-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbPuLR5sOgx+LdxuanlvboAeVtZjv3J7SUiFPsSxl4yij6tPmgwvUsQq0z+MloaY cNGoopZ0xmOgPxyY/zbJIQ== 0000950124-97-003665.txt : 19970703 0000950124-97-003665.hdr.sgml : 19970703 ACCESSION NUMBER: 0000950124-97-003665 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970702 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER INTERNATIONAL FUND CENTRAL INDEX KEY: 0000350562 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363124258 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03136 FILM NUMBER: 97635425 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER INTERNATIONAL FUND INC DATE OF NAME CHANGE: 19870127 N-30D 1 ANNUAL REPORT DATED 04/30/97 1 KEMPER INTERNATIONAL FUND SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 1997 [ ] [ ] [X] [ ] [ ] [ ] [ ] [ ] [ ] SEEKING TOTAL RETURN, A COMBINATION OF CAPITAL GROWTH AND INCOME, PRINCIPALLY THROUGH AN INTERNATIONALLY DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES " . . . Our concentration on highly- focused, growth-oriented companies in the European equity markets helped us achieve consistent returns." [KEMPER LOGO] 2 CONTENTS 3 Economic Overview 5 Performance Update 7 Largest Holdings 8 Market Performance Country Concentrations 9 Portfolio of Investments 15 Financial Statements 17 Notes to Financial Statements 22 Financial Highlights AT A GLANCE - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1997 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] - -------------------------------------------------------------------------------- CLASS A 7.94% CLASS B 7.38% CLASS C 7.50% LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 6.17% - --------------------------------------------------------------------------------
Returns and rankings are historical and do not represent future performance. Returns and net asset value fluctuate. Shares are redeemable at current net asset value, which may be more or less than original cost. Investment in foreign securities presents special risk considerations including fluctuating currency exchange rates, government regulation and differences in liquidity. *Lipper Analytical Services, Inc. returns and rankings are based upon changes in net asset value with all dividends reinvested and do not include the effect of sales charges and, if they had, results may have been less favorable.
- -------------------------------------------------------------------------------- NET ASSET VALUE - -------------------------------------------------------------------------------- AS OF AS OF 4/30/97 10/31/96 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A $12.06 $11.96 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B $11.95 $11.81 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C $11.96 $11.81 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND LIPPER RANKINGS* - -------------------------------------------------------------------------------- COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- 1-YEAR #110 OF #129 OF #123 OF 357 FUNDS 357 FUNDS 357 FUNDS - -------------------------------------------------------------------------------- 5-YEAR #38 OF 84 FUNDS N/A N/A - -------------------------------------------------------------------------------- 10-YEAR #14 OF 29 FUNDS N/A N/A - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- DURING THE PERIOD, THE FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- INCOME DIVIDEND: $0.1250 $0.0163 $0.0199 - -------------------------------------------------------------------------------- SHORT-TERM CAPITAL GAIN: $0.02 $0.02 $0.02 - -------------------------------------------------------------------------------- LONG-TERM CAPITAL GAIN: $0.66 $0.66 $0.66 - --------------------------------------------------------------------------------
STYLE VALUE BLEND TERMS TO KNOW [ ] [ ] [X] Large Size YOUR FUND'S STYLE [ ] [ ] [ ] Medium [ ] [ ] [ ] Small - -------------------------------------------------------------------------------- MORNINGSTAR EQUITY FUNDS STYLE BOX - -------------------------------------------------------------------------------- Source: Morningstar, Inc., Chicago, IL 312-696-6000. (Morningstar Style Box is based on a portfolio date as of April 30, 1997.) The Equity Style Box placement is based on a fund's price-to-earnings and price-to-book ratio relative to the S&P 500, as well as the size of the companies in which it invests, or median market capitalization. Please note that style boxes do not represent an exact assessment of risk and do not represent future performance. Please consult the prospectus for a description of investment policies. 3 ECONOMIC OVERVIEW [TIMBERS PHOTO] STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY. DEAR SHAREHOLDER, The agreement between the White House and Republican leaders in Congress to balance the federal budget has effectively ended the market correction that began in the first quarter. Such sudden progress on balancing the budget, an initiative that the bond market was anticipating resolution on more than one year ago, is positive news. The next several weeks will find Congress and the Clinton administration negotiating toward a final agreement. Unlike previous failed proposals that sought to balance the budget principally by increasing income taxes, the current plan -- which starts from the base of a relatively small deficit -- proposes to slow the growth of federal spending. As such, its prospects are promising. Natural skeptics are waiting to see specific legislation to see if the agreement has teeth. While we are optimistic, we need to temper our enthusiasm. Much of the good news associated with a balanced budget was quickly discounted in the higher prices in the stock and bond markets. Of particular interest to equity investors is the agreement to reduce the maximum tax rate on capital gains. Although details of the reduction are yet to be known, the prospect of more favorable tax treatment on gains will have the short-term effect of supporting stocks -- investors can be expected to postpone selling until they can qualify for the lower tax rate. With equity sales essentially "frozen" until the effective date is known, the stock market should have a considerable underpinning. Once an effective date is determined, we would expect the pent-up selling to occur. However, then we shall enjoy the long-term positive effect of the lower tax rate on gains. Talk of a balanced budget has shifted the spotlight away from the Federal Reserve Board's upward pressure on interest rates. Having declined to raise rates in May, the Fed may still act again at a later date. However, this action may be the last for a while because the economy seems to be slowing down in the second quarter, after the rapid 5.6 percent growth in the first quarter of the year. A slower economy would reduce the threat of inflation and reduce the need for further rate hikes by the Fed. In fact, a review of the standard measures of the economy shows little to be concerned about. As has been the pattern for more than five years, a few strong quarters followed by a few weak quarters have produced an overall 2 percent to 3 percent rate of growth in gross domestic product (GDP). Job creation and the unemployment rate are consistent with a moderately expanding economy. Corporate profits continue to grow at an expected 4 to 5 percent rate in 1997. The Consumer Price Index continues to track at a 2.5 percent to 3.0 percent rate. Just as we see a limited downside to today's rising interest rate environment, so is there a limited upside in the near future. The effect of higher rates will have to work itself through the economy. Higher rates have significant implications for corporate profitability, debt issuance, credit extension and international trade. Post-correction cash flows into the financial markets will be a subject of great scrutiny. One