<PAGE> 1
KEMPER
EUROPE FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED MAY 31, 1997
Seeks to provide long-term capital growth
" . . . A management strategy that
worked well for us was holding heavy positions in
stocks while keeping the total
number of holdings low ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Largest Holdings
9
Country Concentrations
10
Portfolio of
Investments
14
Financial Statements
16
Notes to
Financial Statements
21
Financial Highlights
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER EUROPE FUND
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 10.51%
CLASS B 10.18%
CLASS C 10.18%
LIPPER EUROPEAN REGION FUNDS CATEGORY AVERAGE* 8.95%
- -------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost. Investment in foreign
securities presents special risk considerations including fluctuating currency
exchange rates, government regulations and differences in liquidity.
*Lipper Analytical Services, Inc. returns and rankings are based upon changes in
net asset value with all dividends reinvested and do not include the effect of
sales charges and, if they had, results may have been less favorable.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
5/31/97 11/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND CLASS A $12.03 $11.02
- -------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B $11.94 $10.97
- -------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C $11.94 $10.97
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
KEMPER EUROPE FUND
LIPPER RANKINGS*
- -------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EUROPEAN REGION FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #4 OF #6 OF #6 OF
64 FUNDS 64 FUNDS 64 FUNDS
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE PERIOD, THE FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN $0.13 $0.13 $0.13
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
CURRENCY RISK The U.S. dollar value of a foreign security tends to decrease when
the value of the U.S. dollar rises against the foreign currency in which the
security is denominated. Conversely, the U.S. dollar value of a foreign security
tends to increase when the value of the U.S. dollar falls against the currency.
CYCLICAL STOCK The stock of a company whose profits are heavily influenced by
cyclical changes in economic activity. As investors anticipate changes in
profits, cyclical stocks often reach their high and low levels before the
respective highs and lows in the economy. Depending on the specific company, a
cyclical stock can be considered either a growth or a value stock.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment.
MARKET CAPITALIZATION A measure of the size of a publicly traded company, as
determined by multiplying the current price 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 greater risk to capital.
RECESSION A downturn in economic activity, defined as at least two consecutive
quarters of decline in a country's Gross Domestic Product (GDP).
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The consistently good news on the domestic economy and the recent agreement
between the White House and Republican leaders in Congress to balance the
federal budget has provided the basis for strong stock and bond markets. This
progress on balancing the budget, an initiative that the bond market was
anticipating resolution of more than one year ago, has very positive long term
implications for financial markets.
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 has been 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 annualized 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 and much to be encouraged by. 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 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 to
3.0 percent rate.
Leadership in the stock market has been quite narrow and concentrated in
the first half of 1997 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.
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.
3
<PAGE> 4
ECONOMIC OVERVIEW
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ECONOMIC GUIDEPOSTS
- -------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (6/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.49 6.58 6.87 6.28
PRIME RATE(2) 8.5 8.25 8.25 8.8
INFLATION RATE(3) 2.3 3.04 2.95 2.76
THE U.S. DOLLAR(4) 5.52 4.59 8.35 -7.04
CAPITAL GOODS ORDERS(5)* 8.17 2.23 2.44 8.24
INDUSTRIAL PRODUCTION(5) 3.84 4.84 3.38 2.36
EMPLOYMENT GROWTH(6) 2.12 2.41 2.18 2.46
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of May 31, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
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.
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.
July 11, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[THOUIN PHOTO]
EDITH THOUIN IS PORTFOLIO MANAGER OF KEMPER EUROPE FUND. SHE JOINED ZURICH
INVESTMENT MANAGEMENT LIMITED (ZIML) IN 1992 AND IS DIRECTOR OF EUROPEAN
EQUITIES. THOUIN HOLDS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF
LEIDEN, THE NETHERLANDS.
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 THIS SIX-MONTH PERIOD, KEMPER EUROPE FUND (CLASS A SHARES,
UNADJUSTED FOR SALES CHARGE) OUTPERFORMED ITS LIPPER ANALYTICAL SERVICES, INC.
