<PAGE> 1
KEMPER
INTERNATIONAL FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Seeking total return, a combination of capital growth and income,
principally through an internationally diversified portfolio of equity
securities
"...the portfolio was consistently overweighted in Europe, increasingly
underweighted in Japan and ... Southeast Asia..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
16
REPORT OF INDEPENDENT AUDITORS
17
FINANCIAL STATEMENTS
19
NOTES TO FINANCIAL STATEMENTS
23
FINANCIAL HIGHLIGHTS
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 13.49%
CLASS B 12.32%
CLASS C 12.45%
LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 10.39%
</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.
*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
10/31/97 10/31/96
- ------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERNATIONAL FUND
CLASS A $12.68 $11.96
- ------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS B $12.50 $11.81
- ------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
CLASS C $12.51 $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 #129 OF 406 FUNDS #142 OF 406 FUNDS 140 OF 406 FUNDS
- ------------------------------------------------------------------------------
5-YEAR #36 OF 102 FUNDS N/A N/A
- ------------------------------------------------------------------------------
10-YEAR #12 OF 32 FUNDS N/A N/A
- ------------------------------------------------------------------------------
15-YEAR # 5 OF 10 FUNDS N/A N/A
- ------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
DIVIDEND REVIEW
- ------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER INTERNATIONAL 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 $0.0200 $0.0200 $0.0200
- ------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $0.6600 $0.6600 $0.6600
- ------------------------------------------------------------------------------
</TABLE>
Investment in foreign securities presents special risk considerations including
fluctuating currency exchange rates, government regulation and differences in
liquidity that may increase the volatility of your investment.
TERMS TO KNOW
YOUR FUND'S STYLE
- ------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- ------------------------------------------------------------------------------
[MORNINGSTAR STYLE BOX]
MORNINGSTAR EQUITY STYLE BOX Source: Morningstar, Inc., Chicago, IL (312)
696-6000. (Morningstar Style Box is based on a portfolio date as of October 31,
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 executive and chief investment officer of
Zurich Kemper Investments, Inc. (ZKI). ZKI and its affiliates manage
approximately $86 billion in assets, including $49 billion in retail mutual
funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDERS,
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high -- as our equity market was
for most of this year -- they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction was
Southeast Asia, where the world's highest growth economies had been stumbling
since the summer. These economies had become overextended, banks ran into
trouble with bad loans and the local governments failed to take prompt action.
The result was a domino effect of competitive devaluations of currencies,
crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in the
U.S. equity market -- resulting in a 7 percent loss on October 27 -- the world
quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to 7000
than to 8000, we would have expected that the market would have dropped only
slightly.
But as we have said before, today's markets move very fast. We experienced in
one day the kind of correction that we used to experience over a six-month
period. By Wednesday, November 19, the Dow Jones Industrial Average had climbed
back to where it was before Gray Monday, October 27, 1997. It took only 26 days
to recoup -- contrast that with the 463 days needed to recoup from Black Monday.
The market did not recover from its 22.6 percent October 19, 1987, market
correction until January 24, 1989. At this writing, the U.S. equity market
remains very volatile. We expect that condition to continue, as volatility is a
factor of higher valued markets. Despite what the last few years may have
suggested, markets do not go in just one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise. Investors
who got hurt in the October correction were those who had borrowed the
money they invested and were forced to sell at low prices. Investors who
were able to remain invested and did, lost only some of their
above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government securities
investors, for example, found the bond market to be a safe haven as the
bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic growth,
stable interest rates and controlled inflation. While we cannot rule out the
possibility of another market event that would add to the excitement of equity
investing, we would expect the U.S. market to again demonstrate its resiliency.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND
PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.88 6.49 6.3 5.71
PRIME RATE(2) 8.5 8.5 8.25 8.65
INFLATION RATE(3)* 2.08 2.3 3.25 2.6
THE U.S. DOLLAR(4) 9.65 5.52 4.36 -2.58
CAPITAL GOODS ORDERS(5)* 9.92 7.16 3.3 8.09
INDUSTRIAL PRODUCTION(5)* 5.51 4.23 4.33 3.4
EMPLOYMENT GROWTH(6) 2.52 2.13 2.15 1.91
</TABLE>
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of October 31, 1997.
Sources: Economics Department, Zurich Kemper Investments, Inc.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT AND CHIEF INVESTMENT OFFICER
ZURICH KEMPER INVESTMENTS INC.
