
          average daily net assets of such Portfolio.  For the month and
          year in which this Agreement becomes effective or terminates,
          there shall be an appropriate proration on the basis of the
          number of days that the Agreement is in effect during the month
          and year, respectively.

          4.     The services of the Adviser to the Fund under this
          Agreement are not to be deemed exclusive, and the Adviser shall
          be free to render similar services or other services to others so
          long as its services hereunder are not impaired thereby.

          5.     In addition to the fee of the Adviser, the Fund shall
          assume and pay any expenses for services rendered by a custodian
          for the safekeeping of the Fund's securities or other property,
          for keeping its books of account, for any other charges of the
          custodian, and for calculating the net asset value of the Fund as
          provided in the prospectus of the Fund.  The Adviser shall not be
          required to pay and the Fund shall assume and pay the charges and
          expenses of its operations, including compensation of the
          trustees (other than those affiliated with the Adviser), charges
          and expenses of independent auditors, of legal counsel, of any
          transfer or dividend disbursing agent, and of any registrar of
          the Fund, costs of acquiring and disposing of portfolio
          securities, interest, if any, on obligations incurred by the
          Fund, costs of share certificates and of reports, membership dues
          in the Investment Company Institute or any similar organization,
          costs of reports and notices to shareholders, other like
          miscellaneous expenses and all taxes and fees payable to federal,
          state or other governmental agencies on account of the
          registration of securities issued by the Fund, filing of trust
          documents or otherwise.  The Fund shall not pay or incur any
          obligation for any expenses for which the Fund intends to seek
          reimbursement from the Adviser as herein provided without first

                                       3
<PAGE>
 
          obtaining the written approval of the Adviser.  The Adviser shall
          arrange, if desired by the Fund, for officers or employees of the
          Adviser to serve, without compensation from the Fund, as
          trustees, officers or agents of the Fund if duly elected or
          appointed to such positions and subject to their individual
          consent and to any limitations imposed by law.

               If expenses borne by the Fund for those Portfolios which the
          Adviser manages in any fiscal year (including the Adviser's fee,
          but excluding interest, taxes, fees incurred in acquiring and
          disposing of portfolio securities, distribution services fees,
          extraordinary expenses and any other expenses excludable under
          state securities law limitations) exceed any applicable
          limitation arising under state securities laws, the Adviser will
          reduce its fee or reimburse the Fund for any excess to the extent
          required by such state securities laws.  If for any month the
          expenses of the Fund properly chargeable to the income account
          shall exceed 1/12 of the percentage of average net assets
          allowable as expenses, the payment to the Adviser for that month
          shall be reduced and if necessary the Adviser shall make a refund
          payment to the Fund so that the total net expense will not exceed
          such percentage.  As of the end of the Fund's fiscal year,
          however, the foregoing computations and payments shall be
          readjusted so that the aggregate compensation payable to the
          Adviser for the year is equal to the percentage calculated in
          accordance with Section 3 hereof of the average net asset value
          as determined as described herein throughout the fiscal year,
          diminished to the extent necessary so that the total of the
          aforementioned expense items of the Fund shall not exceed the
          expense limitation.  The aggregate of repayments, if any, by the
          Adviser to the Fund for the year shall be the amount necessary to
          limit the said net expense to said percentage in accordance with
          the foregoing.

               The net asset value for each Portfolio shall be calculated
          in accordance with the provisions of the Fund's prospectus or as
          the trustees may determine in accordance with the provisions of
          the Investment Company Act of 1940.  On each day when net asset
          value is not calculated, the net asset value of a Portfolio shall
          be deemed to be the net asset value of such Portfolio as of the
          close of business on the last day on which such calculation was
          made for the purpose of the foregoing computations.

          6.     Subject to applicable statutes and regulations, it is
          understood that trustees, officers or agents of the Fund are or
          may be interested in the Adviser as officers, directors, agents,
          shareholders or otherwise, and that the officers, directors,
          shareholders and agents of the Adviser may be interested in the
          Fund otherwise than as a trustee, officer or agent.

          7.     The Adviser shall not be liable for any error of judgment
          or of law or for any loss suffered by the Fund in connection with

                                       4
<PAGE>
 
          the matters to which this Agreement relates, except loss
          resulting from willful misfeasance, bad faith or gross negligence
          on the part of the Adviser in the performance of its obligations
          and duties or by reason of its reckless disregard of its
          obligations and duties under this Agreement.

          8.     This Agreement shall become effective with respect to the
          Initial Portfolio on the date hereof and shall remain in full
          force until April 1, 1996, unless sooner terminated as
          hereinafter provided.  This Agreement shall continue in force
          from year to year thereafter with respect to each Portfolio, but
          only as long as such continuance is specifically approved for
          each Portfolio at least annually in the manner required by the
          Investment Company Act of 1940 and the rules and regulations
          thereunder; provided, however, that if the continuation of this
          Agreement is not approved for a Portfolio, the Adviser may
          continue to serve in such capacity for such Portfolio in the
          manner and to the extent permitted by the Investment Company Act
          of 1940 and the rules and regulations thereunder.

               This Agreement shall automatically terminate in the event of
          its assignment and may be terminated at any time without the
          payment of any penalty by the Fund or by the Adviser on sixty
          (60) days written notice to the other party.  The Fund may effect
          termination with respect to any Portfolio by action of the Board
          of Trustees or by vote of a majority of the outstanding voting
          securities of such Portfolio.

               This Agreement may be terminated with respect to any
          Portfolio at any time without the payment of any penalty by the
          Board of Trustees or by vote of a majority of the outstanding
          voting securities of such Portfolio in the event that it shall
          have been established by a court of competent jurisdiction that
          the Adviser or any officer or director of the Adviser has taken
          any action which results in a breach of the covenants of the
          Adviser set forth herein.

               The terms "assignment" and "vote of a majority of the
          outstanding voting securities" shall have the meanings set forth
          in the Investment Company Act of 1940 and the rules and
          regulations thereunder.

               Termination of this Agreement shall not affect the right of
          the Adviser to receive payments on any unpaid balance of the
          compensation described in Section 3 earned prior to such
          termination.

          9.     If any provision of this Agreement shall be held or made
          invalid by a court decision, statute, rule or otherwise, the
          remainder shall not be thereby affected.



                                       5
<PAGE>
 
          10.     Any notice under this Agreement shall be in writing,
          addressed and delivered or mailed, postage prepaid, to the other
          party at such address as such other party may designate for the
          receipt of such notice.

          11.     All parties hereto are expressly put on notice of the
          Fund's Agreement and Declaration of Trust and all amendments
          thereto, all of which are on file with the Secretary of The
          Commonwealth of Massachusetts, and the limitation of shareholder
          and trustee liability contained therein.  This Agreement has been
          executed by and on behalf of the Fund by its representatives as
          such representatives and not individually, and the obligations of
          the Fund hereunder are not binding upon any of the trustees,
          officers, or shareholders of the Fund individually but are
          binding upon only the assets and property of the Fund.  With
          respect to any claim by the Adviser for recovery of that portion
          of the investment management fee (or any other liability of the
          Fund arising hereunder) allocated to a particular Portfolio,
          whether in accordance with the express terms hereof or otherwise,
          the Adviser shall have recourse solely against the assets of that
          Portfolio to satisfy such claim and shall have no recourse
          against the assets of any other Portfolio for such purpose.

          12.     This Agreement shall be construed in accordance with
          applicable federal law and (except as to Section 11 hereof which
          shall be construed in accordance with the laws of The
          Commonwealth of Massachusetts) the laws of the State of Illinois.

          13.     This Agreement is the entire contract between the parties
          relating to the subject matter hereof and supersedes all prior
          agreements between the parties relating to the subject matter
          hereof.

                                       6
<PAGE>
 
               IN WITNESS WHEREOF, the Fund and the Adviser have caused
          this Agreement to be executed as of the day and year first above
          written.



                                           KEMPER INTERNATIONAL BOND FUND

                                           By: /s/ John E. Peters 
                                               --------------------------

                                           Title: Vice President 
                                                  -----------------------

          Attest: /s/ Philip J. Collora
                  ------------------------

          Title: Assistant Secretary
                 -------------------------

                                           KEMPER FINANCIAL SERVICES, INC.

                                           By: /s/ Patrick Dudasik
                                               ---------------------------

                                           Title: Senior Vice President
                                                  ------------------------

          Attest: /s/ David F. Dierenfeldt
                  ------------------------

          TITLE: Assistant Secretary
                 -------------------------


                                       7

<PAGE>
 
                                                                EXHIBIT 99.b6(a)


                                UNDERWRITING AGREEMENT


               AGREEMENT made as of this 1st day of February, 1995 between
          KEMPER INTERNATIONAL BOND FUND, a Massachusetts business trust
          (hereinafter called the "Fund"), and KEMPER DISTRIBUTORS, INC., a
          Delaware corporation (hereinafter called the "Underwriter");

                                 W I T N E S S E T H:

               In consideration of the mutual covenants hereinafter
          contained, it is hereby agreed by and between the parties hereto
          as follows:

               1.     The Fund hereby appoints the Underwriter its agent
          for the distribution of shares of beneficial interest
          (hereinafter called "shares") of the Fund in jurisdictions
          wherein shares of the Fund may legally be offered for sale;
          provided, however, that the Fund in its absolute discretion may
          (a) issue or sell shares directly to holders of shares of the
          Fund upon such terms and conditions and for such consideration,
          if any, as it may determine, whether in connection with the
          distribution of subscription or purchase rights, the payment or
          reinvestment of dividends or distributions, or otherwise; or (b)
          issue or sell shares at net asset value to the shareholders of
          any other investment company, for which the Underwriter shall act
          as exclusive distributor, who wish to exchange all or a portion
          of their investment in shares of such other investment company
          for shares of the Fund.

               2.     The Underwriter hereby accepts appointment as agent
          for the distribution of the shares of the Fund and agrees that it
          will use its best efforts with reasonable promptness to sell such
          part of the authorized shares of the Fund remaining unissued as
          from time to time shall be effectively registered under the
          Securities Act of 1933 ("Securities Act"), at prices determined
          as hereinafter provided and on terms hereinafter set forth, all
          subject to applicable Federal and state laws and regulations and
          to the Agreement and Declaration of Trust of the Fund.

               3.     The Fund agrees that it will use its best efforts to
          keep effectively registered under the Securities Act for sale as
          herein contemplated such shares as the Underwriter shall
          reasonably request and as the Securities and Exchange Commission
          shall permit to be so registered.

               4.     Notwithstanding any other provision hereof, the Fund
          may terminate, suspend or withdraw the offering of shares
          whenever, in its sole discretion, it deems such action to be
          desirable.
<PAGE>
 
               5.     The Underwriter shall sell shares of the Fund to or
          through qualified dealers or others in such manner, not
          inconsistent with the provisions hereof and the then effective
          registration statement of the Fund under the Securities Act (and
          related prospectus), as the Underwriter may determine from time
          to time, provided that no dealer or other person shall be
          appointed or authorized to act as agent of the Fund without the
          prior consent of the Fund.  It is mutually agreed that, in
          addition to sales made by it as agent of the Fund, the
          Underwriter may, in its discretion, also sell shares of the Fund
          as principal to persons with whom it does not have dealer selling
          group agreements.

               6.     Shares of the Fund offered for sale or sold by the
          Underwriter shall be so offered or sold at a price per share
          determined in accordance with the then current prospectus
          relating to the sale of such shares except as departure from such
          prices shall be permitted by the rules and regulations of the
          Securities and Exchange Commission; provided, however, that any
          public offering price for shares of the Fund shall be the net
          asset value per share.  The net asset value per share shall be
          determined in the manner and at the times set forth in the then
          current prospectus of the Fund relating to such shares.

               7.     The price the Fund shall receive for all shares
          purchased from the Fund shall be the net asset value used in
          determining the public offering price applicable to the sale of
          such shares.

               8.     The Underwriter shall issue and deliver on behalf of
          the Fund such confirmations of sales made by it as agent pursuant
          to this agreement as may be required.  At or prior to the time of
          issuance of shares, the Underwriter will pay or cause to be paid
          to the Fund the amount due the Fund for the sale of such shares. 
          Certificates shall be issued or shares registered on the transfer
          books of the Fund in such names and denominations as the
          Underwriter may specify.

               9.     The Fund will execute any and all documents and
          furnish any and all information which may be reasonably necessary
          in connection with the qualification of its shares for sale
          (including the qualification of the Fund as a dealer where
          necessary or advisable) in such states as the Underwriter may
          reasonably request (it being understood that the Fund shall not
          be required without its consent to comply with any requirement
          which in its opinion is unduly burdensome).

               10.     The Fund will furnish to the Underwriter from time
          to time such information with respect to the Fund and its shares
          as the Underwriter may reasonably request for use in connection
          with the sale of shares of the Fund.  The Underwriter agrees that
          it will not use or distribute or authorize the use, distribution

                                          2
<PAGE>
 
          or dissemination by its dealers or others in connection with the
          sale of such shares any statements, other than those contained in
          the Fund's current prospectus, except such supplemental
          literature or advertising as shall be lawful under Federal and
          state securities laws and regulations, and that it will furnish
          the Fund with copies of all such material.

               11.     The Underwriter shall order shares of the Fund from
          the Fund only to the extent that it shall have received purchase
          orders therefor.  The Underwriter will not make, or authorize any
          dealers or others to make: (a) any short sales of shares of the
          Fund; or (b) any sales of such shares to any trustee or officer
          of the Fund or to any officer or director of the Underwriter or
          of any corporation or association furnishing investment advisory,
          managerial or supervisory services to the Fund, or to any such
          corporation or association, unless such sales are made in
          accordance with the then current prospectus relating to the sale
          of such shares.

               12.     The Underwriter, as agent of and for the account of
          the Fund, may repurchase the shares of the Fund at such prices
          and upon such terms and conditions as shall be specified in the
          current prospectus of the Fund.

               13.     In selling or reacquiring shares of the Fund for the
          account of the Fund, the Underwriter will in all respects conform
          to the requirements of all state and Federal laws and the Rules
          of Fair Practice of the National Association of Securities
          Dealers, Inc., relating to such sale or reacquisition, as the
          case may be, and will indemnify and save harmless the Fund from
          any damage or expense on account of any wrongful act by the
          Underwriter or any employee, representative or agent of the
          Underwriter.  The Underwriter will observe and be bound by all
          the provisions of the Agreement and Declaration of Trust of the
          Fund (and of any fundamental policies adopted by the Fund
          pursuant to the Investment Company Act of 1940, notice of which
          shall have been given to the Underwriter) which at the time in
          any way require, limit, restrict or prohibit or otherwise
          regulate any action on the part of the Underwriter.

               14.     The Underwriter will require each dealer to conform
          to the provisions hereof and the Registration Statement (and
          related prospectus) at the time in effect under the Securities
          Act with respect to the public offering price of the Fund's
          shares, and neither the Underwriter nor any such dealers shall
          withhold the placing of purchase orders so as to make a profit
          thereby.

               15.     The Fund shall assume and pay all charges and
          expenses of its operations not specifically assumed or otherwise
          to be provided by the Underwriter under this Agreement.  The Fund
          will pay or cause to be paid expenses (including the fees and
          disbursements of its own counsel) of any registration of the Fund

                                          3
<PAGE>
 
          and its shares under the United States securities laws and
          expenses incident to the issuance of shares of beneficial
          interest, such as the cost of share certificates, issue taxes,
          and fees of the transfer agent.  The Underwriter will pay all
          expenses (other than expenses which one or more Firms may bear
          pursuant to any agreement with the Underwriter) incident to the
          sale and distribution of the shares issued or sold hereunder,
          including, without limiting the generality of the foregoing, all
          (a) expenses of printing and distributing any prospectus and of
          preparing, printing and distributing or disseminating any other
          literature, advertising and selling aids in connection with the
          offering of the shares for sale (except that such expenses need
          not include expenses incurred by the Fund in connection with the
          preparation, typesetting, printing and distribution of any
          registration statement, prospectus or report or other
          communication to shareholders in their capacity as such), (b)
          expenses of advertising in connection with such offering and (c)
          expenses (other than the Fund's auditing expenses) of qualifying
          or continuing the qualification of the shares for sale and, in
          connection therewith, of qualifying or continuing the
          qualification of the Fund as a dealer or broker under the laws of
          such states as may be designated by the Underwriter under the
          conditions herein specified.  No transfer taxes, if any, which
          may be payable in connection with the issue or delivery of shares
          sold as herein contemplated or of the certificates for such
          shares shall be borne by the Fund, and the Underwriter will
          indemnify and hold harmless the Fund against liability for all
          such transfer taxes.

