<PAGE> 1
KEMPER
INTERNATIONAL FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 1997
[ ] [ ] [X]
[ ] [ ] [ ]
[ ] [ ] [ ]
SEEKING TOTAL RETURN, A COMBINATION OF CAPITAL GROWTH AND INCOME,
PRINCIPALLY THROUGH AN INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES
" . . . Our concentration on highly-
focused, growth-oriented companies in the European
equity markets helped us achieve
consistent returns."
[KEMPER LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Largest Holdings
8
Market Performance
Country Concentrations
9
Portfolio of
Investments
15
Financial Statements
17
Notes to
Financial Statements
22
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 7.94%
CLASS B 7.38%
CLASS C 7.50%
LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 6.17%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings 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. Investment in foreign
securities presents special risk considerations including fluctuating currency
exchange rates, government regulation and differences in liquidity.
*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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/30/97 10/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERNATIONAL FUND
CLASS A $12.06 $11.96
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS B $11.95 $11.81
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS C $11.96 $11.81
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
LIPPER RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #110 OF #129 OF #123 OF
357 FUNDS 357 FUNDS 357 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #38 OF 84
FUNDS N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #14 OF 29
FUNDS N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE PERIOD, THE FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND: $0.1250 $0.0163 $0.0199
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL
GAIN: $0.02 $0.02 $0.02
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL
GAIN: $0.66 $0.66 $0.66
- --------------------------------------------------------------------------------
</TABLE>
STYLE
VALUE BLEND
TERMS TO KNOW [ ] [ ] [X] Large Size
YOUR FUND'S STYLE [ ] [ ] [ ] Medium
[ ] [ ] [ ] Small
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY FUNDS STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL 312-696-6000. (Morningstar Style Box is
based on a portfolio date as of April 30, 1997.) The Equity Style Box placement
is based on a fund's price-to-earnings and price-to-book ratio relative to the
S&P 500, as well as the size of the companies in which it invests, or median
market capitalization.
Please note that style boxes do not represent an exact assessment of risk and
do not represent future performance. Please consult the prospectus for a
description of investment policies.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur. However, then we shall enjoy the long-term
positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. A slower economy would reduce the threat of inflation and reduce the need
for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to
be concerned about. As has been the pattern for more than five years, a few
strong quarters followed by a few weak quarters have produced an overall 2
percent to 3 percent rate of growth in gross domestic product (GDP). Job
creation and the unemployment rate are consistent with a moderately expanding
economy. Corporate profits continue to grow at an expected 4 to 5 percent rate
in 1997. The Consumer Price Index continues to track at a 2.5 percent to 3.0
percent rate.
Just as we see a limited downside to today's rising interest rate
environment, so is there a limited upside in the near future. The effect of
higher rates will have to work itself through the economy. Higher rates have
significant implications for corporate profitability, debt issuance, credit
extension and international trade. Post-correction cash flows into the financial
markets will be a subject of great scrutiny. One of the factors driving the
stock market to its recent all-time high was the unprecedented high level of
investment through mutual funds, 401(k)s and qualified contribution plans. It is
realistic to expect that, on the margin, some of that cash will find a home in
short-term, liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for
the past six months in large, multinational companies with familiar consumer
brand names. The recent rally after the announcement of a balanced budget
agreement suggests that valuations of smaller capitalization stocks are
compelling and the market is broadening.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with
long-term interest rates no lower than 6.50 percent
3
<PAGE> 4
ECONOMIC OVERVIEW
and no higher than 7.25 percent. One positive effect of the stock market
correction was the widening of spreads available on high yield bonds. As a
consequence, high yield bonds today are more reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested without help.
Financial assets react much quicker today to events. Volatility has returned to
the market and with it heightened uncertainty. Now is the time to rely on your
financial representative for the expertise and the long-term investing
discipline that he or she can provide.
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recessions 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 (5/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.71 6.3 6.91 6.17
PRIME RATE(2) 8.5 8.25 8.25 9
INFLATION RATE(3) 2.3 3.31 2.75 3.04
THE U.S. DOLLAR(4) 6.55 4.36 9.15 -9.31
CAPITAL GOODS ORDERS(5)* 8.28 2.42 3.93 17.47
INDUSTRIAL PRODUCTION(5) 4.28 4.36 3.34 2.88
EMPLOYMENT GROWTH(6) 2.13 2.15 2.09 2.7
</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 family income and retail sales.
* Data as of April 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
June 9, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[FERRO PHOTO]
DENNIS FERRO JOINED ZURICH INVESTMENT MANAGEMENT LIMITED (ZIML), A LONDON- BASED
AFFILIATE OF ZURICH KEMPER INVESTMENTS, INC. IN 1994 AS MANAGING DIRECTOR OF
ZIML AND 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.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED
ON MARKET AND OTHER CONDITIONS.