of the factors driving the stock market to its recent all-time high was the unprecedented high level of investment through mutual funds, 401(k)s and qualified contribution plans. It is realistic to expect that, on the margin, some of that cash will find a home in short-term, liquid investments while the stock market sorts itself out. Leadership in the stock market has been quite narrow and concentrated for the past six months in large, multinational companies with familiar consumer brand names. The recent rally after the announcement of a balanced budget agreement suggests that valuations of smaller capitalization stocks are compelling and the market is broadening. Higher interest rates are, of course, anathema to the fixed-income market. However, bond investors in the last few weeks have been cheered by the balanced budget proposal and by expectations that interest rates would not go much higher. We expect the bond market to trade in a very narrow range -- with long-term interest rates no lower than 6.50 percent 3 4 ECONOMIC OVERVIEW and no higher than 7.25 percent. One positive effect of the stock market correction was the widening of spreads available on high yield bonds. As a consequence, high yield bonds today are more reasonably priced. A natural response to increased volatility in the U.S. equity market is to look abroad. In fact, the valuations of many international markets are more attractive than the U.S. However, the weak German and Japanese economies make it difficult to identify many exciting near-term opportunities without careful research. Our recommendation to shareholders is to stay the course and to fight the temptation to try to time when and where you should be invested without help. Financial assets react much quicker today to events. Volatility has returned to the market and with it heightened uncertainty. Now is the time to rely on your financial representative for the expertise and the long-term investing discipline that he or she can provide. - -------------------------------------------------------------------------------- ECONOMIC GUIDEPOSTS - -------------------------------------------------------------------------------- Economic activity is a key influence on investment performance and shareholder decision-making. Periods of recessions or boom, inflation or deflation, credit expansion or credit crunch have a significant impact on mutual fund performance. The following are some significant economic guideposts and their investment rationale that may help your investment decision-making. The 10-year Treasury rate and the prime rate are prevailing interest rates. The other data report year-to-year percentage changes. [BAR GRAPH]
NOW (5/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO 10-YEAR TREASURY RATE(1) 6.71 6.3 6.91 6.17 PRIME RATE(2) 8.5 8.25 8.25 9 INFLATION RATE(3) 2.3 3.31 2.75 3.04 THE U.S. DOLLAR(4) 6.55 4.36 9.15 -9.31 CAPITAL GOODS ORDERS(5)* 8.28 2.42 3.93 17.47 INDUSTRIAL PRODUCTION(5) 4.28 4.36 3.34 2.88 EMPLOYMENT GROWTH(6) 2.13 2.15 2.09 2.7
[1] Falling interest rates in recent years have been a big plus for financial assets. [2] The interest rate that commercial lenders charge their best borrowers. [3] Inflation reduces an investor's real return. In the last five years, inflation has been as high as 6%. The low, moderate inflation of the last few years has meant high real returns. [4] Changes in the exchange value of the dollar impact U.S. exporters and the value of U.S. firms' foreign profits. [5] These influence corporate profits and equity performance. [6] An influence on family income and retail sales. * Data as of April 30, 1997. SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC. With this commentary as an economic backdrop, we encourage you to read the following detailed report of your fund, including an interview with your fund's portfolio management. Thank you for your continued support. We appreciate the opportunity to serve your investment needs. Sincerely, /s/ Stephen B. Timbers STEPHEN B. TIMBERS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER Zurich Kemper Investments, Inc. June 9, 1997 4 5 PERFORMANCE UPDATE [FERRO PHOTO] DENNIS FERRO JOINED ZURICH INVESTMENT MANAGEMENT LIMITED (ZIML), A LONDON- BASED AFFILIATE OF ZURICH KEMPER INVESTMENTS, INC. IN 1994 AS MANAGING DIRECTOR OF ZIML AND PORTFOLIO MANAGER OF KEMPER INTERNATIONAL FUND. FERRO HOLDS AN M.B.A. IN FINANCE FROM ST. JOHN'S UNIVERSITY IN NEW YORK AND A BACHELOR'S DEGREE FROM VILLANOVA UNIVERSITY IN PENNSYLVANIA. HE IS A CHARTERED FINANCIAL ANALYST. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. KEMPER INTERNATIONAL FUND OUTPERFORMED ITS BENCHMARK INDEX BY MORE THAN SIX PERCENT DURING THE SIX-MONTH PERIOD. PORTFOLIO MANAGER DENNIS FERRO DISCUSSES THE INTERNATIONAL MARKETS AND THE APPROACH HIS TEAM TOOK TO ACHIEVE SUCH STRONG RESULTS. Q KEMPER INTERNATIONAL FUND CLASS A SHARES (UNADJUSTED FOR SALES CHARGE) WAS UP 7.94 PERCENT FOR THE SIX-MONTH PERIOD COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST (EAFE) INDEX* WHICH RETURNED JUST 1.72 PERCENT. WHAT STEPS DID YOU AND YOUR TEAM TAKE TO ACHIEVE THESE IMPRESSIVE RESULTS? A Our concentration on highly-focused, growth-oriented companies in the European equity markets helped us achieve consistent returns. Low inflation, low interest rates and moderate growth, combined with the benefits the export sector experienced due to the dollar strength, created a very positive investment environment. We also maintained a smaller exposure to Japan than the index. The holdings we had in this market focused on globally competitive companies that do significant exporting to other world markets and have higher than average profit margins on unique products or services. Technology and auto companies are two industries we focused on that met these criteria. We modestly reduced our position in Southeast Asia, trimming our exposure across the region and maintained a zero weighting in Thailand. The money pulled from these struggling markets was then used to increase the exposure to companies in Europe and Latin America. *THE EAFE INDEX IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED BENCHMARK FOR MAJOR OVERSEAS MARKETS. Q HOW DID THE DIFFERENT WORLD MARKETS PERFORM DURING THE PERIOD? A International markets outside of Japan did well with European and Latin American markets leading performance overall. Nearly all European markets had strong returns on a local currency basis. However, the U.S. dollar had a fairly strong move during the same period which weakened local returns when converted. For example, a nearly 23 percent return on a local basis for the French market converted to 7.34 percent in U.S. dollars. While it is less than the extraordinary local currency return, it is still a reasonable number in dollar terms. Latin American markets were also strong during the period. Mexico, for example, was up 16.45 percent in local terms and 18.02 percent in U.S. dollars for the period. Conversely, Asian markets lagged both in local currency and U.S. dollars. The Hang Seng Index of Hong Kong did have a positive return -- unlike the other Asian markets -- up 3.41 percent in U.S. dollar terms. 