               16.     This agreement shall become effective on the date
          hereof and shall continue in effect until April 1, 1996 and from
          year to year thereafter, but only so long as such continuance is
          approved in the manner required by the Investment Company Act of
          1940.  Either party hereto may terminate this agreement on any
          date by giving the other party at least six months prior written
          notice of such termination specifying the date fixed therefor. 
          Without prejudice to any other remedies of the Fund in any such
          event the Fund may terminate this agreement at any time
          immediately upon any failure of fulfillment of any of the
          obligations of the Underwriter hereunder.

               17.     This agreement shall automatically terminate in the
          event of its assignment.

               18.     Any notice under this agreement shall be in writing,
          addressed and delivered or mailed, postage postpaid, to the other
          party at such address as such other party may designate for the
          receipt of such notice.

               19.     All parties hereto are expressly put on notice of
          the Fund's Agreement and Declaration of Trust and all amendments
          thereto, all of which are on file with the Secretary of The

                                          4
<PAGE>
 
          Commonwealth of Massachusetts, and the limitation of shareholder
          and trustee liability contained therein.  This Agreement has been
          executed by and on behalf of the Fund by its representatives as
          such representatives and not individually, and the obligations of
          the Fund hereunder are not binding upon any of the Trustees,
          officers or shareholders of the Fund individually but are binding
          upon only the assets and the property of the Fund.  With respect
          to any claim by the Underwriter for recovery of any liability of
          the Fund arising hereunder allocated to a particular series of
          the Fund, if there be more than one, whether in accordance with
          the express terms hereof or otherwise, the Underwriter shall have
          recourse solely against the assets of that series to satisfy such
          claim and shall have no recourse against the assets of any other
          Portfolio for such purpose.

               IN WITNESS WHEREOF, the Fund and the Underwriter have each
          caused this agreement to be executed on the day and year first
          above written.



                                           KEMPER INTERNATIONAL BOND FUND



                                           By: /s/ John E. Peters
                                               ---------------------------

                                           Title: Vice President
                                                  ------------------------

          Attest: /s/ Philip J. Collora
                  ------------------------

          Title: Assistant Secretary
                 -------------------------

                                           KEMPER DISTRIBUTORS, INC.

                                           By: /s/ James L. Greenawalt
                                               ---------------------------

                                           Title: Executive Vice President
                                                  -------------------------
          Attest: /s/ David F. Dierenfeldt
                  ------------------------

          Title: Secretary
                 -------------------------




                                          5

<PAGE>
 
                                                               EXHIBIT 99.b6(b)


          SELLING GROUP AGREEMENT KEMPER DISTRIBUTORS, INC.
          120 South LaSalle Street, Chicago, Illinois 60603

          Dear Financial Services Firm:

               As principal underwriter and distributor, we invite you to
          join a Selling Group for the distribution of shares of the Kemper
          Mutual Funds (herein called "Funds"), but only in those states in
          which the shares of the respective Funds may legally be offered
          for sale. As exclusive agent of each of the Funds, we offer to
          sell to you shares of the Funds on the following terms:
               1.  In all sales of these shares to the public you shall act
          as dealer for your own account, and in no transaction shall you
          have any authority to  act as agent for the issuer, for us, or
          for any other member of the Selling Group.
               2. Orders received from you will be accepted by us only at
          the public offering price applicable to each order, as
          established by the Prospectus of each Fund, subject to the
          discount, commission or other concession, if any, as provided in
          such Prospectus.  Upon receipt from you of any order to purchase
          shares of a Fund, we shall confirm to you in writing or by wire
          to be followed by a confirmation in writing. Additional
          instructions may be forwarded to you from time to time.  All
          orders are subject to acceptance or rejection by us in our sole
          discretion.
               3. You may offer and sell shares to your customers only at
          the public offering price determined in the manner described in
          the applicable Prospectus. The public offering price is the net
          asset value per share as provided in the applicable Prospectus
          plus, with respect to certain Funds, a sales charge from which
          you shall receive a discount equal to a percentage of the
          applicable offering price as provided in the applicable
          Prospectus. You shall receive a sales commission, with respect to
          certain Funds, equal to a percentage of the amount invested as
          provided in the applicable Prospectus. You shall receive a
          distribution service fee, for certain Funds for which such fees
          are available, as provided in the applicable Prospectus which fee
          shall be payable with respect to such assets, for such periods
          and at such intervals as are from time to tome specified by us.
          The discounts or other concessions to which you may be entitled
          in connection with sales to your customers pursuant to any
          special features of a Fund (such as cumulative discounts, letters
          of intent, etc., the terms of which shall be as described in the
          applicable Prospectus and related forms) shall be in accordance
          with the terms of such features. You may receive an
          administrative service fee, with respect to certain Funds for
          which such fees are available, as provided in the applicable
          Prospectus, which fee shall be payable with respect to such

                                          1

<PAGE>
 
          assets, for such periods and at such intervals as are from time
          to time specified by us.
               4.  By accepting this agreement, you agree:
                   (a)  To purchase shares only from us or from your
          customers.
                   (b)  That you will purchase shares from us only to cover
          purchase orders already received from your customers, or for your
          own bona fide investments.
                   (c)  That you will not purchase shares from your
          customers at a price lower than the bid price then quoted by or
          for the Fund involved.  You may, however, sell shares for the
          account of your customer to the Fund, or to us as agent for the
          Fund, at the bid price currently quoted by or for the Fund and
          charge your customer a fair commission for handling the
          transaction.
                   (d)  That you will not withhold placing with us orders
          received from your customers so as to profit yourself as a result
          of such                                                  
          withholding.
               5.  We will not accept from you any conditional orders for
          shares.
               6.  If any shares confirmed to you under the terms of this
          agreement are repurchased by the issuing Fund or by us as agent
          for the Fund, or are tendered for repurchase, within seven
          business days after the date of our confirmation of the original
          purchase order, you shall forthwith refund to us the full
          discount, commission, finder's fee or other concession, if any,
          allowed or paid to you on such shares.
               7.  Payment for shares ordered from us shall be in New York
          clearing house funds and must be received by the appropriate
          Fund's shareholder service agent within seven days after our
          acceptance of your order (or such shorter time period as may be
          required by applicable regulations). If such payment is not
          received, we reserve the right, without notice, forthwith to
          cancel the sale or, at our option, to sell the shares ordered
          back to the Fund, in which case we may hold you responsible for
          any loss, including loss of profit suffered by us as a result of
          your failure to make such payment.
               8.  Shares sold to you hereunder shall be available in
          negotiable form for delivery at the appropriate Fund's
          shareholder services agent, against payment, unless other
          instructions have been given.
               9.  All sales will be made subject to our receipt of shares
          from the Fund. We reserve the right, in our discretion, without
          notice, to suspend sales or withdraw the offering of shares
          entirely. We reserve the right to modify, cancel or change the
          terms of this agreement, upon 15 days prior written notice to
          you.  Also, the sales charges, discounts, commissions or other
          concessions, service fees of any kind provided for hereunder are
          subject to change at any time by the Funds and us. 
               10. All communications to us should be sent to the address
          in the heading above. Any notice to you shall be duly given if

                                          2

<PAGE>
 
          mailed or telegraphed to you at the address specified by you
          below.
               11. This agreement shall be construed in accordance with the
          laws of Illinois. This agreement is subject to the Prospectuses
          of the Funds from time to time in effect, and, in the event of a
          conflict, the terms of the Prospectuses shall control. References
          herein to the "Prospectus" of a Fund shall mean the prospectus
          and statement of additional information of such Fund as from time
          to time in effect. Any changes, modifications or additions
          reflected in any such Prospectus shall be effective on the date
          of such Prospectus (or supplement thereto) unless specified
          otherwise.
               12. This agreement is subject to the Additional Stipulations
          and Conditions on the reverse side hereof, all of which are a
          part of this agreement.
               
                                                                            
                                                                            
                                             Kemper Distributors, Inc.

                                                                            
                                                                            
                                             By
                                               ----------------------------
                                                   Authorized Signature

                                                                            
                                             Title 
                                                  -------------------------

          We have read the foregoing agreement and accept and agree to the
          terms and conditions thereof.
                                                                            
                                                                            
                                             Firm
                                                  -------------------------

          Witness 
                 ------------------------    By
                                               ----------------------------
                                                 Authorized Representative
                                                                            
                                                                            
                                  
          Dated                              Title
                -------------------------         -------------------------




                                          3

<PAGE>
 
                        ADDITIONAL STIPULATIONS AND CONDITIONS

               13. No person is authorized to make any representations
          concerning shares of any Fund except those contained in the
          Prospectus of such Fund and in printed information subsequently
          issued by the Fund or by us as information supplemental to such
          Prospectus. If you wish to use your own advertising with respect
          to a Fund, all such advertising must be approved by us or by the
          Fund prior to use. You shall be responsible for any required
          filing of such advertising.
               14. Your acceptance of this agreement constitutes a
          representation (i) that you are a registered security dealer and
          a member in good standing of the National Association of
          Securities Dealers, Inc. and that you agree to comply with all
          state and federal laws, rules and regulations applicable to
          transactions hereunder and to the Rules of Fair Practice of the
          National Association of Securities Dealers, Inc., including
          specifically Section 26, Article III thereof, or (ii) if you are
          offering and selling shares of the Funds only in jurisdictions
          outside of the several states, territories and possessions of the
          United States and are not otherwise required to be a member of
          the National Association of Securities Dealers, Inc., that you
          nevertheless agree to conduct your business in accordance with
          the spirit of the Rules of Fair Practice of the National
          Association of Securities Dealers, Inc., and to observe the laws
          and regulations of the applicable jurisdiction. You likewise
          agree that you will not offer to sell shares of any Fund in any
          state or other jurisdiction in which they may not lawfully be
          offered for sale.
               15. You shall make available an investment management
          account for your customers through the Funds and shall provide
          such office space and equipment, telephone facilities, personnel
          and literature distribution as is necessary or appropriate for
          providing information and services to your customer. Such
          services and assistance may include, but not be limited to,
          establishment and maintenance of shareholder accounts and
          records, processing purchase and redemption transactions,
          answering routine inquiries regarding the Funds, and such other
          services as may be agreed upon from time to time and as may be
          permitted by applicable statute, rule, or regulation. You agree
          to release, indemnify and hold harmless the Funds, us and our
          respective representatives and agents from any and all direct or
          indirect liabilities or losses resulting from requests,
          directions, actions or inactions of or by you, your officers,
          employees or agents regarding the purchase, redemption or
          transfer of registration of shares of the Funds for accounts of
          you, your customers and other shareholders or from any
          unauthorized or improper use of any on-line computer facilities.
          You shall prepare such periodic reports for us as shall
          reasonably be requested by us. You shall immediately inform the
          Funds or us of all written complaints received by you from Fund

                                          4

<PAGE>
 
          shareholders relating to the maintenance of their accounts and
          shall promptly answer all such complaints and other similar
          correspondence. You shall provide the Funds and us on a timely
          basis with such information as may be required to complete
          various regulatory forms.
               16. As a result of the necessity to compute the amount of
          any contingent deferred sales charge due with respect to the
          redemption of shares, you may not hold shares of a Fund imposing
          such a charge in an account registered in your name or in the
          name of your nominee for the benefit of certain of your customers
          except with our prior written consent. Except as otherwise
          permitted by us, shares of such a Fund owned by a shareholder
          must be in a separate identifiable account for such shareholder.
               17. Shares of certain Funds have been divided into separate
          classes: Class A Shares, Class B Shares and Class C Shares. 
          Class A shares are offered at net asset value plus an initial
          sales charge. Class B Shares are offered at net asset value
          without an initial sales charge but are subject to a contingent
          deferred sales charge and a Rule 12b-1 fee and have a conversion
          feature. Class C Shares are offered at net asset value without an
          initial sales charge or contingent deferred sales charge but are
          subject to a Rule 12b-1 fee and have no conversion feature.
          Please see the appropriate Prospectuses for a more complete
          description of the distinctions between the classes of shares.
               It is important to investors not only to choose Funds
          appropriate for their investment objectives, but also to choose
          the appropriate distribution arrangement, based on the amount
          invested and the expected duration of the investment. To assist
          investors in these decisions, we have instituted the following
          policies with respect to orders for shares of the Funds. The
          following policies and procedures with respect to sales of
          classes of shares of the Funds apply to each broker/dealer that
          distributes shares of the Funds.
               1.  All purchase orders for $500,000 or more (not including
          street name or omnibus accounts) should be for class A Shares.
               2.  Any purchase order of less than $500,000 may be for
          either Class A, Class B or Class C Shares in light of the
          relevant facts and circumstances, including:
                   a.  the specific purchase order dollar amount;
                   b.  the length of time the investor expects to hold the
          shares; and
                   c.  any other relevant circumstances such as the
          availability of purchases under a Letter of Intent, Combined
          Purchases or Cumulative Discount Privilege.
               There are instances when one pricing structure may be more
          appropriate than another. For example, investors who would
          qualify for a reduced sales charge on Class A Shares may
          determine that payment of a reduced front-end sales charge is
          preferable to payment of an ongoing Rule 12b-1 fee. On the other
          hand, investors whose orders would not qualify for such a
          discount and who plan to hold their investment for more than six
          years may wish to defer the sales charge and would consider Class

                                          5

<PAGE>
 
          B Shares. Investors who prefer not to pay an initial sales charge
          and who plan to redeem their shares within six years might
          consider Class C Shares.
               Appropriate supervisory personnel within your organization
          must ensure that all employees receiving investor inquiries about
          the purchase of shares of the Funds advise the investor of the
          available pricing structures offered by the Funds and the impact
          of choosing one method over another, including breakpoints and
          the availability of Letters of Intent, Combined Purchases and
          Cumulative Discounts.  In some instances it may be appropriate
          for a supervisory person to discuss a purchase with the investor. 
              18. This agreement shall be in substitution of any prior
          selling group agreement between you and us regarding these
          shares. This agreement shall not be applicable to the provision
          of services for Cash Equivalent Fund, Tax-Exempt California Money
          Market Fund, Tax Exempt New York Money Market Fund, Investors
          Cash Trust and similar wholesale money market funds. The payment
          of related distribution and services fees, shall be subject to
          separate services agreements.



                                          6


<PAGE>
 
                                                             EXHIBIT 99.b8(a)


                                  CUSTODY AGREEMENT


               AGREEMENT, made the 1st day of March, 1995 by and between
          Kemper International Bond Fund, a Massachusetts business trust
          having its principal place of business at 120 South LaSalle
          Street, Chicago, Illinois 60603 ("Fund") and Investors Fiduciary
          Trust Company, a trust company organized and existing under the
          laws of Missouri, having its principal place of business at
          Kansas City, Missouri ("Custodian").

               WHEREAS, Fund wants to appoint Investors Fiduciary Trust
          Company as Custodian to have custody of a portion of Fund's
          portfolio securities and monies pursuant to this Agreement; and,
          for purposes related to its foreign investments held outside the
          United States, Fund wants another custodian to have custody of
          the remainder of Fund's portfolio securities and monies pursuant
          to a separate agreement; and

               WHEREAS, Investors Fiduciary Trust Company wants to accept
          such appointment;

               NOW, THEREFORE, for and in consideration of the mutual
          promises contained herein, the parties hereto, intending to be
          legally bound, mutually covenant and agree as follows:

               1.   APPOINTMENT OF CUSTODIAN.

               Fund hereby constitutes and appoints Investors Fiduciary
               Trust Company as Custodian of Fund which is to include:

                    A.   Custody of the securities and monies at any time 
               owned by Fund and received by Custodian; and

                    B.   Performing certain accounting and record keeping
               functions relating to its function as Custodian for Fund and
               each of its Portfolios.

