<PAGE> 1
Kemper International Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1995
SEEKING TOTAL RETURN, A COMBINATION OF CAPITAL GROWTH AND INCOME, PRINCIPALLY
THROUGH AN INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES
"...The fund's above-average performance resulted from our willingness to avoid
Japan in favor of more viable European markets..."
[KEMPER LOGO]
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
9
Country Sectors
10
Largest Holdings
10
Terms to Know
11
Portfolio of
Investments
17
Report of
Independent Auditors
18
Financial Statements
20
Notes to
Financial Statements
24
Financial Highlights
At A Glance
Kemper International Fund total returns for the year ended October 31, 1995
(unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
LIPPER
INTERNATIONAL
FUNDS
CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.69% 0.84% 0.84% -1.09%
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
- ---------------------------------------------------------------------------
NET ASSET VALUE
- ---------------------------------------------------------------------------
<TABLE>
AS OF AS OF
10/31/95 10/31/94
- ---------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERNATIONAL FUND
CLASS A $10.59 $11.13
KEMPER INTERNATIONAL FUND
CLASS B $10.46 $11.09
KEMPER INTERNATIONAL FUND
CLASS C $10.46 $11.09
</TABLE>
- ---------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
LIPPER RANKINGS
- ---------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER
INTERNATIONAL FUNDS CATEGORY*
<TABLE>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #59 OF #76 OF #76 OF
233 FUNDS 233 FUNDS 233 FUNDS
5-YEAR #34 OF
58 FUNDS N/A N/A
10-YEAR #12 OF
20 FUNDS N/A N/A
</TABLE>
*Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the effect
of sales charges and, if they had, results may have been less favorable.
Returns and rankings are historical and do not reflect future performance.
- ---------------------------------------------------------------------------
DIVIDEND REVIEW
- ---------------------------------------------------------------------------
During the fiscal year, Kemper International Fund paid the following dividends
per share:
<TABLE>
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN: $0.31 $0.31 $0.31
LONG-TERM
CAPITAL GAIN: $0.35 $0.35 $0.35
</TABLE>
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's sector weightings and how they have changed
- - A comparison of your fund and its benchmark sector weightings
- - Your fund's largest individual holdings
If you have any comments about the revised format, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[PHOTO OF STEPHEN B. TIMBERS]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income and
stock markets in 1995. The returns of most leading securities markets worldwide
are significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2% in the
third quarter. This follows much lower growth in the first two quarters, as the
economy was adjusting to the Federal Reserve Board's series of interest rate
increases. The slowdown, in fact, was acknowledged by the Fed when it eased
short-term rates by a small but symbolic 25 basis points in July. Now we know
that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very
encouraging. Although we are well along in the economic cycle and at a point
when prices often start hiking up, inflationary pressures have actually been
reduced somewhat.
It is likely that the Fed will reduce rates again, possibly as early
as December 19. An additional rate cut would provide stimulation for the
economy and acknowledge the serious discussion -- if not resolution -- on
reducing the federal budget deficit. Even with a rate cut, our forecast calls
for lower growth ranging between 2% to 3% for the next few quarters, with the
momentum likely to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the
economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest
in will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking
to its post-World War II low in April, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
General Economic Overview
- -----------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- -----------------------------------------------------------------------------
Economic activity is a key influence on investment performance and
shareholder decision-making. Periods of recession or boom, inflation or
deflation, credit expansion or credit crunch have a significant impact on
mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (11/30/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE (1) 5.93 6.17 7.81 5.77
PRIME RATE (2) 8.75 9.00 8.50 6.00
INFLATION RATE (3) 2.74 3.18 2.60 2.74
THE U.S. DOLLAR (4) -1.57 - 9.31 -4.52 1.71
CAPITAL GOODS ORDERS (5) (*) 7.60 17.84 13.53 23.75
INDUSTRIAL PRODUCTION (6) 2.20 3.31 6.58 2.98
EMPLOYMENT GROWTH (7) 1.50 2.29 3.15 2.58
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
* Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding
how these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio manager. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
December 12, 1995
4
<PAGE> 5
Performance Update
[PHOTO OF DENNIS FERRO]
DENNIS FERRO JOINED KEMPER FINANCIAL SERVICES, INC. (KFS) IN 1994 AND IS NOW AN
EXECUTIVE VICE PRESIDENT OF KFS AND THE PORTFOLIO MANAGER OF KEMPER
INTERNATIONAL FUND. FERRO HOLDS AN M.B.A. IN FINANCE FROM ST. JOHN'S UNIVERSITY
IN NEW YORK AND A BACHELOR'S DEGREE FROM VILLANOVA UNIVERSITY IN PENNSYLVANIA.
HE IS A CHARTERED FINANCIAL ANALYST.
IN A YEAR MARKED BY VOLATILITY AND U.S. DOLLAR WEAKNESS, KEMPER INTERNATIONAL
FUND FOUND A RELATIVELY SAFE HAVEN -- AND ABOVE-AVERAGE RETURNS -- IN MATURE
EUROPEAN MARKETS.
Q. HOW WOULD YOU CHARACTERIZE THE FISCAL YEAR (NOVEMBER 1, 1994, THROUGH
OCTOBER 31, 1995)?
A. There was a great deal of volatility that rotated throughout parts of the
world. Let's just review a few of the more significant events:
- - In December 1994, the devaluation of the Mexican peso resulted in a sharp
decline in Mexican and other Latin American markets. Almost a full year
later, these markets have yet to bounce back.
- - In January, an earthquake shook Japan and was the cause of many short-term
problems. Longer-term concerns such as the health of the economy and its
fiscal direction have yet to be resolved.
