-----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, DXlZQIB4rqdMK58PvwAIPBnYw0N3iLo6q5yWVtuJUABjMXbp+pUhZrpBjJmn7igS Q8iBFMMCdzi7BabODaATxA== 0000950137-98-002622.txt : 19980629 0000950137-98-002622.hdr.sgml : 19980629 ACCESSION NUMBER: 0000950137-98-002622 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980626 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: SEC FILE NUMBER: 811-03136 FILM NUMBER: 98654494 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 SEMI-ANNUAL REPORT DATED APRIL 30,1998 1 SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30,1998 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) [LOGO] Seeking total return, a combination of capital growth and income, principally through an internationally diversified portfolio of equity securities KEMPER INTERNATIONAL FUND "... We were primarily invested in Europe throughout the period, focusing on financial services, pharmaceuticals and the corporate service areas. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 ECONOMIC OVERVIEW 5 PERFORMANCE UPDATE 8 INDUSTRY SECTORS 9 LARGEST HOLDINGS 10 PORTFOLIO OF INVESTMENTS 15 FINANCIAL STATEMENTS 17 NOTES TO FINANCIAL STATEMENTS 21 FINANCIAL HIGHLIGHTS 23 SHAREHOLDERS' MEETING AT A GLANCE - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] - -------------------------------------------------------------------------------- CLASS A 15.14% CLSAS B 14.61% CLASS C 14.60% LIPPER INTERNATIONAL FUNDS CATEGORY AVERAGE* 16.25% - --------------------------------------------------------------------------------
Returns and rankings are historical and do not represent future performance. Returns and net asset value fluctuate. Shares are redeemable at current net asset value, which may be more or less than original cost. * Lipper Analytical Services, Inc. returns and rankings are based upon changes in net asset value with all dividends reinvested and do not include the effect of sales charges and, if they had, results may have been less favorable.
- -------------------------------------------------------------------------------- NET ASSET VALUE - -------------------------------------------------------------------------------- AS OF AS OF 4/30/98 10/31/97 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS A $13.87 $12.68 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS B $13.69 $12.50 - -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND CLASS C $13.70 $12.51 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEMPER INTERNATIONAL FUND RANKINGS - -------------------------------------------------------------------------------- COMPARED TO ALL OTHER FUNDS IN THE LIPPER INTERNATIONAL FUNDS CATEGORY*
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- 1-YEAR #217 of 466 funds #255 of 466 funds #256 of 466 funds - -------------------------------------------------------------------------------- 5-YEAR #29 of 128 funds N/A N/A - -------------------------------------------------------------------------------- 10-YEAR #14 of 35 funds N/A N/A - -------------------------------------------------------------------------------- 15-YEAR #6 of 11 funds N/A N/A - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- DURING THE PERIOD, KEMPER INTERNATIONAL FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- INCOME DIVIDEND $0.0775 -- -- - -------------------------------------------------------------------------------- LONG-TERM CAPITAL GAIN $0.5500 $0.5500 $0.5500 - --------------------------------------------------------------------------------
Investment in foreign securities presents special risk considerations including fluctuating currency exchange rates, government regulation and differences in liquidity that may increase the volatility of your investment. TERMS TO KNOW YOUR FUNDS' STYLE - -------------------------------------------------------------------------------- MORNINGSTAR EQUITY FUNDS STYLE BOX - -------------------------------------------------------------------------------- (STYLE SIZE DIAGRAM) Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar's Style Box is based on a portfolio date as of April 30, 1998.) 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. EMERGING MARKETS A developing or emerging country in the initial stages of its industrial cycle. Developing or "emerging" markets involve exposure to economic structures and political systems that are generally less diverse, mature and stable than in the United States. INDEX An unmanaged group of securities that is considered representative of the stock or bond markets. An index does not take into account any fees or expenses related to the individual securities that it tracks. However, for performance comparisons, the index is adjusted to reflect reinvestment of the securities' dividends. MARKET CAPITALIZATION A measure of the size of a publicly traded company, as determined by multiplying the current price per share by the number of shares outstanding. The market capitalization of a company has bearing on its perceived earnings potential and risk. Small cap companies (less than $1 billion) may present the potential for greater growth than larger, more established companies. On the other hand, the stock of small cap companies may be expected to be more volatile and, therefore, a greater risk to capital. 3 ECONOMIC OVERVIEW [SILVIA PHOTO] DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE FOR KEMPER FUNDS. SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY. SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS, INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES. DEAR SHAREHOLDERS, Stable economic growth, low interest rates and sustained lower inflation have continued to produce a beneficial market environment for investors in the second quarter of 1998. Despite heightened sensitivity to earnings estimates and announcements, the market continued to support financial assets. We expect this favorable climate to continue -- in spite of the sensitivity -- at least over the shorter term. As always, expectations have been at the heart of the actions and reactions that move the markets. Expectations appear to be high, as demonstrated by a record flow of new cash into mutual funds. As of April 30, 1998, a record $5 trillion in mutual fund assets surpassed total assets of the nation's banks, according to the Investment Company Institute, a trade organization that monitors the mutual fund industry, and the Federal Reserve Bank in Washington. Unfortunately, high expectations often combine with high anxiety -- today's investors are attuned to even the smallest hint of economic change. The result is volatility. Many who believe that our long-running bull market is too good to be true or that stock prices are too high are wondering when the market will reverse. While a reversal may not be on the immediate horizon, investors are wise to watch for several signs that change is underway: rising prices, indicating higher inflation; repercussions of the Asian economic crisis on American business, which could appear in the form of reduced earnings; and a continued widening of our trade deficit, a serious imbalance caused by heightened American demand for foreign goods and services. On April 27, expectations were tested by reports that the Federal Reserve Board ("the Fed") was considering a hike in interest rates. The markets reacted immediately to this news, driving stock prices downward. But at its monetary policy meeting on May 19, the Fed chose to leave interest rates alone. In the coming months, the Fed could raise rates if inflation accelerates or if growth appears to be too rapid compared to the Fed's expectations. Our positive outlook for the short term is based primarily on the current resiliency of our marketplace. The United States appears to be firmly planted in the middle of an economic cycle, with no evidence of detrimental pressures that might be associated with the market's phenomenal growth. We are not seeing price increases for goods and services or a downturn in the housing market, both of which we might expect late in an economic cycle. Equities have