               2.   DELIVERY OF CORPORATE DOCUMENTS.  

               Fund has delivered or will deliver to Custodian prior to the 
               effective date of this Agreement, copies of the following
               documents and all amendments or supplements thereto,
               properly certified or authenticated:

                    A.   Resolutions of the Board of Trustees of Fund
               appointing Investors Fiduciary Trust Company as Custodian
               hereunder and approving the form of this Agreement; and
<PAGE>
 
                    B.   Resolutions of the Board of Trustees of Fund
               authorizing certain persons to give instructions on behalf
               of Fund to Custodian and authorizing Custodian to rely upon
               written instructions over their signatures.

               3.   DUTIES AND RESPONSIBILITIES OF CUSTODIAN.

                    A.   Delivery of Assets

                    All Fund's securities and monies, except as permitted
               by the Investment Company Act of 1940 ("1940 Act"), will be
               delivered either to Custodian or to The Chase Manhattan
               Bank, N.A., pursuant to a separate custody agreement.  Fund
               will deliver or cause to be delivered to Custodian on the 
               effective date of this Agreement, or as soon thereafter as 
               practicable, and from time to time thereafter, portfolio 
               securities acquired by it and monies then owned by it except 
               as permitted by the 1940 Act or from time to time coming
               into its possession during the time this Agreement shall
               continue in effect.  Custodian shall have no responsibility
               or liability whatsoever for or on account of securities or  
               monies not so delivered.  All securities so delivered to
               Custodian (other than bearer securities) shall be registered
               in the name of Fund or its nominee, or of a nominee of
               Custodian, or shall be properly endorsed and in form for
               transfer satisfactory to Custodian.

                    B.   Safekeeping

                    Custodian will receive delivery of and keep safely the  
               assets of Fund delivered to it from time to time.  Custodian
               will not deliver any such assets to any person except as
               permitted by the provisions of this Agreement or any
               agreement executed by it according to the terms of this 
               Agreement.  Custodian shall be responsible only for the 
               monies and securities of Fund held directly by it or its
               nominees or sub-custodian under this Agreement; provided
               that Custodian's responsibility for any sub-custodian 
               appointed at the Fund's direction for purposes of (i) 
               effecting third-party repurchase transactions with banks, 
               brokers, dealers, or other entities through the use of a 
               common custodian or sub-custodian; or (ii) providing 
               depository and clearing agency services with respect to 
               certain variable rate demand note securities ("special sub-
               custodian") shall be further limited as set forth in this
               Agreement.  Custodian may participate directly or 
               indirectly through a sub-custodian in the Depository Trust 
               Company, the  Treasury/Federal Reserve Book Entry System, 
               the Participants Trust Company and any other securities 
               depository approved by the Board of Trustees of the Fund, 
               subject to compliance with the provisions of Rule 17f-4 
               under the 1940 Act including, without limitation, the 

                                          2
<PAGE>
 
               specific provisions of subsections (a) (1) through (d) (4)
               thereof. 

                    C.   Registration of Securities

                    Custodian will hold stocks and other registerable
               portfolio securities of Fund registered in the name of Fund
               or in the name of any nominee of Custodian for whose
               fidelity and liabilities Custodian shall be fully
               responsible, or in street certificate form, so-called, with
               or without any indication of fiduciary capacity.  Unless
               otherwise instructed, Custodian will register all such
               portfolio securities in the name of its authorized nominee.

                    D.   Exchange of Securities

                    Upon receipt of instructions, Custodian will exchange,  
               or cause to be exchanged, portfolio securities held by it 
               for the account of Fund for other securities or cash issued  
               or paid in connection with any reorganization,
               recapitalization, merger, consolidation, split-up of shares, 
               change of par value, conversion or otherwise, and will
               deposit any such securities in accordance with the terms of  
               any reorganization or protective plan.  Without
               instructions, Custodian is authorized to exchange securities
               held by it in temporary form for securities in definitive
               form, to effect an exchange of shares when the par value of
               the stock is changed, and, upon receiving payment therefore,
               to surrender bonds or other securities held by it at
               maturity or when advised of earlier call for redemption,
               except that Custodian shall receive instructions prior to
               surrendering any convertible security.

                    E.   Purchases or Sales of Investments of Fund

                    Fund shall, on each business day on which a purchase or 
               sale of a portfolio security shall be made by it, deliver to
               Custodian instructions which shall specify with respect to
               each such transaction:

               (1)  The name of the issuer and description of the security;

               (2)  The number of shares or the principal amount purchased
                    or sold, and accrued interest, if any;

               (3)  The trade date;

               (4)  The settlement date;

               (5)  The date when the securities sold were purchased by
                    Fund or other information identifying the securities
                    sold and to be delivered;

                                          3
<PAGE>
 
               (6)  The price per unit and the brokerage commission, taxes
                    and other expenses in connection with the transaction;

               (7)  The total amount payable or receivable upon such
                    transaction; and

               (8)  The name of the person from whom or the broker or
                    dealer through whom the transaction was made.

               In accordance with such purchase instructions, Custodian
               shall pay for out of monies held for the account of Fund,
               but only insofar as monies are available therein for such
               purpose, and receive the portfolio securities so purchased
               by or for the account of Fund. Such payment shall be made
               only upon receipt by Custodian of the securities so
               purchased in form for transfer satisfactory to Custodian.

               In accordance with such sales instructions, Custodian will
               deliver or cause to be delivered the securities thus
               designated as sold for the account of Fund to the broker or
               other person specified in the instructions relating to such
               sale, such delivery to be made only upon receipt of payment
               therefor in such form as shall be satisfactory to Custodian,
               with the understanding that Custodian may deliver or cause
               to be delivered securities for payment in accordance  with
               the customs prevailing among dealers in securities.

                    F.   Purchases or Sales of Options and Futures
                         Transactions

                    Fund will, on each business day on which a purchase or
               sale of the following options and/or futures shall be made
               by it, deliver to Custodian instructions which shall specify
               with respect to each such purchase or sale:

               (1)  Securities Options

                    (a)  The underlying security;
                    (b)  The price at which purchased or sold;
                    (c)  The expiration date;
                    (d)  The number of contracts;
                    (e)  The exercise price;
                    (f)  Whether opening, exercising, expiring or closing
                         the transaction;
                    (g)  Whether the transaction involves a put or call;
                    (h)  Whether the option is written or purchased;
                    (i)  Market on which option traded; and
                    (j)  Name and address of the broker or dealer through
                         whom the sale or purchase was made.


                                              4
<PAGE>
 
               (2)  Options on Indices

                    (a)  The index;
                    (b)  The price at which purchased or sold;
                    (c)  The exercise price;
                    (d)  The premium;
                    (e)  The multiple;
                    (f)  The expiration date;
                    (g)  Whether the transaction is an opening, exercising,
                         expiring or closing transaction;
                    (h)  Whether the transaction involves a put or call;
                    (i)  Whether the option is written or purchased; and
                    (j)  Name and address of the broker or dealer through
                         whom the sale or purchase was made.

               (3)  Securities Index Futures Transactions

                    (a)  The last trading date specified in the contract
                         and, when available, the closing level, thereof;
                    (b)  The index level on the date the contract is
                         entered into;
                    (c)  The multiple;
                    (d)  Any margin requirements;
                    (e)  The need for a segregated margin account (in
                         addition to instructions; and, if not already in
                         the possession of Custodian, Fund shall deliver a
                         substantially complete and executed custodial
                         safekeeping account and procedural agreement which
                         shall be incorporated into this Custody
                         Agreement); and
                    (f)  The name and address of the futures commission
                         merchant through whom the sale or purchase was
                         made.

               (4)  Options on Index Futures Contracts

                    (a)  The underlying index futures contract;
                    (b)  The premium;
                    (c)  The expiration date;
                    (d)  The number of options;
                    (e)  The exercise price;
                    (f)  Whether the transaction involves an opening,
                         exercising, expiring or closing transaction;
                    (g)  Whether the transaction involves a put or call;
                    (h)  Whether the option is written or purchased; and
                    (i)  The market on which the option is traded.

                    G.   Securities Pledged to Secure Loans

                    (1)  Upon receipt of instructions, Custodian will
               release or cause to be released securities held in custody
               to the pledgee designated in such instructions by way of

                                          5
<PAGE>
 
               pledge or hypothecation to cure any loan incurred by Fund;
               provided, however, that the securities shall be released
               only upon payment to Custodian of the monies borrowed,
               except that in cases where additional collateral is required
               to secure a borrowing already made, further securities may
               be released or caused to be released for that purpose upon
               receipt of instructions.  Upon receipt of instructions,
               Custodian will pay, but only from funds available for such
               purpose, any such loan upon redelivery to it of the
               securities pledged or hypothecated therefor and upon
               surrender of the note or notes evidencing such loan.

                    (2)  Upon receipt of instructions, Custodian will
               release securities held in custody to the borrower
               designated in such instructions; provided, however, that the
               securities shall be released only upon deposit with
               Custodian of full cash collateral as specified in such
               instructions, and that Fund will retain the right to any
               dividends, interest or distribution on such loaned
               securities.  Upon receipt of instructions and the loaned
               securities, Custodian will release the cash collateral to
               the borrower.

                    H.   Routine Matters

                    Custodian will, in general, attend to all routine and
               mechanical matters in connection with the sale, exchange,
               substitution, purchase, transfer, or other dealings with
               securities or other property of Fund except as may be
               otherwise provided in this Agreement or directed from time
               to time by the Board of Trustees of Fund.

                    I.   Demand Deposit Account

                    Custodian will open and maintain a demand deposit
               account or accounts in the name of Custodian, subject only
               to draft or order by Custodian upon receipt of instructions. 
               All monies received by Custodian from or for the account of
               Fund shall be deposited in said account or accounts.

                    When properly authorized by a resolution of the Board
               of Trustees of Fund, Custodian may open and maintain an
               additional demand deposit account or accounts in such other
               banks or trust companies as may be designated in such
               resolution, such accounts, however, to be in the name of
               Custodian and subject only to its draft or order.

                    J.   Income and Other Payments to Fund



                                          6
<PAGE>
 
                    Custodian will:

                    (1)  collect, claim and receive and deposit for the
               account of Fund all income and other payments which become
               due and payable on or after the effective date of this
               Agreement with respect to the securities deposited under
               this Agreement, and credit the account of Fund with such
               income on the payable date;

                    (2)  execute ownership and other certificates and
               affidavits for all federal, state and local tax purposes in
               connection with the collection of bond and note coupons; and

                    (3)  take such other action as may be necessary or
               proper in connection with:

                    (a)  the collection, receipt and deposit of such income
                    and other payments, including but not limited to the
                    presentation for payment of:

                    (1)  all coupons and other income items requiring
                         presentation;

                    (2)  all other securities which may mature or be
                         called, redeemed, retired or otherwise become
                         payable and regarding which the Custodian has
                         actual knowledge, or notice of which is contained
                         in publications of the type to which it normally
                         subscribes for such purpose; and

                    (b)  the endorsement for collection, in the name of
                    Fund, of all checks, drafts or other negotiable
                    instruments.

                    Custodian, however, shall not be required to institute
               suit or take other extraordinary action to enforce
               collection except upon receipt of instructions and upon
               being indemnified to its satisfaction against the costs and
               expenses of such suit or other actions.  Custodian will
               receive, claim and collect all stock dividends, rights and
               other similar items and deal with the same pursuant to
               instructions.  Unless prior instructions have been  received
               to the contrary, Custodian will, without further
               instructions, sell any rights held for the account of Fund
               on the last trade date prior to the date of expiration of
               such rights.

                    K.   Payment of Dividends and Other Distributions

                    On the declaration of any dividend or other
               distribution on the shares of beneficial interest of any
               Portfolio ("Portfolio Shares") by the Board of Trustees of

                                          7
<PAGE>
 
               Fund, Fund shall deliver to Custodian instructions with
               respect thereto, including a copy of the Resolution of said
               Board of Trustees certified by the Secretary or an Assistant
               Secretary of Fund wherein there shall be set forth the
               record date as of which shareholders are entitled to receive
               such dividend or distribution, and the amount payable per
               share on such dividend or distribution.

                    On the date specified in such Resolution for the
               payment of such dividend or other distribution, Custodian
               shall pay out of the monies held for the account of Fund,
               insofar as the same shall be available for such purposes,
               and credit to the account of the Dividend Disbursing Agent
               for Fund, such amount as may be necessary to pay the amount
               per share payable in cash on Portfolio Shares issued and 
               outstanding on the record date established by such
               Resolution.

                    L.   Portfolio Shares Purchased by Fund

                    Whenever any Portfolio Shares are purchased by Fund,
               Fund or its agent shall advise Custodian of the aggregate
               dollar amount to be paid for such shares and shall confirm
               such advice in writing.  Upon receipt of such advice,
               Custodian shall charge such aggregate dollar amount to the
               custody account of Fund and either deposit the same in  the
               account maintained for the purpose of paying for the
               purchase of Portfolio Shares or deliver the same in
               accordance with such advice.

                    M.   Portfolio Shares Purchased from Fund

                    Whenever Portfolio Shares are purchased from Fund, Fund
               will deposit or cause to be deposited with Custodian the
               amount received for such shares.  Custodian shall not have
               any duty or responsibility to determine that Fund Shares
               purchased from Fund have been added to the proper
               shareholder account or accounts or that the proper number of
               such shares have been added to the shareholder records.

                    N.   Proxies and Notices

                    Custodian will promptly deliver or mail to Fund all
               proxies properly signed, all notices of meetings, all proxy
               statements and other notices, requests or announcements
               affecting or relating to securities held by Custodian for
               Fund and will, upon receipt of instructions, execute and
               deliver or cause its nominee to execute and deliver such
               proxies or other authorizations as may be required.  Except
               as provided by this Agreement or pursuant to instructions 
               hereafter received by Custodian, neither it nor its nominee
               shall exercise any power inherent in any such securities,

                                          8
<PAGE>
 
               including any power to vote the same, or execute any proxy,
               power of attorney, or other similar instrument voting any of
               such securities, or give any consent, approval or waiver
               with respect thereto, or take any other similar action.

                    O.   Disbursements

                    Custodian will pay or cause to be paid insofar as funds
               are available for the purpose, bills, statements and other
               obligations of Fund (including but not limited to
               obligations in connection with the conversion, exchange or
               surrender of securities owned by Fund, interest charges,
               variation margin, dividend disbursements, taxes, management
               fees, administration-distribution fees, custodian fees, 
               legal fees, auditors' fees, transfer agents' fees, brokerage
               commissions, compensation to personnel, and other operating
               expenses of Fund) pursuant to instructions of Fund setting
               forth the name of the person to whom payment is to be made,
               the amount of the payment, and the purpose of the payment.

                    P.   Books, Records and Accounts
               
                    Custodian acknowledges that all the records it shall
               prepare and maintain pursuant to this Agreement shall be the
               property of Fund and that upon request of Fund it shall make
               Fund's records available to it, along with such other
               information and data as are reasonably requested by Fund,
               for inspection, audit or copying, or turn said records over
               to Fund.

                    Custodian shall, within a reasonable time, render to
               Fund as of the close of business on each day, a detailed
               statement of the amounts received or paid and of securities
               received or delivered for the account of Fund during said
               day.  Custodian shall, from time to time, upon request by
               Fund, render a detailed statement of the securities and
               monies held for Fund under this Agreement, and Custodian
               shall maintain such books and records as are necessary to
               enable it do so and shall permit such persons as are
               authorized by Fund, including Fund's independent public
               accountants, to examine such records or to confirm the
               contents of such records; and, if demanded, shall permit
               federal and state regulatory agencies to examine said
               securities, books and records.  Upon the written
               instructions of Fund or as demanded by federal or state
               regulatory agencies, Custodian shall instruct any sub-
               custodian to permit such persons as are authorized by Fund
               to examine the books, records and securities held by such
               sub-custodian which relate to Fund.