KEMPER INTERNATIONAL FUND OUTPERFORMED ITS BENCHMARK INDEX BY MORE THAN SIX
PERCENT DURING THE SIX-MONTH PERIOD. PORTFOLIO MANAGER DENNIS FERRO DISCUSSES
THE INTERNATIONAL MARKETS AND THE APPROACH HIS TEAM TOOK TO ACHIEVE SUCH STRONG
RESULTS.
Q KEMPER INTERNATIONAL FUND CLASS A SHARES (UNADJUSTED FOR SALES CHARGE) WAS
UP 7.94 PERCENT FOR THE SIX-MONTH PERIOD COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST (EAFE) INDEX* WHICH RETURNED JUST
1.72 PERCENT. WHAT STEPS DID YOU AND YOUR TEAM TAKE TO ACHIEVE THESE IMPRESSIVE
RESULTS?
A Our concentration on highly-focused, growth-oriented companies in the
European equity markets helped us achieve consistent returns. Low inflation, low
interest rates and moderate growth, combined with the benefits the export sector
experienced due to the dollar strength, created a very positive investment
environment.
We also maintained a smaller exposure to Japan than the index. The holdings
we had in this market focused on globally competitive companies that do
significant exporting to other world markets and have higher than average profit
margins on unique products or services. Technology and auto companies are two
industries we focused on that met these criteria.
We modestly reduced our position in Southeast Asia, trimming our exposure
across the region and maintained a zero weighting in Thailand. The money pulled
from these struggling markets was then used to increase the exposure to
companies in Europe and Latin America.
*THE EAFE INDEX IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED BENCHMARK FOR
MAJOR OVERSEAS MARKETS.
Q HOW DID THE DIFFERENT WORLD MARKETS PERFORM DURING THE PERIOD?
A International markets outside of Japan did well with European and Latin
American markets leading performance overall. Nearly all European markets had
strong returns on a local currency basis. However, the U.S. dollar had a fairly
strong move during the same period which weakened local returns when converted.
For example, a nearly 23 percent return on a local basis for the French market
converted to 7.34 percent in U.S. dollars. While it is less than the
extraordinary local currency return, it is still a reasonable number in dollar
terms.
Latin American markets were also strong during the period. Mexico, for
example, was up 16.45 percent in local terms and 18.02 percent in U.S. dollars
for the period. Conversely, Asian markets lagged both in local currency and U.S.
dollars. The Hang Seng Index of Hong Kong did have a positive return -- unlike
the other Asian markets -- up 3.41 percent in U.S. dollar terms.
5
<PAGE> 6
PERFORMANCE UPDATE
Q THE FUND HAS BEEN HEDGED MORE THAN 25 PERCENT THROUGHOUT THE PERIOD. CAN
YOU EXPLAIN YOUR HEDGING PHILOSOPHY?
A Our philosophy on hedging is purely defensive. We examine several economic
indicators and long-term trends. If our analysis leads us to believe the U.S.
dollar is dramatically undervalued relative to a foreign currency we will take
steps to help offset the depreciation of the foreign currency as we did during
this period. Our normal posture, however, would be unhedged.
Q WHICH INDUSTRIES DID YOU FAVOR IN THE DIFFERENT REGIONS AND WHICH STOCKS
OFFERED TOP PERFORMANCE?
A We continued to favor the pharmaceutical sector in Europe. Novartis
(Switzerland), Roche Holding A.G. (Switzerland), Glaxo Wellcome (UK) and Zeneca
Group (UK) are holdings we have in this sector. Financial stocks in Europe were
another focus because they benefited from the modest interest rate environment.
We looked for companies in this sector that had specific market strategies in
certain product areas such as pension services or other types of saving services
for individuals. ING Groep (Netherlands), ABN AMRO Bank (Netherlands) and Banco
Bilboa Vizcaya (Spain) were among our financial holdings.
In Japan we favored technology companies such as Sony, Matsushita Electric
Industrial Co. and Ricoh. In Hong Kong we focused on financials such as HSBC
Holdings, and broad-based conglomerates like CITIC Pacific. Real estate is also
a thriving sector in this market with names like Cheung Kong Holdings offering
good returns.
In Canada our choices were very name-specific. Canadian National Railway,
one of the major railway companies in Canada, has been generating increased
operating efficiencies and is improving profitability. Philip Environmental, a
waste collection and recycling company, is another name we own in this market.
It has expanded quite a bit through acquisitions in the last year or so.
In Latin America the exposure has primarily been in Mexico where we own
Tubos de Acero de Mexico, a pipeline manufacturing company that has benefited
from increased capital expenditure by Pemex, the national oil company. We also
own Fomento Economico Mexicano de C.V., a beverage distributor. Grupo Elektra
is a retail company we hold in this market that should benefit from the current
economic recovery as consumer spending picks up.