continued to reward investors. The U.S. stock market, as measured by the Standard & Poor's 500, gained nearly 14 percent in the first quarter of 1998 and returned more than 13 percent year-to-date through the end of May. Bonds have also rewarded investors in terms of real return, which is total return less the rate of inflation. The high yield and corporate debt fixed-income markets also have performed well. U.S. economic growth, as measured by the gross domestic product (GDP) growth rate, was slightly above 4 percent for the first quarter. Our general expectation for the year is that growth in all of 1998 will increase between 2.5 and 3 percent over last year. In other words, the economy will remain strong, but will slow down as the year progresses. Consumer spending and corporate fixed investment have fueled the economy's solid growth. Spending on both capital goods and high technology has been strong. Corporate profits have grown between 5 and 10 percent, which appears to be acceptable in an environment of stable interest rates. U.S. employment growth has ranged from 2 to 2.25 percent, continuing to exceed expectations. Consumer confidence has continued to hit near all-time highs. The increase in output prices, an indicator of inflation measured by the Consumer Price Index (CPI), has remained at 1.5 to 2 percent. Adding to the good news, all seems to be quiet on the domestic policy front. At the end of February, the U.S. federal budget deficit essentially vanished. Recent efforts to reduce the deficit, combined with higher federal revenues due to the robust economy, have left us with an expected budget surplus of $60 billion to $80 billion for fiscal 1998. To date, our Democratic president and Republican Congress have not agreed on any significant legislation regarding tax credits, spending cuts or health care that could threaten the newfound federal budget surplus. Can we expect a little more excitement from overseas? A full-scale global recession from last year's Asian economic crisis seems unlikely at this point. The crisis has yet 3 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]
NOW (5/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO 10-YEAR TREASURY RATE(1) 5.65 5.81 6.49 6.91 PRIME RATE(2) 8.5 8.5 8.5 8.25 INFLATION RATE(3)* 1.5 1.89 2.23 2.89 THE U.S. DOLLAR(4) 6.86 10.26 5.52 9.15 CAPITAL GOODS ORDERS(5)* 9.28 10.28 7.16 3.48 INDUSTRIAL PRODUCTION(5)* 3.85 5.76 4.28 3.79 EMPLOYMENT GROWTH(6) 2.61 2.8 2.5 2.13
(1) Falling interest rates in recent years have been a big plus for financial assets. (2) The interest rate that commercial lenders charge their best borrowers. (3) Inflation reduces an investor's real return. In the last five years, inflation has been as high as 6 percent. The low, moderate inflation of the last few years has meant high real returns. (4) Changes in the exchange value of the dollar impact U.S. exporters and the value of U.S. firms' foreign profits. (5) These influence corporate profits and equity performance. (6) An influence on family income and retail sales. * Data as of April 30, 1998. SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC. to hurt most U.S. businesses and investors. Quite the contrary. While the mere threat of repercussions from the Asian crisis added to the anxiety mentioned earlier, it has also had the effect of keeping U.S. interest rates and prices in check, making the U.S. economy all the more attractive to investors around the world. In the global economy, the U.S. dollar continues to appreciate in value compared to other currencies. In fact, more capital is flowing into U.S. markets as investors generally avoid Asia. Europe also has been benefiting from the crisis. Canada, which is a commodity-producing exporter, has been somewhat negatively affected as commodity prices have fallen. Political unrest in Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia have been keeping international investors on the edges of their seats. Other major developments abroad include the final selection of countries to participate in Europe's single currency next year. Many European countries are adopting more restrictive fiscal policy and reducing inflation in anticipation of the momentous European Economic and Monetary Union (EMU). But after the EMU is established in 1999, tensions may indeed mount as countries work to adapt to the new structure. As we approach the turn of the century, one caveat remains: Don't underestimate the potential of the Year 2000 computer code problem. It appears that a significant number of federal government agencies will not meet the criteria necessary to avoid the problem. Many businesses are revealing that billions of dollars are being spent on the situation. Some experts say a global recession is in store. Others adamantly disagree. In any event, we may indeed see a reduction in capital spending toward the end of 1998 and the first half of next year as companies focus on fixing existing computers rather than on purchasing new equipment. We'll keep you posted! Thank you for your continued support. We appreciate the opportunity to serve your investment needs. Sincerely, /s/ John E. Silvia JOHN E. SILVIA June 10, 1998 4 5 PERFORMANCE UPDATE [FERRO PHOTO] DENNIS FERRO JOINED THE ORGANIZATION IN 1994. HE IS MANAGING DIRECTOR OF INTERNATIONAL EQUITIES 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. DURING THE SIX MONTHS FROM OCTOBER 31, 1997 THROUGH APRIL 30, 1998, AN EXPANDING ECONOMY AND CORPORATE GROWTH IN EUROPE PRESENTED ABUNDANT INVESTMENT OPPORTUNITIES FOR KEMPER INTERNATIONAL FUND, DESPITE THE FALLING ASIAN MARKETS. PORTFOLIO MANAGER DENNIS FERRO DISCUSSES SOME OF THE BEST PERFORMING AREAS FOR GROWTH AND THE OPPORTUNITIES AHEAD FOR INTERNATIONAL INVESTMENTS. Q HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDING APRIL 30, 1998? A Kemper International Fund returned 15.14 percent (Class A shares unadjusted for any sales charge) for the six-month period ended April 30, 1998, thanks to the remarkable growth in the European market. For the same period, the EAFE Index returned 15.59 percent. During the months of January and February, Kemper International Fund underperformed the index because of its underweight position in Japan, which bounced up briefly during those months. As that bounce dropped back down in March and April, the fund gained back and outperformed the index for the three-month period ending in April. The fund's six-month underperformance can be partially attributed to some of the European pharmaceutical holdings where we may have overstayed our welcome. We were also slightly underweighted in telecommunications companies, which were strong performers. Q CAN YOU DISCUSS THE GLOBAL ECONOMIC SITUATION OVER THE PAST SIX MONTHS? WHAT WAS HAPPENING IN EACH OF THE KEY REGIONS: EUROPE, SOUTHEAST ASIA, JAPAN, AND LATIN AMERICA? A During this period we've had a two-tiered market environment on the global economic stage. On one hand we've had the fast-growing Western economies, which would include the United States and Canada and a good part of Western Europe. These regions have been characterized by low interest rates, low inflation and a strong U.S. dollar. The stronger U.S. dollar has actually benefited both sides of the equation by helping European exporters ship goods outside of the European marketplace and keeping inflation rates down in the United States. The other tier of economic activity is in Asia, which has been characterized by dramatically slowing growth, credit concerns and a general reduction in corporate profitably. Southeast Asia faced a very difficult period in late 1997, when there were serious concerns about creditworthiness as sovereign debt ratings were downgraded. An IMF finance package had to be put in place for Korea, which was the area of immediate concern. Japan has announced several different programs to jump-start their economy; but none have been taken well by either the economy or the equity markets. We did not see any meaningful improvement in economic activity in Japan or the rest of Asia during the six-month period. The political