                                          9
<PAGE>
 
                    Q.   Appointment of Sub-Custodian

                    Notwithstanding any other provisions of this Agreement,
               all or any of the monies or securities of Fund may be held
               in Custodian's own custody or in the custody of one or more
               other banks or trust companies acting as sub-custodians as
               may be approved by resolutions of Fund's Board of Trustees,
               evidenced by a copy thereof certified by the Secretary or
               Assistant Secretary of Fund.  Any sub-custodian must  have
               the qualifications required for custodians under the 1940
               Act unless exempted therefrom.  Any sub-custodian may
               participate directly or indirectly in the Depository Trust
               Company, the Treasury/Reserve Book Entry System, the
               Participants Trust Company and any other securities
               depository approved by the Board of Trustees of the Fund to
               the same extent and subject to the same conditions as 
               provided hereunder.  Neither Custodian nor sub-custodian
               shall be entitled to reimbursement by Fund for any fees or
               expenses of any sub-custodian; provided that Custodian shall
               not be liable for, and Fund shall hold Custodian harmless
               from, the expenses of any special sub-custodian.  The
               appointment of a sub-custodian shall not relieve Custodian
               of any of its obligations hereunder; provided that Custodian
               shall be responsible to Fund for any loss, damage, or 
               expense suffered or incurred by Fund resulting from the
               actions or omissions of a special sub-custodian only to the
               extent the special sub-custodian is liable to Custodian.

                    R.   Multiple Portfolios

                    If Fund shall issue shares of more than one Portfolio
               during the term hereof, Custodian agrees that all securities
               and other assets of Fund shall be segregated by Portfolio
               and all books and records, account values or actions shall
               be maintained, held, made or taken, as the case may be,
               separately for each Portfolio.

                    S.   Other Custodian

                    Pursuant to instructions, Custodian will transmit
               securities and moneys of Fund to The Chase Manhattan Bank,
               N.A., as custodian for Fund.

               4.   INSTRUCTIONS.

                    A.   The term "instructions", as used herein, means
               written or oral instructions to Custodian from an authorized
               person of Fund.  Certified copies of resolutions of the
               Board of Trustees of Fund naming one or more persons
               authorized to give instructions in the name and on behalf of
               Fund may be received and accepted by Custodian as conclusive
               evidence of the authority of any person so to act and may be

                                          10
<PAGE>
 
               considered to be in full force and effect (and Custodian
               shall be fully protected in acting in reliance thereon)
               until receipt by Custodian of notice to the contrary. 
               Unless the resolution authorizing any person to give
               instructions specifically requires that the approval of
               anyone else shall first have been obtained, Custodian shall
               be under no obligation to inquire into the right of the
               person giving such instructions to do so.  Notwithstanding
               any of the foregoing provisions of this Section 4, no
               authorizations or instructions received by Custodian from
               Fund shall be deemed to authorize or permit any trustee,
               officer, employee, or agent of Fund to withdraw any of the
               securities or monies of Fund upon the mere receipt of
               instructions from such trustee, officer, employee or agent.

                    B.   No later than the next business day immediately
               following each oral instruction referred to herein, Fund
               shall give Custodian written confirmation of each such oral
               instruction.  Either party may electronically record any
               oral instruction whether given in person or via telephone.

               5.   LIMITATION OF LIABILITY OF CUSTODIAN

                    A.  Custodian shall hold harmless and indemnify Fund
               from and against any loss or liability arising out of
               Custodian's failure to comply with the terms of this
               Agreement or arising out of Custodian's negligence, willful
               misconduct, or bad faith.  Custodian may request and obtain
               the advice and opinion of counsel for Fund or of its own
               counsel with respect to questions or matters of law, and it
               shall be without liability to Fund for any action taken or
               omitted by it in good faith, in conformity with such advice
               or opinion.

                    B.   If Fund requires Custodian in any capacity to
               take, with respect to any securities, any action which
               involves the payment of money by it, or which in Custodian's
               opinion might make it or its nominee liable for payment of
               monies or in any other way, Custodian shall be and be kept
               indemnified by Fund in an amount and form satisfactory to
               Custodian against any liability on account of such action.

                    C.   Custodian shall be entitled to receive, and Fund
               agrees to pay to Custodian, on demand, reimbursement for
               such cash disbursements, costs and expenses as may be agreed
               upon from time to time by Custodian and Fund.

                    D.   Custodian shall be protected in acting as
               custodian hereunder upon any instructions, advice, notice,
               request, consent, certificate or other instrument or paper
               reasonably appearing to it to be genuine and to have been
               properly executed and shall, unless otherwise specifically

                                          11
<PAGE>
 
               provided herein, be entitled to receive as conclusive proof
               of any fact or matter required to be ascertained from Fund
               hereunder, a certificate signed by Fund's President, or
               other officer specifically authorized for such purpose.

                    E.   Without limiting the generality of the foregoing,
               Custodian shall be under no duty or obligation to inquire
               into, and shall not be liable for:

                         (1)  The validity of the issue of any securities
                    purchased by or for Fund, the legality of the purchase
                    thereof or evidence of ownership required by Fund to be
                    received by Custodian, or the propriety of the decision
                    to purchase or amount paid therefor;

                         (2)  The legality of the sales of any securities
                    by or for Fund, or the propriety of the amount paid
                    therefor;

                         (3)  The legality of the issue or sale of any
                    shares of Fund, or the sufficiency of the amount to be
                    received therefor;

                         (4)  The legality of the purchase of any shares of
                    Fund, or the propriety of the amount to be paid
                    therefor; or

                         (5)  The legality of the declaration of any
                    dividend by Fund, or the legality of the issue of any
                    shares of Fund in payment of any share dividend.

                    F.   Custodian shall not be liable for, or considered
               to be the custodian of, any money represented by any check,
               draft, wire transfer, clearing house funds, uncollected
               funds, or instrument for the payment of money received by it
               on behalf of Fund, until Custodian actually receives such
               money, provided only that it shall advise Fund promptly if
               it fails to receive any such money in the ordinary course of
               business, and use its best efforts and cooperate with Fund
               toward the end that such money shall be received.

                    G.   Subject to the obligations of Custodian under
               Section 3.B. hereof, Custodian shall not be responsible for
               loss occasioned by the acts, neglects, defaults or
               insolvency of any broker, bank, trust company, or any other
               person with whom Custodian may deal in the absence of negli-
               gence, misconduct or bad faith on the part of Custodian.

                    H.   Custodian or any sub-custodian shall provide Fund
               for its approval by its Board of Trustees agreements with
               banks or trust companies which will act as sub-custodian for
               Fund pursuant to this Agreement; and, as set forth in

                                          12
<PAGE>
 
               Section 3.B hereof, Custodian shall be responsible for the
               monies and securities of the Fund held by it or its nominees
               or sub-custodians under this Agreement, but not for monies
               and securities of the Fund held by any special sub-custodian
               except to the extent the special sub-custodian is liable to
               Custodian.

               6.   COMPENSATION.  

               Fund shall pay to Custodian such compensation at such times
          as may from time to time be agreed upon in writing by Custodian
          and Fund.  Custodian may charge such compensation against monies
          held by it for the account of Fund.  Custodian shall also be
          entitled, notwithstanding the provisions of Sections 5B or 5C
          hereof, to charge against any monies held by it for the account
          of Fund the amount of any loss, damage, liability or expense for
          which it shall be entitled to reimbursement under the provisions
          of this Agreement.  Custodian shall not be entitled to
          reimbursement by Fund for any loss or expenses of any sub-
          custodian; provided that Custodian shall not be liable for, and
          Fund shall hold Custodian harmless from, the expenses of any
          special sub-custodian.

               7.   TERMINATION.  

               Either party to this Agreement may terminate the same by
          notice in writing, delivered or mailed, postage prepaid, to the
          other party hereto and received not less than sixty (60) days
          prior to the date upon which such termination shall take effect. 
          Upon termination of this Agreement, Fund shall pay to Custodian
          such compensation for its reimbursable disbursements, costs and
          expenses paid or incurred to such date and Fund shall use its
          best efforts to obtain a successor custodian.  Unless the holders
          of a majority of the outstanding shares of Fund vote to have the
          securities, funds and other properties held under this Agreement
          delivered and paid over to some other person, firm or corporation
          specified in the vote, having not less than Two Million Dollars
          ($2,000,000) aggregate capital, surplus and undivided profits, as
          shown by its last published report, and meeting such other
          qualifications for custodian as set forth in the Bylaws of Fund,
          the Board of Trustees of Fund shall, forthwith upon giving or
          receiving notice of termination of this Agreement, appoint as
          successor custodian a bank or trust company having such
          qualifications.  Custodian shall, upon termination of this
          Agreement, deliver to the successor custodian so specified or
          appointed, at custodian's office, all securities then held by
          Custodian hereunder, duly endorsed and in form for transfer, and
          all funds and other properties of Fund deposited with or held by
          Custodian hereunder, and shall cooperate in effecting changes in
          book-entries at the Depository Trust Company, the
          Treasury/Federal Reserve Book-Entry System, the Participants
          Trust Company and any other securities depository holding assets

                                          13
<PAGE>
 
          of the Fund.  In the event no such vote has been adopted by the
          shareholders of Fund and no written order designating a successor
          custodian shall have been delivered to Custodian on or before the
          date when such termination shall become effective, then Custodian
          shall deliver the securities, funds and properties of Fund to a
          bank or trust company at the selection of Custodian and meeting
          the qualifications for custodian, if any, set forth in the Bylaws
          of Fund and having not less than Two Million Dollars ($2,000,000)
          aggregate capital, surplus and undivided profits, as shown by its
          last published report.  Upon either such delivery to a successor
          custodian, Custodian shall have no further obligations or
          liabilities under this Agreement.  Thereafter such bank or trust
          company shall be the successor custodian under this Agreement and
          shall be entitled to reasonable compensation for its services. 
          In the event that no such successor custodian can be found, Fund
          will submit to its shareholders, before permitting delivery of
          the cash and securities owned by Fund to anyone other than a
          successor custodian, the question of whether Fund shall be
          liquidated or shall function without a custodian.  Not-
          withstanding the foregoing requirement as to delivery upon
          termination of this Agreement, Custodian may make any other
          delivery of the securities, funds and property of Fund which
          shall be permitted by the 1940 Act and Fund's Agreement and
          Declaration of Trust and Bylaws then in effect.  Except as
          otherwise provided herein, neither this Agreement nor any portion
          thereof may be assigned by Custodian without the consent of Fund,
          authorized or approved by a resolution of its Board of Trustees.

               8.   NOTICES.  

               Notices, requests, instructions and other writings received
          by Fund at 120 South LaSalle Street, Chicago, Illinois 60603 or
          at such other address as Fund may have designated by certified
          resolution of the Board of Trustees to Custodian and notices,
          requests, instructions and other writings received by Custodian
          at its offices at 21 West 10th Street, Kansas City, Missouri
          64105, or to such other address as it may have designated to Fund
          in writing, shall be deemed to have been properly given
          hereunder.

               9.   MISCELLANEOUS.

                    A.   This Agreement is executed and delivered in the
               State of Missouri and shall be governed by the laws of the
               State of Missouri (except as to Section 9.H. hereof which
               shall be governed in accordance with the laws of The
               Commonwealth of Massachusetts).

                    B.   All the terms and provisions of this Agreement
               shall be binding upon, inure to the benefit of, and be
               enforceable by the respective successors and assigns of the
               parties hereto.

                                          14
<PAGE>
 
                    C.   No provisions of the Agreement may be amended or
               modified in any manner except by a written agreement
               properly authorized and executed by both parties hereto.

                    D.   The captions in this Agreement are included for
               convenience of reference only, and in no way define or
               delimit any of the provisions hereof or otherwise affect
               their construction or effect.

                    E.   This Agreement shall become effective at the close
               of business on the date hereof.

                    F.   This Agreement may be executed simultaneously in
               two or more counterparts, each of which shall be deemed an
               original but all of which together shall constitute one and
               the same instrument.

                    G.   If any part, term or provision of this Agreement
               is by the courts held to be illegal, in conflict with any
               law or otherwise invalid, the remaining portion or portions
               shall be considered severable and not be affected, and the
               rights and obligations of the parties shall be construed and
               enforced as if the Agreement did not contain the particular
               part, term or provision held to be illegal or invalid.

                    H.   All parties hereto are expressly put on notice of
               Fund's Agreement and Declaration of Trust, which is on file
               with the Secretary of The Commonwealth of Massachusetts, and
               the limitation of shareholder and trustee liability
               contained therein.  This Agreement has been executed by and
               on behalf of Fund by its representatives as such
               representatives and not individually, and the obligations of
               Fund hereunder are not binding upon any of the Trustees,
               officers or shareholders of Fund individually but are
               binding upon only the assets and property of Fund.  With
               respect to any claim by Custodian for recovery of that
               portion of the compensation (or any other liability of Fund
               arising hereunder) allocated to a particular Portfolio,
               whether in accordance with the express terms hereof or
               otherwise, Custodian shall have recourse solely against the
               assets of that Portfolio to satisfy such claim and shall
               have no recourse against the assets of any other Portfolio
               for such purpose.

                    I.   This Agreement, together with the Fee Schedule, is
               the entire contract between the parties relating to the
               subject matter hereof and supersedes all prior agreements.



                                          15
<PAGE>
 
               IN WITNESS WHEREOF, the parties have caused this Agreement
          to be executed by their respective authorized officers.



                                        KEMPER INTERNATIONAL BOND FUND 


                                        By:  /s/ John E. Peters
                                           ------------------------------

                                        Title:  Vice President
                                              ---------------------------

          Attest:  /s/ Philip J. Collora
                 -----------------------

          Title:  Assistant Secretary
                ------------------------



                                        INVESTORS FIDUCIARY TRUST COMPANY


                                        By:  /s/ Joseph F. Smith 
                                           ------------------------------

                                        Title:  E. V. P. 
                                              ---------------------------


          Attest:  /s/ Marvin Rau
                 -----------------------

          Title:  Secretary
                ------------------------



                                          16

<PAGE>
 
                                                                EXHIBIT 99.b8(b)

                           FOREIGN CUSTODY AGREEMENT


     AGREEMENT dated Jan. 26, 1994 between THE CHASE MANHATTAN BANK, N.A. (the
"Bank") and KEMPER INTERNATIONAL BOND FUND ("Fund").

     1.   Custody Account.  The Bank agrees to establish and maintain (a) a
custody account in the name of the Fund ("Custody Account") for any and all
stocks, shares, bonds, debentures, notes, mortgages or other obligations for the
payment of money and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same or evidencing
or representing any other rights or interests therein and other similar property
(hereinafter called "Securities") and from time to time received by the Bank or
its subcustodian (as defined in the last sentence of Section 3) for the account
of the Fund, and (b) a deposit account in the name of the Fund ("Deposit
Account") for any and all cash in any currency received by the Bank or its
subcustodian for the account of the Fund, which cash shall not be subject to
withdrawal by draft or check.

     2.   Maintenance of Securities Abroad.  Securities in the Custody Account
shall be held in the country or other jurisdiction as shall be specified from
time to time in Instructions, provided that such country or other jurisdiction
shall be one in which the principal trading market for such
<PAGE>
 
Securities is located or the country or other jurisdiction in which such
Securities are to be presented for payment or are acquired for the Custody
Account and cash in the Deposit Account shall be credited to an account in such
amounts and in the country or other jurisdiction as shall be specified from time
to time in Instructions, provided that such country or other jurisdiction shall
be one in which such cash is the legal currency for the payment of public or
private debts.