5 6 PERFORMANCE UPDATE Q THE FUND HAS BEEN HEDGED MORE THAN 25 PERCENT THROUGHOUT THE PERIOD. CAN YOU EXPLAIN YOUR HEDGING PHILOSOPHY? A Our philosophy on hedging is purely defensive. We examine several economic indicators and long-term trends. If our analysis leads us to believe the U.S. dollar is dramatically undervalued relative to a foreign currency we will take steps to help offset the depreciation of the foreign currency as we did during this period. Our normal posture, however, would be unhedged. Q WHICH INDUSTRIES DID YOU FAVOR IN THE DIFFERENT REGIONS AND WHICH STOCKS OFFERED TOP PERFORMANCE? A We continued to favor the pharmaceutical sector in Europe. Novartis (Switzerland), Roche Holding A.G. (Switzerland), Glaxo Wellcome (UK) and Zeneca Group (UK) are holdings we have in this sector. Financial stocks in Europe were another focus because they benefited from the modest interest rate environment. We looked for companies in this sector that had specific market strategies in certain product areas such as pension services or other types of saving services for individuals. ING Groep (Netherlands), ABN AMRO Bank (Netherlands) and Banco Bilboa Vizcaya (Spain) were among our financial holdings. In Japan we favored technology companies such as Sony, Matsushita Electric Industrial Co. and Ricoh. In Hong Kong we focused on financials such as HSBC Holdings, and broad-based conglomerates like CITIC Pacific. Real estate is also a thriving sector in this market with names like Cheung Kong Holdings offering good returns. In Canada our choices were very name-specific. Canadian National Railway, one of the major railway companies in Canada, has been generating increased operating efficiencies and is improving profitability. Philip Environmental, a waste collection and recycling company, is another name we own in this market. It has expanded quite a bit through acquisitions in the last year or so. In Latin America the exposure has primarily been in Mexico where we own Tubos de Acero de Mexico, a pipeline manufacturing company that has benefited from increased capital expenditure by Pemex, the national oil company. We also own Fomento Economico Mexicano de C.V., a beverage distributor. Grupo Elektra is a retail company we hold in this market that should benefit from the current economic recovery as consumer spending picks up. Q YOU MENTIONED MAINTAINING A LESSER EXPOSURE TO JAPAN THAN THE INDEX. WHAT ARE YOUR VIEWS ON THIS MARKET AND WHERE DO YOU SEE IT GOING FROM HERE? A Our lowest exposure to this market was about 15 percent during the six-month period. That compares to an index weighting of over 29 percent. During visits our analysts have made to Japan to meet with individual company management, we've found a somewhat higher degree of optimism and indications that business is stronger than the general economic forecasts would lead people to believe. From a bottom-up standpoint companies seem to be doing better and operating at higher levels than forecasters are suggesting. We expect the industrial sector of the economy to be firm and to deliver strong earnings growth. Q WHAT AFFECT, IF ANY, DO YOU SEE THE HANDOVER OF HONG KONG TO CHINA HAVING ON THAT MARKET? A We believe the handover will go smoothly. We do expect there to be demonstrations that will inevitably create some concern in the press but we don't expect any immediate changes that would negatively affect the ability of companies to do business. We have about a three percent exposure to this market. Over the next several years the legal framework in which companies operate may be adjusted and that could raise some issues. But in the near term, we expect to see an increase in the usage of real estate in Hong Kong by Chinese companies and that should be positive for business. Q IT WAS A VERY SUCCESSFUL SIX MONTHS FOR THE FUND BUT WERE THERE ANY OPPORTUNITIES THAT YOU MISSED? A We might have done well to have had even less exposure to Japan. Although the companies we own there did do well relative to the market, the market 6 7 PERFORMANCE UPDATE did underperform most other world markets so there was some opportunity lost. But, on the flip side, our decision to reduce the exposure to Southeast Asia, and specifically deciding to exit Thailand, proved to be a good one as these markets were down significantly. Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS? A We remain positive on world equity markets while being very aware that they have a heightened sensitivity to U.S. interest rates. When adjustments were made in the U.S. in the first quarter of this year, overseas markets had a short-term, negative reaction. With the exception of the UK, we do not see signs of enough inflation to lead to rate hikes in international markets. Our weightings will continue to favor Europe. We are moving modestly higher in Japan and continue to underweight Southeast Asia. The focus in Latin America will remain on Mexico with smaller positions in Peru and Brazil. Our expectation is that the dollar has probably seen its highs and will trade in a fairly tight range going forward which would be consistent with the G7* objective of having greater currency stability. *A GROUP OF MAJOR INDUSTRIALIZED COUNTRIES THAT TRIES TO COORDINATE MONETARY AND FISCAL POLICIES TO CREATE A MORE STABLE WORLD ECONOMIC SYSTEM. LARGEST HOLDINGS TOP HOLDINGS FOCUS ON EUROPEAN MARKET STRENGTH* A comparison of the fund's top five holdings on April 30, 1997 with its top five holdings on October 31, 1996
ON ON HOLDINGS 4/30/97 10/31/96 - ---------------------------------------------------------------------------------- 1. NOVARTIS 2.7% CIBA-GEIGY 2.8% SWITZERLAND SWITZERLAND - ---------------------------------------------------------------------------------- 2. ELF AQUITAINE 2.7% ROCHE HOLDING 2.4% FRANCE SWITZERLAND - ---------------------------------------------------------------------------------- 3. GLAXO WELLCOME 2.5% ASTRA 1.9% UNITED KINGDOM SWEDEN - ---------------------------------------------------------------------------------- 4. CARREFOUR S.A. 2.4% BRITISH PETROLEUM 1.8% FRANCE UNITED KINGDOM - ---------------------------------------------------------------------------------- 5. PHILIP ENVIRONMENTAL 2.3% PHILIP ENVIRONMENTAL 1.8% CANADA CANADA - ----------------------------------------------------------------------------------
*Portfolio composition and holdings are subject to change. 7 8 MARKET PERFORMANCE EUROPE LEADS WORLD MARKET PERFORMANCE Performance of selected international markets represented in the FT/S&P Actuaries World Indices* for the six-month period from November 1, 1996, to April 30, 1997 in U.S. dollars. [LINE GRAPH] SPAIN 22.70% FINLAND 18.15% MEXICO 18.02% ITALY 15.74% NETHERLANDS 13.70% NORWAY 11.61% GERMANY 11.30% SWITZERLAND 10.96% BELGIUM 9.91% UNITED KINGDOM 9.49% DENMARK 7.46% FRANCE 7.34% AUSTRALIA 6.42% SWEDEN 5.27% IRELAND 4.17% CANADA 3.79% HONG KONG -0.95% AUSTRIA -0.98% SINGAPORE -5.03% NEW ZEALAND -5.73% MALAYSIA -8.40% JAPAN -15.32% Source: Datastream PreView. This information is historical and does not represent future returns of these markets. *FT/S&P Actuaries World Indices are a series of global equity indices covering 26 countries and 12 geographic regions. The stocks included in these unmanaged indices are representative of the equity investment opportunities available to international investors. COUNTRY CONCENTRATIONS KEMPER INTERNATIONAL FUND'S EXPOSURE COMPARED TO ITS INDEX* Data shows the geographic composition of the EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East Index, the unmanaged index that is a generally accepted benchmark for major overseas markets) and the corresponding percentage for Kemper International Fund holdings in these markets as of April 30, 1997. Differences in the composition help explain the differences in the performance of each. Please note, the fund and index also invest in other countries not included in this chart. [GEOGRAPHIC COMPOSITION BAR GRAPH] KEMPER INTERNATIONAL EAFE FUND INDEX NETHERLANDS 17.1% 5.0% JAPAN 16.5% 30.0% UNITED KINGDOM 12.8% 19.7% SWITZERLAND 7.7% 6.4% FRANCE 7.1% 7.2% GERMANY 6.1% 8.9% MEXICO 4.5% 0.0% HONG KONG 2.7% 3.6% ITALY 2.7% 3.2% MALAYSIA 2.0% 2.4% AUSTRALIA 0.2% 3.1% * Portfolio composition and holdings are subject to change. 