CATEGORY AVERAGE AND ENDED THE ONE-YEAR PERIOD RANKED NUMBER 4 OF 64 FUNDS.
(SEE PAGE 2 FOR COMPLETE RANKING INFORMATION.) FOLLOWING, PORTFOLIO MANAGER
EDITH THOUIN DISCUSSES THE FUND AND THE EUROPEAN MARKETS.
Q WHAT DID YOU AND YOUR TEAM DO TO ACHIEVE SUCH EXCEPTIONAL PERFORMANCE
DURING THE PERIOD?
A One of the things that helped us in the first half of the fiscal year was
our strong focus on financials and growth stocks. The financial sector benefited
from the low interest rate environment present in most European markets. This is
also a sector that is poised for change. The consolidation of the banking
industry that started in the U.S. several years ago has yet to begin in Europe.
With the single market and currency initiatives underway, there is a very strong
incentive for European banks to consolidate and function on a European scale,
not just on a country level. European financials are undervalued relative to
U.S. financials so this is a prime environment for acquisitions and mergers to
occur.
Changes in employment regulations also provided some opportunities.
Deregulation in the labor market is making it easier for companies to hire and
fire as they see fit. Currently, there are high costs involved if an employer
chooses to modify their labor force. As these regulations begin to soften,
temporary employment companies are growing and increasing in value. To date,
these companies are only listed in the Netherlands, Spain and France but the
push to reduce unemployment levels should lead to expansion throughout Europe.
The low levels of inflation and moderate growth across Europe were also
beneficial to the growth stocks we favor. In this category, we saw strong
outperformance in the pharmaceutical sector and among selected retailers and
technology companies. Our lesser exposure to cyclical stocks also helped the
fund's performance. These stocks had a tough time with margin pressures because
they can't increase their output prices and volume growth is still slow.
Our selective approach to mid and small capitalization stocks was also a
positive. When selecting these smaller names, it really is essential to have a
"local" presence and skilled analysts. We are fortunate to have both.
A management strategy that worked well for us was holding heavy positions in
stocks while keeping the total number of holdings low. We had around 50 stocks
in the portfolio throughout the period; some of our peers held as many as 100
names. Our objective is to provide shareholders with consistency in holdings as
well as in performance. Our success this first year indicates that you should
not be short-term investors if you intend to outperform. We are committed to
selecting quality stocks and holding them for the long-term.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT WAS YOUR POSITION ON HEDGING?
A To offset the strength of the U.S. dollar, we were hedged around 40 percent
on the continental European currencies. We took this position early in the new
year and maintained it throughout the period. Hedging helped reduce the
depreciation that a dollar-based investor suffers when a weaker currency is
converted back into a stronger one. We were not hedged at all against the U.K.
sterling because it was holding its own against the U.S. dollar.
Q WHAT COURSE DO YOU SEE THE DOLLAR TAKING?
A We believe the dollar's strength will continue. The single currency will
include the weaker currencies of Europe so the eurocurrency should see further
weakening. In addition, the U.S. growth cycle is very mature with inflation
pressures becoming apparent. In contrast, inflation is falling very rapidly in
Europe. This creates an interest rate differential that favors the dollar. While
this may sound negative for Europe, it really isn't. Having a weaker currency
improves the competitiveness of European companies and helps them with their
translated earnings. I would, in fact, be more worried if the dollar would fall
dramatically to lower levels. That would be a detriment to the European growth
outlook and would hurt European companies that export to dollar-based countries
or have subsidiaries overseas.
Q HOW HAVE YOU POSITIONED THE FUND IN THE DIFFERENT EUROPEAN MARKETS AND HOW
DOES THAT COMPARE WITH THE FT/S&P ACTUARIES WORLD INDEX -- EUROPE(TM)*?
A One of our major differences, in comparison to the index, is in the
Netherlands where we have more than double the exposure of the index. In the
U.K., the index carries a 37 percent exposure but we have a much smaller
position at roughly 24 percent. In France and Switzerland we are similar to our
benchmark. Spain is another market we have greater exposure in with a 12 percent
position. This is more than triple the index weighting of four percent.