     3.   Eligible Foreign Custodians and Securities Depositories.  The Fund's
Board of Trustees authorizes the Bank to hold the Securities in the Custody
Account and the cash in the Deposit Account in custody and deposit accounts,
respectively, which have been established by the Bank with one of its branches,
a branch of a qualified U.S. bank, an eligible foreign custodian or an eligible
foreign securities depository; provided, however, that the Bank has recommended
and the Board has approved the use of, and the Bank's contract with, such
eligible foreign custodian or eligible foreign securities depository by
resolution, and a certified copy of such resolution has been provided to the
Bank. Furthermore, if one of its branches, a branch of a qualified U.S. bank or
an eligible foreign custodian is selected to act as the Bank's subcustodian to
hold any of the Securities or cash, such entity is authorized to hold such
Securities or cash in its account with any eligible foreign securities
depository in which it participates. For purposes of this Agreement (a)
"qualified

                                      -2-
<PAGE>
 
U.S. bank" shall mean a qualified U.S. bank as defined in Rule 17f-5 under the
Investment Company Act of 1940 ("Investment Company Act"); (b) "eligible foreign
custodian" shall mean (i) a banking institution or trust company incorporated or
organized under the laws of a country other than the United States that is
regulated as such by that country's government or an agency thereof and that has
shareholders' equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is incorporated
or organized under the laws of a country other than the United States and that
has shareholders' equity in excess of $100 million in U.S. currency (or a
foreign currency equivalent thereof) or (iii) a banking institution or trust
company incorporated or organized under the laws of a country other than the
United States or a majority owned direct or indirect subsidiary of a qualified
U.S. bank or bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such other
qualifications as shall be authorized or permitted by a rule, regulation,
interpretation or exemptive order promulgated by or under the authority of the
Securities and Exchange Commission, specified in Instructions and approved by
the Bank; and (c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or organized under the
laws of a

                                      -3-
<PAGE>
 
country other than the United States, which operates (i) the central system for
handling of securities or equivalent book-entries in that country or (ii) a
transnational system for the central handling of securities or equivalent book
entries.

     Hereinafter the term "subcustodian" will refer to any branch of a qualified
U.S. bank, any eligible foreign custodian or any eligible foreign securities
depository with which the Bank has entered an agreement of the type contemplated
hereunder regarding Securities and/or cash held in or to be acquired for the
Custody Account or the Deposit Account.

     4.   Use of Subcustodian.  With respect to Securities and other assets
which are maintained by the Bank in the physical custody of a subcustodian
pursuant to Section 3 (as used in this Section 4, the term "Securities" means
such Securities and other assets),

          (a)  The Bank will identify on its books as belonging to the Fund any
     Securities held by such subcustodian.

          (b)  In the event that a subcustodian permits any of the Securities
     placed in its care to be held in an eligible foreign securities depository,
     such subcustodian will be required by its agreement with the Bank to
     identify on its books such Securities as being held for the account of the
     Bank as a custodian for its customers.

          (c)  Any Securities in the Custody Account held by a subcustodian of
     the Bank will be subject only to the

                                      -4-
<PAGE>
 
     instructions of the Bank or its agents; and any Securities held in an
     eligible foreign securities depository for the account of a subcustodian
     will be subject only to the instructions of such subcustodian.

          (d)  The Bank will only deposit Securities in an account with a
     subcustodian which includes exclusively the assets held by the Bank for its
     customers, and the Bank will cause such account to be designated by such
     subcustodian as a special custody account for the exclusive benefit of
     customers of the Bank.

          (e)  Any agreement the Bank shall enter into with a subcustodian with
     respect to the holding of Securities shall require that (i) the Securities
     are not subject to any right, charge, security interest, lien or claim of
     any kind in favor of such subcustodian except for their safe custody or
     administration and (ii) beneficial ownership of such Securities is freely
     transferable without the payment of money or value other than for safe
     custody or administration; provided, however, that the foregoing shall not
     apply to the extent that any of the above-mentioned rights, charges, etc.
     result from any compensation or other expenses arising with respect to the
     safekeeping of Securities pursuant to such agreement or from any
     arrangements made by the Fund with any such subcustodian.

                                      -5-
<PAGE>
 
          (f)  The Bank shall allow independent public accountants of the Fund
     such reasonable access to the records of the Bank relating to the
     Securities held in the Custody Account as is required by such accountants
     in connection with their examination of the books and records pertaining to
     the affairs of the Fund. The Bank shall, subject to restrictions under
     applicable law, also obtain from any subcustodian with which the Bank
     maintains the physical possession of any Securities in the Custody Account
     an undertaking to permit independent public accountants of the Fund such
     reasonable access to the records of such subcustodian as may be required in
     connection with their examination of the books and records pertaining to
     the affairs of the Fund. The Bank shall furnish to the Fund such reports
     (or portions thereof) of the Bank's external auditors as relate directly to
     the Bank's system of internal accounting controls applicable to the Bank's
     duties under this Agreement. The Bank shall use its best efforts to obtain
     and furnish the Fund with similar reports with respect to each eligible
     foreign custodian and eligible foreign securities depository holding
     Securities of the Fund.

          (g)  The Bank will supply to the Fund from time to time as mutually
     agreed upon a statement in respect to any Securities in the Custody Account
     held by a subcustodian,

                                      -6-
<PAGE>
 
     including an identification of the entity having possession of the
     Securities, and the Bank will send to the Fund an advice or notification of
     any transfers of Securities to or from the Custody Account, indicating, as
     to Securities acquired for the Fund, the identity of the entity having
     physical possession of such Securities. In the absence of the filing in
     writing with the Bank by the Fund of exceptions or objections to any such
     statement within sixty (60) days following receipt of the statement, the
     Fund shall be deemed to have approved such statement; and in such case or
     upon written approval of the Fund of any such statement the Bank shall, to
     the extent permitted by law, be released, relieved and discharged with
     respect to all matters and things set forth in such statement as though
     such statement had been settled by the decree of a court of competent
     jurisdiction in an action in which the Fund and all persons having any
     equity interest in the Fund were parties.

          (h)  The Bank hereby warrants to the Fund that in its opinion, after
     due inquiry, the established procedures to be followed by each of its
     branches, each branch of a qualified U.S. bank, each eligible foreign
     custodian and each eligible foreign securities depository holding the
     Fund's Securities pursuant to this Agreement afford protection for such
     Securities at least equal to that afforded by the Bank's established
     procedures with respect to similar securities

                                      -7-
<PAGE>
 
     held by the Bank (and its securities depositories) in New York.

     5.   Deposit Account Payments.  Subject to the provisions of Section 7, the
Bank shall make, or cause its subcustodians to make, payments of cash credited
to the Deposit Account only

          (a)  in connection with the purchase of Securities for the Fund and
     the delivery of such Securities to, or the crediting of such Securities to
     the account of, the Bank or its subcustodian, each such payment to be made
     at prices as confirmed by Instructions (as defined in Section 9 hereof)
     from Authorized Persons (as defined in Section 10 hereof);

          (b)  for the purchase or redemption of shares of the capital stock of
     the Fund and the delivery to, or crediting to the account of, the Bank or
     its subcustodian of such shares to be so purchased or redeemed;

          (c)  for the payment for the account of the Fund of dividends,
     interest, taxes, management or supervisory fees, capital distributions or
     operating expenses;

          (d)  for the payments to be made in connection with the conversion,
     exchange or surrender of Securities held in the Custody Account;

          (e)  for transmittal either to United Missouri Bank of Kansas City,
     National Association, or to Investors Fiduciary Trust Company, Custodian
     for the Fund;

                                      -8-
<PAGE>
 
          (f)  for other proper corporate purposes of the Fund; or

          (g)  upon the termination of this Custody Agreement as hereinafter set
     forth.

All payments of cash for a purpose permitted by subsection (a), (b), (c), (d) or
(e) of this Section 5 will be made only upon receipt by the Bank of Instructions
from Authorized Persons which shall specify the purpose for which the payment is
to be made and the applicable subsection of this Section 5. In the case of any
payment to be made for the purpose permitted by subsection (f) of this Section
5, the Bank must first receive a certified copy of a resolution of the Board
adequately describing such payment, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to be made.
Any payment pursuant to subsection (g) of this Section 5 will be made in
accordance with Section 17.

     In the event that any payment made under this Section 5 exceeds the funds
available in the Deposit Account, the Bank may, in its discretion, advance the
Fund an amount equal to such excess and such advance shall be deemed a loan from
the Bank to the Fund, payable on demand, bearing interest at the rate of
interest customarily charged by the Bank on similar loans.

     If the Bank causes the Deposit Account to be credited on the payable date
for interest, dividends or redemptions, the Fund will promptly return to the
Bank any such amount or property so

                                      -9-
<PAGE>
 
credited upon oral or written notification that neither the Bank nor its
subcustodian can collect such amount or property in the ordinary course of
business. The Bank or its subcustodian, as the case may be, shall have no duty
or obligation to institute legal proceedings, file a claim or proof of claim in
any insolvency proceeding to take any other action with respect to the
collection of such amount or property beyond its ordinary collection procedures.

     6.   Custody Account Transactions.  Subject to the provisions of Section 7,
Securities in the Custody Account will be transferred, exchanged or delivered by
the Bank or its subcustodians only

          (a)  upon sale of such Securities for the Fund and receipt by the Bank
     or its subcustodian only of payment therefor, each such payment to be in
     the amount confirmed by Instructions from Authorized persons;

          (b)  when such Securities are called, redeemed or retired, or
     otherwise become payable;

          (c)  in exchange for or upon conversion into other Securities along or
     other Securities and cash pursuant to any plan or merger, consolidation,
     reorganization, recapitalization or readjustment;

          (d)  upon conversion of such Securities pursuant to their terms into
     other Securities;

                                     -10-
<PAGE>
 
          (e)  upon exercise of subscription, purchase or other similar rights
     represented by such Securities;

          (f)  for the purpose of exchanging interim receipts or temporary
     Securities for definitive Securities;

          (g)  for the purpose of delivery either to United Missouri Bank of
     Kansas City, National Association, or to Investors Fiduciary Trust Company,
     as Custodian for the Fund;

          (h)  for the purpose of redeeming in kind shares of the Fund against
     delivery to the Bank or its subcustodian of such shares to be so redeemed;

          (i)  for other proper trust purposes of the Fund; 

          (j)  upon the termination of this Custody Agreement as hereinafter set
     forth.
     

All transfers, exchanges or deliveries of Securities in the Custody Account for 
a purpose permitted by either subsection (a), (b), (c), (d), (e), (f) or (g) of 
this Section 6 will be made, except as provided in Section 8, only upon receipt 
by the Bank of Instructions from Authorized Persons which shall specify the 
purpose of the transfer, exchange or delivery to be made and the applicable 
subsection of this Section 6. In the case of any transfer or delivery to be made
for the purpose permitted by subsection (h) of this Section 6, the Bank must 
first receive Instructions from Authorized Persons specifying the shares held by
the Bank or its subcustodian to be so transferred or delivered

                                     -11-
<PAGE>
 
and naming the person or persons to whom transfers or delivery of such shares
shall be made. In the case of any transfer, exchange or delivery to be made for
the purpose permitted by subsection (i) of this Section 6, the Bank must first
receive a certified copy of a resolution of the Board adequately describing such
transfer, exchange or delivery, declaring such purpose to be a proper trust
purpose, and naming the person or persons to whom delivery of such Securities
shall be made. Any transfer or delivery pursuant to subsection (j) of this
Section 6 will be made in accordance with Section 17.

     7.   Custody Account Procedures.  With respect to any transaction involving
Securities held in or to be acquired for the Custody Account, the Bank in its
discretion may cause the Deposit Account to be credited on the contractual
settlement date with the proceeds of any sale or exchange of Securities from the
Custody Account and to be debited on the contractual settlement date for the
cost of Securities purchased or acquired for the Custody Account. The Bank may
reverse any such credit or debit if the transaction with respect to which such
credit or debit were made fails to settle within a reasonable period, determined
by the Bank in its discretion, after the contractual settlement date, except
that if any Securities delivered pursuant to this Section 7 are returned by the
recipient thereof, the Bank may cause any such credits and debits to be reversed
at any time. With respect to any transactions as to which the Bank does not

                                     -12-
<PAGE>
 
determine so to credit or debit the Deposit Account, the proceeds from the sale
or exchange of Securities will be credited and the cost of such Securities
purchased or acquired will be debited to the Deposit Account on the date such
proceeds or Securities are received by the Bank.

     Notwithstanding the preceding paragraph, settlement and payment for
Securities received for, and delivery of Securities out of, the Custody Account
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such Securities from such purchaser or dealer.

     8.   Actions of the Bank.  Until the Bank receives instructions from
Authorized Persons to the contrary, the Bank will, or will instruct its
subcustodian to,

          (a)  present for payment any Securities in the Custody Account which
     are called, redeemed or retired or otherwise become payable and all coupons
     and other income items which call for payment upon presentation to the
     extent that the Bank or subcustodian is aware of such opportunities for
     payment, and hold cash received upon presentation of such

                                     -13-
<PAGE>
 
     Securities in accordance with the provisions of Sections 2, 3 and 4 of this
     Agreement;

          (b)  in respect of Securities in the Custody Account, execute in the
     name of the Fund such ownership and other certificates as may be required
     to obtain payments in respect thereof;

          (c)  exchange interim receipts or temporary Securities in the Custody
     Account for definitive Securities;

          (d)  convert moneys received with respect to Securities of foreign
     issue into United States dollars or any other currency necessary to effect
     any transaction involving the Securities whenever it is practicable to do
     so through customary banking channels, using any method or agency
     available, including, but not limited to, the facilities of the Bank, its
     subsidiaries, affiliates or subcustodians; and

          (e)  in the event of any loss of Securities or cash, use its best
     efforts to ascertain the circumstances relating to such loss and promptly
     report the same to the Fund.

     9.   Instructions.  As used in this Agreement, the term "Instructions"
means instructions of the Fund received by the Bank, via telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic instruction
system acceptable to the Bank which the Bank reasonably believes in good faith
to have been given by Authorized Persons or which are

                                     -14-
<PAGE>
 
transmitted with proper testing or authentication pursuant to terms and
conditions which the Bank may specify.

     Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Fund will hold the
Bank harmless for its failure to send such confirmation in writing, the failure
of such confirmation to conform to the telephone instructions received or the
Bank's failure to produce such confirmation at any subsequent time provided that
the Bank has timely advised the Fund of its failure to send such confirmation in
writing or the failure of such confirmation to conform to the telephone
instructions received. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until cancelled or superceded. If the
Bank requires test arrangements, authentication methods or other security
devices to be used with respect to instructions, any Instructions given by the
Fund thereafter shall be given and processed in accordance with such terms and
conditions for the use of such arrangements, methods or devices as the Bank may
put into effect and modify from time to time. The Fund shall safeguard any
testkeys, identification codes or other security devices which the Bank shall
make available to it. The Bank may electronically record any Instructions given
by telephone, and any other telephone discussions, with respect to the Custody
Account.

                                     -15-
<PAGE>
 
     10.  Authorized Persons.  As used in this Agreement, the term "Authorized
Persons" means such officers or such agents of the Fund as have been designated
by a resolution of the Board, a certified copy of which has been provided to the
Bank, to act on behalf of the Fund in the performance of any acts which
Authorized Persons may do under this Agreement. Such persons shall continue to
be Authorized Persons until such time as the Bank receives instructions from
Authorized Persons that any such officer or agent is no longer an Authorized
Person.

     11.  Nominees.  Securities in the Custody Account which are ordinarily held
in registered form may be registered in the name of the Bank's nominee or, as to
any Securities in the possession of an entity other than the Bank, in the name
of such entity's nominee. The Fund agrees to hold any such nominee harmless from
any liability as a holder of record of such Securities. The Bank may without
notice to the Fund cause any such Securities to cease to be registered in the
name of any such nominee and to be registered in the name of the Fund. In the
event that any Securities registered in the name of the Bank's nominee or held
by one of its subcustodians and registered in the name of such subcustodian's
nominee are called for partial redemption by the issuer of such Security, the
Bank may allot, or cause to be allotted, the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to be
fair and equitable.

                                     -16-
<PAGE>
 
     12.  Standard of Care.  The Bank shall be responsible for the performance
of only such duties as are set forth herein or contained in Instructions given
to the Bank by Authorized Persons which are not contrary to the provisions of
this Agreement. The Bank will use reasonable care with respect to the
safekeeping of Securities in the Custody Account. The Bank shall be liable to
the Fund for any loss which shall occur as the result of the failure of a
subcustodian or an eligible foreign securities depository engaged by such
subcustodian to exercise reasonable care with respect to the safekeeping of such
Securities and other assets to the same extent that the Bank would be liable to
the Fund if the Bank were holding such Securities and other assets in New York.
In the event of any loss to the Fund by reason of the failure of the Bank or its
subcustodian or an eligible foreign securities depository engaged by such
subcustodian to utilize reasonable care, the Bank shall be liable to the Fund to
the extent of the Fund's damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of such
loss and without reference to any special conditions or circumstances. The Bank
shall be held to the exercise of reasonable care in carrying out this Agreement
but shall be indemnified by, and shall be without liability to, the Fund for any
action taken or omitted by the Bank in good faith without negligence. The Bank
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for the

                                     -17-
<PAGE>
 
Fund) on all matters and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.