- - The February collapse of the Barings Bank (a venerable English bank that
was felled by speculative trading out of its Singapore office) further
shook confidence in the Far East. These markets underperformed the rest of
the year.
- - Year over year (from October 31, 1994, to October 31, 1995), the dollar is
actually up against the yen, but the value of the dollar was fairly
volatile during the year. At its lowest, the dollar had declined 20 percent
against the yen in April. One month earlier, the dollar hit its post-World
War II low against the German deutsche mark. On the other hand, I can
think of two positive factors during the year: The bond rallies that we saw
in many countries supported the performance of equity markets, and there
was a vibrant export environment from Europe to non-Japan Asia and central
Europe.
Q. WHAT EFFECT DID THESE EVENTS HAVE ON INTERNATIONAL INVESTMENT PERFORMANCE?
A. Volatility took its toll on the performance of international markets. At
one point during the year, the Japanese market was down 28 percent on a local
basis from where it started in early January. The volatility of the Latin
American markets was exemplified by their dramatic declines in the first
quarter and subsequent short-term recoveries. The EAFE index (an unmanaged
index that is a generally accepted benchmark for major overseas markets) barely
moved* during the fiscal year.
*THE EAFE SLIPPED 0.07 PERCENT DURING THE FISCAL YEAR.
Q. YET, CLASS A SHARES OF KEMPER INTERNATIONAL FUND FINISHED THE YEAR UP 1.69
PERCENT. CAN YOU EXPLAIN THE DIFFERENCE BETWEEN THE PERFORMANCE OF THE FUND AND
ITS BENCHMARK?
A. There are some key differences relating to the composition of the fund.
Notably, the index was more heavily weighted in Japanese stocks. Japan is one
of the largest world markets and, under ordi-
5
<PAGE> 6
Performance Update
nary circumstances, the fund would have much more exposure to Japan.
However, Japan is in a prolonged period of economic malaise.
We had made the decision to avoid Japan until we could be confident that
its government had formulated a plan for an economic recovery. Early in 1995,
we did start to build up our Japanese position on the expectation of better
economic news but we regretted it almost immediately and quickly backed off
again.
A review of the major markets' performance during the fiscal year suggests
that our position was justified. Japan was the poorest performing market,
declining 13.70 percent for the period, according to the Morgan Stanley Capital
International - Japan Price Index.
Q. WHY IS JAPAN SO SIGNIFICANT TO INTERNATIONAL INVESTING?
A. Japan is more than just another market. Consumer and business confidence in
Japan has the potential to promote the export of capital to other markets.
Given Japan's domestic problems, however, we didn't see such capital-exporting
this year. Dividends and earnings that Japanese companies were earning in the
U.S. and elsewhere were being retained in Japan and not being recycled as has
been typical. This reduced level of liquidity hurt other world markets.
Southeast Asia, for example, benefits from Japan's export of capital. Japan's
malaise is one of the reasons that we failed to get the market growth we were
expecting from non-Hong Kong Asian markets, including Malaysia and Singapore.
Finally, the Japanese economic slowdown also had the effect of reducing
demand from the Japanese as consumers of world goods.
Q. IF NOT JAPAN, WHAT MARKETS DID THE FUND LIKE DURING THE YEAR?
A. We look for growth and where we found growth in the last fiscal year was
Europe. Many European countries offered moderate growth and "reflation" --
"reflation" is inflation but at a lower level.
Specifically, peripheral countries such as Sweden, the Netherlands and
Ireland presented more growth than Germany and France, which are considered the
core countries. Sweden is an excellent example of a country whose fiscal
environment was improving, including a moderating inflation rate, and where
there were several industries and companies that could be competitive on a
global level. Ireland provided good values that we used to complement our
exposure to the United Kingdom.
As you'll see in the graphs on page 9, the fund's concentrations were in
the better-performing European markets.
Q. NOW THAT WE'VE IDENTIFIED WHICH COUNTRIES PROVIDED THE MOST ACCOMMODATIVE
ENVIRONMENTS, WHICH INDUSTRIES WITHIN THOSE COUNTRIES DID THE FUND INVEST IN?
A. We liked the growth-oriented stocks in pharmaceutical, technology,
communications and retail companies. Again, you'd find some differences if you
compared the sector-by-sector composition of the fund against EAFE.
For example, EAFE's higher concentration of financial stocks is a result of
its higher weighting in Japan, where many of those financial stocks are based.
Our emphasis on pharmaceutical and retail stocks explains our relatively higher
concentration in consumer stocks.
We are continuing with some of the same themes we discussed last year. But
a look at how our top holdings have changed will give you an idea of how our
forecast is influencing our portfolio adjustments (see page 10). At the end of
last year, we were more committed to cyclical stocks. At that time, economic
growth was high in many markets and we expected commodity-oriented stocks
(Western Mining Holdings, for example) to do well.
Today's top five holdings reflect our emphasis on growth stocks. (Growth
stocks are stocks of companies that have established a record of consistent
earnings growth.) Our top holding, Roche Holdings, is a Swiss pharmaceutical
company. We like pharmaceu-
6
<PAGE> 7
Performance Update
ticals because demand for their products is consistent and should heighten with
the aging of baby-boomers. These companies focus on continual product
development yet their valuations are reasonable relative to their growth
prospects.
Q. DENNIS, BY BEATING ITS INDEX AND JUMPING IN ITS PEER GROUP STANDINGS FROM
NUMBER 111 OF 149 FUNDS TO NUMBER 59 OF 233 FUNDS, THE FUND HAD A SOLID YEAR.