*THE FT/S&P ACTUARIES WORLD INDEX -- EUROPE(TM) IS AN UNMANAGED INDEX THAT IS
GENERALLY REPRESENTATIVE OF THE EQUITY SECURITIES OF EUROPEAN MARKETS.
Q WHAT IS SO ATTRACTIVE ABOUT THE NETHERLANDS?
A The Netherlands has one of the strongest growth records in Europe. The
economy there never went into recession, not even in the steepest recessionary
periods. It is a very open economy that thrives on exporting. When there is
growth in any other part of the world--whether the U.S. or the Far East--this
economy benefits. We have held this greater position throughout the life of the
fund and we continue to feel it is justified. It is also a good alternative to
Germany. The Netherlands currency is strongly linked to the deutsche mark so we
don't run any extra currency risk investing in this smaller market and we avoid
the problems found in the German economy.
Q HOW HAS EUROPEAN MARKET PERFORMANCE COMPARED TO U.S. MARKET PERFORMANCE
DURING THE PERIOD?
A There hasn't been that much of a difference between the performance of the
Standard & Poor's 500 Stock Index** and the FT/S&P Actuaries World
Index--Europe(TM) in local currency terms. But, the appreciation of the dollar
against the European currencies has depreciated local currency returns in Europe
by about 10 percent. We have been able to offset some of that by hedging. U.S.
markets and European markets are doing well but there is a lot more catching up
for the European markets to still do as opposed to U.S. markets that seem to
have less upside potential. Europe is also in a somewhat stronger economic
position because the interest rate and inflation outlook is much better in
continental Europe than in the U.S.
**THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHERE DO THINGS STAND IN THE EUROPEAN MONETARY UNION (EMU) PROCESS?
A The progress of EMU is a main focus throughout the region. Concerns over
the feasibility of the union sprung up last summer and the general feeling
seemed to be that the single currency process would run into trouble at some
point. We did not subscribe to this feeling, however, and maintained our belief
that the project would continue and succeed according to plan and on schedule.
Believing in the process was good for the fund because we did not shy away from
having an overweight position in Spain, for example, a country that suffered
from speculation as to whether it would be able to meet the EMU budget deficit
requirements while, at the same time, providing top market performance in the
region.
The drive toward European cooperation is something all European governments
seem to be subscribing to with the exception of Sweden. Creating a trade block
that is competitive with the U.S. and the Far East is essential for Europe if it
hopes to further reduce trade barriers, making it easier for countries within
Europe to trade with each other. "Interstate" trade is the largest trade
activity in Europe. Having an economic entity that is efficient enough to fight
off inflation and remain competitive against the dollar and the yen could be a
real boost for the European Community.
Q WERE THERE ANY OPPORTUNITIES THAT YOU MISSED DURING THE PERIOD?
A While "miss" might be the wrong word, we do generally stay away from the
big turnaround plays. We like to invest in companies with good track records and
turnarounds can be somewhat speculative and, in general, are pretty difficult to
achieve. But the low interest rate environment has raised hopes that some
struggling, larger companies can finally start to deliver shareholder value.
Investors have jumped onto this theme; but we prefer to invest in companies that
have sounder track records.
We have participated in some very successful IPOs but we did miss out on some
opportunities. There are a lot of IPOs for interesting small and mid cap
companies coming to the market but it is often very difficult to get stock out
of these at the IPO level. We can pick the stock up at slightly higher prices
once it is available on the market but it is nice to get them at that lower,
initial price. Also, we need time to do a proper analysis of these companies and
with so many on offer, we have to be selective.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A The interest rate and inflation outlook in Europe continues to be very
good. This will continue to help European stock markets. The liquidity flowing
into the markets is still very strong and corporate profitability is still
increasing, especially in continental Europe. We remain skeptical toward the
U.K. market and will maintain our underweight position there. We expect the
modest growth, low inflation and low interest rate environment to continue which
is good news for our financial and growth stocks. And of course, we will
continue to explore interesting IPO opportunities that come our way.
European companies are becoming serious global competitors and are still
underrepresented in global portfolios. A comparison between European companies
today and U.S. companies 10 years ago is justified. Shareholder value is a new
word to many European companies, but it is being taken very seriously.