Q YOU MENTIONED MAINTAINING A LESSER EXPOSURE TO JAPAN THAN THE INDEX. WHAT
ARE YOUR VIEWS ON THIS MARKET AND WHERE DO YOU SEE IT GOING FROM HERE?
A Our lowest exposure to this market was about 15 percent during the
six-month period. That compares to an index weighting of over 29 percent. During
visits our analysts have made to Japan to meet with individual company
management, we've found a somewhat higher degree of optimism and indications
that business is stronger than the general economic forecasts would lead people
to believe. From a bottom-up standpoint companies seem to be doing better and
operating at higher levels than forecasters are suggesting. We expect the
industrial sector of the economy to be firm and to deliver strong earnings
growth.
Q WHAT AFFECT, IF ANY, DO YOU SEE THE HANDOVER OF HONG KONG TO CHINA HAVING
ON THAT MARKET?
A We believe the handover will go smoothly. We do expect there to be
demonstrations that will inevitably create some concern in the press but we
don't expect any immediate changes that would negatively affect the ability of
companies to do business. We have about a three percent exposure to this market.
Over the next several years the legal framework in which companies operate may
be adjusted and that could raise some issues. But in the near term, we expect to
see an increase in the usage of real estate in Hong Kong by Chinese companies
and that should be positive for business.
Q IT WAS A VERY SUCCESSFUL SIX MONTHS FOR THE FUND BUT WERE THERE ANY
OPPORTUNITIES THAT YOU MISSED?
A We might have done well to have had even less exposure to Japan. Although
the companies we own there did do well relative to the market, the market
6
<PAGE> 7
PERFORMANCE UPDATE
did underperform most other world markets so there was some opportunity lost.
But, on the flip side, our decision to reduce the exposure to Southeast Asia,
and specifically deciding to exit Thailand, proved to be a good one as these
markets were down significantly.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We remain positive on world equity markets while being very aware that they
have a heightened sensitivity to U.S. interest rates. When adjustments were made
in the U.S. in the first quarter of this year, overseas markets had a
short-term, negative reaction. With the exception of the UK, we do not see signs
of enough inflation to lead to rate hikes in international markets. Our
weightings will continue to favor Europe. We are moving modestly higher in Japan
and continue to underweight Southeast Asia. The focus in Latin America will
remain on Mexico with smaller positions in Peru and Brazil.
Our expectation is that the dollar has probably seen its highs and will
trade in a fairly tight range going forward which would be consistent with the
G7* objective of having greater currency stability.
*A GROUP OF MAJOR INDUSTRIALIZED COUNTRIES THAT TRIES TO COORDINATE MONETARY AND
FISCAL POLICIES TO CREATE A MORE STABLE WORLD ECONOMIC SYSTEM.
LARGEST HOLDINGS
TOP HOLDINGS FOCUS ON EUROPEAN MARKET STRENGTH*
A comparison of the fund's top five holdings on April 30, 1997 with its top five
holdings on October 31, 1996
<TABLE>
<CAPTION>
ON ON
HOLDINGS 4/30/97 10/31/96
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. NOVARTIS 2.7% CIBA-GEIGY 2.8%
SWITZERLAND SWITZERLAND
- ----------------------------------------------------------------------------------
2. ELF AQUITAINE 2.7% ROCHE HOLDING 2.4%
FRANCE SWITZERLAND
- ----------------------------------------------------------------------------------
3. GLAXO WELLCOME 2.5% ASTRA 1.9%
UNITED KINGDOM SWEDEN
- ----------------------------------------------------------------------------------
4. CARREFOUR S.A. 2.4% BRITISH PETROLEUM 1.8%
FRANCE UNITED KINGDOM
- ----------------------------------------------------------------------------------
5. PHILIP ENVIRONMENTAL 2.3% PHILIP ENVIRONMENTAL 1.8%
CANADA CANADA
- ----------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
7
<PAGE> 8
MARKET PERFORMANCE
EUROPE LEADS WORLD MARKET PERFORMANCE
Performance of selected international markets represented in the FT/S&P
Actuaries World Indices* for the six-month period from November 1, 1996, to
April 30, 1997 in U.S. dollars.
[LINE GRAPH]
SPAIN 22.70%
FINLAND 18.15%
MEXICO 18.02%
ITALY 15.74%
NETHERLANDS 13.70%
NORWAY 11.61%
GERMANY 11.30%
SWITZERLAND 10.96%
BELGIUM 9.91%
UNITED KINGDOM 9.49%
DENMARK 7.46%
FRANCE 7.34%
AUSTRALIA 6.42%
SWEDEN 5.27%
IRELAND 4.17%
CANADA 3.79%
HONG KONG -0.95%
AUSTRIA -0.98%
SINGAPORE -5.03%
NEW ZEALAND -5.73%
MALAYSIA -8.40%
JAPAN -15.32%
Source: Datastream PreView. This information is historical and does not
represent future returns of these markets.