8 9 PORTFOLIO OF INVESTMENTS KEMPER INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS AT APRIL 30, 1997 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- EUROPE - --------------------------------------------------------------------------------------------------------------------- NETHERLANDS--15.8% ABN AMRO Bank BANKING 82,000 $ 5,636 Aalberts Industries N.V. CAPITAL GOODS AND COMPONENTS 238,045 5,462 Aegon N.V. INSURANCE COMPANY 141,828 10,047 (a)Baan Company N.V. SERVICE SOFTWARE APPLICATIONS 125,000 6,551 GTI Holding ENGINEERING SERVICES 36,650 4,459 Goudsmit N.V. TEMPORARY EMPLOYMENT AGENCY 53,000 7,210 Gucci Group N.V. LUXURY GOODS MANUFACTURER 41,250 2,873 Hagemeyer N.V. WHOLESALER 40,000 3,480 IHC Caland N.V. ENGINEERING SERVICES 84,000 4,148 ING Groep N.V. BANKING AND INSURANCE 293,075 11,509 Koninklijke Ahold N.V. FOOD RETAILER 118,255 8,073 Nutricia Verenigde Bedryven SPECIALTY NUTRITION PRODUCTS MANUFACTURER 18,000 2,731 Oce-Van Der Grinten PHOTOCOPY AND PRINTING SERVICES 25,000 3,025 Royal Dutch Petroleum PETROLEUM PRODUCER 30,760 5,498 Wolters Kluwer PUBLISHER 45,000 5,334 ---------------------------------------------------------------------------- 86,036 - --------------------------------------------------------------------------------------------------------------------- UNITED KINGDOM--11.8% BBA Group PLC DIVERSIFIED ENGINEERING COMPANY 733,804 3,977 Barclays PLC BANKING 312,000 5,812 (a)British Bio-Technology Group PHARMACEUTICAL COMPANY 1,397,500 5,476 British Petroleum PETROLEUM PRODUCER 812,207 9,331 Glaxo Wellcome PHARMACEUTICAL COMPANY 700,000 13,777 Granada Group PLC ENTERTAINMENT AND COMMUNICATIONS COMPANY 348,744 5,036 Pearson PLC MEDIA AND ENTERTAINMENT COMPANY 124,100 1,427 Reed International PLC PUBLISHER 440,000 8,121 Rentokil Group PLC SERVICES COMPANY 720,000 4,726 Zeneca Group PLC PHARMACEUTICAL COMPANY 220,000 6,638 ---------------------------------------------------------------------------- 64,321 - ---------------------------------------------------------------------------------------------------------------------
9 10 PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- SWITZERLAND--7.1% Alusuisee-Lonza Holding ALUMINUM, CHEMICALS AND PACKAGING MANUFACTURER 6,000 $ 5,054 Ciba Specialty Chemicals CHEMICAL PRODUCER 71,493 6,162 Novartis PHARMACEUTICAL COMPANY 11,200 14,762 Roche Holding A.G., with warrants expiring 1998 PHARMACEUTICAL COMPANY 1,487 12,565 ---------------------------------------------------------------------------- 38,543 - --------------------------------------------------------------------------------------------------------------------- FRANCE--6.5% Carrefour S.A. FOOD RETAILER 20,845 13,015 Clarins COSMETIC PRODUCTS 21,700 2,703 Elf Aquitaine OIL AND GAS PRODUCER 149,000 14,450 Technip S.A. ENGINEERING COMPANY 50,000 5,286 ---------------------------------------------------------------------------- 35,454 - --------------------------------------------------------------------------------------------------------------------- GERMANY--5.6% Bayer A.G. CHEMICAL COMPANY 155,000 6,167 (a)Fresenius Medical Care A.G. MEDICAL SUPPLY COMPANY 102,050 7,337 Mannesmann A.G. CAPITAL GOODS PRODUCER 11,000 4,326 SGL CARBON A.G. CHEMICAL PRODUCER 60,000 8,367 Veba, A.G. ELECTRIC UTILITY 84,000 4,327 ---------------------------------------------------------------------------- 30,524 - --------------------------------------------------------------------------------------------------------------------- IRELAND--4.4% Bank of Ireland BANKING 811,090 8,442 Greencore Group PLC FOOD PRODUCER 879,154 4,490 Independent Newspapers PLC PUBLISHER 1,208,734 6,173 Waterford Wedgewood PLC FINE CHINA AND CRYSTAL MANUFACTURER 3,842,102 5,020 ---------------------------------------------------------------------------- 24,125 - --------------------------------------------------------------------------------------------------------------------- SPAIN--3.7% Banco Bilbao Vizcaya BANKING 54,380 3,663 Banco Santander, S.A. BANKING 91,000 6,853 Empresa Nacional de Electricidad S.A. ELECTRIC UTILITY 91,000 6,367 Iberdrola, S.A. ELECTRIC UTILITY 300,000 3,389 ---------------------------------------------------------------------------- 20,272 - ---------------------------------------------------------------------------------------------------------------------
10 11 PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- ITALY--2.5% Bulgari SpA LUXURY GOODS MANUFACTURER 155,000 $ 2,802 Telecom Italia Mobile MOBILE TELECOMMUNICATIONS PROVIDER 3,480,000 10,947 ---------------------------------------------------------------------------- 13,749 - --------------------------------------------------------------------------------------------------------------------- NORWAY--.7% Merkantildata A/S INFORMATION TECHNOLOGY SUPPLIER 223,000 4,071 - --------------------------------------------------------------------------------------------------------------------- SWEDEN--.6% L.M. Ericsson Telephone Co., "B" TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 100,000 3,161 - --------------------------------------------------------------------------------------------------------------------- DENMARK--.5% Copenhagen Airports AIRPORT OPERATOR 27,000 2,732 ---------------------------------------------------------------------------- TOTAL EUROPEAN COUNTRIES--59.2% 322,988 - --------------------------------------------------------------------------------------------------------------------- PACIFIC REGION - --------------------------------------------------------------------------------------------------------------------- JAPAN--15.2% Canon Inc. PRECISION INSTRUMENTS MANUFACTURER 300,000 7,115 Circle K Japan CONVENIENCE RETAILER 90,000 4,135 Daifuku Co., Ltd DIVERSIFIED MACHINERY MANUFACTURER 210,000 2,416 Eisai Co., Ltd. PHARMACEUTICAL COMPANY 307,000 5,322 Fuji Photo Film Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 125,000 4,777 Honda Motor Co., Ltd. AUTOMOBILE MANUFACTURER 203,000 6,302 Matsushita Electric Industrial Co., Ltd. ELECTRONICS MANUFACTURER 420,000 6,718 Murata Manufacturing ELECTRONICS COMPONENTS MANUFACTURER 185,000 6,822 Noritsu Koki Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 54,000 2,302 Ricoh Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 450,000 5,354 Seven Eleven Japan Co., Ltd. CONVENIENCE RETAILER 56,000 3,552 Shohkoh Fund & Co., Ltd. FINANCING COMPANY 6,900 1,620 Sony Corp. ELECTRONICS MANUFACTURER 93,000 6,771 Tokyo Electron Ltd. ELECTRONICS MANUFACTURER 141,200 5,452 Toray Industries TEXTILE MANUFACTURER 1,015,000 6,318 Toyota Motor Corp. AUTOMOBILE MANUFACTURER 236,000 6,844 Tsubakimoto Chain Co. CHAIN AND CONVEYOR MANUFACTURER 169,000 891 ---------------------------------------------------------------------------- 82,711 - ---------------------------------------------------------------------------------------------------------------------
11 12 PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- HONG KONG--2.5% CITIC Pacific Ltd. CONGLOMERATE 600,000 $ 3,245 Cheung Kong Holdings Ltd. REAL ESTATE 290,000 2,546 HSBC Holdings PLC BANKING 136,101 3,443 Henderson Land Development Co., Ltd. PROPERTY DEVELOPER 315,000 2,653 Hysan Development Co., Ltd. PROPERTY DEVELOPER 700,000 1,934 ---------------------------------------------------------------------------- 13,821 - --------------------------------------------------------------------------------------------------------------------- MALAYSIA--1.9% DCB Holdings Bhd BANKING 720,000 2,338 Hume Industries Bhd CONSTRUCTION MATERIAL MANUFACTURER 351,000 1,874 Magnum Corporation Bhd ENTERTAINMENT AND GAMING 1,145,000 1,815 Sungei Way Holdings Bhd BUILDING MATERIALS COMPANY 774,400 1,774 U M W Holdings Bhd EQUIPMENT MANUFACTURER 467,000 2,456 ---------------------------------------------------------------------------- 10,257 - --------------------------------------------------------------------------------------------------------------------- SINGAPORE--1.2% Cycle & Carriage Ltd. AUTOMOBILE SALES AND DISTRIBUTION 200,000 2,047 DBS Land Ltd. PROPERTY INVESTMENT 760,000 2,459 Development Bank of Singapore BANKING 159,000 1,891 ---------------------------------------------------------------------------- 