7
<PAGE> 8
LARGEST HOLDINGS
FIVE LARGEST HOLDINGS*
A COMPARISON OF THE FUND'S TOP FIVE HOLDINGS ON MAY 31, 1997 WITH ITS TOP FIVE
HOLDINGS ON NOVEMBER 30, 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Holdings Percent Holdings Percent
- ---------------------------------------------------------------------------------------
ON 5/31/97 ON 11/30/96
<S> <C> <C> <C> <C>
1. GLAXO WELLCOME 5.1% BRITISH PETROLEUM 5.3%
UNITED KINGDOM UNITED KINGDOM
2. CARREFOUR S.A. 4.6% GLAXO WELLCOME 4.1%
FRANCE UNITED KINGDOM
3. ING GROEP 3.5% BAYER A.G. 3.3%
NETHERLANDS GERMANY
4. BARCLAYS PLC 3.4% ABN AMRO BANK 3.2%
UNITED KINGDOM NETHERLANDS
5. BANK OF IRELAND 3.1% BARCLAYS PLC 3.1%
IRELAND UNITED KINGDOM
</TABLE>
*Portfolio holdings and composition are subject to change.
8
<PAGE> 9
COUNTRY CONCENTRATIONS
KEMPER EUROPE FUND'S EXPOSURE COMPARED TO ITS INDEX*
DATA SHOWS THE GEOGRAPHIC COMPOSITION OF THE FT/S&P ACTUARIES WORLD INDEX --
EUROPE(TM) AND THE CORRESPONDING PERCENTAGE OF TOTAL COMMON STOCK HOLDINGS FOR
KEMPER EUROPE FUND IN THESE MARKETS AS OF MAY 31, 1997. DIFFERENCES IN THE
COMPOSITION HELP EXPLAIN THE DIFFERENCES IN THE PERFORMANCE OF EACH. PLEASE
NOTE, THE FUND AND INDEX MAY ALSO INVEST IN OTHER COUNTRIES NOT INCLUDED IN THIS
CHART.
<TABLE>
<CAPTION>
KEMPER EUROPE FUND FT/S&P ACTUARIES WORLD INDEX - EUROPE(TM)
<S> <C> <C>
NETHERLANDS 25.6% 8.0%
UNITED KINGDOM 24.1% 36.6%
SPAIN 12.2% 4.1%
FRANCE 10.0% 11.0%
SWITZERLAND 8.7% 10.3%
GERMANY 7.4% 13.7%
IRELAND 5.0% 0.7%
ITALY 3.3% 4.5%
NORWAY 1.6% 0.9%
SWEDEN 1.4% 4.9%
DENMARK 0.7% 1.3%
</TABLE>
*Portfolio composition and holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETHERLANDS--24.4% ING Groep N.V.
BANKING AND INSURANCE 8,699 $ 385,000
Aegon N.V.
INSURANCE COMPANY 4,100 300,000
GTI Holding
ENGINEERING SERVICES COMPANY 2,180 277,000
Koninklijke Ahold N.V.
FOOD RETAILER 2,806 213,000
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 1,560 213,000
Nutricia Verenigde Bedryven
SPECIALTY NUTRITION PRODUCTS MANUFACTURER 1,150 180,000
(a) Baan Company N.V.
SERVICE SOFTWARE APPLICATIONS 3,050 178,000
De Boer Winkelbedrijven
FOOD RETAILER 2,000 168,000
Vendex International N.V.
RETAILER/TEMPORARY EMPLOYMENT SERVICES 2,800 157,000
Hagemeyer N.V.
WHOLESALER 3,108 153,000
Aalberts Industries N.V.
CAPITAL GOODS AND COMPONENTS 5,605 148,000
ABN AMRO Bank
BANKING 7,220 134,000
Oce-Van Der Grinten
PHOTOCOPY AND PRINTING EQUIPMENT MANUFACTURER 845 110,000
IHC Caland N.V.
ENGINEERING SERVICES COMPANY 1,860 101,000
Gucci Group N.V.