     The Bank need not maintain any insurance for the benefit of the Fund.
However, the Bank represents and warrants that it presently maintains a bankers'
blanket bond ("Bond") which provides standard fidelity and non-negligent loss
coverage with respect to securities which may be held by the Bank and securities
which may be held in the offices of foreign banks and foreign securities
depositories which may be utilized by the Bank pursuant to this Agreement. The
Bank agrees that if at any time the Bank for any reason discontinues such
coverage, it shall immediately notify the Fund in writing. The Bank represents
that only the named insured on the Bond, which includes the Bank but not any of
the Bank's customers, is directly protected against loss. The Bank represents
that while it might resist a claim of one of its customers to recover for a loss
not covered by the Bond, as a practical matter, where a claim is brought and
loss is possibly covered by the Bond, the Bank would give notice of the claim to
its insurer, and the insurer would normally determine whether to defend the
claim against the Bank or to pay the claim on behalf of the Bank.

     All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Fund. The
Bank shall have no liability for any loss occasioned by delay in the actual
receipt

                                     -18-
<PAGE>
 
of notice by the Bank or by its subcustodian of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which the
Bank has agreed to take action as provided in Section 8 hereof. The Bank shall
not be liable for any action taken in good faith upon Instructions or upon any
certified copy of any resolution of the Board and may rely on the genuineness of
any such documents which it may in good faith believe to be validly executed.
The Bank shall not be liable for any loss resulting from, or caused by, the
direction of the Fund to maintain custody of any Securities or cash in a foreign
country including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation, or acts of God.

     13.  Compliance with Securities and Exchange Commission Rules and Orders.
To the extent that a condition of a rule, regulation, interpretation or
exemptive order promulgated by or under the authority of the Securities and
Exchange Commission applies to the Bank or the Fund each shall be solely
responsible to assure that this Agreement and the maintenance of Securities and
cash under this Agreement complies with any such rule, regulation,
interpretation or exemptive order.

     14.  Corporate Action.  The Bank or its subcustodian is to forward promptly
to the Fund all communications relative to the Securities in the Custody
Account. Such communications as call

                                     -19-
<PAGE>
 
for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) shall be transmitted to the Fund by means which will permit the Fund to
take timely action. The Bank or its subcustodian will cause its nominee to
execute and deliver to the Fund proxies relating to Securities in the Custody
Account registered in the name of such nominee but without indicating the manner
in which such proxies are to be voted. Proxies relating to bearer Securities
will be delivered in accordance with written instructions from Authorized
Persons.

     Bank hereby agrees that Bank shall create, maintain, and retain all records
relating to its activities and obligations under this Agreement in such manner
as will meet the obligations of the Fund under the Investment Company Act,
particularly Section 31 thereof and Rules 31a-1, 31a-2 and 31a-3 thereunder, and
applicable Federal, state and foreign tax laws and other laws or administrative
rules or procedures, in each case as currently in effect, which may be
applicable to the Fund. All records so maintained in connection with the
performance of its duties under this Agreement shall be preserved and maintained
as required by regulation and, in the event of termination of the Agreement,
shall be available to the Fund or its agent upon request.

     15.  Fees and Expenses.  The Fund agrees to pay to the Bank from time to
time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from

                                     -20-
<PAGE>
 
time to time including reimbursement of the Bank's reasonable out-of-pocket or
incidental expenses, including legal fees. The Fund hereby agrees to hold the
Bank harmless from any liability or loss resulting from any taxes or other
governmental charges, and any expenses related thereto, which may be imposed, or
assessed with respect to the Custody Account or any Securities in the Custody
Account and also agrees to hold the Bank, its subcustodians, and their
respective nominees harmless from any liability as a record holder of Securities
in the Custody Account. The Bank is authorized to charge any account of the Fund
for such items and the Bank shall have a lien on Securities in the Custody
Account and on cash in the Deposit Account for any amount owing to the Bank from
time to time under this Agreement.

     16.  Effectiveness.  This Agreement shall be effective on the date first
noted above; provided, however, that the Board has provided the Bank a certified
copy of a resolution that (i) approves each of the subcustodians listed in
Appendix A hereto and the terms of the custody agreement between the Bank and
each such subcustodian attached as Exhibits I through      hereof, and (ii)
states that the Board has determined that the use of each such subcustodian and
the terms of each such subcustody agreement are consistent with the best
interests of the Fund and its shareholders.

     17.  Termination.  This Agreement may be terminated by the Fund or the Bank
by 60 days written notice to the other, sent by

                                     -21-
<PAGE>
 
registered mail, provided that any termination by the Fund shall be authorized
by a resolution of its Board, a certified copy of which shall accompany such
notice of termination, and provided further, that such resolution shall specify
the names of the persons to whom the Bank shall deliver the Securities in the
Custody Account and to whom the cash in the Deposit Account shall be paid. If
notice of termination is given by the Bank, the Fund shall, within 60 days
following the giving of such notice, deliver to the Bank a certified copy of a
resolution of its Board specifying the names of the persons to whom the Bank
shall deliver the Securities in the Custody Account and to whom the cash in the
Deposit Account shall be paid. In either case the Bank will deliver such
Securities and cash to the persons so specified, after deducting therefrom any
amounts which the Bank determines to be owed to it under Section 15. If within
60 days following the giving of a notice of termination by the Bank, the Bank
does not receive from the Fund a certified copy of a resolution of the Board
specifying the names of the persons to whom the Bank shall deliver the
Securities in the Custody Account and to whom the cash in the Deposit Account
shall be paid, the Bank, at its election, may deliver such Securities and pay
such cash to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold such Securities and cash until a
certified copy of one or more

                                     -22-
<PAGE>
 
resolutions as aforesaid is delivered to the Bank. Concurrently with the
delivery of such Securities, the Bank shall deliver to the Company, or such
other person as the Company shall instruct, the records referred to in Section
14 hereof which are in the possession or control of the Bank. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.

     18.  Notices.  Any notice or other communication from the Fund to the Bank
is to be sent to the office of the Bank at 1211 Avenue of the Americas (33rd
floor), New York, New York, 10036, Attention Global Custody Division, or such
other address as may hereafter be given to the Company in accordance with the
notice provisions hereunder, and any notice from the Bank to the Fund is to be
mailed postage prepaid, addressed to the Fund at the address appearing below, or
as it may hereafter be changed on the Bank's records in accordance with notice
hereunder from the Fund.

     19.  Governing Law and Successors and Assigns.  This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors and assigns of the Fund and the
Bank.

     20.  Headings.  The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.

                                     -23-
<PAGE>
 
     21.  Additional Portfolios.  If the Fund shall issue shares of more than
one portfolio during the term hereof, the Bank agrees that all securities and
other assets of the Fund shall be segregated by portfolio and all books and
records, account values or actions shall be maintained, held, made or taken, as
the case may be, separately for each portfolio. Other than as encompassed by the
preceding sentence, references in this Agreement to "the Fund" are applicable
either to the entire trust or to a particular portfolio or portfolios, as the
context may make reasonable and appropriate. If the Fund has more than one
portfolio, instructions shall designate the portfolio or portfolios to which
they apply.

     22.  Disclaimer.  All parties hereto are expressly put on notice of the
Fund's Agreement and Declaration of Trust and all amendments thereto, all of
which are on file with the Secretary of The Commonwealth of Massachusetts, and
the limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding upon only the assets and property of the
Fund. With respect to any claim by Bank for recovery of that portion of the
compensation (or any other liability of the Fund arising hereunder) allocated to
a particular portfolio, whether in

                                     -24-
<PAGE>
 
accordance with the express terms hereof or otherwise, the Bank shall have
recourse solely against the assets of that portfolio to satisfy such claim and
shall have no recourse against the assets of any other portfolio for such
purpose.


                                          KEMPER INTERNATIONAL BOND FUND


                                          By:  /s/ Philip J. Collora 
                                               -------------------------
                                                Title(s) Vice President



                         Address for Record:  120 South LaSalle Street
                                              -----------------------------
                                              Chicago, Illinois  60603
                                              -----------------------------

                                          THE CHASE MANHATTAN BANK, N.A.


                                          By:  /s/ Michelle David
                                               --------------------------
                                               Title  Vice President

                                     -25-

<PAGE>
 
                                                                   EXHIBIT 99.b9


                                   AGENCY AGREEMENT


               AGREEMENT dated the 1st day of February, 1995, by and
          between KEMPER INTERNATIONAL BOND FUND, a Massachusetts business
          trust having its principal place of business at 120 South LaSalle
          Street, Chicago, IL 60603 ("Fund"), and INVESTORS FIDUCIARY TRUST
          COMPANY, a state chartered trust company organized and existing
          under the laws of the State of Missouri having its principal
          place of business at 127 West 10th Street, Kansas City, Missouri
          64105 ("IFTC").

               WHEREAS, Fund wants to appoint IFTC as Transfer Agent and
          Dividend Disbursing Agent, and IFTC wants to accept such
          appointment;

               NOW, THEREFORE, in consideration of the mutual covenants
          herein contained, the parties hereto agree as follows:

               1.   Documents to be Filed with Appointment.
                    In connection with the appointment of IFTC as Transfer
          Agent and Dividend Disbursing Agent for Fund, there will be filed
          with IFTC the following documents:

                    A.   A certified copy of the resolutions of the Board
          of Trustees of Fund appointing IFTC as Transfer Agent and
          Dividend Disbursing Agent, approving the form of this Agreement,
          and designating certain persons to  give written instructions and
          requests on behalf of Fund.

                    B.   A certified copy of the Agreement and Declaration
          of Trust of Fund and any amendments thereto.

                    C.   A certified copy of the Bylaws of Fund.

                    D.   Copies of Registration Statements filed with the
          Securities and Exchange Commission.

                    E.   Specimens of all forms of outstanding share
          certificates as approved by the Board of Trustees of Fund, with a
          certificate of the Secretary of Fund as to such approval.

                    F.   Specimens of the signatures of the officers of the
          Fund authorized to sign share certificates and individuals
          authorized to sign written instructions and requests on behalf of
          the Fund.
<PAGE>
 
                    G.   An opinion of counsel for Fund:

                         (1)  With respect to Fund's organization and
          existence under the laws of The Commonwealth of Massachusetts.



                         (2)  With respect to the status of all shares of
          Fund covered by this appointment under the Securities Act of
          1933, and any other applicable federal or state statute.

                         (3)  To the effect that all issued shares are, and
          all unissued shares will be when issued, validly issued, fully
          paid and nonassessable.

               2.   Certain Representations and Warranties of IFTC.  IFTC
          represents and warrants to Fund that:

                    A.   It is a trust company duly organized and existing
          and in good standing under the laws of the State of Missouri.

                    B.   It is duly qualified to carry on its business in
          the State of Missouri.

                    C.   It is empowered under applicable laws and by its
          Articles of Incorporation and Bylaws to enter into and perform
          the services contemplated in this Agreement.

                    D.   All requisite corporate proceedings have been
          taken to authorize it to enter into and perform this Agreement.

                    E.   It has and will continue to have and maintain the
          necessary facilities, equipment and personnel to perform its
          duties and obligations under this Agreement.

                    F.   It is, and will continue to be, registered as a
          transfer agent under the Securities Exchange Act of 1934.

               3.   Certain Representations and Warranties of Fund.  Fund
          represents and warrants to IFTC that:

                    A.   It is a business trust duly organized and existing
          and in good standing under the laws of The Commonwealth of Mas-
          sachusetts.

                    B.   It is an investment company registered under the
          Investment Company Act of 1940.

                    C.   A registration statement under the Securities Act
          of 1933 has been filed and will be effective with respect to all
          shares of Fund being offered for sale at any time and from time
          to time.

                                          2
<PAGE>
 
                    D.   All requisite steps have been or will be taken to
          register Fund's shares for sale in all applicable states,
          including the District of Columbia.

                    E.   Fund and its Trustees are empowered under
          applicable laws and by the Fund's Agreement and Declaration of
          Trust and Bylaws to enter into and perform this Agreement.

               4.   Scope of Appointment.

                    A.   Subject to the conditions set forth in this
          Agreement, Fund hereby employs and appoints IFTC as Transfer
          Agent and Dividend Disbursing Agent effective the date hereof.

                    B.   IFTC hereby accepts such employment and
          appointment and agrees that it will act as Fund's Transfer Agent
          and Dividend Disbursing Agent.  IFTC agrees that it will also act
          as agent in connection with Fund's periodic withdrawal payment
          accounts and other openaccount or similar plans for shareholders,
          if any.

                    C.   IFTC agrees to provide the necessary facilities,
          equipment and personnel to perform its duties and obligations
          hereunder in accordance with industry practice.

                    D.   Fund agrees to use all reasonable efforts to
          deliver to IFTC in Kansas City, Missouri, as soon as they are
          available, all its shareholder account records.

                    E.   Subject to the provisions of Sections 20 and 21
          hereof, IFTC agrees that it will perform all the usual and
          ordinary services of Transfer Agent and Dividend Disbursing Agent
          and as agent for the various shareholder accounts, including,
          without limitation, the following:  issuing, transferring and
          cancelling share certificates, maintaining all shareholder
          accounts, preparing shareholder meeting lists, mailing proxies,
          receiving and tabulating proxies, mailing shareholder reports and
          prospectuses, withholding federal income taxes, preparing and
          mailing checks for disbursement of income and capital gains
          dividends, preparing and filing all required U.S. Treasury
          Department information returns for all shareholders, preparing
          and mailing confirmation forms to shareholders and dealers with
          respect to all purchases and liquidations of Fund shares and
          other transactions in shareholder accounts for which
          confirmations are required, recording reinvestments of dividends
          and distributions in Fund shares, recording redemptions of Fund
          shares and preparing and mailing checks for payments upon
          redemption and for disbursements to systematic withdrawal plan
          shareholders.





                                          3
<PAGE>
 
               5.   Compensation and Expenses.

                    A.   In consideration for the services provided
          hereunder by IFTC as Transfer Agent and Dividend Disbursing
          Agent, Fund will pay to IFTC from time to time compensation as
          agreed upon for all services rendered as Agent, and also, all its
          reasonable outofpocket expenses and other disbursements incurred
          in connection with the agency.  Such compensation will be set
          forth in a separate schedule to be agreed to by Fund and IFTC. 
          The initial agreement regarding compensation is attached as
          Exhibit A.


                    B.   Fund agrees to promptly reimburse IFTC for all
          reasonable outofpocket expenses or advances incurred by IFTC in
          connection with the performance of services under this Agreement
          including, but not limited to, postage (and first class mail
          insurance in connection with mailing share certificates),
          envelopes, check forms, continuous forms, forms for reports and
          statements, stationery, and other similar items, telephone and
          telegraph charges incurred in answering inquiries from dealers or
          shareholders, microfilm used each year to record the previous
          year's transactions in shareholder accounts and computer tapes
          used for permanent storage of records and cost of insertion of
          materials in mailing envelopes by outside firms.  IFTC may, at
          its option, arrange to have various service providers submit
          invoices directly to the Fund for payment of out-of-pocket
          expenses reimbursable hereunder.

               6.   Efficient Operation of IFTC System.

                    A.   In connection with the performance of its services
          under this Agreement, IFTC is responsible for the accurate and
          efficient functioning of its system at all times, including:

                         (1)  The accuracy of the entries in IFTC's records
          reflecting purchase and redemption orders and other instructions
          received by IFTC from dealers, shareholders, Fund or its
          principal underwriter.

                         (2)  The timely availability and the accuracy of
          shareholder lists, shareholder account verifications,
          confirmations and other shareholder account information to be
          produced from IFTC's records or data.