challenges in dealing with the crisis remain very large. While a number of Asian markets moved higher earlier this year, reflecting an optimism that things might soon get better, reality has overcome wishful thinking. Those markets that saw 5 6 PERFORMANCE UPDATE jumps have since given back most of those temporary gains. Because it is also an emerging region, the Latin American markets have been linked to the Asian markets. However, we don't believe it is an accurate comparison. There has been some threat to certain export industries in Mexico from cheaper product being exported out of Asia due to the decline in those currencies. While the Mexican economy has continued to improve, its equity market has not reflected that improvement. Q WHAT INDUSTRIES DID YOU FOCUS ON IN LIGHT OF ECONOMIC CONDITIONS? A The fund was primarily invested in Europe throughout the period, focusing on financial services, pharmaceuticals and the corporate service areas. The financial services industry is benefiting from lower interest rates and the demographic theme of increased savings. Our focus on the pharmaceutical sector was consistent with our demographic theme of investing in companies that provide products and services to an aging population. Another important theme is European corporate restructuring and the movement toward higher levels of profitability. The corporate services area should be a major beneficiary of this trend. These are companies that provide security services, office-cleaning services, temporary employment services and general outsource capabilities to businesses. We also believe that as European companies restructure and as technology is used to a greater extent, an increased emphasis on office efficiency will create demand for customized software. So, we're looking for firms that can fill this need. As far as Asia, the fund was meaningfully underweighted in the region. Going into the period, the fund had only a 1.0 percent position in Hong Kong, after we sold all other Southeast Asia positions earlier in 1997. In Japan the fund was underweight as of the end of October at about 12.5 percent and we continued to slim that during the period, finishing April at 8.8 percent. We have not added any money into either market. Q CAN YOU GIVE EXAMPLES OF SOME STOCKS THAT YOU INVESTED IN UNDER EACH OF THESE THEMES? A Sure. We're quite happy with SAP, a German firm that is one of the largest software companies in Europe. Banco Santander and Bank of Ireland are two of our bank holdings. Rentokil is a UK company that provides a broad cross-section of corporate services. In the pharmaceutical sector we've owned Roche Holdings, Novartis, Glaxo Wellcome and Zeneca, which are all large companies in that industry. Q WITH SUCH A WIDE INVESTMENT ARENA, IT MUST BE DIFFICULT TO DECIDE WHICH COMPANIES AND COUNTRIES TO INVEST IN. CAN YOU EXPLAIN THE INVESTMENT PROCESS YOU USE? A Our investment process blends together the disciplines of individual company analysis conducted within a framework of economic expectations. Although we spend most of our time analyzing individual companies, the investment team meets quarterly to review the economic prospects of different countries in different regions of the world. We identify major investment themes and trends in economic growth that will support earnings growth while discerning the risks inherent in various economies. We look at four components: the country's economic environment, current market valuations, themes or opportunities within individual markets and areas of specific risk. That helps us identify which markets or regions are the most attractive when both return and risk are considered. We spend 80 percent of our time analyzing individual stocks, including examining their financial statistics, understanding their profit dynamics and visiting company managements to confirm their major business strategies. Q DID YOU HEDGE THE FUND AT ALL DURING THE PAST SIX MONTHS? A No, not at all. Our hedging policy is to hedge only when we think there is a high level of risk for the base currency of our investors' U.S. dollars. During this period of time, we felt that most currencies would range trade around a central point against the dollar and that there was not an above average amount of risk. That's in fact been the case. If you hedge, you add additional volatility to the portfolio and we didn't think adding the volatility in the range-trading environment made sense. Q LOOKING FORWARD, WHAT ARE SOME GLOBAL ECONOMIC TRENDS WE CAN EXPECT, AND HOW WILL YOU POSITION THE FUND TO CAPITALIZE ON THEM? A We believe that growth and corporate profits will surprise on the up side in Europe, creating a positive underpinning for the markets. Europe continues to be a very attractive area over a two- to five-year period. Shorter term, the markets have come a very long way and 6 7 PERFORMANCE UPDATE they may rest a while before they move on to the next higher level. We feel we have the fund appropriately positioned for this growth. Reductions were made in the pharmaceutical area while we added to the service area and to some areas of the telephone sector. Exposure to stocks that are sensitive to economic activity was increased because we believe economic activity will be picking up. In Southeast Asia we believe patience is required. It will take time before the full financial effects of the most recent disappointing economic activity and poor financial management is fully worked through the system. While the market itself is still unattractive, I do think the current environment of weakened stock prices creates an opportunity to very selectively look for bargains. Those firms with strong finances that may have been beaten down temporarily will be leaders when the region eventually does recover. We expect to go about that selection process very methodically, so we're not looking to meaningfully increase our exposure there at the moment. The same thing can be said for Japan, where economic policy, especially on the fiscal side, seems to be hamstrung by cultural background and the dominance of the ministries in managing the financial sector and business in general. So we're looking for companies that are competitive globally and that sell at attractive prices. We'll move slowly back into specific opportunities there. In Latin America, we'd look to continue to invest in companies that have unique valuations and characteristics and very strong balance sheets. On an intermediate-term or long-term basis, which any investor should be looking at, I think that international markets and those dominated by exposure to the fast growth in Europe present a very good investment opportunity. Q SO THIS IS STILL A GOOD TIME TO BE INVESTED IN INTERNATIONAL FUNDS? A Today's world, with its global economy, will create increasing opportunities for companies that have competitive advantages. And not all of those companies are in the United States. Investors should look to invest in funds that give them exposure to the best companies outside the United States as a natural complement to their domestic portfolios. And I do think that growth outside the United States, particularly as Europe expands and Asia also does so later on, has the potential to be as large, if not larger than, that within the United States. 7 8 INDUSTRY SECTORS KEMPER INTERNATIONAL FUND'S COUNTRY EXPOSURE COMPARED TO ITS BENCHMARK 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 as of April 30, 1998. Differences in the composition help explain the differences in the performance of each. Please note, the fund also invests in other countries not reflected in the EAFE Index. [BAR GRAPH]
KEMPER INTERNATIONAL FUND ON 4/30/98 EAFE INDEX ON 4/30/98 NETHERLANDS 16.6% 5.8% UNITED KINGDOM 11.5% 21.7% SWITZERLAND 9.9% 7.8% JAPAN 8.8% 22.0% FRANCE 8.8% 8.8% ITALY 8.3% 4.7% GERMANY 4.3% 10.3% MEXICO 2.5% 0% AUSTRALIA 1.7% 2.5% HONG KONG 1.7% 2.1%
8 9 LARGEST HOLDINGS KEMPER INTERNATIONAL FUND'S TOP 20 HOLDINGS* Following is a list of the top 20 holdings in the fund as of April 30, 1998 and the percentage of net assets for each holding.