LUXURY GOODS MANUFACTURER 1,320 91,000
------------------------------------------------------------------------
2,808,000
- -----------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--23.0% Glaxo Wellcome
PHARMACEUTICAL COMPANY 28,000 560,000
Barclays PLC
BANKING 19,318 375,000
Rentokil Group PLC
SERVICES COMPANY 60,000 231,000
Granada Group PLC
MEDIA AND ENTERTAINMENT COMPANY 16,222 230,000
(a) British Bio-Technology Group
PHARMACEUTICAL COMPANY 49,910 213,000
Reed International PLC
PUBLISHER 21,200 209,000
British Petroleum
PETROLEUM PRODUCER 17,035 202,000
Prudential Corp. PLC
FINANCIAL SERVICES/LIFE INSURANCE COMPANY 20,000 201,000
Pearson PLC
MEDIA AND ENTERTAINMENT HOLDING COMPANY 10,400 122,000
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pizza Express PLC
RESTAURANT OPERATOR 10,000 $ 112,000
BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 18,036 99,000
Zeneca Group PLC
PHARMACEUTICAL COMPANY 3,080 93,000
------------------------------------------------------------------------
2,647,000
- -----------------------------------------------------------------------------------------------------------------
SPAIN--11.6% Banco Santander, S.A.
BANKING 3,230 276,000
Telefonica de Espana S.A.
TELECOMMUNICATIONS COMPANY 8,000 231,000
Prosegur, Cia de Seguridad S.A.
SECURITY SERVICES 15,000 196,000
Banco Bilbao Vizcaya
BANKING 2,395 170,000
Vidrala, S.A.
GLASS BOTTLE MANUFACTURER 3,880 163,000
Tele Pizza, S.A.
FOOD DELIVERY SERVICES 3,000 159,000
Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 1,840 141,000
------------------------------------------------------------------------
1,336,000
- -----------------------------------------------------------------------------------------------------------------
FRANCE--9.6% Carrefour S.A.
FOOD RETAILER 770 507,000
Elf Aquitaine
OIL AND GAS PRODUCER 3,400 341,000
Total S.A.
OIL AND GAS COMPANY 2,000 183,000
Technip S.A.
ENGINEERING COMPANY 688 71,000
------------------------------------------------------------------------
1,102,000
- -----------------------------------------------------------------------------------------------------------------
SWITZERLAND--8.3% Novartis
PHARMACEUTICAL COMPANY 241 327,000
Roche Holding A.G.
PHARMACEUTICAL COMPANY 28 249,000
Ciba Specialty Chemicals
CHEMICALS PRODUCER 2,278 216,000
Alusuisee-Lonza Holding
ALUMINUM, CHEMICALS AND PACKAGING MANUFACTURER 176 162,000
------------------------------------------------------------------------
954,000
- -----------------------------------------------------------------------------------------------------------------
GERMANY--7.1% Bayer A.G.
CHEMICAL COMPANY 6,000 233,000
(a)Fresenius Medical Care A.G.
MEDICAL SUPPLY COMPANY 2,550 190,000
Veba, A.G.
ELECTRIC UTILITY 2,400 136,000
SGL CARBON A.G.
CHEMICAL COMPANY 925 134,000
Mannesmann A.G.