BUT MANY SHAREHOLDERS WERE HOPING FOR BETTER PERFORMANCE FROM INTERNATIONAL
MARKETS. WHAT CAN YOU TELL SHAREHOLDERS ABOUT THE POTENTIAL FOR NEXT YEAR?
A. The benefit of diversifying into international markets is the opportunity
to participate once international stocks have their day in the sun. Two-thirds
of the world stock market values are outside the U.S. -- diversification into
non-U.S. markets can reduce the risk associated with investing in only one
market. The U.S. market cannot continue upward indefinitely.
We can cite several factors that we believe should improve the confidence
in and performance of international markets. For one, we are seeing more
governments displaying a fiscal discipline that should help control interest
rates and inflation. Supportive monetary policy and greater interest rate
stability should help reduce currency volatility. Back-to-back favorable
earnings announcements should provide the further assurance that investors seem
to be seeking. All of these factors help reduce the uncertainty that tends to
characterize foreign markets.
In my opinion, for Kemper International Fund, in particular, the prospects
are enhanced because we invest in some of the world's best growth companies.
Carrefour, Ericsson, Reed International, Advanced Information and Getronics are
a few examples of companies that are competitive globally. Remember: General
Motors didn't become more competitive and improve its operation because of the
guy down the street -- it was in response to foreign competition. The companies
we invest in have been good producers of steady earnings, and I believe their
performance is due to be acknowledged by their respective equity markets.
Q. YOU'VE BEEN MANAGING INTERNATIONAL MONEY FOR SEVERAL YEARS. DID THIS PAST
YEAR TEACH YOU ANYTHING NEW?
A. Yes, it reinforced a discipline that a portfolio manager must have: Once
you perform your asset allocation -- which markets, which industries, which
stocks -- and you're comfortable with the holdings and their quality, you
shouldn't let yourself tamper with it. Although you may be tempted, you can't
let yourself compromise the integrity of the work that went into the allocation
in the first place.
This year, my confidence in our asset allocation was bolstered by the depth
provided when we doubled the size of our international investment staff. These
additions improved our analytical capability, including more on-site visits to
companies, and that helped strengthen our convictions.
Q. SO WHAT DO YOU AND YOUR STAFF LOOK FOR FROM INTERNATIONAL MARKETS IN THE
NEXT SEVERAL MONTHS?
A. We think selected European countries will continue to be attractive. We'll
continue to evaluate Japan on a risk/reward basis. Japan is bound to improve,
and we will want to have more exposure in time to benefit from its recovery.
We'll also explore some attractive opportunities in Australia.
Latin America is one region about which we remain cautious. Many Latin
American countries represent the potential for significant development and
growth. But before we return to such emerging markets, we'll need to be
convinced that the markets will move in response to economic or individual
corporate events. As long as politics overwhelm the markets, investment
performance is not forecastable and we will avoid these markets.
We expect financial stocks in most markets to do well, in part because of
accommodative monetary policies. And, as I've said, we're optimistic about
pharmaceutical, technology and consumer-related growth stocks.
7
<PAGE> 8
Performance Update
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1995 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND CLASS A -4.17% 6.51% 12.24% 11.94% (SINCE 5/21/81)
KEMPER INTERNATIONAL FUND CLASS B -1.99% N/A N/A 1.92% (SINCE 5/31/94)
KEMPER INTERNATIONAL FUND CLASS C 0.84% N/A N/A 3.98% (SINCE 5/31/94)
</TABLE>
- -------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER INTERNATIONAL FUND CLASS A
FROM 5/21/81 THROUGH 10/31/95
- -------------------------------------------------------------------------------
[LINE GRAPH]
<TABLE>
<CAPTION>
5/21/81 12/31/85 12/31/89 12/31/93 10/31/95
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND CLASS A(1) $10,000 $17,515 $37,365 $48,715 $51,005
EAFE INDEX+ $10,000 $20,830 $63,007 $63,799 $71,890
CONSUMER PRICE INDEX++ $10,000 $12,172 $14,042 $16,236 $17,116
</TABLE>
- -------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER
INTERNATIONAL FUND CLASS B FROM 5/31/94 THROUGH 10/31/95
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
------- -------- --------
<S> <C> <C> <C>
Kemper International Fund Class B(1) $10,000 $ 976 $10,273
EAFE Index+ $10,000 $10,063 $10,494
Consumer Price Index++ $10,000 $10,149 $10,420
</TABLE>
- -------------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER INTERNATIONAL FUND CLASS C
FROM 5/31/94 THROUGH 10/31/95
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
------- -------- --------
<S> <C> <C> <C>
Kemper International Fund Class C(1) $10,000 $ 9,761 $10,570
EAFE Index+ $10,000 $10,063 $10,494
Consumer Price Index++ $10,000 $10,149 $10,420
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for Class A Shares adjustment for the maximum sales charge of 5.75% and for
Class B Shares adjustment for the applicable contingent deferred sales charge
of 3%. The maximum contingent deferred sales charge is 4%. There is no sales
charge for Class C Shares. Average annual returns reflect annualized change.
During the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and the
Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for A Shares and the contingent deferred sales charge in
effect at the end of the period for B Shares. In comparing the Kemper
International Fund to the EAFE Index, you should also note that the fund's
performance reflects the maximum sales charge, while no such charge is reflected
in the performance of the index.
+ The EAFE Index (Morgan Stanley Capital International Europe, Australia, Far
East Index) is an unmanaged index generally accepted as a bench mark for major
overseas markets. Source is Towers Data Systems.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
8
<PAGE> 9
Country Sectors
KEMPER INTERNATIONAL FUND FAVORED EUROPE OVER JAPAN...