HOLDINGS COUNTRY PERCENT - ------------------------------------------------------------------------------------------------------- 1. ING GROEP Netherlands 3.3% - ------------------------------------------------------------------------------------------------------- 2. TELECOM ITALIA MOBILE Italy 2.9% - ------------------------------------------------------------------------------------------------------- 3. ELF AQUITAINE France 2.9% - ------------------------------------------------------------------------------------------------------- 4. AKZO NOBEL Netherlands 2.7% - ------------------------------------------------------------------------------------------------------- 5. NESTLE Switzerland 2.6% - ------------------------------------------------------------------------------------------------------- 6. AXA-UAP France 2.5% - ------------------------------------------------------------------------------------------------------- 7. UNION BANK OF SWITZERLAND Switzerland 2.4% - ------------------------------------------------------------------------------------------------------- 8. TELECOM ITALIA Italy 2.1% - ------------------------------------------------------------------------------------------------------- 9. MANNESMANN Germany 2.0% - ------------------------------------------------------------------------------------------------------- 10. BRITISH PETROLEUM United Kingdom 2.0% - ------------------------------------------------------------------------------------------------------- 11. VEDIOR Netherlands 1.9% - ------------------------------------------------------------------------------------------------------- 12. ASSICURAZIONI GENERALI Italy 1.9% - ------------------------------------------------------------------------------------------------------- 13. VIAG Germany 1.6% - ------------------------------------------------------------------------------------------------------- 14. GETRONICS Netherlands 1.6% - ------------------------------------------------------------------------------------------------------- 15. PETRO CANADA Canada 1.6% - ------------------------------------------------------------------------------------------------------- 16. KONINKLIJKE AHOLD Netherlands 1.5% - ------------------------------------------------------------------------------------------------------- 17. GLAXO WELLCOME United Kingdom 1.5% - ------------------------------------------------------------------------------------------------------- 18. ISTITUTO MOBILIARE Italy 1.5% - ------------------------------------------------------------------------------------------------------- 19. BANK OF IRELAND Ireland 1.5% - ------------------------------------------------------------------------------------------------------- 20. TELECOMMUNICOES BRASILEIRO Brazil 1.4% - -------------------------------------------------------------------------------------------------------
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE. 9 10 PORTFOLIO OF INVESTMENTS KEMPER INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS AT APRIL 30, 1998 (unaudited) (DOLLARS IN THOUSANDS)
COMMON STOCKS NUMBER OF SHARES VALUE EUROPE - --------------------------------------------------------------------------------------------------------------- NETHERLANDS--16.6% Aalberts Industries, N.V. CAPITAL GOODS AND COMPONENTS 240,425 $ 6,949 Aegon, N.V. INSURANCE COMPANY 42,039 5,451 Akzo Nobel, N.V. INDUSTRIAL COMPANY 89,598 18,226 De Boer Unigro, N.V. FOOD RETAILER 37,634 1,844 Getronics, N.V. INFORMATION AND COMMUNICATION SERVICES 247,000 10,929 Hagemeyer, N.V. WHOLESALER 115,187 5,501 ING Groep, N.V. BANKING AND INSURANCE 340,060 22,099 Koninklijke Ahold, N.V. FOOD RETAILER 329,886 10,286 Nedcon Groep MANUFACTURER OF RACKING SYSTEMS 67,000 2,580 Royal Dutch Petroleum PETROLEUM PRODUCER 123,040 6,790 Unique International, N.V. TEMPORARY EMPLOYMENT 291,226 9,268 Vedior, N.V. TEMPORARY EMPLOYMENT 431,593 13,115 ----------------------------------------------------------------------- 113,038 - ---------------------------------------------------------------------------------------------------------------- UNITED KINGDOM--11.5% BBA Group, PLC DIVERSIFIED ENGINEERING COMPANY 1,124,014 9,237 Barclays, PLC BANKING 229,773 6,627 (a)British Bio-Technology Group PHARMACEUTICAL COMPANY 1,397,500 1,402 British Petroleum PETROLEUM PRODUCER 840,276 13,270 Compass Group, PLC CONTRACT CATERING 390,000 6,742 Glaxo Wellcome, PLC PHARMACEUTICAL COMPANY 362,283 10,237 Marks & Spencer, PLC CONSUMER GOODS AND FOODS RETAILER 342,105 3,252 Norwich Union FINANCIAL SERVICES 570,000 4,258 Rentokil Group, PLC SERVICES COMPANY 1,440,000 9,277 Royal Bank of Scotland Group, PLC BANKING 560,000 8,642 Zeneca Group, PLC PHARMACEUTICAL COMPANY 117,094 5,043 ----------------------------------------------------------------------- 77,987
10 11 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- SWITZERLAND--9.9% Adecco, S.A. TEMPORARY EMPLOYMENT 17,000 $ 7,424 Alusuisee-Lonza Holding ALUMINUM, CHEMICALS, AND PACKAGING MANUFACTURER 5,320 6,810 Ciba Specialty Chemicals CHEMICAL PRODUCER 56,593 6,848 Nestle, S.A. FOOD PRODUCER 8,950 17,364 Novartis PHARMACEUTICAL COMPANY 5,035 8,325 Roche Holdings, A.G. PHARMACEUTICAL COMPANY 405 4,106 Union Bank of Switzerland BANKING 51,110 16,407 ----------------------------------------------------------------------- 67,284 FRANCE--8.8% AXA-UAP INSURANCE COMPANY 147,403 17,293 Banque Nationale de Paris BANKING 89,360 7,529 Carrefour, S.A. FOOD RETAILER 6,105 3,495 Elf Aquitaine OIL AND GAS PRODUCER 149,000 19,536 Societe Generale BANKING 37,587 7,819 Technip, S.A. ENGINEERING COMPANY 29,200 3,707 ----------------------------------------------------------------------- 59,379 - ---------------------------------------------------------------------------------------------------------------- ITALY--8.3% Assicurazioni Generali INSURANCE COMPANY 423,425 12,737 Istituto Mobiliare Italiano, S.P.A. BANKING 613,000 10,032 Telecom Italia, SpA TELECOMMUNICATIONS PROVIDER 1,872,000 13,998 Telecom Italia Mobile, SpA MOBILE TELECOMMUNICATIONS PROVIDER 3,480,000 19,836 ----------------------------------------------------------------------- 56,603 - ---------------------------------------------------------------------------------------------------------------- SPAIN--4.3% Banco Bilbao Vizcaya, S.A. BANKING 132,473 6,814 Banco Popular Espanol, S.A. BANKING 31,017 2,544 Banco Santander, S.A. BANKING 90,688 4,790 Bankinter, S.A. BANKING 99,800 6,744 Telefonica de Espana, S.A., with rights TELECOMMUNICATIONS COMPANY 200,000 8,503 ----------------------------------------------------------------------- 29,395
11 12 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- GERMANY--4.3% Mannesmann, A.G. CAPITAL GOODS PRODUCER 17,000 $ 13,490 SAP, A.G. COMPUTER SOFTWARE COMPANY 9,900 4,689 Viag, A.G. DIVERSIFIED UTILITY COMPANY 21,900 11,094 ----------------------------------------------------------------------- 29,273 - ---------------------------------------------------------------------------------------------------------------- SWEDEN--1.5% ABB AB ENGINEERING COMPANY 480,000 7,443 Industri-Matematik International Corp. SERVICE SOFTWARE APPLICATIONS 120,000 2,670 ----------------------------------------------------------------------- 10,113 - ---------------------------------------------------------------------------------------------------------------- IRELAND--1.5% Bank of Ireland BANKING 492,546 10,003 ----------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- PORTUGAL--.8% Electricidade de Portugal, S.A. ELECTRICITY PROVIDER 208,000 5,384 ----------------------------------------------------------------------- TOTAL EUROPEAN COUNTRIES--67.5% 458,459 - ---------------------------------------------------------------------------------------------------------------- PACIFIC REGION - ---------------------------------------------------------------------------------------------------------------- JAPAN--8.8% Bellsystem 