*FT/S&P Actuaries World Indices are a series of global equity indices covering
26 countries and 12 geographic regions. The stocks included in these unmanaged
indices are representative of the equity investment opportunities available to
international investors.
COUNTRY CONCENTRATIONS
KEMPER INTERNATIONAL FUND'S EXPOSURE COMPARED TO ITS INDEX*
Data shows the geographic composition of the EAFE Index (Morgan Stanley Capital
International Europe, Australasia, Far East Index, the unmanaged index that is a
generally accepted benchmark for major overseas markets) and the corresponding
percentage for Kemper International Fund holdings in these markets as of April
30, 1997. Differences in the composition help explain the differences in the
performance of each. Please note, the fund and index also invest in other
countries not included in this chart.
[GEOGRAPHIC COMPOSITION BAR GRAPH]
KEMPER
INTERNATIONAL EAFE
FUND INDEX
NETHERLANDS 17.1% 5.0%
JAPAN 16.5% 30.0%
UNITED KINGDOM 12.8% 19.7%
SWITZERLAND 7.7% 6.4%
FRANCE 7.1% 7.2%
GERMANY 6.1% 8.9%
MEXICO 4.5% 0.0%
HONG KONG 2.7% 3.6%
ITALY 2.7% 3.2%
MALAYSIA 2.0% 2.4%
AUSTRALIA 0.2% 3.1%
* Portfolio composition and holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
EUROPE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETHERLANDS--15.8% ABN AMRO Bank
BANKING 82,000 $ 5,636
Aalberts Industries N.V.
CAPITAL GOODS AND COMPONENTS 238,045 5,462
Aegon N.V.
INSURANCE COMPANY 141,828 10,047
(a)Baan Company N.V.
SERVICE SOFTWARE APPLICATIONS 125,000 6,551
GTI Holding
ENGINEERING SERVICES 36,650 4,459
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 53,000 7,210
Gucci Group N.V.
LUXURY GOODS MANUFACTURER 41,250 2,873
Hagemeyer N.V.
WHOLESALER 40,000 3,480
IHC Caland N.V.
ENGINEERING SERVICES 84,000 4,148
ING Groep N.V.
BANKING AND INSURANCE 293,075 11,509
Koninklijke Ahold N.V.
FOOD RETAILER 118,255 8,073
Nutricia Verenigde Bedryven
SPECIALTY NUTRITION PRODUCTS MANUFACTURER 18,000 2,731
Oce-Van Der Grinten
PHOTOCOPY AND PRINTING SERVICES 25,000 3,025
Royal Dutch Petroleum
PETROLEUM PRODUCER 30,760 5,498
Wolters Kluwer
PUBLISHER 45,000 5,334
----------------------------------------------------------------------------
86,036
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--11.8% BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 733,804 3,977
Barclays PLC
BANKING 312,000 5,812
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 1,397,500 5,476
British Petroleum
PETROLEUM PRODUCER 812,207 9,331
Glaxo Wellcome
PHARMACEUTICAL COMPANY 700,000 13,777
Granada Group PLC
ENTERTAINMENT AND COMMUNICATIONS COMPANY 348,744 5,036
Pearson PLC
MEDIA AND ENTERTAINMENT COMPANY 124,100 1,427
Reed International PLC
PUBLISHER 440,000 8,121
Rentokil Group PLC
SERVICES COMPANY 720,000 4,726
Zeneca Group PLC
PHARMACEUTICAL COMPANY 220,000 6,638
----------------------------------------------------------------------------
64,321
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWITZERLAND--7.1% Alusuisee-Lonza Holding
ALUMINUM, CHEMICALS AND PACKAGING MANUFACTURER 6,000 $ 5,054
Ciba Specialty Chemicals
CHEMICAL PRODUCER 71,493 6,162
Novartis
PHARMACEUTICAL COMPANY 11,200 14,762
Roche Holding A.G., with warrants expiring 1998
PHARMACEUTICAL COMPANY 1,487 12,565
----------------------------------------------------------------------------
38,543
- ---------------------------------------------------------------------------------------------------------------------
FRANCE--6.5% Carrefour S.A.
FOOD RETAILER 20,845 13,015
Clarins
COSMETIC PRODUCTS 21,700 2,703
Elf Aquitaine
OIL AND GAS PRODUCER 149,000 14,450
Technip S.A.
ENGINEERING COMPANY 50,000 5,286
----------------------------------------------------------------------------
35,454
- ---------------------------------------------------------------------------------------------------------------------
GERMANY--5.6% Bayer A.G.