6,397 - --------------------------------------------------------------------------------------------------------------------- INDONESIA--.3% Gudang Garam, PT CIGARETTE MANUFACTURER 400,000 1,679 ---------------------------------------------------------------------------- TOTAL PACIFIC REGION--21.1% 114,865 - --------------------------------------------------------------------------------------------------------------------- COMMONWEALTH COUNTRIES - --------------------------------------------------------------------------------------------------------------------- CANADA--5.9% Canadian National Railway Co. RAILWAY COMPANY 233,700 8,997 Petro-Canada OIL AND GAS COMPANY 645,300 10,567 (a)Philip Environmental WASTE COLLECTION AND RECYCLING COMPANY 804,700 12,674 ---------------------------------------------------------------------------- 32,238 - --------------------------------------------------------------------------------------------------------------------- NEW ZEALAND--.6% Tranz Rail Holdings Ltd. TRANSPORTATION 185,400 3,291 ---------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- AUSTRALIA--.2% Aristocrat ENTERTAINMENT 445,225 933 ---------------------------------------------------------------------------- TOTAL COMMONWEALTH COUNTRIES--6.7% 36,462 - ---------------------------------------------------------------------------------------------------------------------
12 13 PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------------------------------------- LATIN AMERICA - --------------------------------------------------------------------------------------------------------------------- MEXICO--4.1% Cementos Mexicanos, S.A. de C.V., "B," ADR CEMENT PRODUCER 1,068,000 $ 4,020 Fomento Economico Mexicano de C.V., "B," ADR BEER AND SOFT DRINK MANUFACTURER 705,000 3,361 Grupo Carso, S.A. de C.V., ADR INDUSTRIAL CONGLOMERATE 452,700 2,667 Grupo Casa Autrey, ADR PHARMACEUTICAL AND FOODS DISTRIBUTOR 117,700 2,045 Grupo Elektra, S.A. de C.V., GDR RETAILER 425,000 3,839 (a)Tubos de Acero de Mexico, S.A., ADR STEEL MANUFACTURER 399,900 6,548 ---------------------------------------------------------------------------- 22,480 - --------------------------------------------------------------------------------------------------------------------- BRAZIL--.6% Petroleo Brasileiro S.A. OIL AND GAS COMPANY 7,000,000 1,475 Telebras, S.A. TELEPHONE COMPANY 15,000,000 1,721 ---------------------------------------------------------------------------- 3,196 - --------------------------------------------------------------------------------------------------------------------- PERU--.5% Telefonica del Peru S.A., ADR TELECOMMUNICATION SERVICES 114,400 2,746 ---------------------------------------------------------------------------- TOTAL LATIN AMERICAN COUNTRIES--5.2% 28,422 ---------------------------------------------------------------------------- TOTAL COMMON STOCKS--92.2% (Cost: $404,392) 502,737 ---------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE MONEY MARKET Yield--5.60% to 5.73% INSTRUMENTS--7.9% Due--May and June 1997 Dynamic Funding Corp. $ 14,000 13,947 Whirlpool Financial Corp. 14,830 14,792 Other 14,000 13,959 ---------------------------------------------------------------------------- TOTAL MONEY MARKET INSTRUMENTS--7.9% (Cost: $42,691) 42,698 ---------------------------------------------------------------------------- TOTAL INVESTMENTS--100.1% (Cost: $447,083) 545,435 ---------------------------------------------------------------------------- LIABILITIES, LESS OTHER ASSETS--(.1)% (337) ---------------------------------------------------------------------------- NET ASSETS--100% $545,098 ----------------------------------------------------------------------------
13 14 PORTFOLIO OF INVESTMENTS At April 30, 1997, the Fund's portfolio of investments had the following industry diversification (dollars in thousands):
VALUE % - -------------------------------------------------------------------------------------- Finance $ 74,090 13.6 - -------------------------------------------------------------------------------------- Health Care 65,877 12.1 - -------------------------------------------------------------------------------------- Consumer Cyclicals 62,431 11.4 - -------------------------------------------------------------------------------------- Basic Industries 61,414 11.2 - -------------------------------------------------------------------------------------- Technology 57,342 10.5 - -------------------------------------------------------------------------------------- Consumer Staples 48,967 9.0 - -------------------------------------------------------------------------------------- Capital Goods 46,778 8.6 - -------------------------------------------------------------------------------------- Energy 41,321 7.6 - -------------------------------------------------------------------------------------- Utilities 29,497 5.4 - -------------------------------------------------------------------------------------- Transportation 15,020 2.8 - -------------------------------------------------------------------------------------- TOTAL COMMON STOCKS 502,737 92.2 - -------------------------------------------------------------------------------------- OTHER NET ASSETS 42,361 7.8 - -------------------------------------------------------------------------------------- NET ASSETS $545,098 100.0 - --------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ NOTES TO PORTFOLIO OF INVESTMENTS - ------------------------------------------------------------------------------ (a) Non-income producing security. Based on the cost of investments of $447,083,000 for federal income tax purposes at April 30, 1997, the gross unrealized appreciation was $106,014,000, the gross unrealized depreciation was $7,662,000 and the net unrealized appreciation on investments was $98,352,000. See accompanying Notes to Financial Statements. 14 15 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1997 (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments, at value (Cost: $447,083) $545,435 - ------------------------------------------------------------------------ Receivable for: Investments sold 11,774 - ------------------------------------------------------------------------ Fund shares sold 418 - ------------------------------------------------------------------------ Dividends 2,091 - ------------------------------------------------------------------------ TOTAL ASSETS 559,718 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------ Cash overdraft 815 - ------------------------------------------------------------------------ Payable for: Investments purchased 12,828 - ------------------------------------------------------------------------ Fund shares redeemed 128 - ------------------------------------------------------------------------ Management fee 305 - ------------------------------------------------------------------------ Distribution services fee 77 - ------------------------------------------------------------------------ Administrative services fee 95 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 316 - ------------------------------------------------------------------------ Trustees' fees 56 - ------------------------------------------------------------------------ Total liabilities 14,620 - ------------------------------------------------------------------------ NET ASSETS $545,098 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Paid-in capital $439,882 - ------------------------------------------------------------------------ Undistributed net realized gain on investments and foreign currency transactions 6,582 - ------------------------------------------------------------------------ Net unrealized appreciation on investments and assets and liabilities in foreign currencies 98,634 - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $545,098 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ THE PRICING OF SHARES - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($388,801 / 32,241 shares outstanding) $12.06 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $12.80 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($125,801 / 10,526 shares outstanding) $11.95 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($12,308 / 1,029 shares outstanding) $11.96 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price per share ($18,188 / 1,508 shares outstanding) $12.06 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 15 16 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1997 (IN THOUSANDS) - ----------------------------------------------------------------------- INVESTMENT INCOME - ----------------------------------------------------------------------- Dividends $ 3,163 - ----------------------------------------------------------------------- Interest 587 - ----------------------------------------------------------------------- 3,750 - ----------------------------------------------------------------------- Less foreign taxes withheld 357 - ----------------------------------------------------------------------- Total investment income 3,393 - ----------------------------------------------------------------------- Expenses: Management fee 1,852 - ----------------------------------------------------------------------- Administrative services fee 564 - ----------------------------------------------------------------------- Distribution services fee 442 - ----------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 1,538 - ----------------------------------------------------------------------- Professional fees 59 - ----------------------------------------------------------------------- Reports to shareholders 61 - ----------------------------------------------------------------------- Trustees' fees and other 33 - ----------------------------------------------------------------------- Total expenses 4,549 - ----------------------------------------------------------------------- NET INVESTMENT LOSS (1,156) - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS - ----------------------------------------------------------------------- Net realized gain on sales of investments and foreign currency transactions 7,166 - ----------------------------------------------------------------------- Change in net unrealized appreciation on investments and assets and liabilities in foreign currencies 31,650 - ----------------------------------------------------------------------- Net gain on investments 38,816 - ----------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $37,660 - ----------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED APRIL 30, OCTOBER 31, 1997 1996 - ---------------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY Net investment income (loss) $ (1,156) 847 - ---------------------------------------------------------------------------------------------- Net realized gain 7,166 32,629 - ---------------------------------------------------------------------------------------------- Change in net unrealized appreciation 31,650 21,127 - ---------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 37,660 54,603 - ---------------------------------------------------------------------------------------------- Net equalization credits (charges) (182) 399 - ---------------------------------------------------------------------------------------------- Distribution from net investment income (4,091) (3,561) - ---------------------------------------------------------------------------------------------- Distribution from net realized gain (27,136) (1,726) - ---------------------------------------------------------------------------------------------- Total dividends to shareholders (31,227) (5,287) - ---------------------------------------------------------------------------------------------- Net increase from capital share transactions 66,604 57,820 - ---------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 72,855 107,535 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------------- Beginning of period 472,243 364,708 - ---------------------------------------------------------------------------------------------- END OF PERIOD (including undistributed net investment income of $4,541 in 1996) $545,098 472,243 - ----------------------------------------------------------------------------------------------
16 17 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE Kemper International Fund is an open-end management FUND investment company organized as a business trust under the laws of Massachusetts. The Fund currently offers four classes of shares. Class A shares are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Class I shares are sold to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Differences in class expenses will result in the payment of different per share income dividends by class. All shares of the Fund have equal rights with respect to voting, dividends and assets, subject to class specific preferences. - -------------------------------------------------------------------------------- 2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at ACCOUNTING POLICIES value. Portfolio securities that are traded on a domestic securities exchange are valued at the last sale price on that exchange or, if there is no recent sale price available, at the last current bid quotation. Portfolio securities that are primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on their respective exchanges where primarily traded. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security by the Board of Trustees or its delegates. All other securities not so traded are valued at the last current bid quotation if market quotations are available. Fixed income securities are valued by using market quotations, or independent pricing services that use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Equity options are valued at the last sale price unless the bid price is higher or the asked price is lower, in which event such bid or asked price is used. Financial futures and options thereon are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Forward foreign currency contracts and foreign currencies are valued at the forward and current exchange rates, respectively, prevailing on the day of valuation. Other securities and assets are valued at fair value as determined in good faith by the Board of Trustees. CURRENCY TRANSLATION. The books and records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currency values are converted into U.S. dollar values at the mean between the bid and offered quotations of such currencies against U.S. dollars as last quoted by a recognized dealer. If such quotations are not readily available, the rates of exchange are determined in good faith by the Board of Trustees. Income and expenses and purchases and sales of investments are translated into U.S. dollars at the rates of exchange prevailing on the 17 18 NOTES TO FINANCIAL STATEMENTS respective dates of such transactions. The Fund includes that portion of the results of operations resulting from changes in foreign exchange rates with net realized and unrealized gain (loss) on investments, as appropriate. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded on the accrual basis and includes discount amortization on money market instruments. Realized gains and losses from investment transactions are reported on an identified cost basis. FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B and Class C shares will be reduced by the amount of any applicable contingent deferred sales charge. On each day the New York Stock Exchange is open for trading, the net asset value per share is determined as of the earlier of 3:00 p.m. Chicago time or the close of the Exchange. The net asset value per share is determined separately for each class by dividing the Fund's net assets attributable to that class by the number of shares of the class outstanding. Because of the need to obtain prices as of the close of trading on various exchanges throughout the world, the calculation of net asset value does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities. FEDERAL INCOME TAXES. The Fund has complied with the special provisions of the Internal Revenue Code available to investment companies during the six months ended April 30, 1997. DIVIDENDS TO SHAREHOLDERS. The Fund declares and pays dividends of net investment income and net realized capital gains annually, which are recorded on the ex-dividend date. Dividends are determined in accordance with income tax principles which may treat certain transactions differently from generally accepted accounting principles. These differences are primarily due to differing treatments for certain transactions such as foreign currency transactions. EQUALIZATION ACCOUNTING. A portion of proceeds from sales and cost of redemptions of Fund shares is credited or charged to undistributed net investment income so that income per share available for distribution is not affected by sales or redemptions of shares. - -------------------------------------------------------------------------------- 3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The Fund has a management AFFILIATES agreement with Zurich Kemper Investments, Inc. (ZKI) and pays a management fee at an annual rate of .75% of the first $250 million of average daily net assets declining to .62% of average daily net assets in excess of $12.5 billion. The Fund incurred a management fee of $1,852,000 for the six months ended April 30, 1997. Zurich Investment Management Limited, an affiliate of ZKI, serves as sub-adviser with respect to foreign securities investments in the Fund, and is paid by ZKI for its services. 18 19 NOTES TO FINANCIAL STATEMENTS UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with Zurich Kemper Distributors, Inc. (ZKDI) (formerly known as Kemper Distributors, Inc.). Underwriting commissions paid in connection with the distribution of Class A shares are as follows:
COMMISSIONS COMMISSIONS RETAINED BY ALLOWED BY ZKDI ZKDI TO FIRMS ----------- --------------- Six months ended April 30, 1997 $52,000 457,000
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:
DISTRIBUTION FEES COMMISSIONS AND AND CDSC DISTRIBUTION FEES PAID RECEIVED BY ZKDI BY ZKDI TO FIRMS ----------------- ---------------------- Six months ended April 30, 1997 $540,000 850,000
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:
ASF PAID BY THE FUND TO ASF PAID BY ZKDI ZKDI TO FIRMS ----------- ---------------- Six months ended April 30, 1997 $564,000 595,000
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the Fund's transfer agent, Zurich Kemper Service Company (ZKSvC) (formerly known as Kemper Service Company) is the shareholder service agent of the Fund. Under the agreement, ZKSvC received shareholder services fees of $891,000 for the six months ended April 30, 1997. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of ZKI. During the six months ended April 30, 1997, the Fund made no payments to its officers and incurred trustees' fees of $11,000 to independent trustees. 19 20 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4 INVESTMENT For the six months ended April 30, 1997, investment TRANSACTIONS transactions (excluding short-term instruments) are as follows (in thousands): Purchases $204,862 Proceeds from sales 198,431 - -------------------------------------------------------------------------------- 5 CAPITAL SHARE The following table summarizes the activity in TRANSACTIONS capital shares of the Fund (in thousands):
--------------------- ----------------------- SIX MONTHS ENDED YEAR ENDED APRIL 30, 1997 OCTOBER 31, 1996 --------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------------- SHARES SOLD ---------------------------------------------------------------------------- Class A 5,072 $ 59,834 9,032 $ 103,622 ---------------------------------------------------------------------------- Class B 3,640 43,610 6,520 75,871 ---------------------------------------------------------------------------- Class C 480 5,773 558 6,539 ---------------------------------------------------------------------------- Class I 417 4,947 922 10,499 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES ISSUED IN REINVESTMENT OF DIVIDENDS ---------------------------------------------------------------------------- Class A 1,999 22,694 432 4,573 ---------------------------------------------------------------------------- Class B 507 5,766 27 288 ---------------------------------------------------------------------------- Class C 42 480 1 15 ---------------------------------------------------------------------------- Class I 102 1,173 23 243 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- SHARES REDEEMED ---------------------------------------------------------------------------- Class A (4,506) (53,249) (9,179) (104,837) ---------------------------------------------------------------------------- Class B (1,616) (19,380) (2,290) (28,074) ---------------------------------------------------------------------------- Class C (113) (1,381) (145) (1,808) ---------------------------------------------------------------------------- Class I (311) (3,663) (787) (9,111) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- CONVERSION OF SHARES ---------------------------------------------------------------------------- Class A 163 1,954 139 1,595 ---------------------------------------------------------------------------- Class B (165) (1,954) (140) (1,595) ---------------------------------------------------------------------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $ 66,604 $ 57,820 ----------------------------------------------------------------------------
20 21 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6 FORWARD FOREIGN In order to protect itself against a decline in the CURRENCY value of particular foreign currencies against the U.S. Dollar, the Fund has entered into forward contracts to deliver foreign currency in exchange for U.S. Dollars as described below. The Fund bears the market risk that arises from changes in foreign exchange rates, and accordingly, the net unrealized gain on these contracts is reflected in the accompanying financial statements. The Fund also bears the credit risk if the counterparty fails to perform under the contract. At April 30, 1997, the Fund had the following forward foreign currency contracts outstanding with settlement dates in July 1997:
CONTRACT UNREALIZED FOREIGN CURRENCY AMOUNT IN GAIN (LOSS) TO BE DELIVERED U.S. DOLLARS AT 4/30/97 ------------------------------------------------------------------ 76,000,000 Dutch Guilders $39,301,000 $ 39,000 ------------------------------------------------------------------ 102,000,000 French Francs 17,625,000 50,000 ------------------------------------------------------------------ 26,425,000 German Marks 15,372,000 17,000 ------------------------------------------------------------------ 5,000,000,000 Japanese Yen 40,154,000 236,000 ------------------------------------------------------------------ 900,000,000 Spanish Pesetas 6,160,000 (6,000) ------------------------------------------------------------------ 26,880,000 Swiss Francs 18,459,000 35,000 ------------------------------------------------------------------ NET UNREALIZED GAIN $371,000 ------------------------------------------------------------------
21 22 FINANCIAL HIGHLIGHTS