24, Inc. TELEMARKETING FIRM 27,000 3,752 Canon, Inc. PRECISION INSTRUMENTS MANUFACTURER 150,000 3,553 Circle K Japan CONVENIENCE RETAILER 99,000 4,083 Fuji Photo Film Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 216,000 7,700 Honda Motor Co., Ltd. AUTOMOBILE MANUFACTURER 159,000 5,776 Murata Manufacturing ELECTRONICS COMPONENTS MANUFACTURER 142,000 4,170 Noritsu Koki Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 82,600 2,469 Ricoh Co., Ltd. PRECISION INSTRUMENTS MANUFACTURER 559,000 5,800 Sanwa Bank, Ltd., preferred stock BANKING 214,000 4,713 Sony Corp. ELECTRONICS MANUFACTURER 112,000 9,333 Toppan Printing Co., Ltd. PRINTING SERVICES 236,000 2,810 Toray Industries TEXTILE MANUFACTURER 1,015,000 5,470 ----------------------------------------------------------------------- 59,629 - ---------------------------------------------------------------------------------------------------------------- HONG KONG--1.7% CITIC Pacific, Ltd. CONGLOMERATE 1,450,000 4,455 HSBC Holdings, PLC BANKING 245,804 7,013 ----------------------------------------------------------------------- 11,468 ----------------------------------------------------------------------- TOTAL PACIFIC REGION--10.5% 71,097
12 13 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- COMMONWEALTH COUNTRIES - ---------------------------------------------------------------------------------------------------------------- CANADA--7.2% BCE, Inc TELECOMMUNICATIONS COMPANY 167,000 $ 7,113 (a)Boardwalk Equities, Inc. REAL ESTATE COMPANY 250,500 3,942 Canadian National Railway RAILROAD COMPANY 103,400 6,729 Hudson's Bay Co. DEPARTMENT STORE RETAILER 412,400 8,970 Mackenzie Financial Corp. FINANCIAL SERVICES 458,600 6,895 Petro-Canada OIL AND GAS COMPANY 645,300 10,889 (a)Philip Services Corp. RECYCLING 564,700 4,270 ----------------------------------------------------------------------- 48,808 - ---------------------------------------------------------------------------------------------------------------- AUSTRALIA--1.7% Qantas Airways S.A. TRANSPORTATION 3,675,000 5,607 St. George Bank, Ltd. BANKING 1,032,540 6,133 ----------------------------------------------------------------------- 11,740 - ---------------------------------------------------------------------------------------------------------------- NEW ZEALAND--.5% Restaurant Brands New Zealand, Ltd. RESTAURANTS 4,475,000 3,258 ----------------------------------------------------------------------- TOTAL COMMONWEALTH COUNTRIES--9.4% 63,806 - ---------------------------------------------------------------------------------------------------------------- LATIN AMERICA - ---------------------------------------------------------------------------------------------------------------- MEXICO--2.5% Fomento Economico Mexicano, ADR BEER AND SOFT DRINK MANUFACTURER 722,400 5,459 Grupo Carso, S.A. de C.V., ADR INDUSTRIAL CONGLOMERATE 2,647,100 3,783 Industrial Bachoco, S.A. POULTRY PRODUCER 161,750 2,275 Kimberly-Clark de Mexico, S.A. de C.V. PAPER PRODUCTS PRODUCER 1,075,400 5,166 ----------------------------------------------------------------------- 16,683 - ---------------------------------------------------------------------------------------------------------------- BRAZIL--2.1% Petroleo Brasileiro, S.A. OIL AND GAS COMPANY 20,450,000 5,132 Telecommunicoes Brasileiro, S.A. TELEPHONE COMPANY 77,200 9,404 ----------------------------------------------------------------------- 14,536 ----------------------------------------------------------------------- TOTAL LATIN AMERICAN COUNTRIES--4.6% 31,219 ----------------------------------------------------------------------- TOTAL COMMON STOCKS--92.0% (Cost: $502,205) 624,581 -----------------------------------------------------------------------
13 14 PORTFOLIO OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------- MONEY MARKET Yield--5.51% to 5.71% INSTRUMENTS--5.7% Due--May 1998 ConAgra $ 29,700 $ 29,633 Other 9,000 8,979 ----------------------------------------------------------------------- TOTAL MONEY MARKET INSTRUMENTS--5.7% (Cost: $38,613) 38,612 ----------------------------------------------------------------------- TOTAL INVESTMENTS--97.7% (Cost: $540,818) 663,193 ----------------------------------------------------------------------- OTHER ASSETS, LESS LIABILITIES--2.3% 15,725 ----------------------------------------------------------------------- NET ASSETS--100% $678,918 -----------------------------------------------------------------------
At April 30, 1998, the Fund's portfolio of investments had the following industry diversification (dollars in thousands):
VALUE % - --------------------------------------------------------------------------------- Finance $182,940 26.9 - --------------------------------------------------------------------------------- Consumer Cyclicals 93,894 13.9 - --------------------------------------------------------------------------------- Capital Goods 81,640 12.0 - --------------------------------------------------------------------------------- Utilities 68,219 10.0 - --------------------------------------------------------------------------------- Energy 55,617 8.2 - --------------------------------------------------------------------------------- Consumer Staples 39,260 5.9 - --------------------------------------------------------------------------------- Technology 38,164 5.6 - --------------------------------------------------------------------------------- Health Care 29,113 4.3 - --------------------------------------------------------------------------------- Basic Industries 23,398 3.4 - --------------------------------------------------------------------------------- Transportation 12,336 1.8 - --------------------------------------------------------------------------------- TOTAL COMMON STOCKS 624,581 92.0 - --------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS AND OTHER NET ASSETS 54,337 8.0 - --------------------------------------------------------------------------------- NET ASSETS $678,918 100.0 - ---------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Non-income producing security. Based on the cost of investments of $540,818,000 for federal income tax purposes at April 30, 1998, the gross unrealized appreciation was $138,927,000, the gross unrealized depreciation was $16,552,000 and the net unrealized appreciation on investments was $122,375,000. See accompanying Notes to Financial Statements. 14 15 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1998 (unaudited) (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments, at value (Cost: $540,818) $663,193 - ------------------------------------------------------------------------ Receivable for: Investments sold 38,550 - ------------------------------------------------------------------------ Fund shares sold 1,137 - ------------------------------------------------------------------------ Dividends 2,631 - ------------------------------------------------------------------------ TOTAL ASSETS 705,511 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------ Cash overdraft 6,224 - ------------------------------------------------------------------------ Payable for: Investments purchased 18,838 - ------------------------------------------------------------------------ Fund shares redeemed 272 - ------------------------------------------------------------------------ Management fee 416 - ------------------------------------------------------------------------ Distribution services fee 116 - ------------------------------------------------------------------------ Administrative services fee 142 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 526 - ------------------------------------------------------------------------ Trustees' fees 59 - ------------------------------------------------------------------------ Total liabilities 26,593 - ------------------------------------------------------------------------ NET ASSETS $678,918 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Paid-in capital $485,997 - ------------------------------------------------------------------------ Undistributed net realized gain on investments and foreign currency transactions 71,520 - ------------------------------------------------------------------------ Net unrealized appreciation on investments and assets and liabilities in foreign currencies 122,322 - ------------------------------------------------------------------------ Accumulated net investment loss (921) - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $678,918 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ THE PRICING OF SHARES - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($476,390 / 34,354 shares outstanding) $13.87 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $14.72 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($159,690 / 11,664 shares outstanding) $13.69 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($22,919 / 1,673 shares outstanding) $13.70 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price per share ($19,919 / 1,436 shares outstanding) $13.87 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 15 16 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 (unaudited) (IN THOUSANDS) - ----------------------------------------------------------------------- INVESTMENT INCOME - ----------------------------------------------------------------------- Dividends $ 4,118 - ----------------------------------------------------------------------- Interest 1,491 - ----------------------------------------------------------------------- 5,609 - ----------------------------------------------------------------------- Less foreign taxes withheld 566 - ----------------------------------------------------------------------- Total investment income 5,043 - ----------------------------------------------------------------------- Expenses: Management fee 2,268 - ----------------------------------------------------------------------- Administrative services fee 715 - ----------------------------------------------------------------------- Distribution services fee 631 - ----------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 1,993 - ----------------------------------------------------------------------- Professional fees 64 - ----------------------------------------------------------------------- Reports to shareholders 166 - ----------------------------------------------------------------------- Trustees' fees and other 68 - ----------------------------------------------------------------------- Total expenses 5,905 - ----------------------------------------------------------------------- NET INVESTMENT LOSS (862) - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS - ----------------------------------------------------------------------- Net realized gain on sales of investments and foreign currency transactions 71,915 - ----------------------------------------------------------------------- Change in net unrealized appreciation on investments and assets and liabilities in foreign currencies 17,759 - ----------------------------------------------------------------------- Net gain on investments 89,674 - ----------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $88,812 - -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED APRIL 30, 1998 OCTOBER 31, (UNAUDITED) 1997 - ---------------------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY - ---------------------------------------------------------------------------------------------------- Net investment loss $ (862) $ (1,231) - ---------------------------------------------------------------------------------------------------- Net realized gain 71,915 29,101 - ---------------------------------------------------------------------------------------------------- Change in net unrealized appreciation 17,759 37,579 - ---------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 88,812 65,449 - ---------------------------------------------------------------------------------------------------- Net equalization charges (113) (309) - ---------------------------------------------------------------------------------------------------- Distribution from net investment income (2,671) (4,092) - ---------------------------------------------------------------------------------------------------- Distribution from net realized gain (25,096) (27,136) - ---------------------------------------------------------------------------------------------------- Total dividends to shareholders (27,767) (31,228) - ---------------------------------------------------------------------------------------------------- Net increase from capital share transactions 29,917 81,914 - ---------------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 90,849 115,826 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------------------- Beginning of period 588,069 472,243 - ---------------------------------------------------------------------------------------------------- END OF PERIOD (including undistributed net investment income of $2,725 for year ended October 31, 1997) $678,918 $588,069 - ----------------------------------------------------------------------------------------------------
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 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. 17 18 NOTES TO FINANCIAL STATEMENTS INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded on the accrual basis and includes discount amortization on money market instruments. Realized gains and losses from investment transactions are reported on an identified cost basis. FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B and Class C shares will be reduced by the amount of any applicable contingent deferred sales charge. On each day the New York Stock Exchange is open for trading, the net asset value per share is determined as of the earlier of 3:00 p.m. Chicago time or the close of the Exchange. The net asset value per share is determined separately for each class by dividing the Fund's net assets attributable to that class by the number of shares of the class outstanding. Because of the need to obtain prices as of the close of trading on various exchanges throughout the world, the calculation of net asset value does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities. FEDERAL INCOME TAXES. The Fund has complied with the special provisions of the Internal Revenue Code available to investment companies during the six months ended April 30, 1998. 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 INVESTMENT MANAGER COMBINATION. Effective December AFFILIATES 31, 1997, Zurich Insurance Company, the parent of Zurich Kemper Investments, Inc. (ZKI), acquired a majority interest in Scudder, Stevens & Clark, Inc. (Scudder), another major investment manager. As a result of this transaction, the operations of ZKI were combined with Scudder to form a new global investment organization named Scudder Kemper Investments, Inc. (Scudder Kemper). The transaction resulted in the termination of the Fund's investment management agreement with ZKI, however, a new investment management agreement between the Fund and Scudder Kemper was approved by the Fund's Board of Trustees and by the Fund's shareholders. The new management agreement, which was effective December 31, 1997, is the same in all material respects as the previous management agreement, except that Scudder Kemper is the new investment adviser to the Fund. In addition, the names of the Fund's principal underwriter and shareholder service agent were changed to Kemper Distributors, Inc. (KDI) and Kemper Service Company (KSvC), respectively. 18 19 NOTES TO FINANCIAL STATEMENTS MANAGEMENT AGREEMENT. The Fund has a management agreement with Scudder Kemper 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 $2,268,000 for the six months ended April 30, 1998. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with KDI. Underwriting commissions paid in connection with the distribution of Class A shares are as follows:
COMMISSIONS COMMISSIONS RETAINED BY ALLOWED BY KDI KDI TO FIRMS ----------- --------------- Six months ended April 30, 1998 $38,000 457,000
For services under the distribution services agreement, the Fund pays KDI a fee of .75% of average daily net assets of the Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, KDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. Distribution fees, CDSC and commissions related to Class B and Class C shares for the six months ended April 30, 1998 are as follows:
DISTRIBUTION FEES COMMISSIONS AND AND CDSC DISTRIBUTION FEES PAID RECEIVED BY KDI BY KDI TO FIRMS ----------------- ---------------------- Six months ended April 30, 1998 $777,000 762,000
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services agreement with KDI. For providing information and administrative services to Class A, Class B and Class C shareholders, the Fund pays KDI a fee at an annual rate of up to .25% of average daily net assets of each class. KDI in turn has various agreements with financial services firms that provide these services and pays these firms based on assets of Fund accounts the firms service. Administrative services fees (ASF) paid are as follows:
ASF PAID BY THE ASF PAID BY KDI FUND TO KDI TO FIRMS --------------- ---------------- Six months ended April 30, 1998 $715,000 715,000
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the Fund's transfer agent, KSvC is the shareholder service agent of the Fund. Under the agreement, KSvC received shareholder services fees of $1,155,000 for the six months ended April 30, 1998. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of Scudder Kemper. During the six months ended April 30, 1998, the Fund made no payments to its officers and incurred trustees' fees of $13,000 to independent trustees. 19 20 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the six months ended April 30, 1998, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $286,632 Proceeds from sales 267,037 - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund (in thousands):
SIX MONTHS ENDED YEAR ENDED APRIL 30, 1998 OCTOBER 31, 1997 ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES SOLD Class A 25,961 $ 342,492 14,874 $ 187,364 -------------------------------------------------------------------------------- Class B 2,962 38,754 8,424 106,475 -------------------------------------------------------------------------------- Class C 1,721 22,854 1,156 14,610 -------------------------------------------------------------------------------- Class I 446 6,059 1,171 14,846 -------------------------------------------------------------------------------- SHARES ISSUED IN REINVESTMENT OF DIVIDENDS Class A 1,538 18,355 2,001 22,720 -------------------------------------------------------------------------------- Class B 505 5,970 509 5,790 -------------------------------------------------------------------------------- Class C 57 669 42 481 -------------------------------------------------------------------------------- Class I 81 964 101 1,173 -------------------------------------------------------------------------------- SHARES REDEEMED Class A (25,983) (344,302) (14,522) (184,532) -------------------------------------------------------------------------------- Class B (2,708) (35,196) (5,205) (66,707) -------------------------------------------------------------------------------- Class C (1,437) (19,073) (486) (6,267) -------------------------------------------------------------------------------- Class I (569) (7,629) (1,094) (14,039) -------------------------------------------------------------------------------- CONVERSION OF SHARES Class A 539 7,031 433 5,529 -------------------------------------------------------------------------------- Class B (545) (7,031) (438) (5,529) -------------------------------------------------------------------------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $ 29,917 $ 81,914 --------------------------------------------------------------------------------
20 21 FINANCIAL HIGHLIGHTS
------------------------------------------- CLASS A ------------------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, ----------------------------- 1998 1997 1996 1995 1994 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $12.68 11.96 10.59 11.13 10.56 - -------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.01) -- .04 .07 -- - -------------------------------------------------------------------------------------- Net realized and unrealized gain 1.83 1.52 1.50 .05 .86 - -------------------------------------------------------------------------------------- Total from investment operations 1.82 1.52 1.54 .12 .86 - -------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .08 .12 .12 -- -- - -------------------------------------------------------------------------------------- Distribution from net realized gain .55 .68 .05 .66 .29 - -------------------------------------------------------------------------------------- Total dividends .63 .80 .17 .66 .29 - -------------------------------------------------------------------------------------- Net asset value, end of period $13.87 12.68 11.96 10.59 11.13 - -------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 15.14% 13.49 14.70 1.69 8.32 RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) Expenses 1.66% 1.57 1.64 1.57 1.54 - -------------------------------------------------------------------------------------- Net investment income .13% .16 .34 .83 .02 - --------------------------------------------------------------------------------------
------------------------------------------------- CLASS B ------------------------------------------------- SIX MONTHS YEAR ENDED OCTOBER ENDED 31, MAY 31 TO APRIL 30, --------------------- OCTOBER 31, 1998 1997 1996 1995 1994 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $12.50 11.81 10.46 11.09 10.58 - ----------------------------------------------------------------------------------------- Income from investment operations: Net investment loss (.05) (.12) (.06) (.02) (.04) - ----------------------------------------------------------------------------------------- Net realized and unrealized gain 1.79 1.51 1.47 .05 .55 - ----------------------------------------------------------------------------------------- Total from investment operations 1.74 1.39 1.41 .03 .51 - ----------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income -- .02 .01 -- -- - ----------------------------------------------------------------------------------------- Distribution from net realized gain .55 .68 .05 .66 -- - ----------------------------------------------------------------------------------------- Total dividends .55 .70 .06 .66 -- - ----------------------------------------------------------------------------------------- Net asset value, end of period $13.69 12.50 11.81 10.46 11.09 - ----------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 14.61% 12.32 13.59 .84 4.82 RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) Expenses 2.61% 2.57 2.53 2.50 2.58 - ----------------------------------------------------------------------------------------- Net investment loss (.84)% (.84) (.55) (.10) (.97) - -----------------------------------------------------------------------------------------
21 22 FINANCIAL HIGHLIGHTS