DATA SHOWS THE GEOGRAPHIC COMPOSITION OF EAFE INDEX (MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALIA, FAR EAST INDEX, THE UNMANAGED INDEX THAT IS A
GENERALLY ACCEPTED BENCHMARK FOR MAJOR OVERSEAS MARKETS) AND THE CORRESPONDING
PERCENTAGE FOR KEMPER INTERNATIONAL FUND AT OCTOBER 31, 1995. DIFFERENCES IN
THE COMPOSITION HELP EXPLAIN THE DIFFERENCES IN THE PERFORMANCE OF EACH. PLEASE
NOTE THAT THE FUND ALSO INVESTS IN OTHER COUNTRIES NOT REFLECTED IN EAFE.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL FUND EAFE INDEX
------------------------- ----------
<S> <C> <C>
JAPAN 16.1% 39.6%
UNITED KINGDOM 15.3% 17.1%
GERMANY 4.6% 6.9%
FRANCE 4.1% 6.5%
SWITZERLAND 8.4% 6.1%
NETHERLANDS 8.1% 4.0%
HONG KONG 6.3% 3.2%
AUSTRALIA 3.8% 2.7%
ITALY 2.1% 2.3%
MALAYSIA 1.7% 2.2%
</TABLE>
...AND EUROPEAN MARKETS LED PERFORMANCE
THE TOP-PERFORMING INTERNATIONAL MARKETS FROM NOVEMBER 1, 1994, TO OCTOBER 31,
1995. PERCENTAGE INCREASE IN VALUE, ADJUSTED FOR U.S. DOLLARS.
[BAR GRAPH]
<TABLE>
<S> <C>
SWITZERLAND
$387 BILLION MARKET 35.7%
SWEDEN
$172 BILLION MARKET 24.8%
FINLAND
$47 BILLION MARKET 15.7%
IRELAND
$24 BILLION MARKET 14.2%
BELGIUM
$95 BILLION MARKET 13.0%
NETHERLANDS
$282 BILLION MARKET 12.5%
DENMARK
$55 BILLION MARKET 12.2%
NEW ZEALAND
$33 BILLION MARKET 10.1%
GERMANY
$560 BILLION MARKET 9.2%
UNTIED KINGDOM
$1,322 BILLION MARKET 8.7%
</TABLE>
SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL
9
<PAGE> 10
Largest Holdings
KEMPER INTERNATIONAL FUND'S
TOP 5 HOLDINGS FOCUS ON GROWTH
A COMPARISON OF THE FUND'S TOP FIVE HOLDINGS ON OCTOBER 31, 1995 WITH ITS TOP
FIVE HOLDINGS ON OCTOBER 31, 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
HOLDINGS AT 10/31/95 AT 10/31/94
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1. ROCHE HOLDINGS 4.5% NOKIA TELECOM 3.0%
SWITZERLAND FINLAND
- ----------------------------------------------------------------------
2. LM ERICSSON 3.6% BRITISH PETROLEUM 2.6%
SWEDEN UNITED KINGDOM
- ----------------------------------------------------------------------
3. POLYGRAM 3.5% MANNESMANN, A.G. 2.4%
NETHERLANDS GERMANY
- ----------------------------------------------------------------------
4. CARREFOUR 3.2% WESTERN MINING HOLDINGS 2.4%
FRANCE AUSTRALIA
- ----------------------------------------------------------------------
5. ASTRA 3.0% POLYGRAM 2.4%
SWEDEN NETHERLANDS
- ----------------------------------------------------------------------
</TABLE>
Terms To Know
CURRENCY RISKS
Currency risk is the risk that currencies denominating an American investor's
investment in international securities will depreciate relative to the U.S.
dollar. Current values fluctuate - both up and down - constantly, which can
significantly affect the return of foreign investments to U.S. investors. 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. 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.
EMERGING MARKETS
A developing or emerging country can be considered to be a country that is in
the initial stages of its industrial cycle. Developing or "emerging" countries
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.
TOTAL RETURN
A fund's total return figure measures both the net investment income generated
by, and the effect of, any realized and unrealized appreciation or depreciation
of the underlying investments in its portfolio for the period. Total return
assumes the reinvestment of all dividends and it represents the aggregate
percentage or dollar value change over the period.
VOLATILITY
The characteristic of an investment that causes it to rise or fall sharply in
price in a relatively short time period.
10
<PAGE> 11
Portfolio of Investments
KEMPER INTERNATIONAL FUND
Portfolio of Investments at October 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
CONTINENTAL EUROPE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
FINLAND--2.8%
Oy Nokia AB
Telecommunications company 181,630 $ 10,392
- ------------------------------------------------------------------------------------------------------------
FRANCE--4.1%
Carrefour S.A.
Food retailer 20,000 11,755
Technip S.A.
Oil company 50,000 3,223
---------------------------------------------------------------------------
14,978
- ------------------------------------------------------------------------------------------------------------
GERMANY--4.6%
Mannesmann A.G.
Construction and engineering company 22,000 7,238
(a)SGL CARBON A.G.
Chemical company 15,000 983
Veba, A.G.
Electric utility 210,000 8,617
---------------------------------------------------------------------------
16,838
- ------------------------------------------------------------------------------------------------------------
IRELAND--4.2%
Allied Irish Banks PLC
Banking 880,000 4,464
Greencore Group PLC
Food producer 425,175 3,405
Independent Newspapers Ltd.