December 4, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[FERRO PHOTO]
DENNIS FERRO IS CHIEF EXECUTIVE OF ZURICH INVESTMENT MANAGEMENT LTD. (LONDON)
AND HEAD OF GLOBAL EQUITY INVESTMENTS. HE 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.
A FOCUS ON EUROPE, REDUCED EXPOSURE TO JAPAN AND AN INVESTMENT PROCESS THAT
HELPED FUND MANAGEMENT AVOID MUCH OF THE SOUTHEAST ASIA DOWNSLIDE HELPED KEMPER
INTERNATIONAL FUND MORE THAN DOUBLE THE RETURN OF ITS BENCHMARK INDEX. PORTFOLIO
MANAGER DENNIS FERRO DISCUSSES THE FUND'S PERFORMANCE AND WORLD MARKET ACTIVITY.
Q WHAT DID YOU SEE HAPPENING IN THE GLOBAL ECONOMY DURING THE PERIOD?
A In Europe, we saw the continuation of modest but consistent economic
expansion. Although the high unemployment levels that have plagued the region
for the last several years have not meaningfully improved, there has been some
increase in economic activity, industrial production and exports. Throughout the
past year, interest rates were generally modest which helped economic expansion
and there was some modest pick-up in retail spending and consumer confidence.
In Japan, we saw little forward progress. A new fiscal program was
implemented that had a tightening effect on the economy and prevented economic
activity from expanding as hoped. As a result, the Japanese economy and
corporate activity remained somewhat flat. In addition, the financial sector
made little discernible progress in improving its financial position.
In Southeast Asia, economic growth was stalled as most countries
experienced slowdowns in their own economies. Financial strains began to pop up
as banks and the real estate sector showed signs of being overextended. In
addition, corporate profits did not seem to be growing at a pace similar to
that forecasted for gross domestic product. In our opinion, the rates of
economic growth had been overstated.
Latin American economies were generally positive as domestic markets
recovered from the downturn of two years ago. Expanding trade with the U.S.
also had a positive effect.
Q KEMPER INTERNATIONAL FUND ENDED THE PERIOD UP 13.49 PERCENT (CLASS A
SHARES, UNADJUSTED FOR SALES CHARGE), STRONGLY OUTPERFORMING THE EAFE INDEX*
RETURN OF 4.92 PERCENT. WHAT STEPS DID YOU AND YOUR TEAM TAKE TO ACHIEVE THESE
IMPRESSIVE RESULTS?
A Within the economic environment that I described, we attempted to move to
those markets and market segments that had the highest growth potential and the
least amount of economic or valuation risk. With this criteria in mind, the
portfolio was consistently overweighted in Europe, increasingly underweighted in
Japan and, especially during the second half of the fiscal year, underweighted
in Southeast Asia. We stayed focused on high-quality companies in Asia that had
some ability to weather the storms that started in those markets during the
summer months and came to a head in late October. Our primary exposure in
Southeast Asia was Hong Kong which, despite its volatility at the end of the
fiscal year, was still the best performing market in the region.
5
<PAGE> 6
PERFORMANCE UPDATE
In Europe, our focus on economies and sectors benefiting from the lower
interest rates was an important theme. The Spanish and Italian markets offered
very good value as those economies restructured to meet the European Monetary
Union (EMU) requirements. The Netherlands, where we found companies that
combined strong management and consistent earnings, was also an attractive
market. In Latin America we focused primarily on Mexico where we selected
companies with broad exposure to the domestic market that are playing a strong
role in the country's economic recovery.
* The EAFE index (Morgan Stanley Capital International Europe, Australasia, Far
East Index) is an unmanaged index generally accepted as a benchmark for major
overseas markets.
Q AND WHAT INDUSTRIES ARE YOU FOCUSING ON IN THE FUND?
A In Europe we have continued to focus on the pharmaceutical sector with
holdings in Roche and Novartis in Switzerland and Glaxo Wellcome and Zeneca in
the United Kingdom. Pharmaceuticals are benefiting from increased demand due to
a growing global marketplace and strong new product research and development. We
also focused on financials, a sector benefiting from the moderate inflation and
lower interest rates in the region. We sought well-managed companies that
generate improved profitability through a mix of business. Financial holdings
that we believe meet these criteria are ING Groep and Aegon in the Netherlands,
and Barclays in the UK.
We focused on companies that demonstrated an ability to be global and
that generate high relative returns on equity and capital in their industries.