------------------------------------------------ CLASS C ------------------------------------------------ SIX MONTHS YEAR ENDED OCTOBER ENDED 31, MAY 31 TO APRIL 30, --------------------- OCTOBER 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.51 11.81 10.46 11.09 10.58 - ------------------------------------------------------------------------------------------ Income from investment operations: Net investment loss (.06) (.09) (.06) (.02) (.04) - ------------------------------------------------------------------------------------------ Net realized and unrealized gain 1.80 1.49 1.47 .05 .55 - ------------------------------------------------------------------------------------------ Total from investment operations 1.74 1.40 1.41 .03 .51 - ------------------------------------------------------------------------------------------ Less dividends: Distribution from net investment income -- .02 .01 -- -- - ------------------------------------------------------------------------------------------ Distribution from net realized gain .55 .68 .05 .66 -- - ------------------------------------------------------------------------------------------ Total dividends .55 .70 .06 .66 -- - ------------------------------------------------------------------------------------------ Net asset value, end of period $13.70 12.51 11.81 10.46 11.09 - ------------------------------------------------------------------------------------------ TOTAL RETURN (NOT ANNUALIZED) 14.60% 12.45 13.59 .84 4.82 - ------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------------------ Expenses 2.55% 2.49 2.50 2.50 2.52 - ------------------------------------------------------------------------------------------ Net investment loss (.78)% (.76) (.52) (.10) (.91) - ------------------------------------------------------------------------------------------
---------------------------------------- CLASS I ---------------------------------------- SIX MONTHS YEAR ENDED ENDED OCTOBER 31, JULY 3 TO APRIL 30, ------------- OCTOBER 31, 1998 1997 1996 1995 - ---------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------- Net asset value, beginning of period $12.72 11.99 10.61 10.09 - ---------------------------------------------------------------------------------- Income from investment operations: Net investment income .03 .07 .10 .04 - ---------------------------------------------------------------------------------- Net realized and unrealized gain 1.82 1.53 1.48 .48 - ---------------------------------------------------------------------------------- Total from investment operations 1.85 1.60 1.58 .52 - ---------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .15 .19 .15 -- - ---------------------------------------------------------------------------------- Distribution from net realized gain .55 .68 .05 -- - ---------------------------------------------------------------------------------- Total dividends .70 .87 .20 -- - ---------------------------------------------------------------------------------- Net asset value, end of period $13.87 12.72 11.99 10.61 - ---------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 15.41% 14.19 15.19 5.15 - ---------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ---------------------------------------------------------------------------------- Expenses 1.08% 1.04 1.10 .85 - ---------------------------------------------------------------------------------- Net investment income .71% .69 .88 1.32 - ----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA FOR ALL CLASSES - ------------------------------------------------------------------------------------------------------------ SIX MONTHS YEAR ENDED OCTOBER 31, ENDED ----------------------------------------- APRIL 30, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Net assets at end of period (in thousands) $678,918 588,069 472,243 364,708 418,282 - -------------------------------------------------------------------------------------------------------- Portfolio turnover rate (annualized) 90% 76 104 114 103 - -------------------------------------------------------------------------------------------------------- Average commission rates paid per share on stock transactions for the six months ended April 30, 1998 and years ended October 31, 1997 and 1996 were $.0538, $.0130 and $.0182, respectively. Foreign commissions usually are lower than U.S. commissions when expressed as cents per share due to the lower per share price of many non-U.S. securities. - --------------------------------------------------------------------------------------------------------
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. Data for the period ended April 30, 1998 is unaudited. 22 23 SHAREHOLDERS' MEETING SPECIAL SHAREHOLDERS' MEETING On December 3, 1997, a special shareholders' meeting was held and adjourned as necessary. Kemper International Fund shareholders were asked to vote on six separate issues: election of the nine members to the Board of Trustees, ratification of Ernst & Young LLP as independent auditors, approval of new investment management agreement with Scudder Kemper Investments, Inc., approval of changes in the fund's fundamental investment policies to permit a master/feeder fund structure, approval of a new sub-advisory agreement with Zurich Investment Management Limited and approval of a new rule 12b-1 distribution plan with Zurich Kemper Distributors, Inc., for Class B shares and Class C shares. The following are the results for each issue: 1) Election of Trustees
For Withheld David W. Belin 24,228,733 456,654 Lewis A. Burnham 24,253,457 431,930 Donald L. Dunaway 24,250,826 434,560 Robert B. Hoffman 24,253,118 432,268 Donald R. Jones 24,247,576 437,810 Shirley D. Peterson 24,226,040 459,346 Daniel Pierce 24,237,844 447,542 William P. Sommers 24,254,307 431,079 Edmond D. Villani 24,232,318 453,068
2) Ratification of the selection of Ernst & Young LLP as independent auditors for the current fiscal year.
For Against Abstain 24,027,025 188,028 470,333
3) Approval of a new investment management agreement with Scudder Kemper Investments, Inc.
For Against Abstain 23,517,145 368,673 708,678
4) Approval of changes in the fund's fundamental investment policies to permit a master/feeder fund structure.
For Against Abstain 21,822,495 927,713 1,439,588
5) Approval of a new sub-advisory agreement with Zurich Investment Management Limited.
For Against Abstain 23,216,895 504,273 873,328
6) To approve a new rule 12b-1 distribution plan with Zurich Kemper Distributors, Inc.
For Against Abstain Class B 5,292,014 123,359 227,341 Class C 638,435 2,006 21,216
23 24 TRUSTEES & OFFICERS TRUSTEES OFFICERS DANIEL PIERCE MARK S. CASADY Chairman and Trustee President DAVID W. BELIN PHILIP J. COLLORA Trustee Vice President and Secretary LEWIS A. BURNHAM JOHN R. HEBBLE Trustee Treasurer DONALD L. DUNAWAY JERALD K. HARTMAN Trustee Vice President ROBERT B. HOFFMAN THOMAS W. LITTAUER Trustee Vice President DONALD R. JONES ANN M. MCCREARY Trustee Vice President SHIRLEY D. PETERSON KATHRYN L. QUIRK Trustee Vice President WILLIAM P. SOMMERS STEVEN H. REYNOLDS Trustee Vice President EDMOND D. VILLANI LINDA J. WONDRACK Trustee Vice President MAUREEN E. KANE Assistant Secretary CAROLINE PEARSON Assistant Secretary ELIZABETH C. WERTH Assistant Secretary - -------------------------------------------------------------------------------- LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 - -------------------------------------------------------------------------------- SHAREHOLDER KEMPER SERVICE COMPANY SERVICE AGENT P.O. Box 419557 Kansas City, MO 64141 - -------------------------------------------------------------------------------- CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY TRANSFER AGENT 801 Pennsylvania Kansas City, MO 64105 - -------------------------------------------------------------------------------- FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK Chase Metro Center Brooklyn, NY 11245 - -------------------------------------------------------------------------------- PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 www.kemper.com
[KEMPER FUNDS LOGO] LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) Printed on recycled paper in the U.S.A. This report is not to be distributed unless preceded or accompanied by a Kemper Global and International Funds prospectus. KIF - 3 (6/98) 1048330 -----END PRIVACY-ENHANCED MESSAGE-----