Publisher 860,772 5,153
Kerry Group PLC
Food processing 296,070 2,287
---------------------------------------------------------------------------
15,309
- ------------------------------------------------------------------------------------------------------------
ITALY--2.1%
Sirti Spa
Telecommunications company 432,345 2,633
STET
Telecommunications services 575,000 1,629
(a)Telecom Italia Mobile Spa
Utilities and telecommunications 1,980,000 3,322
---------------------------------------------------------------------------
7,584
- ------------------------------------------------------------------------------------------------------------
NETHERLANDS--8.1%
Aalberts Industries N.V.
Hardware company 56,873 3,329
Getronics N.V.
Information systems 79,600 3,793
Hunter Douglas N.V.
Building materials manufacturer 75,500 3,655
Philips Electronics
Electronics and electrical component
manufacturer 163,000 6,293
PolyGram N.V.
Music recording company 202,500 12,624
---------------------------------------------------------------------------
29,694
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SPAIN--3.9%
Banco Bilbao Vizcaya
Banking 114,380 $ 3,500
Empresa Nacional de Electricidad S.A.
Electric utility 122,000 6,075
Repsol S.A.
Oil and gas producer 150,000 4,485
(a)Tipel, S.A.
Leather skins processor 73,500 9
----------------------------------------------------------------------------
14,069
- -------------------------------------------------------------------------------------------------------------
SWEDEN--10.5%
Astra AB
Pharmaceutical company 300,000 11,018
Atlas Copco AB
Industrial machinery manufacturer 320,000 4,841
LM Ericsson "B"
Telecommunication equipment manufacturer 612,000 12,989
H & M Hennes & Mauritz AB
Retailing 55,700 3,638
SKF AB "B"
Metal fabricator 298,900 5,669
----------------------------------------------------------------------------
38,155
- -------------------------------------------------------------------------------------------------------------
SWITZERLAND--8.4%
Ciba-Geigy Ltd.
Pharmaceutical company 7,000 6,054
Roche Holdings AG
Pharmaceutical company 2,237 16,239
Union Bank of Switzerland
Banking 5,500 5,952
(a)Zehnder Holdings AG
Climate control equipment manufacturer 4,400 2,362
----------------------------------------------------------------------------
30,607
----------------------------------------------------------------------------
TOTAL CONTINENTAL EUROPE--48.7% 177,626
- -------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- -------------------------------------------------------------------------------------------------------------
HONG KONG--6.3%
Cheung Kong Holding Ltd.
Financial services 800,000 4,511
CITIC Pacific Ltd.
Financial services 1,320,000 4,123
Henderson Land Development Co., Ltd.
Real estate 680,000 4,072
Hong Kong Telecommunications Ltd.
Telecommunication services 2,066,000 3,607
HSBC Holdings PLC
Banking 265,876 3,868
New World Development Co., Ltd.
Holding and property investment company 740,000 1,302
Peregrine Investment Holdings
Investment banking 1,229,000 1,566
----------------------------------------------------------------------------
23,049
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands) NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN--16.1%
Bridgestone Corp.
Rubber related products manufacturer 165,000 $ 2,298
Daifuku Co., Ltd.
Diversified machinery manufacturer 150,000 1,795
Daiwa Securities Co. Ltd.
Financial services 230,000 2,707
Fuji Bank Ltd.
Banking 90,000 1,677
Fujisawa Pharmaceutical
Pharmaceutical company 200,000 1,953
Kurita Water Industries Ltd.
Water treatment equipment and chemical
manufacturer 100,000 2,795
Kyocera Corp.
Electronics manufacturer 36,000 2,958
Mitsubishi Heavy Industries
Aerospace and defense machinery manufacturer 500,000 3,869
Mitsubishi Paper Mills Ltd.
Paper manufacturer 300,000 1,830
Mitsui & Co. Ltd.
Distributor and wholesaler 350,000 2,794
Murata Manufacturing
Electronic components manufacturer 74,000 2,605
(a)NKK Corp.
Steel manufacturer 1,353,000 3,277
Nippon Telegraph & Telephone Corp.
Utilities and telecommunications 255 2,098
Omron Corp.
Electronics manufacturer 150,000 3,516
Sanwa Bank Ltd.
Banking 190,000 3,242
Seven Eleven Japan Co., Ltd.
Convenience retailer 26,000 1,739
Sumitomo Bank Ltd.
Banking 190,000 3,373
Sumitomo Corp.
Holding company 400,000 3,648
Sumitomo Trust & Banking
Banking 360,000 4,166
Teijin Ltd.
Textile manufacturer 460,000 2,116
TOSTEM Corp.
Home products manufacturer 63,000 1,940
(a)Ube Industries, Ltd.
Diversified company 700,000 2,320
----------------------------------------------------------------------------
58,716
- -------------------------------------------------------------------------------------------------------------
MALAYSIA--1.7%
Resorts World Bhd
Operator of tourist resorts 765,000 3,730
TA Enterprise Bhd
Financial services 1,320,000 1,511
Telekom Malaysia
Telecommunications company 132,000 945
----------------------------------------------------------------------------
6,186
- -------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands) NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SINGAPORE--2.8%
Development Bank
Banking 99,000 $ 1,134
Fraser & Neave Ltd.
Beer and soft drink manufacturer 320,000 3,777
Keppel Corp. Ltd.
Conglomerate holding company 365,000 2,993
Singapore Press Holdings
Publisher 149,000 2,328
----------------------------------------------------------------------------
10,232
- -------------------------------------------------------------------------------------------------------------
THAILAND--.6%
Advanced Info Service Ltd.