Although the Japanese market as a whole has done poorly, Honda, for example,
has done well because of its global position. Canon is also a company with a
strong domestic presence that participates in the global market and does so
successfully.
In Latin America we invested in companies that are participating in the
domestic revival of the economies. In Mexico that includes Cementos Mexicanos
and Kimberly-Clark de Mexico.
We also focused on mid-cap companies that have strong local franchises.
An example would be Nedcon Groep, an inventory management company in the
Netherlands, and Shokkoh Fund, a commercial finance company in Japan. Temporary
employment and corporate services companies are also growing in Europe and they
tend to be smaller, domestic companies. In this industry we held Rentokil Group
in the UK and Prosegur in Spain.
Q THE PERIOD ENDED WITH MARKET TURMOIL THROUGHOUT THE WORLD SPARKED BY THE
PROBLEMS IN SOUTHEAST ASIA. YOU HAVE MENTIONED THAT THE FUND HAD A LESSER
WEIGHTING IN ASIA; WHAT PROCESS DID YOU AND YOUR TEAM USE TO SUCCESSFULLY AVOID
MUCH OF THE DOWNTURN IN THAT REGION?
A We utilized a proprietary market valuation model that helps us identify
both opportunity and risk in various markets. This model identified an above
average level of risk in the Asian markets early in the new year. As a result of
that, we were consistently underweighted in the markets that saw such large
drops. We believe the problems in Asia aren't over yet and we expect to see
continued downgrades in earnings forecasts. The potential for loan loss
surprises in the region remains very high. We plan to continue to be very
conservative with our investments in the region.
Q HOW DID THE DIFFERENT WORLD MARKETS PERFORM?
A In general, top performance came from the European markets and the weaker
markets were those in Southeast Asia. The chart on page 9 shows the top five and
bottom five markets and their returns. It is interesting to note that even
during this period of booming U.S. market performance, the Standard & Poor's 500
Stock Index** was up 32.10 percent putting it in sixth place for the period.
** The Standard & Poor's 500 Stock Index is a broad-based measurement of U.S.
market activity based on the average performance of 500 widely held common
stocks.
Q WHILE IT WAS A GOOD YEAR FOR THE FUND, WERE THERE ANY MISSES?
A Having even less exposure to Japan and more with the markets that provided
extraordinary performance would have even further boosted our results. But, the
companies we owned in Japan have performed extremely well relative to that
market. To turn the question around a bit, we did "miss" a lot of the downside
in Southeast Asia which was obviously a positive.
Q WHAT, IF ANY, WAS YOUR HEDGING STRATEGY DURING THE YEAR?
A Our hedging during the period was a net positive but more so during the
first half of the fiscal year. As the dollar weakened slightly, the hedge had
more of a neutral to slightly negative effect on performance. We had a larger
hedge during the first half when the dollar was exerting most of its strength
and we did cut down the size of
6
<PAGE> 7
PERFORMANCE UPDATE
the hedge during the second half of the year. In October we eliminated the
hedges.
The U. S. dollar has had a meaningful move over the last two years and
while it has been benefiting most recently from a move towards safety by some
international investors, from a trade standpoint the dollar is reasonably
valued and I don't expect any major shifts from here. We feel the potential for
rates in Europe to rise relative to the U.S. over the next two years will keep
a lid on the dollar from here on.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We believe growth in the Western economies will be good although there may
be some modest trimming as a result of the problems in Asia. Monetary policies
should continue to support economic expansion and interest rates in a low
inflationary environment should continue to support above average equity
valuations. Companies should be able to generate consistent growth in earnings
and attractive returns on capital going forward due to this positive economic
environment.
In Europe, EMU efforts will benefit those companies that have
efficiency of scale and strong marketing because they will have a broader
market to work in with fewer trade barriers. As the European market becomes
one, it will be a wider and deeper marketplace for companies to participate in.
In emerging markets, we plan to primarily concentrate on Southeast Asia
and Latin America. We do think there are manufacturing companies in Southeast
Asia that are attractive and we will look very closely at the financial
strength and product menu of these companies to identify those that can compete
going forward. The stronger companies will be major beneficiaries of the
decline in Asian currencies. In Latin America we believe the fundamental story
remains very strong. The economic recovery and an increased focus on containing
inflation and maintaining a positive economic environment should be good for
companies overall.