CHEMICAL COMPANY 155,000 6,167
(a)Fresenius Medical Care A.G.
MEDICAL SUPPLY COMPANY 102,050 7,337
Mannesmann A.G.
CAPITAL GOODS PRODUCER 11,000 4,326
SGL CARBON A.G.
CHEMICAL PRODUCER 60,000 8,367
Veba, A.G.
ELECTRIC UTILITY 84,000 4,327
----------------------------------------------------------------------------
30,524
- ---------------------------------------------------------------------------------------------------------------------
IRELAND--4.4% Bank of Ireland
BANKING 811,090 8,442
Greencore Group PLC
FOOD PRODUCER 879,154 4,490
Independent Newspapers PLC
PUBLISHER 1,208,734 6,173
Waterford Wedgewood PLC
FINE CHINA AND CRYSTAL MANUFACTURER 3,842,102 5,020
----------------------------------------------------------------------------
24,125
- ---------------------------------------------------------------------------------------------------------------------
SPAIN--3.7% Banco Bilbao Vizcaya
BANKING 54,380 3,663
Banco Santander, S.A.
BANKING 91,000 6,853
Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 91,000 6,367
Iberdrola, S.A.
ELECTRIC UTILITY 300,000 3,389
----------------------------------------------------------------------------
20,272
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITALY--2.5% Bulgari SpA
LUXURY GOODS MANUFACTURER 155,000 $ 2,802
Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 3,480,000 10,947
----------------------------------------------------------------------------
13,749
- ---------------------------------------------------------------------------------------------------------------------
NORWAY--.7% Merkantildata A/S
INFORMATION TECHNOLOGY SUPPLIER 223,000 4,071
- ---------------------------------------------------------------------------------------------------------------------
SWEDEN--.6% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 100,000 3,161
- ---------------------------------------------------------------------------------------------------------------------
DENMARK--.5% Copenhagen Airports
AIRPORT OPERATOR 27,000 2,732
----------------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--59.2% 322,988
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- ---------------------------------------------------------------------------------------------------------------------
JAPAN--15.2% Canon Inc.
PRECISION INSTRUMENTS MANUFACTURER 300,000 7,115
Circle K Japan
CONVENIENCE RETAILER 90,000 4,135
Daifuku Co., Ltd
DIVERSIFIED MACHINERY MANUFACTURER 210,000 2,416
Eisai Co., Ltd.
PHARMACEUTICAL COMPANY 307,000 5,322
Fuji Photo Film Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 125,000 4,777
Honda Motor Co., Ltd.
AUTOMOBILE MANUFACTURER 203,000 6,302
Matsushita Electric Industrial Co., Ltd.
ELECTRONICS MANUFACTURER 420,000 6,718
Murata Manufacturing
ELECTRONICS COMPONENTS MANUFACTURER 185,000 6,822
Noritsu Koki Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 54,000 2,302
Ricoh Co., Ltd.
PRECISION INSTRUMENTS MANUFACTURER 450,000 5,354
Seven Eleven Japan Co., Ltd.
CONVENIENCE RETAILER 56,000 3,552
Shohkoh Fund & Co., Ltd.
FINANCING COMPANY 6,900 1,620
Sony Corp.
ELECTRONICS MANUFACTURER 93,000 6,771
Tokyo Electron Ltd.
ELECTRONICS MANUFACTURER 141,200 5,452
Toray Industries
TEXTILE MANUFACTURER 1,015,000 6,318
Toyota Motor Corp.
AUTOMOBILE MANUFACTURER 236,000 6,844
Tsubakimoto Chain Co.
CHAIN AND CONVEYOR MANUFACTURER 169,000 891
----------------------------------------------------------------------------
82,711
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HONG KONG--2.5% CITIC Pacific Ltd.
CONGLOMERATE 600,000 $ 3,245
Cheung Kong Holdings Ltd.
REAL ESTATE 290,000 2,546
HSBC Holdings PLC
BANKING 136,101 3,443
Henderson Land Development Co., Ltd.
PROPERTY DEVELOPER 315,000 2,653
Hysan Development Co., Ltd.
PROPERTY DEVELOPER 700,000 1,934
----------------------------------------------------------------------------
13,821
- ---------------------------------------------------------------------------------------------------------------------
MALAYSIA--1.9% DCB Holdings Bhd
BANKING 720,000 2,338
Hume Industries Bhd
CONSTRUCTION MATERIAL MANUFACTURER 351,000 1,874
Magnum Corporation Bhd
ENTERTAINMENT AND GAMING 1,145,000 1,815
Sungei Way Holdings Bhd
BUILDING MATERIALS COMPANY 774,400 1,774
U M W Holdings Bhd
EQUIPMENT MANUFACTURER 467,000 2,456
----------------------------------------------------------------------------
10,257
- ---------------------------------------------------------------------------------------------------------------------
SINGAPORE--1.2% Cycle & Carriage Ltd.