Telecommunication services 70,000 1,113
Siam Cement Co. Ltd.
Building materials producer 17,000 927
----------------------------------------------------------------------------
2,040
----------------------------------------------------------------------------
TOTAL PACIFIC REGION--27.5% 100,223
- -------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- -------------------------------------------------------------------------------------------------------------
AUSTRALIA--3.8%
Australian and New Zealand Banking Group Ltd.
Financial services 1,563,500 6,541
Tabcorp Holdings Ltd.
Entertainment and gaming 1,843,700 5,119
Qantas Airways Ltd.
Air transportation company 114,000 2,005
----------------------------------------------------------------------------
13,665
- -------------------------------------------------------------------------------------------------------------
CANADA--.7%
Petro-Canada
Oil and gas company 554,300 2,633
- -------------------------------------------------------------------------------------------------------------
NEW ZEALAND--1.1%
Lion Nathan Ltd.
Beer and soft drink manufacturer 1,796,800 4,080
- -------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--15.3%
Burton Group PLC
Retailer 3,200,000 5,087
Commercial Union PLC
Holding company 300,000 2,904
Dixons Group PLC
Electronics retailer 1,427,328 8,626
Glaxo Wellcome PLC
Pharmaceutical company 750,000 10,101
Grand Metropolitan PLC
Food and beverage retailer 1,000,000 6,903
Medeva PLC
Pharmaceutical company 660,000 2,853
Reed International PLC
Publisher 440,000 6,679
SmithKline Beecham PLC
Pharmaceutical company 660,000 6,879
Tesco PLC
Food retailer 1,225,848 5,803
----------------------------------------------------------------------------
55,835
----------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--20.9% 76,213
- -------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands) NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LATIN AMERICA
- -------------------------------------------------------------------------------------------------------------
BRAZIL--.9%
Banco Itau S.A.--Preferred
Banking 5,650,000 $ 1,645
Companhia Vale de Rio Doce--Preferred
Iron and steel mining company 10,900,000 1,757
----------------------------------------------------------------------------
3,402
- -------------------------------------------------------------------------------------------------------------
MEXICO--.4%
Grupo Elektra, S.A.
Electronics retailer 351,000 1,289
----------------------------------------------------------------------------
TOTAL LATIN AMERICA--1.3% 4,691
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--98.4%
(Cost: $315,092) 358,753
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--2.7%
Yield-5.83% to 5.95%
Due-November 1995
ConAgra Inc. $ 3,800 3,799
Freedom Asset Funding Corp. 200 200
Mid-Atlantic Fuel Co. 3,000 2,996
Strategic Asset Funding Corp. 3,100 3,097
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--2.7%
(Cost: $10,092) 10,092
----------------------------------------------------------------------------
TOTAL INVESTMENTS--101.1%
(Cost: $325,184) 368,845
----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(1.1)% (4,137)
----------------------------------------------------------------------------
NET ASSETS--100% $364,708
----------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolio of Investments.
15
<PAGE> 16
Portfolio of Investments
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Based on the cost of investments of $325,184,000 for federal income tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation
was $57,627,000, the aggregate gross unrealized depreciation was $13,966,000
and the net unrealized appreciation on investments was $43,661,000.
(c) At October 31, 1995, the Fund's portfolio of investments had the following
diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Services $ 61,979 17.0
----------------------------------------------------------------------------------------------------------
Chemicals, Medical Equipment and Pharmaceuticals 56,080 15.4
----------------------------------------------------------------------------------------------------------
Communications 38,728 10.6
----------------------------------------------------------------------------------------------------------
Consumer Products and Services 36,096 9.9
----------------------------------------------------------------------------------------------------------
Retailing 26,181 7.2
----------------------------------------------------------------------------------------------------------
Food and Beverages 25,304 6.9
----------------------------------------------------------------------------------------------------------
Industrial Products and Services 24,608 6.8
----------------------------------------------------------------------------------------------------------
Publishing and Paper Products 15,990 4.4
----------------------------------------------------------------------------------------------------------
Electrical and Electronics 15,372 4.2
----------------------------------------------------------------------------------------------------------
Diversified 15,084 4.1
----------------------------------------------------------------------------------------------------------
Utilities 14,693 4.0
----------------------------------------------------------------------------------------------------------
Construction and Building Materials 12,237 3.4
----------------------------------------------------------------------------------------------------------
Energy Sources 12,098 3.3
----------------------------------------------------------------------------------------------------------
Automobiles, Parts, Services and Transportation 4,303 1.2
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 358,753 98.4
----------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 10,092 2.7
----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 368,845 101.1
----------------------------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHERS ASSETS (4,137) (1.1)
----------------------------------------------------------------------------------------------------------
NET ASSETS $364,708 100.0
----------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INTERNATIONAL FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper International Fund as of
October 31, 1995, the related statements of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the fiscal periods since
1991. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
International Fund at October 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal periods
since 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1995
17
<PAGE> 18
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
(in thousands)
- -------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $325,184) $368,845
- ----------------------------------------------------------------------------------------
Cash 83
- ----------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 395
- ----------------------------------------------------------------------------------------
Investments sold 8,441
- ----------------------------------------------------------------------------------------
Dividends and interest 777
- ----------------------------------------------------------------------------------------
Total assets 378,541
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Fund shares redeemed 1,586
- ----------------------------------------------------------------------------------------
Investments purchased 11,366
- ----------------------------------------------------------------------------------------
Management fee 231
- ----------------------------------------------------------------------------------------
Distribution services fee 28
- ----------------------------------------------------------------------------------------
Administrative services fee 71
- ----------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 506
- ----------------------------------------------------------------------------------------
Other 45
- ----------------------------------------------------------------------------------------
Total liabilities 13,833
- ----------------------------------------------------------------------------------------
NET ASSETS $364,708
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $316,346
- ----------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency
transactions 1,185