We don't see any early solutions to the fundamental problems in Japan and
Southeast Asia but we do think combined world financial support and economic
growth elsewhere will eventually lead to a recovery in that region.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE
1-YEAR 5-YEAR 10-YEAR OF CLASS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER INTERNATIONAL FUND CLASS A 6.96% 12.28% 9.86% 12.20% (since 5/21/81)
- ----------------------------------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS B 9.32 N/A N/A 8.66 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS C 12.45 N/A N/A 9.17 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS A
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 5/21/81 to 10/31/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/21/81 12/31/86 12/31/91 10/31/97
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper International Fund Class A(1) 10000 25248 37718 66392
EAFE Index+ 10000 35398 54440 83573
Consumer Price Index++ 10000 12305 15356 17951
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS B
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class B shares from 5/31/94 to 10/31/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 12/31/96 10/31/97
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper International Fund Class B(1) 10000 9761 10929 12677 13286
EAFE Index+ 10000 10063 11226 11940 12199
Consumer Price Index++ 10000 10149 10407 10753 10929
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERNATIONAL FUND CLASS C
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class C shares from 5/31/94 to 10/31/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 12/31/96 10/31/97
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper International Fund Class C(1) 10000 9761 10929 12681 13501
EAFE Index+ 10000 10063 11226 11940 12199
Consumer Price Index++ 10000 10149 10407 10753 10929
</TABLE>
Returns are historical and do not reflect 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
percent, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) as follows: 1 year, 3 percent; 5 year, 1
percent; since inception, 0 percent. For Class C shares there is no
adjustment for sales charge. For Class B shares, the maximum CDSC is 4
percent. For Class C shares, there is a 1 percent CDSC on certain
redemptions within the first year of purchase. 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 Class A shares and the CDSC in effect at the end
of the period for Class B shares. In comparing Kemper International Fund
Class A and Class B shares to the EAFE Index, you should also note that the
fund's performance reflects the applicable sales charge, while no such
charge is reflected in the performance of the index.
+ The EAFE Index (Morgan Stanley Capital International Europe, Australasia,
Far East Index) is an unmanaged index generally accepted as a benchmark for
major overseas markets. Source is 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
INDUSTRY SECTORS
A FOCUS ON THE NETHERLANDS HELPED KEMPER INTERNATIONAL FUND OUTPERFORM*
Data shows the geographic composition of the FT/S&P World Ex U.S. Index, an
unmanaged index that is a generally accepted benchmark for major overseas
markets, and the corresponding percentage for Kemper International Fund as of
October 31, 1997. Differences in the composition help explain the differences in
the performance of each. Please note, the fund also invests in other countries
not reflected in this chart.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERNATIONAL FUND FT/S&P WORLD EX U.S. INDEX
AT 10/31/97 AT 10/31/97
<S> <C> <C>
NETHERLANDS 15.9% 4.6%
JAPAN 12.4% 27.2%
UNITED KINGDOM 12.4% 21.0%
SWITZERLAND 7.3% 5.8%
FRANCE 5.9% 6.3%
CANADA 5.5% 5.0%
GERMANY 4.2% 7.3%
ITALY 4.2% 3.0%
SWEDEN 3.9% 2.7%
HONG KONG 1.0% 3.2%
</TABLE>
*Portfolio composition and holdings are subject to change.
[BAR GRAPH]
<TABLE>
<CAPTION>
TOP AND BOTTOM MARKET PERFORMANCE
11/1/96-10/31/97
<S> <C>
FINLAND 42.6%
ITALY 40.7%
SPAIN 33.9%
MEXICO 32.9%
NORWAY 32.2%
SINGAPORE -38.6%
INDONESIA -39.3%
PHILIPPINES -55.1%
MALAYSIA -59.7%
THAILAND -74.4%
</TABLE>
Source: FT/S&P World Indices, generally accepted benchmarks for world market
performance. Returns in $US. Returns shown are historical and do not guarantee
future results.
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER INTERNATIONAL FUND'S TOP 20 HOLDINGS*
Following is a list of the top 20 holdings in the fund as of October 31, 1997
and the percentage of net assets for each holding.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Holdings Country Percent
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. BANK OF IRELAND Ireland 3.6%
2. ELF AQUITAINE France 3.1%
3. NOVARTIS Switzerland 3.0%
4. L.M. ERICSSON Sweden 2.7%
5. BARCLAYS United Kingdom 2.7%
6. GLAXO WELLCOME United Kingdom 2.6%
7. AEGON Netherlands 2.3%
8. PETRO CANADA Canada 2.2%
9. ROCHE HOLDINGS Switzerland 2.2%
10. TELECOM ITALIA MOBILE Italy 2.2%
11. ING GROEP Netherlands 2.1%
12. BRITISH PETROLEUM United Kingdom 2.1%
13. TELECOM ITALIA Italy 2.0%
14. CARREFOUR France 1.8%
15. PHILIP SERVICES Canada 1.7%
16. HUDSON'S BAY CO. Canada 1.6%
17. VEBA Germany 1.6%
18. KONINKLIJKE AHOLD Netherlands 1.6%
19. SONY CORP. Japan 1.6%
20. BANCO POPULAR Spain 1.5%
</TABLE>
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EUROPE
NETHERLANDS--15.8% Aalberts Industries, N.V.
capital goods and components 240,425 $ 6,305
Aegon, N.V.
insurance company 170,851 13,469
Beter Bed Holding, N.V.
furniture retailer 83,500 1,820
De Boer Unigro, N.V.
food retailer 168,600 5,647
Getronics, N.V.
information and communication services 197,000 6,507
IHC Caland, N.V.
engineering services 85,333 5,250
ING Groep, N.V.
banking and insurance 300,784 12,632
Koninklijke Ahold, N.V.
food retailer 365,478 9,360
Nedcon Groep
manufacturer of racking systems 67,000 3,763
Oce-Van Der Grinten
photocopy and printing services 44,903 5,125
Royal Dutch Petroleum
petroleum producer 123,040 6,511
Sligro Beheer, N.V.
distributor of food and nonfood products 50,000 3,336
Unique International, N.V.
temporary employment 268,080 6,672
Vedior, N.V.
temporary employment 329,500 6,774
-----------------------------------------------------------------------
93,171
- ----------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--12.4% BBA Group, PLC
diversified engineering company 743,541 5,011
Barclays, PLC
banking 623,530 15,611
(a)British Bio-Technology Group
pharmaceutical company 1,397,500 2,379
British Petroleum
petroleum producer 826,837 12,146
Glaxo Wellcome
pharmaceutical company 712,861 15,277
Marks & Spencer, PLC
consumer goods and foods retailer 340,000 3,450
Prudential Corp., PLC
financial services 565,000 6,026
Rentokil Group, PLC
services company 1,440,000 5,795
Zeneca Group, PLC
pharmaceutical company 220,000 6,939
-----------------------------------------------------------------------
72,634
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWITZERLAND--7.3% Alusuisee-Lonza Holding
aluminum, chemicals and packaging
manufacturer 6,000 $ 5,393
Ciba Specialty Chemicals
chemical producer 71,493 7,040
Novartis
pharmaceutical company 11,200 17,589
Roche Holdings, A.G., with warrants
expiring 1998
pharmaceutical company 1,487 13,103
-----------------------------------------------------------------------
43,125
- ----------------------------------------------------------------------------------------------------------------
FRANCE--5.9% Carrefour, S.A.
food retailer 20,845 10,901
Elf Aquitaine
oil and gas producer 149,000 18,483
Technip, S.A.
engineering company 50,000 5,307
-----------------------------------------------------------------------
34,691
- ----------------------------------------------------------------------------------------------------------------
SPAIN--5.0% Banco Bilbao Vizcaya, S.A.
banking 163,140 4,366
Banco Popular Espanol, S.A.
banking 148,800 8,793
Banco Santander, S.A.
banking 273,000 7,653
Prosegur, Cia de Seguridad, S.A.
security services provider 290,000 3,252
Telefonica de Espana, S.A.
domestic and international
telecommunications 200,000 5,463
-----------------------------------------------------------------------
29,527
- ----------------------------------------------------------------------------------------------------------------
IRELAND--4.8% Bank of Ireland
banking 1,660,727 20,987
Independent Newspapers, PLC
publisher 1,208,734 7,028
-----------------------------------------------------------------------
28,015
- ----------------------------------------------------------------------------------------------------------------
ITALY--4.2% Telecom Italia Mobile
mobile telecommunications provider 3,480,000 12,930
Telecom Italia, SpA
telecommunications provider 1,872,000 11,752
-----------------------------------------------------------------------
24,682
- ----------------------------------------------------------------------------------------------------------------
GERMANY--4.2% Mannesmann, A.G.
capital goods producer 16,000 6,768
SGL CARBON, A.G.
chemical producer 60,000 8,437
Veba, A.G.
electric utility 169,000 9,436
-----------------------------------------------------------------------
24,641
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
L.M. Ericsson Telephone Co., "B"
telecommunications equipment
SWEDEN--3.9% MANUFACTURER 360,000 $ 15,874
Skandia Forsakrings, A.B.
insurance and banking 145,240 6,792
-----------------------------------------------------------------------
22,666
- ----------------------------------------------------------------------------------------------------------------
PORTUGAL--.6% Electricidade
electricity provider 208,000 3,657
-----------------------------------------------------------------------
TOTAL EUROPEAN COUNTRIES--64.1% 376,809
- ----------------------------------------------------------------------------------------------------------------
PACIFIC REGION
- ----------------------------------------------------------------------------------------------------------------
JAPAN--12.3% Bellsystem 24, Inc.
telemarketing firm 27,000 3,727
Canon, Inc.
precision instruments manufacturer 299,000 7,259
Circle K Japan
convenience retailer 90,000 4,625
Fuji Photo Film Co., Ltd.
precision instruments manufacturer 216,000 7,830
Honda Motor Co., Ltd.
automobile manufacturer 218,000 7,341
Murata Manufacturing
electronics components manufacturer 142,000 5,762
Nikon Corp.
precision instruments manufacturer 305,000 3,398
Noritsu Koki Co., Ltd.
precision instruments manufacturer 82,600 2,747
Ricoh Co., Ltd.
precision instruments manufacturer 559,000 7,204
Shohkoh Fund & Co., Ltd.
financing company 15,200 4,929
Sony Corp.
electronics manufacturer 112,000 9,303
Toppan Printing Co., Ltd.
printing services 236,000 2,963
Toray Industries
textile manufacturer 1,015,000 5,654
-----------------------------------------------------------------------
72,742
- ----------------------------------------------------------------------------------------------------------------
HONG KONG--1.0% CITIC Pacific, Ltd.
conglomerate 600,000 2,872
HSBC Holdings, PLC
banking 139,804 3,165
-----------------------------------------------------------------------
6,037
- ----------------------------------------------------------------------------------------------------------------
SINGAPORE--.4% Development Bank of Singapore
banking 218,000 2,037
-----------------------------------------------------------------------
TOTAL PACIFIC REGION--13.7% 80,816
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COMMONWEALTH COUNTRIES NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CANADA--5.5% Hudson's Bay Co.
department store retailer 412,400 $ 9,441
Petro-Canada
oil and gas company 645,300 13,108
(a)Philip Services Corp.
recycling 564,700 9,882
-----------------------------------------------------------------------
32,431
- ----------------------------------------------------------------------------------------------------------------
NEW ZEALAND--.4% Restaurant Brands New Zealand, Ltd.
retailer food chains 1,925,000 2,498
-----------------------------------------------------------------------
TOTAL COMMONWEALTH COUNTRIES--5.9% 34,929
- ----------------------------------------------------------------------------------------------------------------
LATIN AMERICA
- ----------------------------------------------------------------------------------------------------------------
MEXICO--3.2% Cementos Mexicanos, S.A. de C.V., "B," ADR
cement producer 712,000 3,092
Fomento Economico Mexicano de C.V., "B," ADR
beer and soft drink manufacturer 470,000 3,159
Grupo Carso, S.A. de C.V., ADR
industrial conglomerate 452,700 2,817
Grupo Elektra, S.A. de C.V., GDR
retailer 2,400,000 3,279
Industries Bachoco, S.A.
poultry producer 161,750 2,750
Kimberly-Clark de Mexico, S.A. de C.V.
paper products producer 813,000 3,429
-----------------------------------------------------------------------
18,526
- ----------------------------------------------------------------------------------------------------------------
CHILE--.6% Supermercados Unimarc, S.A.
food retailer 257,900 3,869
-----------------------------------------------------------------------
TOTAL LATIN AMERICAN COUNTRIES--3.8% 22,395
-----------------------------------------------------------------------
TOTAL COMMON STOCKS--87.5%
(Cost: $410,409) 514,949
-----------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.54% to 5.70%
INSTRUMENTS--10.1%
Due--November and December, 1997
Countrywide Home $ 7,000 6,988
Dynamic Funding Co. 6,500 6,458
Enron Corp. 13,400 13,348
GTE Corp. 13,000 12,937
Other 19,600 19,561
-----------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--10.1%
(Cost: $59,294) 59,292
-----------------------------------------------------------------------
TOTAL INVESTMENTS--97.6%
(Cost: $469,703) 574,241
-----------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--2.4% 13,828
-----------------------------------------------------------------------
NET ASSETS--100% $588,069
-----------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
At October 31, 1997, the Fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- -------------------------------------------------------------------------------
<S> <C> <C>
Financial 109,332 18.6
- -------------------------------------------------------------------------------
Consumer Cyclical 84,512 14.4
- -------------------------------------------------------------------------------
Health Care 55,287 9.4
- -------------------------------------------------------------------------------
Energy 50,248 8.5
- -------------------------------------------------------------------------------
Utilities 47,657 8.1
- -------------------------------------------------------------------------------
Technology 46,015 7.8
- -------------------------------------------------------------------------------
Consumer Staples 43,404 7.4
- -------------------------------------------------------------------------------
Capital Goods 42,051 7.0
- -------------------------------------------------------------------------------
Basic Industries 36,443 6.2
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS 514,949 87.5
- -------------------------------------------------------------------------------
OTHER NET ASSETS 73,120 12.5
- -------------------------------------------------------------------------------
NET ASSETS $588,069 100.0
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $469,703,000 for federal income tax purposes
at October 31 1997, the gross unrealized appreciation was $117,515,000, the
gross unrealized depreciation was $12,977,000 and the net unrealized
appreciation on investments was $104,538,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
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, 1997, and the related statements of operations for the year then
ended and 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 1993.
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, 1997, by correspondence with
the custodians 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1997
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $469,703) $574,241
- ------------------------------------------------------------------------
Receivable for:
Investments sold 22,899
- ------------------------------------------------------------------------
Fund shares sold 2,873
- ------------------------------------------------------------------------
Dividends 1,112
- ------------------------------------------------------------------------
TOTAL ASSETS 601,125
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 1,899
- ------------------------------------------------------------------------
Payable for:
Investments purchased 8,583
- ------------------------------------------------------------------------
Fund shares redeemed 1,251
- ------------------------------------------------------------------------
Management fee 387
- ------------------------------------------------------------------------
Distribution services fee 108
- ------------------------------------------------------------------------
Administrative services fee 138
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 635
- ------------------------------------------------------------------------
Trustees' fees 55
- ------------------------------------------------------------------------
Total liabilities 13,056
- ------------------------------------------------------------------------
NET ASSETS $588,069
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $456,080
- ------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 24,701
- ------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 104,563
- ------------------------------------------------------------------------
Undistributed net investment income 2,725
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $588,069
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($409,470 / 32,299 shares outstanding) $12.68
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $13.45
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($143,144 / 11,450 shares outstanding) $12.50
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($16,658 / 1,332 shares outstanding) $12.51
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($18,797 / 1,478 shares outstanding) $12.72
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------
Dividends $ 8,353
- -------------------------------------------------------------------------------------------
Interest 1,355
- -------------------------------------------------------------------------------------------
9,708
- -------------------------------------------------------------------------------------------
Less foreign taxes withheld 814
- -------------------------------------------------------------------------------------------
Total investment income 8,894
- -------------------------------------------------------------------------------------------
Expenses:
Management fee 4,131
- -------------------------------------------------------------------------------------------
Administrative services fee 1,280
- -------------------------------------------------------------------------------------------
Distribution services fee 1,066
- -------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 3,366
- -------------------------------------------------------------------------------------------
Professional fees 97
- -------------------------------------------------------------------------------------------
Reports to shareholders 140
- -------------------------------------------------------------------------------------------
Trustees' fees and other 45
- -------------------------------------------------------------------------------------------
Total expenses 10,125
- -------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (1,231)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 29,101
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 37,579
- -------------------------------------------------------------------------------------------
Net gain on investments 66,680
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $65,449
- -------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
Net investment income (loss) $ (1,231) 847
- -------------------------------------------------------------------------------------------
Net realized gain 29,101 32,629
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 37,579 21,127
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 65,449 54,603
- -------------------------------------------------------------------------------------------
Net equalization credits (charges) (309) 399
- -------------------------------------------------------------------------------------------
Distribution from net investment income (4,092) (3,561)
- -------------------------------------------------------------------------------------------
Distribution from net realized gain (27,136) (1,726)
- -------------------------------------------------------------------------------------------
Total dividends to shareholders (31,228) (5,287)
- -------------------------------------------------------------------------------------------
Net increase from capital share transactions 81,914 57,820
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 115,826 107,535
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 472,243 364,708
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income of $2,725 and $4,541, respectively) $588,069 472,243
- -------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
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 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
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
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 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.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
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 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.
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
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
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 $4,131,000 for the
year ended October 31, 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.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI). 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>
Year ended October 31, 1997 $96,000 959,000
</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>
Year ended October 31, 1997 $1,296,000 1,826,000
</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 ASF PAID BY ZKDI
FUND TO ZKDI TO FIRMS
--------------- ----------------
<S> <C> <C>
Year ended October 31, 1997 $1,280,000 1,301,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $1,913,000 for the year ended October 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $23,000 to independent trustees.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $440,256
Proceeds from sales 451,844
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 14,874 $ 187,364 9,032 $ 103,622
-------------------------------------------------------------------------------
Class B 8,424 106,475 6,520 75,871
-------------------------------------------------------------------------------
Class C 1,156 14,610 558 6,539
-------------------------------------------------------------------------------
Class I 1,171 14,846 922 10,499
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,001 22,720 432 4,573
-------------------------------------------------------------------------------
Class B 509 5,790 27 288
-------------------------------------------------------------------------------
Class C 42 481 1 15
-------------------------------------------------------------------------------
Class I 101 1,173 23 243
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (14,522) (184,532) (9,179) (104,837)
-------------------------------------------------------------------------------
Class B (5,205) (66,707) (2,290) (28,074)
-------------------------------------------------------------------------------
Class C (486) (6,267) (145) (1,808)
-------------------------------------------------------------------------------
Class I (1,094) (14,039) (787) (9,111)
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 433 5,529 139 1,595
-------------------------------------------------------------------------------
Class B (438) (5,529) (140) (1,595)
-------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 81,914 $ 57,820
-------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of year $11.96 10.59 11.13 10.56 8.17
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income -- .04 .07 -- .03
- --------------------------------------------------------------------------------------
Net realized and unrealized gain 1.52 1.50 .05 .86 2.54
- --------------------------------------------------------------------------------------
Total from investment operations 1.52 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 year $12.68 11.96 10.59 11.13 10.56
- --------------------------------------------------------------------------------------
TOTAL RETURN 13.49% 14.70 1.69 8.32 32.08
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Expenses 1.57% 1.64 1.57 1.54 1.69
- --------------------------------------------------------------------------------------
Net investment income .16% .34 .83 .02 .37
- --------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------
CLASS B
----------------------------------------
YEAR ENDED
OCTOBER 31, MAY 31 TO
--------------------- OCTOBER 31,
1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $11.81 10.46 11.09 10.58
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.12) (.06) (.02) (.04)
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 1.51 1.47 .05 .55
- -----------------------------------------------------------------------------------
Total from investment operations 1.39 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 $12.50 11.81 10.46 11.09
- -----------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.32% 13.59 .84 4.82
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------
Expenses 2.57% 2.53 2.50 2.58
- -----------------------------------------------------------------------------------
Net investment loss (.84)% (.55) (.10) (.97)
- -----------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------- --------------------------
CLASS C CLASS I
----------------------------------- --------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, MAY 31 TO OCTOBER 31, JULY 3 TO
--------------------- OCTOBER 31, -------------- OCTOBER 31,
1997 1996 1995 1994 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
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) (.09) (.06) (.02) (.04) .07 .10 .04
- ---------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain 1.49 1.47 .05 .55 1.53 1.48 .48
- ---------------------------------------------------------------------------------- ---------------------------
Total from investment operations 1.40 1.41 .03 .51 1.60 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 $12.51 11.81 10.46 11.09 12.72 11.99 10.61
- ---------------------------------------------------------------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.45% 13.59 .84 4.82 14.19 15.19 5.15
- ---------------------------------------------------------------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------- ---------------------------
Expenses 2.49% 2.50 2.50 2.52 1.04 1.10 .85
- ---------------------------------------------------------------------------------- ---------------------------
Net investment income (loss) (.76)% (.52) (.10) (.91) .69 .88 1.32
- ---------------------------------------------------------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES YEAR ENDED OCTOBER 31,
- ------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $588,069 472,243 364,708 418,282 289,898
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 104 114 103 156
- ------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years
ended October 31, 1997 and 1996 were $.0130 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.
- ------------------------------------------------------------------------------------------------------
</TABLE>
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.
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
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
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER ZURICH KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper International and Global Funds prospectus.
KIF - 2 (12/97) 1040960