AUTOMOBILE SALES AND DISTRIBUTION 200,000 2,047
DBS Land Ltd.
PROPERTY INVESTMENT 760,000 2,459
Development Bank of Singapore
BANKING 159,000 1,891
----------------------------------------------------------------------------
6,397
- ---------------------------------------------------------------------------------------------------------------------
INDONESIA--.3% Gudang Garam, PT
CIGARETTE MANUFACTURER 400,000 1,679
----------------------------------------------------------------------------
TOTAL PACIFIC REGION--21.1% 114,865
- ---------------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES
- ---------------------------------------------------------------------------------------------------------------------
CANADA--5.9% Canadian National Railway Co.
RAILWAY COMPANY 233,700 8,997
Petro-Canada
OIL AND GAS COMPANY 645,300 10,567
(a)Philip Environmental
WASTE COLLECTION AND RECYCLING COMPANY 804,700 12,674
----------------------------------------------------------------------------
32,238
- ---------------------------------------------------------------------------------------------------------------------
NEW ZEALAND--.6% Tranz Rail Holdings Ltd.
TRANSPORTATION 185,400 3,291
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
AUSTRALIA--.2% Aristocrat
ENTERTAINMENT 445,225 933
----------------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--6.7% 36,462
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEXICO--4.1% Cementos Mexicanos, S.A. de C.V., "B," ADR
CEMENT PRODUCER 1,068,000 $ 4,020
Fomento Economico Mexicano de C.V., "B," ADR
BEER AND SOFT DRINK MANUFACTURER 705,000 3,361
Grupo Carso, S.A. de C.V., ADR
INDUSTRIAL CONGLOMERATE 452,700 2,667
Grupo Casa Autrey, ADR
PHARMACEUTICAL AND FOODS DISTRIBUTOR 117,700 2,045
Grupo Elektra, S.A. de C.V., GDR
RETAILER 425,000 3,839
(a)Tubos de Acero de Mexico, S.A., ADR
STEEL MANUFACTURER 399,900 6,548
----------------------------------------------------------------------------
22,480
- ---------------------------------------------------------------------------------------------------------------------
BRAZIL--.6% Petroleo Brasileiro S.A.
OIL AND GAS COMPANY 7,000,000 1,475
Telebras, S.A.
TELEPHONE COMPANY 15,000,000 1,721
----------------------------------------------------------------------------
3,196
- ---------------------------------------------------------------------------------------------------------------------
PERU--.5% Telefonica del Peru S.A., ADR
TELECOMMUNICATION SERVICES 114,400 2,746
----------------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--5.2% 28,422
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--92.2%
(Cost: $404,392) 502,737
----------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
MONEY MARKET Yield--5.60% to 5.73%
INSTRUMENTS--7.9% Due--May and June 1997
Dynamic Funding Corp. $ 14,000 13,947
Whirlpool Financial Corp. 14,830 14,792
Other 14,000 13,959
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--7.9%
(Cost: $42,691) 42,698
----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.1%
(Cost: $447,083) 545,435
----------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(.1)% (337)
----------------------------------------------------------------------------
NET ASSETS--100% $545,098
----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
At April 30, 1997, the Fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- --------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 74,090 13.6
- --------------------------------------------------------------------------------------
Health Care 65,877 12.1
- --------------------------------------------------------------------------------------
Consumer Cyclicals 62,431 11.4
- --------------------------------------------------------------------------------------
Basic Industries 61,414 11.2
- --------------------------------------------------------------------------------------
Technology 57,342 10.5
- --------------------------------------------------------------------------------------
Consumer Staples 48,967 9.0
- --------------------------------------------------------------------------------------
Capital Goods 46,778 8.6
- --------------------------------------------------------------------------------------
Energy 41,321 7.6
- --------------------------------------------------------------------------------------
Utilities 29,497 5.4
- --------------------------------------------------------------------------------------
Transportation 15,020 2.8
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 502,737 92.2
- --------------------------------------------------------------------------------------
OTHER NET ASSETS 42,361 7.8
- --------------------------------------------------------------------------------------
NET ASSETS $545,098 100.0
- --------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $447,083,000 for federal income tax
purposes at April 30, 1997, the gross unrealized appreciation was
$106,014,000, the gross unrealized depreciation was $7,662,000 and the net
unrealized appreciation on investments was $98,352,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $447,083) $545,435
- ------------------------------------------------------------------------
Receivable for:
Investments sold 11,774
- ------------------------------------------------------------------------
Fund shares sold 418
- ------------------------------------------------------------------------
Dividends 2,091
- ------------------------------------------------------------------------
TOTAL ASSETS 559,718
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 815
- ------------------------------------------------------------------------
Payable for:
Investments purchased 12,828
- ------------------------------------------------------------------------
Fund shares redeemed 128
- ------------------------------------------------------------------------
Management fee 305
- ------------------------------------------------------------------------
Distribution services fee 77
- ------------------------------------------------------------------------
Administrative services fee 95
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 316
- ------------------------------------------------------------------------
Trustees' fees 56
- ------------------------------------------------------------------------
Total liabilities 14,620
- ------------------------------------------------------------------------
NET ASSETS $545,098
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $439,882
- ------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 6,582
- ------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 98,634
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $545,098
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($388,801 / 32,241 shares outstanding) $12.06
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.80
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($125,801 / 10,526 shares outstanding) $11.95
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($12,308 / 1,029 shares outstanding) $11.96