CAPITAL GOODS PRODUCER/MOBILE
TELECOMMUNICATIONS OPERATOR 300 122,000
------------------------------------------------------------------------
815,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IRELAND--4.8% Bank of Ireland
BANKING 31,607 $ 341,000
Clondalkin Group PLC
PRINTING AND PURCHASING COMPANY 14,320 137,000
Independant Newspapers PLC
PUBLISHER 14,452 73,000
------------------------------------------------------------------------
551,000
- -----------------------------------------------------------------------------------------------------------------
ITALY--3.1% Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 103,000 303,000
Bulgari SpA
LUXURY GOODS MANUFACTURER 2,880 57,000
------------------------------------------------------------------------
360,000
- -----------------------------------------------------------------------------------------------------------------
NORWAY--1.5% Merkantildata A/S
INFORMATION TECHNOLOGY SUPPLIER 9,000 178,000
- -----------------------------------------------------------------------------------------------------------------
SWEDEN--1.4% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 4,500 158,000
- -----------------------------------------------------------------------------------------------------------------
DENMARK--.7% Copenhagen Airports
AIRPORT OPERATOR 700 77,000
------------------------------------------------------------------------
TOTAL COMMON STOCKS--95.5%
(Cost: $9,952,000) 10,986,000
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.39% to 5.54%
INSTRUMENTS--4.3%
Due--June 1997
(Cost: $499,000) $499,000 499,000
------------------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(Cost: $10,451,000) 11,485,000
------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.2% 22,000
------------------------------------------------------------------------
NET ASSETS--100% $11,507,000
------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
At May 31, 1997, the Fund's portfolio of investments had the following
industry diversification:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
VALUE %
-----------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 2,182,000 19.1
-----------------------------------------------------------------------------------------
Consumer Staples 1,649,000 14.3
-----------------------------------------------------------------------------------------
Health Care 1,632,000 14.2
-----------------------------------------------------------------------------------------
Consumer Cyclicals 1,328,000 11.5
-----------------------------------------------------------------------------------------
Capital Goods 1,058,000 9.2
-----------------------------------------------------------------------------------------
Basic Industries 908,000 7.9
-----------------------------------------------------------------------------------------
Utilities 811,000 7.0
-----------------------------------------------------------------------------------------
Energy 726,000 6.3
-----------------------------------------------------------------------------------------
Technology 615,000 5.3
-----------------------------------------------------------------------------------------
Transportation 77,000 .7
-----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 10,986,000 95.5
-----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS AND OTHER NET ASSETS 521,000 4.5
-----------------------------------------------------------------------------------------
NET ASSETS $11,507,000 100.0
-----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $10,451,000 for federal income tax purposes
at May 31, 1997, the gross unrealized appreciation was $1,138,000, the gross
unrealized depreciation was $104,000 and the net unrealized appreciation on
investments was $1,034,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
Investments, at value
(Cost: $10,451,000) $11,485,000
- ---------------------------------------------------------------------------
Cash 409,000
- ---------------------------------------------------------------------------
Receivable for:
Investments sold 35,000
- ---------------------------------------------------------------------------
Fund shares sold 25,000
- ---------------------------------------------------------------------------
Dividends 54,000
- ---------------------------------------------------------------------------
TOTAL ASSETS 12,008,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ---------------------------------------------------------------------------
Payable for:
Investments purchased 479,000
- ---------------------------------------------------------------------------
Management fee 5,000
- ---------------------------------------------------------------------------
Distribution services fee 3,000
- ---------------------------------------------------------------------------
Administrative services fee 2,000
- ---------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 5,000
- ---------------------------------------------------------------------------
Trustees' fees and other 7,000
- ---------------------------------------------------------------------------
Total liabilities 501,000
- ---------------------------------------------------------------------------
NET ASSETS $11,507,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Paid-in capital $10,386,000
- ---------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 96,000
- ---------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 990,000
- ---------------------------------------------------------------------------
Undistributed net investment income 35,000
- ---------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $11,507,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($6,547,000 / 544,000 shares outstanding) $12.03
- ---------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.76
- ---------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($4,360,000 / 365,000 shares outstanding) $11.94
- ---------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($600,000 / 50,000 shares outstanding) $11.94
- ---------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld of $12,000) $ 89,000
- --------------------------------------------------------------------------------------------------------
Interest 11,000