                         (3)  The accurate and timely issuance of dividend
          and distribution checks in accordance with instructions received
          from Fund.

                         (4)  The accuracy of redemption transactions and
          payments in accordance with redemption instructions received from
          dealers, shareholders or Fund or other authorized persons.

                                          4
<PAGE>
 
                         (5)  The deposit daily in Fund's appropriate
          special bank account of all checks and payments received from
          dealers or shareholders for investment in shares.

                         (6)  The requiring of proper forms of
          instructions, signatures and signature guarantees and any
          necessary documents supporting the rightfulness of transfers,
          redemptions and other shareholder account transactions, all in
          conformance with IFTC's present procedures with such changes as
          may be deemed reasonably appropriate by IFTC or as may be
          reasonably approved by or on behalf of Fund.

                         (7)  The maintenance of a current duplicate set of
          Fund's essential or required records, as agreed upon from time to
          time by Fund and IFTC, at a secure distant location, in form
          available and usable forthwith in the event of any breakdown or
          disaster disrupting its main operation.

               7.   Indemnification.

                    A.   Fund shall indemnify and hold IFTC harmless from
          and against any and all claims, actions, suits, losses, damages,
          costs, charges, counsel fees, payments, expenses and liabilities
          arising out of or attributable to any action or omission by IFTC
          pursuant to this Agreement or in connection with the agency
          relationship created by this Agreement, provided that IFTC has
          acted in good faith, without negligence and without willful
          misconduct.

                    B.   IFTC shall indemnify and hold Fund harmless from
          and against any and all claims, actions, suits, losses, damages,
          costs, charges, counsel fees, payments, expenses and liabilities
          arising out of or attributable to any action or omission by IFTC
          pursuant to this Agreement or in connection with the agency
          relationship created by this Agreement, provided that IFTC has
          not acted in good faith, without negligence and without willful
          misconduct.

                    C.   In order that the indemnification provisions
          contained in this Section 7 shall apply, upon the assertion of a
          claim for which either party (the "Indemnifying Party") may be
          required to provide indemnification hereunder, the party seeking
          indemnification (the "Indemnitee") shall promptly notify the
          Indemnifying Party of such assertion, and shall keep such party
          advised with respect to all developments concerning such claim. 
          The Indemnifying Party shall be entitled to assume control of the
          defense and the negotiations, if any, regarding settlement of the
          claim.  If the Indemnifying Party assumes control, the Indemnitee
          shall have the option to participate in the defense and
          negotiations of such claim at its own expense.  The Indemnitee
          shall in no event confess, admit to, compromise, or settle any
          claim for which the Indemnifying Party may be required to

                                          5
<PAGE>
 
          indemnify it except with the prior written consent of the
          Indemnifying Party, which shall not be unreasonably withheld.

               8.   Certain Covenants of IFTC and Fund.

                    A.   All requisite steps will be taken by Fund from
          time to time when and as necessary to register the Fund's shares
          for sale in all states in which Fund's shares shall at the time
          be offered for sale and require registration.  If at any time
          Fund receives notice of any stop order or other proceeding in any
          such state affecting such registration or the sale of Fund's
          shares, or of any stop order or other proceeding under the
          Federal securities laws affecting the sale of Fund's shares, Fund
          will give prompt notice thereof to IFTC.

                    B.   IFTC hereby agrees to establish and maintain
          facilities and procedures reasonably acceptable to Fund for
          safekeeping of share certificates, check forms, and facsimile
          signature imprinting devices, if any; and for the preparation or
          use, and for keeping account of, such certificates, forms and
          devices.  Further, IFTC agrees to carry insurance, as specified
          in Exhibit B hereto, with insurers reasonably acceptable to Fund
          and in minimum amounts that are reasonably acceptable to Fund,
          which will not be changed without the consent of Fund, which
          consent shall not be unreasonably withheld, and which will be
          expanded in coverage or increased in amounts from time to time if
          and when reasonably requested by Fund.  If IFTC determines that
          it is unable to obtain any such insurance upon commercially
          reasonable terms, it shall promptly so advise Fund in writing. 
          In such event, Fund shall have the right to terminate this
          Agreement upon 30 days notice.

                    C.   To the extent required by Section 31 of the
          Investment Company Act of 1940 and Rules thereunder, IFTC agrees
          that all records maintained by IFTC relating to the services to
          be performed by IFTC under this Agreement are the property of
          Fund and will be preserved and will be surrendered promptly to
          Fund on request.

                    D.   IFTC agrees to furnish Fund semiannual reports of
          its financial condition, consisting of a balance sheet, earnings
          statement and any other reasonably available financial
          information reasonably requested by Fund.  The annual financial
          statements will be certified by IFTC's certified public
          accountants.

                    E.   IFTC represents and agrees that it will use all
          reasonable efforts to keep current on the trends of the
          investment company industry relating to shareholder services and
          will use all reasonable efforts to continue to modernize and
          improve its system without additional cost to Fund.


                                          6
<PAGE>
 
                    F.   IFTC will permit Fund and its authorized
          representatives to make periodic inspections of its operations at
          reasonable times during business hours.

                    G.   If IFTC is prevented from complying, either
          totally or in part, with any of the terms or provisions of this
          Agreement, by reason of fire, flood, storm, strike, lockout or
          other labor trouble, riot, war, rebellion, accidents, acts of
          God, equipment, utility or transmission failure or damage, and/or
          any other cause or casualty beyond the reasonable control of
          IFTC, whether similar to the foregoing matters or not, then upon
          written notice to Fund, the requirements of this Agreement that
          are affected by such disability, to the extent so affected, shall
          be suspended during the period of such disability; provided,
          however, that IFTC shall make reasonable effort to remove such
          disability as soon as possible.  During such period, Fund may
          seek alternate sources of service without liability hereunder;
          and IFTC will use all reasonable efforts to assist Fund to obtain
          alternate sources of service.  IFTC shall have no liability to
          Fund for nonperformance because of the reasons set forth in this
          Section 8.G; but if a disability that, in Fund's reasonable
          belief, materially affects IFTC's ability to perform its
          obligations under this Agreement continues for a period of 30
          days, then Fund shall have the right to terminate this Agreement
          upon 10 days written notice to IFTC.

               9.   Adjustment.

                    In case of any recapitalization, readjustment or other
          change in the structure of Fund requiring a change in the form of
          share certificates, IFTC will issue or register certificates in
          the new form in exchange for, or in transfer of, the outstanding
          certificates in the old form, upon receiving the following:

                    A.   Written instructions from an officer of Fund.

                    B.   Certified copy of any amendment to the Agreement
          and Declaration of Trust or other document effecting the change.

                    C.   Certified copy of any order or consent of each
          governmental or regulatory authority required by law for the
          issuance of the shares in the new form, and an opinion of counsel
          that no order or consent of any other government or regulatory
          authority is required.

                    D.   Specimens of the new certificates in the form
          approved by the Board of Trustees of Fund, with a certificate of
          the Secretary of Fund as to such approval.





                                          7
<PAGE>
 
                    E.   Opinion of counsel for Fund:

                         (1)  With respect to the status of the shares of
          Fund in the new form under the Securities Act of 1933, and any
          other applicable federal or state laws.

                         (2)  To the effect that the issued shares in the
          new form are, and all unissued shares will be when issued,
          validly issued, fully paid and nonassessable.

               10.  Share Certificates.

                    Fund will furnish IFTC with a sufficient supply of
          blank share certificates and from time to time will renew such
          supply upon the request of IFTC.  Such certificates will be
          signed manually or by facsimile signatures of the officers of
          Fund authorized by law and Fund's Bylaws to sign share
          certificates and, if required, will bear the trust seal or
          facsimile thereof.


               11.  Death, Resignation or Removal of Signing Officer.

                    Fund will file promptly with IFTC written notice of any
          change in the officers authorized to sign share certificates,
          written instructions or requests, together with two signature
          cards bearing the specimen signature of each newly authorized
          officer, all as certified by an appropriate officer of the Fund. 
          In case any officer of Fund who will have signed manually or
          whose facsimile signature will have been affixed to blank share
          certificates will die, resign, or be removed prior to the
          issuance of such certificates, IFTC may issue or register such
          share certificates as the share certificates of Fund
          notwithstanding such death, resignation, or removal, until
          specifically directed to the contrary by Fund in writing. In the
          absence of such direction, Fund will file promptly with IFTC such
          approval, adoption, or ratification as may be required by law.

               12.  Future Amendments of Agreement and Declaration of Trust
          and Bylaws.

                    Fund will promptly file with IFTC copies of all
          material amendments to its Agreement and Declaration of Trust and
          Bylaws and Registration Statement made after the date of this
          Agreement.

               13.  Instructions, Opinion of Counsel and Signatures.

                    At any time IFTC may apply to any officer of Fund for
          instructions, and may consult with legal counsel for Fund at the
          expense of Fund, or with its own legal counsel at its own
          expense, with respect to any matter arising in connection with

                                          8
<PAGE>
 
          the agency; and it will not be liable for any action taken or
          omitted by it in good faith in reliance upon such instructions or
          upon the opinion of such counsel. IFTC is authorized to act on
          the orders, directions or instructions of such persons as the
          Board of Trustees of Fund shall from time to time designate by
          resolution.  IFTC will be protected in acting upon any paper or
          document, including any orders, directions or instructions,
          reasonably believed by it to be genuine and to have been signed
          by the proper person or persons; and IFTC will not be held to
          have notice of any change of authority of any person so
          authorized by Fund until receipt of written notice thereof from
          Fund. IFTC will also be protected in recognizing share
          certificates that it reasonably believes to bear the proper
          manual or facsimile signatures of the officers of Fund, and the
          proper countersignature of any former Transfer Agent or
          Registrar, or of a CoTransfer Agent or CoRegistrar.

               14.  Papers Subject to Approval of Counsel.

                    The acceptance by IFTC of its appointment as Transfer
          Agent and Dividend Disbursing Agent, and all documents filed in
          connection with such appointment and thereafter in connection
          with the agencies, will be subject to the approval of legal
          counsel for IFTC, which approval will not be unreasonably
          withheld.

               15.  Certification of Documents.

                    The required copy of the Agreement and Declaration of
          Trust of Fund and copies of all amendments thereto will be
          certified by the appropriate official of The Commonwealth of
          Massachusetts; and if such Agreement and Declaration of Trust and
          amendments are required by law to be also filed with a county,
          city or other officer or official body, a certificate of such
          filing will appear on the certified copy submitted to IFTC.  A
          copy of the order or consent of each governmental or regulatory
          authority required by law for the issuance of Fund shares will be
          certified by the Secretary or Clerk of such governmental or
          regulatory authority, under proper seal of such authority.  The
          copy of the Bylaws and copies of all amendments thereto and
          copies of resolutions of the Board of Trustees of Fund will be
          certified by the Secretary or an Assistant Secretary of Fund.

               16.  Records.

                    IFTC will maintain customary records in connection with
          its agency, and particularly will maintain those records required
          to be maintained pursuant to subparagraph (2)(iv) of paragraph
          (b) of Rule 31a1 under the Investment Company Act of 1940, if
          any.




                                          9
<PAGE>
 
               17.  Disposition of Books, Records and Cancelled
          Certificates.

                    IFTC will send periodically to Fund, or to where
          designated by the Secretary or an Assistant Secretary of Fund,
          all books, documents, and all records no longer deemed needed for
          current purposes and share certificates which have been cancelled
          in transfer or in exchange, upon the understanding that such
          books, documents, records, and share certificates will not be
          destroyed by Fund without the consent of IFTC (which consent will
          not be unreasonably withheld), but will be safely stored for
          possible future reference.

               18.  Provisions Relating to IFTC as Transfer Agent.

                    A.   IFTC will make original issues of share
          certificates upon written request of an officer of Fund and upon
          being furnished with a certified copy of a resolution of the
          Board of Trustees authorizing such original issue, an opinion of
          counsel as outlined in Section 1.G or 9.E of this Agreement, the
          certificates required by Section 10 of this Agreement and any
          other documents required by Section 1 or 9 of this Agreement.

                    B.   Before making any original issue of certificates,
          Fund will furnish IFTC with sufficient funds to pay any taxes
          required on the original issue of the shares.  Fund will furnish
          IFTC such evidence as may be required by IFTC to show the actual
          value of the shares.  If no taxes are payable, IFTC will upon
          request be furnished with an opinion of outside counsel to that
          effect.

                    C.   Shares will be transferred and new certificates
          issued in transfer, or shares accepted for redemption and funds
          remitted therefor, upon surrender of the old certificates in form
          deemed by IFTC properly endorsed for transfer or redemption
          accompanied by such documents as IFTC may deem necessary to
          evidence the authority of the person making the transfer or
          redemption, and bearing satisfactory evidence of the payment of
          any applicable share transfer taxes.  IFTC reserves the right to
          refuse to transfer or redeem shares until it is satisfied that
          the endorsement or signature on the certificate or any other
          document is valid and genuine, and for that purpose it may
          require a guarantee of signature by such persons as may from time
          to time be specified in the prospectus related to such shares or
          otherwise authorized by Fund.  IFTC also reserves the right to
          refuse to transfer or redeem shares until it is satisfied that
          the requested transfer or redemption is legally authorized, and
          it will incur no liability for the refusal in good faith to make
          transfers or redemptions which, in its judgment, are improper,
          unauthorized, or otherwise not rightful.  IFTC may, in effecting
          transfers or redemptions, rely upon Simplification Acts or other
          statutes which protect it and Fund in not requiring complete
          fiduciary documentation.  

                                          10
<PAGE>
 
                    D.   When mail is used for delivery of share
          certificates, IFTC will forward share certificates in
          "nonnegotiable" form as provided by Fund by first class mail, all
          such mail deliveries to be covered while in transit to the
          addressee by insurance arranged for by IFTC.

                    E.   IFTC will issue and mail subscription warrants and
          certificates provided by Fund and representing share dividends,
          exchanges or splitups, or act as Conversion Agent upon receiving
          written instructions from any officer of Fund and such other
          documents as IFTC deems necessary.

                    F.   IFTC will issue, transfer, and splitup
          certificates upon receiving written instructions from an officer
          of Fund and such other documents as IFTC may deem necessary.

                    G.   IFTC may issue new certificates in place of
          certificates represented to have been lost, destroyed, stolen or
          otherwise wrongfully taken, upon receiving indemnity satisfactory
          to IFTC, and may issue new certificates in exchange for, and upon
          surrender of, mutilated certificates.  Any such issuance shall be
          in accordance with the provisions of law governing such matter
          and any procedures adopted by the Board of Trustees of the Fund
          of which IFTC has notice.

                    H.   IFTC will supply a shareholder's list to Fund
          properly certified by an officer of IFTC for any shareholder
          meeting upon receiving a request from an officer of Fund.  It
          will also supply lists at such other times as may be reasonably
          requested by an officer of Fund.

                    I.   Upon receipt of written instructions of an officer
          of Fund, IFTC will address and mail notices to shareholders.

                    J.   In case of any request or demand for the
          inspection of the share books of Fund or any other books of Fund
          in the possession of IFTC, IFTC will endeavor to notify Fund and
          to secure instructions as to permitting or refusing such
          inspection.  IFTC reserves the right, however, to exhibit the
          share books or other books to any person in case it is advised by
          its counsel that it may be held responsible for the failure to
          exhibit the share books or other books to such person.

               19.  Provisions Relating to Dividend Disbursing Agency.

                    A.   IFTC will, at the expense of Fund, provide a
          special form of check containing the imprint of any device or
          other matter desired by Fund.  Said checks must, however, be of a
          form and size convenient for use by IFTC.

                    B.   If Fund wants to include additional printed
          matter, financial statements, etc., with the dividend checks, the
          same will be furnished to IFTC within a reasonable time prior to

                                          11
<PAGE>
 
          the date of mailing of the dividend checks, at the expense of
          Fund.

                    C.   If Fund wants its distributions mailed in any
          special form of envelopes, sufficient supply of the same will be
          furnished to IFTC but the size and form of said envelopes will be
          subject to the approval of IFTC.  If stamped envelopes are used,
          they must be furnished by Fund; or, if postage stamps are to be
          affixed to the envelopes, the stamps or the cash necessary for
          such stamps must be furnished by Fund.