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($18,188 / 1,508 shares outstanding) $12.06
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 3,163
- -----------------------------------------------------------------------
Interest 587
- -----------------------------------------------------------------------
3,750
- -----------------------------------------------------------------------
Less foreign taxes withheld 357
- -----------------------------------------------------------------------
Total investment income 3,393
- -----------------------------------------------------------------------
Expenses:
Management fee 1,852
- -----------------------------------------------------------------------
Administrative services fee 564
- -----------------------------------------------------------------------
Distribution services fee 442
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,538
- -----------------------------------------------------------------------
Professional fees 59
- -----------------------------------------------------------------------
Reports to shareholders 61
- -----------------------------------------------------------------------
Trustees' fees and other 33
- -----------------------------------------------------------------------
Total expenses 4,549
- -----------------------------------------------------------------------
NET INVESTMENT LOSS (1,156)
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 7,166
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 31,650
- -----------------------------------------------------------------------
Net gain on investments 38,816
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $37,660
- -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income (loss) $ (1,156) 847
- ----------------------------------------------------------------------------------------------
Net realized gain 7,166 32,629
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 31,650 21,127
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,660 54,603
- ----------------------------------------------------------------------------------------------
Net equalization credits (charges) (182) 399
- ----------------------------------------------------------------------------------------------
Distribution from net investment income (4,091) (3,561)
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain (27,136) (1,726)
- ----------------------------------------------------------------------------------------------
Total dividends to shareholders (31,227) (5,287)
- ----------------------------------------------------------------------------------------------
Net increase from capital share transactions 66,604 57,820
- ----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 72,855 107,535
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Beginning of period 472,243 364,708
- ----------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net
investment income of $4,541 in 1996) $545,098 472,243
- ----------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper International Fund is an open-end management
FUND 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 sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are 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. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Portfolio securities that are traded on a
domestic securities exchange are valued at the last
sale price on that exchange or, if there is no
recent 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. 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 rates of exchange are
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
rates of exchange prevailing on the
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
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 discount amortization on money market
instruments. 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 and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the 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. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended April 30, 1997.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
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. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
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 MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .75% of the first $250 million of average daily
net assets declining to .62% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $1,852,000 for the six
months ended April 30, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund, and is paid by ZKI for its
services.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
RETAINED BY ALLOWED BY ZKDI
ZKDI TO FIRMS
----------- ---------------
<S> <C> <C>
Six months ended April 30, 1997 $52,000 457,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C 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 such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY ZKDI BY ZKDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended April 30, 1997 $540,000 850,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI 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 PAID BY
THE FUND TO ASF PAID BY ZKDI
ZKDI TO FIRMS
----------- ----------------
<S> <C> <C>
Six months ended April 30, 1997 $564,000 595,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of
$891,000 for the six months ended April 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended April 30, 1997, the
Fund made no payments to its officers and incurred
trustees' fees of $11,000 to independent trustees.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended April 30, 1997, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $204,862
Proceeds from sales 198,431
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
--------------------- -----------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
SHARES SOLD
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 5,072 $ 59,834 9,032 $ 103,622
----------------------------------------------------------------------------
Class B 3,640 43,610 6,520 75,871
----------------------------------------------------------------------------
Class C 480 5,773 558 6,539
----------------------------------------------------------------------------
Class I 417 4,947 922 10,499
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
Class A 1,999 22,694 432 4,573
----------------------------------------------------------------------------
Class B 507 5,766 27 288
----------------------------------------------------------------------------
Class C 42 480 1 15
----------------------------------------------------------------------------
Class I 102 1,173 23 243
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------
Class A (4,506) (53,249) (9,179) (104,837)
----------------------------------------------------------------------------
Class B (1,616) (19,380) (2,290) (28,074)
----------------------------------------------------------------------------
Class C (113) (1,381) (145) (1,808)
----------------------------------------------------------------------------