- --------------------------------------------------------------------------------------------------------
Total investment income 100,000
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 27,000
- --------------------------------------------------------------------------------------------------------
Distribution services fee 13,000
- --------------------------------------------------------------------------------------------------------
Administrative services fee 8,000
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 19,000
- --------------------------------------------------------------------------------------------------------
Professional fees 6,000
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 3,000
- --------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 76,000
- --------------------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment manager 9,000
- --------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 67,000
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 33,000
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 100,000
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 708,000
- --------------------------------------------------------------------------------------------------------
Net gain on investments 808,000
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $841,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS MAY 1
ENDED TO
MAY 31, NOVEMBER 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 33,000 --
- --------------------------------------------------------------------------------------------------------
Net realized gain 100,000 48,000
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 708,000 282,000
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 841,000 330,000
- --------------------------------------------------------------------------------------------------------
Net equalization credits 2,000 9,000
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain (51,000) --
- --------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 6,859,000 3,417,000
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 7,651,000 3,756,000
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 3,856,000 100,000
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $35,000 at May 31, 1997) $11,507,000 3,856,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Europe Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund commenced
operations on May 1, 1996. 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 (none sold through
May 31, 1997) are offered to a limited group of
investors, are not subject to initial or contingent
deferred sales charges and have lower ongoing
expenses than other classes. Differences in class
expenses will result in the payment of different
per share income dividends by class. All shares of
the Fund have equal rights with respect to voting,
dividends and assets, subject to class specific
preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange are valued at the last
sale price on that exchange or, if there is no
recent sale price available, at the last current
bid quotation. Portfolio securities that are
primarily traded on foreign securities exchanges
are generally valued at the preceding closing
values of such securities on their respective
exchanges where primarily traded. A security that
is listed or traded on more than one exchange is
valued at the quotation on the exchange determined
to be the primary market for such security by the
Board of Trustees or its delegates. All other
securities not so traded are valued at the last
current bid quotation if market quotations are
available. Fixed income securities are valued by
using market quotations, or independent pricing
services that use prices provided by market makers
or estimates of market values obtained from yield
data relating to instruments or securities with
similar characteristics. Equity options are valued
at the last sale price unless the bid price is
higher or the asked price is lower, in which event
such bid or asked price is used. Financial futures
and options thereon are valued at the settlement
price established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts and foreign currencies are
valued at the forward and current exchange rates,
respectively, prevailing on the day of valuation.
Other securities and assets are valued at fair
value as determined in good faith by the Board of
Trustees.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rates of exchange are
determined in good faith by the
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Board of Trustees. Income and expenses and
purchases and sales of investments are translated
into U.S. dollars at the rates of exchange
prevailing on the respective dates of such
transactions. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with net realized and
unrealized gain (loss) on investments, as
appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date (date the order to buy or sell is
executed). 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 May 31, 1997. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1997, amounting to
approximately $35,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires in the period ended 2005.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .75% of the first $250 million of average daily
net assets declining to .62% of average daily net
assets in excess of $12.5 billion. However, ZKI
agreed to reduce its management fee to .50% until
May 1, 1997. During the six months ended May 31,
1997, the Fund incurred a management fee of $18,000
after a waiver of $9,000 by ZKI. 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.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.) Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED BY
RETAINED BY ZKDI ZKDI TO FIRMS
---------------- ----------------------
<S> <C> <C>
Six months ended May 31, 1997 $6,000 54,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges from redemptions of Class B
and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY ZKDI PAID BY ZKDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Six months ended May 31, 1997 $18,000 67,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, the Fund pays ZKDI a fee at an
annual rate of up to .25% of average daily net
assets. ZKDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY ZKDI
THE FUND TO ZKDI TO FIRMS