- ----------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in
foreign currencies 45,857
- ----------------------------------------------------------------------------------------
Undistributed net investment income 1,320
- ----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $364,708
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
THE PRICING OF SHARES
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($308,175 / 29,089 shares outstanding) $10.59
- ----------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $11.24
- ----------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($42,270 / 4,043 shares outstanding) $10.46
- ----------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($2,152 / 206 shares outstanding) $10.46
- ----------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($12,111 / 1,142 shares outstanding) $10.61
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 19
Financial Statements
STATEMENT OF OPERATIONS
Year ended October 31, 1995
(in thousands)
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Dividends $7,548
- -------------------------------------------------------------------------------------------------
Interest 1,501
- -------------------------------------------------------------------------------------------------
9,049
- -------------------------------------------------------------------------------------------------
Less foreign taxes withheld 733
- -------------------------------------------------------------------------------------------------
Total investment income 8,316
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 2,757
- -------------------------------------------------------------------------------------------------
Administrative services fee 800
- -------------------------------------------------------------------------------------------------
Distribution services fees 267
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,079
- -------------------------------------------------------------------------------------------------
Professional fees 98
- -------------------------------------------------------------------------------------------------
Reports to shareholders 77
- -------------------------------------------------------------------------------------------------
Trustees' fees and other 72
- -------------------------------------------------------------------------------------------------
Total expenses 6,150
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,166
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments and foreign currency transactions 1,123
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and assets and liabilities in
foreign currencies (655)
- -------------------------------------------------------------------------------------------------
Net gain on investments 468
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,634
- -------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 2,166 7
- ---------------------------------------------------------------------------------------------------
Net realized gain 1,123 25,062
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (655) 2,606
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,634 27,675
- ---------------------------------------------------------------------------------------------------
Net equalization credits (charges) (332) 641
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain (24,455) (8,297)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (31,421) 108,365
- ---------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (53,574) 128,384
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 418,282 289,898
- ---------------------------------------------------------------------------------------------------
END OF YEAR (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $1,320
AND $763, RESPECTIVELY) $364,708 418,282
- ---------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
Notes to Financial Statements
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper International Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial or a contingent
deferred sales charge but are subject to higher
ongoing expenses than Class A shares and do not
convert into another class. Class I shares, which
are sold to a limited group of investors, are not
subject to initial or contingent deferred sales
charges and have lower ongoing expenses than other
classes. Each share represents an identical
interest in the investments of the Fund and has the
same rights.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING
POLICIES INVESTMENT VALUATION. Investments are stated at
value. Any portfolio securities that are primarily
traded on a domestic securities exchange are valued
at the last sale price on that 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. All other securities not so traded 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. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Exchange traded fixed
income options are valued at the last sale price
unless there is no sale price, in which event
prices provided by market makers are used.
Over-the-counter traded fixed income options are
valued based 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. 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
20
<PAGE> 21
Notes to Financial Statements
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 (loss) on investments, 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). Dividend income is recorded on the
ex-dividend date, except that certain dividends
from foreign securities are recorded as soon as the
information is available to the Fund. Interest
income is recorded on the accrual basis and
includes amortization of money market instrument
premium and discount. Realized gains and losses
from investment transactions are reported on an
identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding. Because of the need to
obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of
net asset value does not take place
contemporaneously with the determination of the
prices of the majority of the portfolio 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.
The Fund may make an election under the Internal
Revenue Code so that shareholders may claim a tax
credit or deduction for their share of foreign
taxes paid by the Fund.
Net realized capital gains, if any, reduced by
capital loss carryovers will be distributed at
least annually. Differences in dividends per share
are due to different class expenses. Dividends
payable to its shareholders are recorded by the
Fund on the ex-dividend date.
Dividends are determined in accordance with income
tax principles which may treat certain transactions
differently from generally accepted accounting
principles.
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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Kemper Financial Services, Inc.
(KFS) and pays a management fee at an
21
<PAGE> 22
Notes to Financial Statements
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. The Fund incurred a management fee of
$2,757,000 for the year ended October 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED BY KDI
RETAINED ----------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------- ------------- --------------
<S> <C> <C> <C>
Year ended October 31, 1995 $67,000 617,000 88,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B shares. Distribution fees and commissions
paid in connection with the sale of Class B and
Class C shares and the CDSC received in connection
with the redemption of Class B shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION DISTRIBUTION FEES
FEES AND PAID BY KDI
CDSC RECEIVED -------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
------------- ------------- --------------
<S> <C> <C> <C>
Year ended October 31, 1995 $339,000 583,000 99,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF ASF PAID BY KDI
PAID BY THE -------------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
------------ ------------- --------------
<S> <C> <C> <C>
Year ended October 31, 1995 $800,000 808,000 149,000
</TABLE>
SHAREHOLDER SERVICES AGENT AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. For the year ended
October 31, 1995, the transfer agent remitted
shareholder services fees to KSvC of $1,365,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of KFS.
During the year ended October 31, 1995, the Fund
made no payments to its officers and incurred
trustees' fees of $17,000 to independent trustees.