                    D.   IFTC will maintain one or more deposit accounts as
          Agent for Fund, into which the funds for payment of dividends,
          distributions, redemptions or other disbursements provided for
          hereunder will be deposited, and against which checks will be
          drawn.

               20.  Termination of Agreement.

                    A.   This Agreement may be terminated by either party
          upon sixty (60) days prior written notice to the other party.

                    B.   Fund, in addition to any other rights and
          remedies, shall have the right to terminate this Agreement
          forthwith upon the occurrence at any time of any of the following
          events:

                         (1)  Any interruption or cessation of operations
          by IFTC or its assigns which materially interferes with the
          business operation of Fund.

                         (2)  The bankruptcy of IFTC or its assigns or the
          appointment of a receiver for IFTC or its assigns.

                         (3)  Any merger, consolidation or sale of
          substantially all the assets of IFTC or its assigns.

                         (4)  The acquisition of a controlling interest in
          IFTC or its assigns, by any broker, dealer, investment adviser or
          investment company except as may presently exist.

                         (5)  Failure by IFTC or its assigns to perform its
          duties in accordance with this Agreement, which failure
          materially adversely affects the business operations of Fund and
          which failure continues for thirty (30) days after written notice
          from Fund.

                         (6)  The registration of IFTC or its assigns as a
          transfer agent under the Securities Exchange Act of 1934 is
          revoked, terminated or suspended for any reason.

                    C.   In the event of termination, Fund will promptly
          pay IFTC all amounts due to IFTC hereunder.  Upon termination of

                                          12
<PAGE>
 
          this Agreement, IFTC shall deliver all shareholder and account
          records pertaining to Fund either to Fund or as directed in
          writing by Fund.

               21.  Assignment.

                    A.   Except for the assignment of responsibilities
          pursuant to the Services Agreement ("Services Agreement") between
          IFTC and Kemper Service Company ("KSVC"), which Fund has
          approved, neither this Agreement nor any rights or obligations
          hereunder may be assigned by IFTC without the written consent of
          Fund; provided, however, no assignment will relieve IFTC of any
          of its obligations hereunder.

                    B.   This Agreement including, without limitation, the
          provisions of Section 7 will inure to the benefit of and be
          binding upon the parties and their respective successors and
          assigns including KSVC pursuant to the aforesaid Services
          Agreement.

                    C.   KSVC is authorized by Fund to use the system
          services of DST Systems, Inc.

               22.  Confidentiality.

                    A.   Except as provided in the last sentence of Section
          18.J hereof, or as otherwise required by law, IFTC will keep
          confidential all records of and information in its possession
          relating to Fund or its shareholders or shareholder accounts and
          will not disclose the same to any person except at the request or
          with the consent of Fund.

                    B.   Except as otherwise required by law, Fund will
          keep confidential all financial statements and other financial
          records (other than statements and records relating solely to
          Fund's business dealings with IFTC) and all manuals, systems and
          other technical information and data, not publicly disclosed,
          relating to IFTC's operations and programs furnished to it by
          IFTC pursuant to this Agreement and will not disclose the same to
          any person except at the request or with the consent of IFTC. 
          Notwithstanding anything to the contrary in this Section 22.B, if
          an attempt is made pursuant to subpoena or other legal process to
          require Fund to disclose or produce any of the aforementioned
          manuals, systems or other technical information and data, Fund
          shall give IFTC prompt notice thereof prior to disclosure or
          production so that IFTC may, at its expense, resist such attempt.

               23.  Survival of Representations and Warranties.

                    All representations and warranties by either party
          herein contained will survive the execution and delivery of this
          Agreement.


                                          13
<PAGE>
 
               24.  Miscellaneous.

                    A.   This Agreement is executed and delivered in the
          State of Illinois and shall be governed by the laws of said state
          (except as to Section 24.G hereof which shall be governed by the
          laws of The Commonwealth of Massachusetts).
               
                    B.   No provisions of this Agreement may be amended or
          modified in any manner except by a written  agreement properly
          authorized and executed by both parties hereto.

                    C.   The captions in this Agreement are included for
          convenience of reference only, and in no way define or limit any
          of the provisions hereof or otherwise affect their construction
          or effect.  

                    D.   This Agreement shall become effective as of the
          date hereof.

                    E.   This Agreement may be executed simultaneously in
          two or more counterparts, each of which shall be deemed an
          original but all of which together shall constitute one and the
          same instrument.

                    F.   If any part, term or provision of this Agreement
          is held by the courts to be illegal, in conflict with any law or
          otherwise invalid, the remaining portion or portions shall be
          considered severable and not be affected, and the rights and
          obligations of the parties shall be construed and enforced as if
          the Agreement did not contain the particular part, term or
          provision held to be illegal or invalid.

                    G.   All parties hereto are expressly put on notice of
          Fund's Agreement and Declaration of Trust which is on file with
          the Secretary of The Commonwealth of Massachusetts, and the
          limitation of shareholder and trustee liability contained
          therein.  This Agreement has been executed by and on behalf of
          Fund by its representatives as such representatives and not
          individually, and the obligations of Fund hereunder are not
          binding upon any of the Trustees, officers or shareholders of the
          Fund individually but are binding upon only the assets and
          property of Fund.  With respect to any claim by IFTC for recovery
          of that portion of the compensation and expenses (or any other
          liability of Fund arising hereunder) allocated to a particular
          Portfolio, whether in accordance with the express terms hereof or
          otherwise, IFTC shall have recourse solely against the assets of
          that Portfolio to satisfy such claim and shall have no recourse
          against the assets of any other Portfolio for such purpose.

                    H.   This Agreement, together with the Fee Schedule, is
          the entire contract between the parties relating to the subject
          matter hereof and supersedes all prior agreements between the
          parties.

                                          14
<PAGE>
 
               IN WITNESS WHEREOF, the parties have caused this Agreement
          to be executed by their respective duly authorized officer as of
          the day and year first set forth above.

                                                  

                                          KEMPER INTERNATIONAL BOND FUND

                                          By: /s/ John E. Peters
                                              -----------------------------

                                          Title: Vice President
                                                 --------------------------

          Attest: /s/ Philip J. Collora
                  ----------------------

          Title: Assistant Secretary
                 -----------------------

                                          INVESTORS FIDUCIARY TRUST COMPANY

                                           By: /s/ Joseph F. Smith 
                                               ----------------------------

                                           Title: E V P 
                                                  -------------------------

          Attest: /s/ Marvin Rau
                  ----------------------

          Title: Secretary
                 -----------------------





















                                          15
<PAGE>
 
                                      EXHIBIT A

                                     FEE SCHEDULE
          <TABLE>
          <CAPTION>
          Transfer Agency Function              Fee Payable by Fund
          <S>                                   <C>
          1.   Annual open shareholder          $6.00 per year per account.
               account fee.

          2.   Annual closed shareholder        $6.00 per year per account.
               account fee.

          3.   Establishment of new             $4.00 per new account.
               shareholder account.

          4.   Payment of dividend.             $.40 per dividend payment
                                                per account.

          5.   Automated ACH/UIT transaction.   $.50 per transaction.

          6.   Process purchase or redemption   $1.25 per transaction.
               of shares transaction.

          7.   Non-monetary transactions fee.   $2.00 per year per open
                                                account.

          8.   All other shareholder inquiry,   $1.25 per transaction.
               correspondence and research
               transactions.

          9.   Disaster recovery fee.           $.40 per year per open and
                                                closed account.


          </TABLE>

          The out-of-pocket expenses of IFTC will be reimbursed by Fund in
          accordance with the provisions of Section 5 of the Agency
          Agreement.  All fees will be subject to offset by earnings
          allowances under the Custody Agreement between Fund and IFTC.
<PAGE>
 
                                      EXHIBIT B

                               IFTC INSURANCE COVERAGE


          DESCRIPTION OF POLICY:

               Fidelity Bond
                    Covers losses caused by dishonesty of employees, 

          physical loss of securities on or outside of premises while in 

          possession of authorized person, loss caused by forgery or 

          alteration of checks or similar instruments.

               Errors and Omissions Insurance
                    Covers claims made for actual or alleged negligent 

          acts, errors or omissions committed in the performance of 

          transfer agency services.

               Mail Insurance (applies to all full service operations)
                    Provides indemnity for the following types of 

          securities lost in the mails:

                         Non-negotiable securities mailed to domestic
          locations via registered mail.

                         Non-negotiable securities mailed to domestic
          locations via firstclass or certified mail.

                         Non-negotiable securities mailed to foreign
          locations via registered mail.

                         Negotiable securities mailed to all locations via
          registered mail.




<PAGE>
 
                        CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Independent Auditors 
and Reports to Shareholders" and to the use of our report dated December 16, 
1994 in the Registration Statement (Form N-1A) and its incorporation by 
reference in the related Prospectus and Statement of Additional Information of 
Kemper International Bond Fund, filed with the Securities and Exchange 
Commission in this Post-Effective Amendment No. 1 to the Registration Statement 
under the Securities Act of 1933 (Registration No. 33-85096) and this Amendment 
No. 1 to the Registration Statement under the Investment Company Act of 1940 
(Registration No. 811-8818).


                                           /s/ ERNST & YOUNG LLP


Chicago, Illinois
July 24, 1995

<PAGE>
 
                                                                  EXHIBIT 99.b13

                            KEMPER INTERNATIONAL BOND FUND

                                Subscription Agreement


               1.   Share Subscription.  The undersigned agrees to purchase
          from Kemper International Bond Fund (the "Fund") the number of
          shares (the "Shares") without par value, set forth at the end of
          this Agreement on the terms and conditions set forth herein and
          in the Preliminary Prospectus ("Preliminary Prospectus")
          described below, and hereby tenders the amount of the price
          required to purchase these Shares at the price set forth at the
          end of this Agreement.

               The undersigned understands that the Fund has prepared a
          registration statement or an amendment thereto for filing with
          the Securities and Exchange Commission on Form N-1A, which
          contains the Preliminary Prospectus which describes the Fund and
          the Shares.  By its signature hereto, the undersigned hereby
          acknowledges receipt of a copy of the Preliminary Prospectus.

               The undersigned recognizes that the Fund will not be fully
          operational until such time as it commences the public offering
          of its shares.  Accordingly, a number of features of the Fund
          described in the Preliminary Prospectus, including, without
          limitation, the declaration and payment of dividends, and
          redemption of shares upon request of shareholders, are not, in
          fact, in existence at the present time and will not be instituted
          until the Fund's registration under the Securities Act of 1933 is
          made effective.

               2.   Registration and Warranties.  The undersigned hereby
          represents and warrants as follows:

                    (a)  It is aware that no Federal or state agency has
               made any findings or determination as to the fairness for
               investment, nor any recommendation or endorsement, of the
               Shares;

                    (b)  It has such knowledge and experience of financial
               and business matters as will enable it to utilize the
               information made available to it in connection with the
               offering of the Shares, to evaluate the merits and risks of
               the prospective investment and to make an informed
               investment decision;

                    (c)  It recognizes that the Fund has no financial or
               operating history and, further, that investment in the Fund
               involves certain risks, and it has taken full cognizance of
               and understands all of the risks related to the purchase of
<PAGE>
 
               the Shares, and it acknowledges that it has suitable
               financial resources and anticipated income to bear the
               economic risk of such an investment;

                    (d)  It is purchasing the Shares for its own account,
               for investment, and not with any present intention of
               redemption, distribution, or resale of the Shares, either in
               whole or in part;

                    (e)  It will not sell the Shares purchased by it
               without registration of the Shares under the Securities Act
               of 1933 or exemption therefrom;

                    (f)  This Agreement and the Preliminary Prospectus and
               such material documents relating to the Fund as it has
               requested have been provided to it by the Fund and have been
               reviewed carefully by it; and

                    (g)  It has also had the opportunity to ask questions
               of, and receive answers from, representatives of the Fund
               concerning the Fund and the terms of the offering.

               3.   The undersigned recognizes that the Fund reserves the
          unrestricted right to reject or limit any subscription and to
          close the offer at any time.

               Number of Shares:  11,111.111 shares of Kemper International
          Bond Fund.  Subscription price $9.00 per share for an aggregate
          price of $100,000.

               IN WITNESS WHEREOF, the undersigned has executed this
          instrument this 16th day of December 1994.


                                        KEMPER FINANCIAL SERVICES, INC.


                                        By: /s/ John E. Peters
                                            ------------------------------

                                        Title: Sr. Exec. V.P.
                                               ---------------------------


                                       2

<PAGE>
 
                                                                  EXHIBIT 99.b24

                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ Stephen B. Timbers         Trustee     March 2, 1995
             ---------------------------
<PAGE>
 
                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ Arthur R. Gottschalk      Trustee     March 2, 1995
             ---------------------------
<PAGE>
 
                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ Frederick T. Kelsey        Trustee     March 2, 1995
             --------------------------
<PAGE>
 
                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ David B. Mathis           Trustee     March 2, 1995
             --------------------------
<PAGE>
 
                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ John B. Tingleff           Trustee     March 2, 1995
             --------------------------
<PAGE>
 
                                   POWER OF ATTORNEY
                                   -----------------



                  The person whose signature appears below hereby appoints
             Charles F. Custer, Stephen B. Timbers and Philip J. Collora
             and each of them, any of whom may act without the joinder of
             the others, as his attorney-in-fact to sign and file on his
             behalf individually and in the capacity stated below such
             registration statements, amendments, post-effective
             amendments, exhibits, applications and other documents with 
             the Securities and Exchange Commission or any other
             regulatory authority as may be desirable or necessary in
             connection with the public offering of shares of Kemper
             International Bond Fund.



                       Signature              Title       Date
                       ---------              -----       ----



               /s/ John G. Weithers           Trustee     March 2, 1995
             --------------------------

<PAGE>
 
                       VEDDER, PRICE, KAUFMAN & KAMMHOLZ


                                 July 21, 1995


Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

     Re:  Kemper International Bond Fund
          ------------------------------

To the Commission:

     We are counsel to the above-referenced investment company (the "Fund") and 
as such have participated in the preparation and review of Post-Effective 
Amendment No. 1 to the Fund's registration statement being filed pursuant to 
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph 
(b)(4) of Rule 485, we hereby represent that such amendment does not contain 
disclosures which would render it ineligible to become effective pursuant to 
paragraph (b) thereof.

                                    Very truly yours,

                                    /s/ Vedder, Price, Kaufman & Kammholz

                                    VEDDER, PRICE, KAUFMAN & KAMMHOLZ
                                    

DAS:dfd

<TABLE> <S> <C>

<PAGE>
              
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995
SEMI-ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000931014
<NAME> KEMPER INTERNATIONAL BOND FUND
       
<S>                             <C>
<PERIOD-TYPE>                   5-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               JUN-30-1995
<INVESTMENTS-AT-COST>                          140,000
<INVESTMENTS-AT-VALUE>                         139,916
<RECEIVABLES>                                   38,154
<ASSETS-OTHER>                                   2,613
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                 180,683
<PAYABLE-FOR-SECURITIES>                        73,819
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        2,142
<TOTAL-LIABILITIES>                             75,961
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                             0
<SHARES-COMMON-STOCK>                           11,111
<SHARES-COMMON-PRIOR>                           11,111
<ACCUMULATED-NII-CURRENT>                        6,402
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                         97,918
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                           402
<NET-ASSETS>                                   104,722
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                              107,119
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                (12,999)
<NET-INVESTMENT-INCOME>                         94,120
<REALIZED-GAINS-CURRENT>                       134,745
<APPREC-INCREASE-CURRENT>                          402
<NET-CHANGE-FROM-OPS>                          229,267
<EQUALIZATION>                                (87,718)
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        770,926
<NUMBER-OF-SHARES-REDEEMED>                  (770,926)
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                           4,772
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                         (10,236)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                               (12,999)
<AVERAGE-NET-ASSETS>                         3,275,520
<PER-SHARE-NAV-BEGIN>                             9.00
<PER-SHARE-NII>                                    .02
<PER-SHARE-GAIN-APPREC>                            .40
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                               9.42
<EXPENSE-RATIO>                                   .009
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        


</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission