<PAGE> 1
KEMPER
INTERNATIONAL
BOND FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1997
Seeking total return, a combination of income and capital appreciation,
principally through a portfolio of investment grade foreign debt
securities
" . . . The negative performance of the
fund...can be largely attributed to the strength of
the U.S. dollar which reduced local currency returns. . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Market Performance
Country Concentrations
8
Portfolio of
Investments
9
Financial Statements
11
Notes to
Financial Statements
14
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INTERNATIONAL BOND FUND
TOTAL RETURN*
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
KEMPER INTERNATIONAL BOND FUND -2.52%
- --------------------------------------------------------------------------------
</TABLE>
Return is historical and does 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.
*Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the period
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/97 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER
INTERNATIONAL BOND FUND $8.91 $9.14
- --------------------------------------------------------------------------------
</TABLE>
The special risk considerations associated with an investment in the fund,
including risks related to foreign investments and to a non-diversified
investment company, are discussed in the prospectus. Risks associated with
foreign securities, including fluctuating exchange rates, government regulations
and differences in liquidity, may affect your investment. As a non-diversified
investment company, the fund may invest more than 5% of its assets in the
securities of a particular foreign government.
TERMS TO KNOW
CURRENCY RISK The U.S. dollar value of a foreign security tends to decrease when
the value of the U.S. dollar rises against the foreign currency in which the
security is denominated. Conversely, the U.S. dollar value of a foreign security
tends to increase when the value of the U.S. dollar falls against the currency.
DURATION A measure of the interest rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer the duration, the
greater the interest rate risk.
EMERGING MARKETS A developing or emerging country can be considered to be a
country that is in the initial stages of its industrial cycle. Developing or
"emerging" markets involve exposure to economic structures that are generally
less diverse and mature than in the United States and to political systems that
may be less stable.
RECESSION A downturn in economic activity defined by many economists as at least
two consecutive quarters of decline in a country's Gross Domestic Product (GDP).
<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,
A self-regulating economy, a balanced budget agreement and a positive stock
market all have contributed to another excellent year for investors. Given the
extended length of today's bull market (which celebrated its 15th anniversary on
August 12), it is prudent to wonder whether the end is near. Our position is
that while there is a certain precariousness to today's environment, which we
will elaborate on below, we see little to suggest that there will be more than
occasional market corrections.
Bipartisan agreement to balance the federal budget by the year 2002 represents
significant progress that should benefit investors over the long term. By
reducing the burden of capital gains and eliminating certain tax loopholes, the
Taxpayer Relief Act of 1997 and the Balanced Budget Act of 1997 have the
potential to meaningfully affect behavior. Now that the ceiling has been raised
on capital gains from the sale of a home, empty nesters will be more inclined to
move out of homes and into smaller condominiums. Added investment and savings
options should help boost the country's sagging savings rate. From a social
perspective, government's action to widen the difference between the taxation
rate on capital gains and on income reflects a conscious effort to encourage
capital investment. The more people and businesses can do for themselves, the
less likely they are to rely on the government, which should help restrain
federal spending.
The maximum tax on long-term capital gains is now 20 percent versus a maximum
of approximately 40 percent on ordinary income earned by Americans in the
highest income tax brackets. This dramatic difference could have some influence
on the management of mutual funds in the future. Although few investment
decisions are based on their tax consequences, the legislation supports a "buy
and hold" approach to investing, by which a mutual fund generates investment
returns through gains on investments held 18 months or longer. Such gains are
taxed at the reduced capital gains rate. On the margin, portfolio managers
should focus on long-term investing -- the strategy that we have always
supported.
In addition, mutual funds will gain investment flexibility with the new law's
repeal of what has been called the "short/short rule." Previously, investment
companies had been subject to a 30 percent limitation on total income arising
from the sale of securities held less than three months -- or face severe tax
consequences. The lifting of this limitation provides newer funds, in
particular, with much needed maneuvering ability.
You can expect to hear more from Kemper about the implications of the new
legislation, and specifically about the tax reporting changes, over the next
several weeks and months. Overall, we believe that this legislation is something
the country can be proud of. It represents years of a commitment on the part of
the federal government to hold spending in check and refrain from creating new
programs. Expanding corporate revenues and profits in an extended period of low
inflation also contributed to making this investor-friendly environment
possible.
As we look toward the end of the year, we see little to trouble us. The
economy appears to be in excellent condition. Continuing the alternatingly
fast/slow pace that we have experienced for several months, the fast-growing
first quarter was followed by a slower second quarter. Such self-regulation has
minimized any need for the Federal Reserve Board to raise interest rates again.
We don't rule out the possibility of another hike in the fourth quarter,
however.
Inflation is very low. In spite of unemployment being the lowest we have seen
in decades, wage pressures are still manageable. For example, the United Parcel
Service strike and the earlier steel and airlines work actions represent the
most union activity we have seen in 10 years. Encouraged by the low unemployment
(and therefore high demand for workers), the unions are becoming bolder but in
the end seem ready to resolve disputes sensibly. As a consequence, wage
increases remain moderate.
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 (07/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.22 6.42 6.64 6.49
PRIME RATE(2) 8.5 8.25 8.25 8.75
INFLATION RATE(3) 2.23 3.03 2.88 2.62
THE U.S. DOLLAR(4) 7.32 7.67 4.26 -4.11
CAPITAL GOODS ORDERS(5)* 7.11 3.61 16.26 1.75
INDUSTRIAL PRODUCTION(5)* 3.84 4.84 3.38 2.36
EMPLOYMENT GROWTH(6) 2.24 2.2 2.14 2.42
</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.
Source: Economics Department, Zurich Kemper Investments, Inc.
* Data as of June 30, 1997.
Our primary concern is the very high valuations of the stock market. All
things considered, it is difficult to see where we can go from here. With prices
at such heady levels, the market can be expected to react negatively to even
minor earnings disappointments, as we have seen in August. Kemper's response to
this market is to remain fully invested and to reduce exposure by diversifying
across a wider group of investment opportunities. Research, the first step in
stock selection, is key in this kind of a market.
Bond markets are obviously cheered by recent events, and prospects for income
investors continue to be positive. Interest rates are stable and credit quality
has not been an issue. A dwindling supply of municipal bonds has enabled
municipal investments to outperform U.S. Treasuries.
In such a fully valued domestic market, it can make sense to look to
international markets for their growth potential. The strength of the dollar
thus far this year has diminished returns but international opportunities look
bright.
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.
August 14, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[JOHNS PHOTO]
GORDON JOHNS JOINED ZURICH INVESTMENT MANAGEMENT LIMITED (ZIML), A LONDON BASED
AFFILIATE OF ZURICH KEMPER INVESTMENTS, INC. IN 1988. HE IS THE PORTFOLIO
MANAGER OF KEMPER INTERNATIONAL BOND FUND AND THE MANAGING DIRECTOR OF ZIML.
JOHNS GRADUATED WITH A B.A. IN LAW FROM BALLIOL COLLEGE, OXFORD.
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.
WHILE WORLD BOND MARKETS PROVIDED REASONABLE RETURNS FOR THE PERIOD IN LOCAL
CURRENCY TERMS, THE STRONG U.S. DOLLAR DIMINISHED OVERALL PERFORMANCE WHEN
CONVERTED. FOLLOWING, PORTFOLIO MANAGER GORDON JOHNS DISCUSSES THE BOND MARKETS
AND FUND PERFORMANCE.
Q GORDON, WHAT DID YOU SEE HAPPENING IN THE GLOBAL BOND MARKETS DURING THE
PERIOD AND HOW DID KEMPER INTERNATIONAL BOND FUND PERFORM?
A In the first half of the year, bonds did fairly well in local currency
terms. After a generally flat first quarter, they produced an average total
return of three percent in the second quarter (in local terms). The best
performers were Australia and the United Kingdom and all markets were positive
despite a slight increase in yields in Japan. The negative performance of the
fund, however, can be largely attributed to the strength of the U.S. dollar
which reduced local currency returns.
Japan and the United Kingdom had the best returns (see page 7 for world
market performance) in U.S. dollar terms while Sweden and Norway rounded out the
bottom. In Europe and Japan, bonds were helped by continued mild growth. This
slower growth is the product of continued low short-term interest rates and
falling inflation.
Q WHICH MARKETS DID YOU FAVOR?
A During the period we were heavily exposed to Australia, Canada, the UK and
New Zealand. In these markets, the economic cycle is fairly advanced. Rises in
short-term interest rates combined with favorable inflation numbers creates an
environment where long-term yields can fall and, therefore, can produce capital
gains. Europe and Japan are lagging somewhat in the economic cycle because, as I
mentioned, short-term interest rates are still quite low.
The efforts to meet the European Monetary Union (EMU) deadlines and
requirements continue to raise questions and affect bond market performance.
Some of the countries hoping to participate in EMU in 1999 such as Spain, Italy
and Portugal have enjoyed improved bond market returns. We have been somewhat
skeptical about the likelihood of these countries being included and, therefore,
have avoided exposure to these markets. We remain concerned that the markets of
EMU candidate countries reflect a discount that assumes a smooth start to EMU
and leaves no premium for possible risks.
Q HAVE YOU MADE ANY ADJUSTMENTS TO THE AVERAGE DURATION OF THE FUND?
A We maintained our long-term approach and remain committed to government and
supranational bonds with very high credit quality. Our average duration was
intermediate at just under five years throughout the period.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WERE THERE ANY OPPORTUNITIES THAT YOU MISSED?
A Our limited exposure to the yen worked against us because it bounced back
strongly after weakening significantly in the first quarter. Also, our
reluctance to jump on the EMU bandwagon prevented us from profiting from the
strength that markets such as Spain and Italy are experiencing. We remain
committed to our decision to limit our exposure in these areas because we expect
a significant correction in these markets if it becomes apparent that they will
not meet the EMU requirements or if the process is delayed.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We are somewhat cautious about the prospects going forward. Bond markets
have performed pretty well but that has been masked by the strength of the
dollar for the U.S. investor. Therefore, the returns achieved in dollar terms
have not been particularly good. We are concerned about future market
performance because yields have already come down a long way and because we see
the U.S. dollar continuing its strength. Bonds are not as over-valued as they
were at the end of 1993, for example, but we find it difficult to get very
excited about the outlook.
Q ARE THERE ANY RISKS TO THIS OUTLOOK?
A Well, with a somewhat negative forecast, one "risk" could actually be very
positive. If the dollar surprises us and is weaker in the second half of the
year, that could boost fund performance by reducing the amount of local currency
return lost in the conversion to U.S. dollars. A true risk would be if inflation
starts to resurge. If this scenario were to occur, our current fund position
would be incorrect. We would need to be selling and shortening durations now.
6
<PAGE> 7
MARKET PERFORMANCE
US DOLLAR STRENGTH WEAKENED LOCAL CURRENCY RETURNS
The graph below presents the six-month returns of 20 government bond markets
tracked by Salomon Brothers for the period ending June 30, 1997, expressed in
U.S. dollar terms and in local currencies.
[LINE GRAPH]
<TABLE>
<CAPTION>
U.S. dollar Local currency
<S> <S> <S>
JAPAN 3.45% 1.99%
UNITED KINGDOM 3.15% 6.06%
CANADA 2.62% 3.29%
NEW ZEALAND 0.47% 4.74%
AUSTRALIA 0.01% 6.03%
SWITZERLAND -3.44% 4.84%
ITALY -6.10% 5.08%
DENMARK -6.94% 4.61%
SPAIN -7.00% 5.15%
PORTUGAL -7.08% 5.22%
IRELAND -7.35% 3.94%
FINLAND -8.37% 3.26%
FRANCE -8.38% 3.46%
GERMANY -8.52% 3.44%
AUSTRIA -8.61% 3.37%
BELGIUM -8.65% 3.39%
NETHERLANDS -8.82% 3.28%
SWEDEN -8.83% 3.24%
NORWAY -9.45% 3.81%
</TABLE>
COUNTRY CONCENTRATIONS
GEOGRAPHIC COMPOSITION OF KEMPER INTERNATIONAL BOND FUND
Based on total net assets and the home currency of the issuers on June 30, 1997.
[LINE GRAPH]
<TABLE>
<S> <C>
CANADA 19%
UNITED KINGDOM 13%
NEW ZEALAND 9%
SWEDEN 8%
JAPAN 7%
AUSTRIA 6%
GERMANY 6%
IRELAND 5%
SPAIN 5%
FINLAND 5%
BELGIUM 4%
DENMARK 4%
ITALY 2%
NORWAY 2%
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
LOCAL CURRENCY U.S. DOLLAR
CURRENCY ISSUER PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (85.4%) AND CORPORATE OBLIGATIONS (9.9%)
- ----------------------------------------------------------------------------------------------------------------------
GERMAN DEUTSCHE MARK--28.6% Kingdom of Belgium, 7.00%, 2002 700 $ 441
Kingdom of Denmark, 5.00%, 2001 750 440
Republic of Finland, 8.25%, 2002 700 462
Federal Republic of Germany, 8.00%, 2002 450 296
Government of Ireland, 7.25%, 2003 750 478
Kingdom of Spain, 7.25%, 2003 750 478
Sudwest Deutsche Landesbank, 4.875%, 2002 500 290
-----------------------------------------------------------------------------
2,885
- ----------------------------------------------------------------------------------------------------------------------
CANADIAN DOLLAR--19.3% Alberta, 6.375%, 2004 200 148
British Columbia, 7.75%, 2003 600 473
Government of Canada, 7.50%, 2003 1,700 1,330
-----------------------------------------------------------------------------
1,951
- ----------------------------------------------------------------------------------------------------------------------
BRITISH POUND--19.1% Republic of Austria, 9.00%, 2004 350 634
United Kingdom
9.50%, 2004 450 849
9.00%, 2008 235 446
-----------------------------------------------------------------------------
1,929
- ----------------------------------------------------------------------------------------------------------------------
JAPANESE YEN--9.5% Republic of Italy, 5.125%, 2003 25,000 255
European Investment Bank, 4.625%, 2003 23,000 229
Int'l Bank for Recon. and Dev., 4.75%, 2004 47,000 480
-----------------------------------------------------------------------------
964
- ----------------------------------------------------------------------------------------------------------------------
NEW ZEALAND Government of New Zealand
DOLLAR--9.3% 6.50%, 2000 650 439
8.00%, 2004 700 502
-----------------------------------------------------------------------------
941
- ----------------------------------------------------------------------------------------------------------------------
SWEDISH KRONA--7.7% Kingdom of Sweden, 10.25%, 2003 5,000 779
- ----------------------------------------------------------------------------------------------------------------------
NORWEGIAN KRONE--1.8% Kingdom of Norway, 9.50%, 2002 1,100 180
=============================================================================
TOTAL INVESTMENTS--95.3%
(Cost: $9,615) 9,629
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--4.7% 471
-----------------------------------------------------------------------------
NET ASSETS--100% $10,100
-----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
The Fund is a non-diversified investment company and may invest a relatively
high percentage of its assets in the obligations of a limited number of issuers.
Based on the cost of investments of $9,615,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $111,000, the gross
unrealized depreciation was $97,000 and the net unrealized appreciation on
investments was $14,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $9,615) $ 9,629
- -----------------------------------------------------------------------
Cash 289
- -----------------------------------------------------------------------
Receivable for:
Investments sold 462
- -----------------------------------------------------------------------
Interest 195
- -----------------------------------------------------------------------
TOTAL ASSETS 10,575
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Investments purchased 417
- -----------------------------------------------------------------------
Management fee 6
- -----------------------------------------------------------------------
Trustees' fees and other 52
- -----------------------------------------------------------------------
Total liabilities 475
- -----------------------------------------------------------------------
NET ASSETS $10,100
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $10,616
- -----------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (1,531)
- -----------------------------------------------------------------------
Net unrealized depreciation on investments and assets and
liabilities in foreign currencies (16)
- -----------------------------------------------------------------------
Undistributed net investment income 1,031
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $10,100
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($10,100 / 1,134 SHARES OUTSTANDING) $8.91
- -----------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------
Interest income $ 458
- ------------------------------------------------------------------------------------
Expenses:
Management fee 50
- ------------------------------------------------------------------------------------
Professional fees 13
- ------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 12
- ------------------------------------------------------------------------------------
Reports to shareholders 9
- ------------------------------------------------------------------------------------
Registration fees and expenses 5
- ------------------------------------------------------------------------------------
Trustees' fees and other 8
- ------------------------------------------------------------------------------------
Total expenses 97
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME 361
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------
Net realized loss on sales of investments and foreign
currency transactions (1,486)
- ------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments and
assets and liabilities in foreign currencies 212
- ------------------------------------------------------------------------------------
Net loss on investments (1,274)
- ------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (913)
- ------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 361 647
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,486) 467
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation 212 (267)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (913) 847
- ---------------------------------------------------------------------------------------------------
Net equalization credits (charges) (817) 1,199
- ---------------------------------------------------------------------------------------------------
Distribution from net investment income -- (1,103)
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (110)
- ---------------------------------------------------------------------------------------------------
Total dividends to shareholders -- (1,213)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (14,600) 15,633
- ---------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (16,330) 16,466
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 26,430 9,964
- ---------------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income of $1,031 and $1,487, respectively) $ 10,100 26,430
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper International Bond Fund is an open-end
THE FUND management investment company organized as a
business trust under the laws of Massachusetts.
Shares of the Fund are offered primarily for
investment by institutions and high net worth
individuals. Shares are offered at net asset value
and the minimum initial investment is $1 million.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Portfolio securities that are
traded on a domestic securities exchange are valued
at the last sale price on the exchange where
primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio
securities that are primarily traded on foreign
securities exchanges are generally valued at the
preceding closing values of such securities on
their respective exchanges where primarily traded.
Securities not so traded are valued at the last
current bid quotation if market quotations are
available. Exchange traded financial futures and
options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded options are valued based upon prices
provided by market makers. 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.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes discount amortization on
fixed income securities. Realized gains and losses
from investment transactions are reported on an
identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value.
On each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange by dividing
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
the net assets by the number of outstanding shares.
Because of the need to obtain prices as of the
close of trading on various exchanges throughout
the world, the calculation of net asset value does
not take place contemporaneously with the
determination of the prices of the Fund's foreign
securities.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended June 30, 1997. The accumulated net
realized loss on sales of investments for federal
income tax purposes at June 30, 1997, amounting to
approximately $54,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires in the period ended 2005.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and any 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 $50,000 for the six
months ended June 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.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended June 30, 1997, the Fund
made no direct payments to its officers and
incurred trustees' fees of $7,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended June 30, 1997, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $32,409
Proceeds from sales 47,146
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
JUNE 30, 1997 DECEMBER 31, 1996
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 2,196 $19,231
-------------------------------------------------------------------------------
Shares issued in
reinvestment of dividends -- -- 134 1,159
-------------------------------------------------------------------------------
Shares redeemed (1,758) (14,600) (542) (4,757)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS (1,758) $(14,600) 1,788 $15,633
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN In order to help protect itself against a decline
CURRENCY TRANSACTIONS in the value of a particular foreign currency
against another currency, the Fund has entered into
forward contracts to deliver or receive 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 (loss) on
these contracts is reflected in the accompanying
financial statements. The Fund also bears the
credit risk (which is limited to the unrealized
gain, if any) if the counterparty fails to perform
under the contract. At June 30, 1997, the Fund had
outstanding forward foreign currency contracts as
follows (in thousands):
<TABLE>
<CAPTION>
IN
FOREIGN CURRENCY EXCHANGE SETTLEMENT UNREALIZED
TO DELIVER/RECEIVE FOR DATE GAIN (LOSS)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales contracts 250 British pounds $ 408 October '97 $ (7)
-----------------------------------------------------------------------------------------
2,080 Canadian dollars 1,512 October '97 (5)
----------------------------------------------------------------------
1,540 German deutsche marks 899 November '97 6
-----------------------------------------------------------------------------------------
Purchase contracts 660 Irish punts 1,006 August '97 (11)
-----------------------------------------------------------------------------------------
1,200,000 Italian lira 709 July '97 (4)
----------------------------------------------------------------------
135,000 Japanese yen 1,215 October '97 (16)
----------------------------------------------------------------------
1,300 Norwegian krone 186 August '97 8
----------------------------------------------------------------------
800 Swedish kronas 106 August '97 (2)
----------------------------------------------------------------------
NET UNREALIZED LOSS $(31)
======================================================================
</TABLE>
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS FEBRUARY 1
ENDED YEAR ENDED TO
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.14 9.03 9.00
- -------------------------------------------------------------------------------------------------------
Net investment income .23 .41 .47
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.46) .14 .12
- -------------------------------------------------------------------------------------------------------
Total from investment operations (.23) .55 .59
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .40 .41
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .04 .15
- -------------------------------------------------------------------------------------------------------
Total dividends -- .44 .56
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.91 9.14 9.03
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (2.52)% 6.13 6.56
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.46% 1.54 1.34
- -------------------------------------------------------------------------------------------------------
Net investment income 5.45% 5.19 5.66
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $10,100 26,430 9,964
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 499% 260 332
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Data for the six months ended June 30, 1997 is unaudited.
Net investment income per share for the period ended December 31, 1995, was
determined based on average shares outstanding.
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
JAMES E. AKINS JOHN E. NEAL
Trustee Vice President
ARTHUR R. GOTTSCHALK ROBERT C. PECK, JR.
Trustee Vice President
FREDERICK T. KELSEY PHILIP J. COLLORA
Trustee Vice President and
Secretary
FRED B. RENWICK
Trustee JEROME L. DUFFY
Treasurer
JOHN B. TINGLEFF
Trustee ELIZABETH C. WERTH
Assistant Secretary
JOHN G. WEITHERS
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 Tech 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
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This report is not to be distributed
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KIBF - 3 (8/97) 1036360
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