---------------------------------------------------- CLASS A ---------------------------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, --------------------------------- 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.96 10.59 11.13 10.56 8.17 - -------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.01) .04 .07 -- .03 - -------------------------------------------------------------------------------------------------------- Net realized and unrealized gain .91 1.50 .05 .86 2.54 - -------------------------------------------------------------------------------------------------------- Total from investment operations .90 1.54 .12 .86 2.57 - -------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .12 .12 -- -- .18 - -------------------------------------------------------------------------------------------------------- Distribution from net realized gain .68 .05 .66 .29 -- - -------------------------------------------------------------------------------------------------------- Total dividends .80 .17 .66 .29 .18 - -------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.06 11.96 10.59 11.13 10.56 - -------------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 7.94% 14.70 1.69 8.32 32.08 RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) Expenses 1.58% 1.64 1.57 1.54 1.69 - -------------------------------------------------------------------------------------------------------- Net investment income (loss) (.24)% .34 .83 .02 .37 - -------------------------------------------------------------------------------------------------------- ----------------------------------------------------------- CLASS B ----------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, MAY 31 TO APRIL 30, ---------------------- OCTOBER 31, 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- 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 (.07) (.06) (.02) (.04) - --------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain .91 1.47 .05 .55 - --------------------------------------------------------------------------------------------------------------- Total from investment operations .84 1.41 .03 .51 - --------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .02 .01 -- -- - --------------------------------------------------------------------------------------------------------------- Distribution from net realized gain .68 .05 .66 -- - --------------------------------------------------------------------------------------------------------------- Total dividends .70 .06 .66 -- - --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.95 11.81 10.46 11.09 - --------------------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 7.38% 13.59 .84 4.82 RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) Expenses 2.58% 2.53 2.50 2.58 - --------------------------------------------------------------------------------------------------------------- Net investment loss (1.24)% (.55) (.10) (.97) - ---------------------------------------------------------------------------------------------------------------
22 23 FINANCIAL HIGHLIGHTS
----------------------------------------- -------------------------------------- CLASS C CLASS I ----------------------------------------- -------------------------------------- SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED ENDED OCTOBER 31, MAY 31 TO ENDED OCTOBER 31, JULY 3 TO APRIL 30, -------------- OCTOBER 31, APRIL 30, ----------- OCTOBER 31, 1997 1996 1995 1994 1997 1996 1995 - ------------------------------------------------------------------------------ -------------------------------------- PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------ -------------------------------------- Net asset value, beginning of period $11.81 10.46 11.09 10.58 11.99 10.61 10.09 - ------------------------------------------------------------------------------ -------------------------------------- Income from investment operations: Net investment income (loss) (.06) (.06) (.02) (.04) .02 .10 .04 Net realized and unrealized gain .91 1.47 .05 .55 .92 1.48 .48 - ------------------------------------------------------------------------------ -------------------------------------- Total from investment operations .85 1.41 .03 .51 .94 1.58 .52 - ------------------------------------------------------------------------------ -------------------------------------- Less dividends: Distribution from net investment income .02 .01 -- -- .19 .15 -- Distribution from net realized gain .68 .05 .66 -- .68 .05 -- - ------------------------------------------------------------------------------ -------------------------------------- Total dividends .70 .06 .66 -- .87 .20 -- - ------------------------------------------------------------------------------ -------------------------------------- Net asset value, end of period $11.96 11.81 10.46 11.09 12.06 11.99 10.61 - ------------------------------------------------------------------------------ -------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 7.50% 13.59 .84 4.82 8.27 15.19 5.15 RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------ -------------------------------------- Expenses 2.47% 2.50 2.50 2.52 1.10 1.10 .85 - ------------------------------------------------------------------------------ -------------------------------------- Net investment income (loss) (1.13)% (.52) (.10) (.91) .24 .88 1.32 - ------------------------------------------------------------------------------ --------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA FOR ALL CLASSES - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, ------------------------------------- 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Net assets at end of year (in thousands) $545,098 472,243 364,708 418,282 289,898 - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate (annualized) 73% 104 114 103 156 - -------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended April 30, 1997 and year ended October 31, 1996 were $.0115 and $.0182, respectively. Foreign commissions usually are lower than U.S. commissions when expressed as cents per share due to the lower per share price of many non-U.S. securities. - -------------------------------------------------------------------------------- NOTES: Total return does not reflect the effect of any sales charges. Per share data for the years ended 1995 and 1996 were determined based on average shares outstanding. 23 24 TRUSTEES AND OFFICERS TRUSTEES OFFICERS STEPHEN B. TIMBERS CHARLES R. MANZONI, JR. President and Trustee Vice President DAVID W. BELIN JOHN E. NEAL Trustee Vice President LEWIS A. BURNHAM STEVEN H. REYNOLDS Trustee Vice President DONALD L. DUNAWAY PHILIP J. COLLORA Trustee Vice President and Secretary ROBERT B. HOFFMAN Trustee JEROME L. DUFFY Treasurer DONALD R. JONES Trustee ELIZABETH C. WERTH Assistant Secretary DOMINIQUE P. MORAX Trustee SHIRLEY D. PETERSON Trustee WILLIAM P. SOMMERS Trustee - -------------------------------------------------------------------------------- LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 - -------------------------------------------------------------------------------- SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY P.O. Box 419557 Kansas City, MO 64141 - -------------------------------------------------------------------------------- CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY 127 West 10th Street Kansas City, MO 64105 - -------------------------------------------------------------------------------- FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK Chase Metro Center Brooklyn, NY 11245 - -------------------------------------------------------------------------------- INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC. PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 www.kemper.com [RECYCLED LOGO] Printed on recycled paper in the U.S.A. This report is not to be distributed unless preceded or accompanied by a Kemper International Fund prospectus. KIF - 3 (6/97) 1033400 Printed in the U.S.A. [KEMPER FUNDS LOGO] -----END PRIVACY-ENHANCED MESSAGE-----