22
<PAGE> 23
Notes to Financial Statements
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1995, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $396,287
Proceeds from sales 417,302
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION> YEAR ENDED OCTOBER 31,
1995 1994
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 7,931 $ 80,769 20,528 $ 217,366
---------------------------------------------------------------------------
Class B 3,584 37,196 3,185 34,449
---------------------------------------------------------------------------
Class C 258 2,721 76 814
---------------------------------------------------------------------------
Class I 1,261 12,905 -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,270 21,800 774 8,085
---------------------------------------------------------------------------
Class B 184 1,759 1 14
---------------------------------------------------------------------------
Class C 7 71 -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES REDEEMED
Class A (16,162) (163,479) (13,841) (145,844)
---------------------------------------------------------------------------
Class B (2,182) (22,527) (600) (6,469)
---------------------------------------------------------------------------
Class C (130) (1,375) (5) (50)
---------------------------------------------------------------------------
Class I (119) (1,261) -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 113 1,125 15 167
---------------------------------------------------------------------------
Class B (114) (1,125) (15) (167)
---------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $ (31,421) $ 108,365
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of particular foreign currencies against the
U.S. Dollar, the Fund has entered into forward
contracts to deliver foreign currency in exchange
for U.S. Dollars as described below. The Fund bears
the market risk that arises from changes in foreign
exchange rates, and accordingly, the net unrealized
gain on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At October 31, 1995,
the Fund has the following forward foreign currency
contracts outstanding with settlement dates in
December 1995:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN GAIN/(LOSS)
TO BE DELIVERED U.S. DOLLARS AT 10/31/95
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
-------------------------------------------------------------------
<S> <C> <C>
65,642 French Francs $ 12,900 $ (524)
-------------------------------------------------------------------
4,884,060 Japanese Yen 50,861 2,723
-------------------------------------------------------------------
Net unrealized gain $2,199
-------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $11.13 10.56 8.17 8.76 9.52
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 -- .03 .22 .13
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .05 .86 2.54 (.67) .31
- ------------------------------------------------------------------------------------------------------
Total from investment operations .12 .86 2.57 (.45) .44
- ------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .18 -- .11
- ------------------------------------------------------------------------------------------------------
Distribution from net realized gain .66 .29 -- .14 1.09
- ------------------------------------------------------------------------------------------------------
Total dividends .66 .29 .18 .14 1.20
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.59 11.13 10.56 8.17 8.76
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN 1.69% 8.32 32.08 (5.17) 5.38
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.57% 1.54 1.69 1.36 1.41
- ------------------------------------------------------------------------------------------------------
Net investment income .83 .02 .37 2.61 1.42
- ------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B CLASS C CLASS I
-------------------------- -------------------------- -------------
MAY 31, MAY 31, JULY 3,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO 1995 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995
- -------------------------------------------------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.09 10.58 11.09 10.58 10.09
- -------------------------------------------------------------------- --------------------------- ----------------
Income from investment operations:
Net investment income (loss) (.02) (.04) (.02) (.04) .04
- -------------------------------------------------------------------- --------------------------- ----------------
Net realized and unrealized gain .05 .55 .05 .55 .48
- -------------------------------------------------------------------- --------------------------- ----------------
Total from investment operations .03 .51 .03 .51 .52
- -------------------------------------------------------------------- --------------------------- ----------------
Less distribution from net realized gain .66 -- .66 -- --
- -------------------------------------------------------------------- --------------------------- ----------------
Net asset value, end of period $10.46 11.09 10.46 11.09 10.61
- -------------------------------------------------------------------- --------------------------- ----------------
TOTAL RETURN (NOT ANNUALIZED) .84% 4.82 .84 4.82 5.15
- -------------------------------------------------------------------- --------------------------- ----------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
Expenses 2.50% 2.58 2.50 2.52 .85
- -------------------------------------------------------------------- --------------------------- ----------------
Net investment income (loss) (.10) (.97) (.10) (.91) 1.32
- -------------------------------------------------------------------- --------------------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA FOR ALL CLASSES
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $364,708 418,282 289,898 165,890 184,946
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 103 156 143 209
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Per share
data for 1995 was determined based on average shares outstanding.
24
<PAGE> 25
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995 a special shareholders' meeting was held. Kemper
International Fund shareholders were asked to vote on four separate issues:
election of nine Trustees to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors, approval of a new investment management
agreement with Kemper Financial Services, Inc., or its successor on the same
terms as the current agreement and for Class B and Class C shareholders only,
approval of a new 12b-1 distribution plan with Kemper Distributors, Inc. or its
successor on the same terms as the current plan. We are pleased to report that
all nominees were elected and all other items were approved. Following are the
results for each issue:
- - Election of Trustees
For Withheld
David W. Belin 22,977,178 649,740
Lewis A. Burnham 23,012,618 614,300
Donald L. Dunaway 22,996,079 630,839
Robert B. Hoffman 23,005,530 621,388
Donald R. Jones 23,010,255 616,663
David B. Mathis 22,974,815 652,103
Shirley D. Peterson 22,984,266 642,652
William P. Sommers 23,005,530 621,388
Stephen B. Timmers 23,024,432 602,486
- - Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
For Against Abstain
22,655,431 304,288 667,199
- - Approval of new investment management agreement
For Against Abstain
22,110,270 511,889 1,004,759
- - Approval of new 12b-1 distribution plan
For Against Abstain
Class B
Shares 1,701,942 80,486 93,263
Class C
Shares 91,783 482 17,779
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
Trustees and Officers
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
JOHN E. PETERS
Vice President
DENNIS H. FERRO
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President
and Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper International Fund prospectus.
KIF - 2 (12/95)
[KEMPER MUTUAL FUNDS LOGO]
1006790
Printed in the U.S.A.