---------------- ----------------
<S> <C> <C>
Six months ended May 31, 1997 $8,000 11,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of $12,000
for the six months ended May 31, 1997.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended May 31, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $2,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1997, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $8,834,000
Proceeds from sales 2,205,000
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 1 TO
MAY 31, 1997 NOVEMBER 30, 1996
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 420,000 $4,769,000 203,000 $2,030,000
----------------------------------------------------------------------------
Class B 278,000 3,110,000 161,000 1,616,000
----------------------------------------------------------------------------
Class C 19,000 216,000 27,000 278,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,000 24,000 -- --
----------------------------------------------------------------------------
Class B 4,000 43,000 -- --
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (57,000) (646,000) (32,000) (325,000)
----------------------------------------------------------------------------
Class B (58,000) (657,000) (18,000) (182,000)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 4,000 44,000 1,000 10,000
----------------------------------------------------------------------------
Class B (4,000) (44,000) (1,000) (10,000)
----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $6,859,000 $3,417,000
----------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
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 (loss) 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 May 31, 1997, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in July
1997:
<TABLE>
<CAPTION>
Contract Unrealized
Foreign currency amount in gain (loss)
to be delivered U.S. dollars at 5/31/97
--------------------------------------------------------------
<C> <S> <C> <C>
1,850,000 Dutch Guilders $957,000 $(11,000)
--------------------------------------------------------------
2,800,000 French Francs 484,000 (4,000)
--------------------------------------------------------------
690,000 German Marks 401,000 (5,000)
--------------------------------------------------------------
175,000 Irish Punts 260,000 (4,000)
--------------------------------------------------------------
175,000,000 Italian Lira 103,000 (1,000)
--------------------------------------------------------------
55,400,000 Spanish Pesetas 379,000 (5,000)
--------------------------------------------------------------
1,400,000 Swedish Kroner 183,000 2,000
--------------------------------------------------------------
625,000 Swiss Francs 429,000 (16,000)
--------------------------------------------------------------
Net unrealized loss $(44,000)
--------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------- -------------------- ------------------------
CLASS A CLASS B CLASS C
---------------------- -------------------- ------------------------
SIX MONTHS MAY 1 SIX MONTHS MAY 1 SIX MONTHS MAY 1
ENDED TO ENDED TO ENDED TO
MAY 31, NOV. 30, MAY 31, NOV. 30, MAY 31, NOV. 30,
1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.02 9.50 10.97 9.50 10.97 9.50
- ------------------------------------------------------------------- --------------------- ------------------------
Income from investment operations:
Net investment income (loss) .03 .01 -- (.02) -- (.01)
- ------------------------------------------------------------------- --------------------- ------------------------
Net realized and unrealized gain 1.11 1.51 1.10 1.49 1.10 1.48
- ------------------------------------------------------------------- --------------------- ------------------------
Total from investment operations 1.14 1.52 1.10 1.47 1.10 1.47
- ------------------------------------------------------------------- --------------------- ------------------------
Less distribution from net realized gain .13 -- .13 -- .13 --
- ------------------------------------------------------------------- --------------------- ------------------------
Net asset value, end of period $12.03 11.02 11.94 10.97 11.94 10.97
- ------------------------------------------------------------------ --------------------- ---------------------
TOTAL RETURN (NOT ANNUALIZED) 10.51% 16.00 10.18 15.47 10.18 15.47
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses after expense waiver 1.42% 1.49 2.31 2.44 2.28 2.34
- ------------------------------------------------------------------- --------------------- ------------------------
Net investment income (loss) 1.64% .46 .75 (.49) .78 (.39)
- ------------------------------------------------------------------ --------------------- ---------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.67% 4.74 2.56 5.63 2.53 5.50
- ------------------------------------------------------------------- --------------------- ------------------------
Net investment income (loss) 1.39% (2.79) .50 (3.68) .53 (3.55)
- ------------------------------------------------------------------- --------------------- ------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS MAY 1
ENDED TO
MAY 31, NOV. 30,
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period $11,507,000 3,856,000
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 60% 96
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the
six months ended May 31, 1997 and the period ended November 30, 1996 were $.0384
and $.0313, 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.
NOTE: Total return does not reflect the effect of any sales charges. ZKI has
agreed to temporarily waive certain operating expenses of the Fund. The Other
Ratios to Average Net Assets are computed without this expense waiver.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
JAMES E. AKINS JOHN E. NEAL
Trustee Vice President
ARTHUR R. GOTTSCHALK STEVEN H. REYNOLDS
Trustee Vice President
FREDERICK T. KELSEY PHILIP J. COLLORA
Trustee Vice President and
Secretary
DOMINIQUE P. MORAX
Trustee JEROME L. DUFFY
Treasurer
FRED B. RENWICK
Trustee ELIZABETH C. WERTH
Assistant Secretary
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro 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 Europe Fund prospectus.
KEUF - 3 (7/97) 1034750
Printed in the U.S.A. [KEMPER FUNDS LOGO]