Class I (311) (3,663) (787) (9,111)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
----------------------------------------------------------------------------
Class A 163 1,954 139 1,595
----------------------------------------------------------------------------
Class B (165) (1,954) (140) (1,595)
----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 66,604 $ 57,820
----------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN In order to protect itself against a decline in the
CURRENCY 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 April 30, 1997, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in July
1997:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN GAIN (LOSS)
TO BE DELIVERED U.S. DOLLARS AT 4/30/97
------------------------------------------------------------------
<C> <S> <C> <C>
76,000,000 Dutch Guilders $39,301,000 $ 39,000
------------------------------------------------------------------
102,000,000 French Francs 17,625,000 50,000
------------------------------------------------------------------
26,425,000 German Marks 15,372,000 17,000
------------------------------------------------------------------
5,000,000,000 Japanese Yen 40,154,000 236,000
------------------------------------------------------------------
900,000,000 Spanish Pesetas 6,160,000 (6,000)
------------------------------------------------------------------
26,880,000 Swiss Francs 18,459,000 35,000
------------------------------------------------------------------
NET UNREALIZED GAIN $371,000
------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------
CLASS A
----------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.96 10.59 11.13 10.56 8.17
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) .04 .07 -- .03
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .91 1.50 .05 .86 2.54
- --------------------------------------------------------------------------------------------------------
Total from investment operations .90 1.54 .12 .86 2.57
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .12 .12 -- -- .18
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain .68 .05 .66 .29 --
- --------------------------------------------------------------------------------------------------------
Total dividends .80 .17 .66 .29 .18
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.06 11.96 10.59 11.13 10.56
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.94% 14.70 1.69 8.32 32.08
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.58% 1.64 1.57 1.54 1.69
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) (.24)% .34 .83 .02 .37
- --------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------
CLASS B
-----------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, MAY 31 TO
APRIL 30, ---------------------- OCTOBER 31,
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.81 10.46 11.09 10.58
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.07) (.06) (.02) (.04)
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .91 1.47 .05 .55
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations .84 1.41 .03 .51
- ---------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .02 .01 -- --
- ---------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .68 .05 .66 --
- ---------------------------------------------------------------------------------------------------------------
Total dividends .70 .06 .66 --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.95 11.81 10.46 11.09
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.38% 13.59 .84 4.82
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.58% 2.53 2.50 2.58
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (1.24)% (.55) (.10) (.97)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> ----------------------------------------- --------------------------------------
CLASS C CLASS I
----------------------------------------- --------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER 31, MAY 31 TO ENDED OCTOBER 31, JULY 3 TO
APRIL 30, -------------- OCTOBER 31, APRIL 30, ----------- OCTOBER 31,
1997 1996 1995 1994 1997 1996 1995
- ------------------------------------------------------------------------------ --------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $11.81 10.46 11.09 10.58 11.99 10.61 10.09
- ------------------------------------------------------------------------------ --------------------------------------
Income from investment operations:
Net investment income (loss) (.06) (.06) (.02) (.04) .02 .10 .04
Net realized and unrealized gain .91 1.47 .05 .55 .92 1.48 .48
- ------------------------------------------------------------------------------ --------------------------------------
Total from investment operations .85 1.41 .03 .51 .94 1.58 .52
- ------------------------------------------------------------------------------ --------------------------------------
Less dividends:
Distribution from net investment
income .02 .01 -- -- .19 .15 --
Distribution from net realized
gain .68 .05 .66 -- .68 .05 --
- ------------------------------------------------------------------------------ --------------------------------------
Total dividends .70 .06 .66 -- .87 .20 --
- ------------------------------------------------------------------------------ --------------------------------------
Net asset value, end of period $11.96 11.81 10.46 11.09 12.06 11.99 10.61
- ------------------------------------------------------------------------------ --------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.50% 13.59 .84 4.82 8.27 15.19 5.15
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------ --------------------------------------
Expenses 2.47% 2.50 2.50 2.52 1.10 1.10 .85
- ------------------------------------------------------------------------------ --------------------------------------
Net investment income (loss) (1.13)% (.52) (.10) (.91) .24 .88 1.32
- ------------------------------------------------------------------------------ --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $545,098 472,243 364,708 418,282 289,898
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 73% 104 114 103 156
- -------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the six months
ended April 30, 1997 and year ended October 31, 1996 were $.0115 and $.0182,
respectively. Foreign commissions usually are lower than U.S. commissions when
expressed as cents per share due to the lower per share price of many non-U.S.
securities.
- --------------------------------------------------------------------------------
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for the years ended 1995 and 1996 were determined based on average shares
outstanding.
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President
and Secretary
ROBERT B. HOFFMAN
Trustee JEROME L. DUFFY
Treasurer
DONALD R. JONES
Trustee ELIZABETH C. WERTH
Assistant Secretary
DOMINIQUE P. MORAX
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
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 - 3 (6/97) 1033400
Printed in the U.S.A. [KEMPER FUNDS LOGO]
