<PAGE> 1
KEMPER
EUROPE FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED NOVEMBER 30, 1996
SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH
" . . . Careful analysis of mid- and
small cap companies helped us delve into the market
to find some exceptional performers."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
3
Economic Overview
5
Performance Update
9
Largest Holdings
10
Portfolio of Investments
14
Report of Independent Auditors
15
Financial Statements
17
Notes to Financial Statements
21
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SEVEN-MONTH PERIOD ENDED NOVEMBER 30, 1996 (UNADJUSTED FOR ANY SALES
CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 16.00%
CLASS B 15.47%
CLASS C 15.47%
LIPPER EUROPEAN REGION FUNDS
CATEGORY AVERAGE* 11.74%
- --------------------------------------------------------------------------------
</TABLE>
Returns are historical and do not represent future results. 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 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
11/30/96 5/1/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND CLASS A $11.02 $9.50
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B $10.97 $9.50
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C $10.97 $9.50
- --------------------------------------------------------------------------------
</TABLE>
You should note there are special risk considerations associated with an
investment in the fund, including fluctuating exchange rates, government
regulations, differences in liquidity and regional concentration. As with any
mutual fund, returns and net asset value will vary.
TERMS TO KNOW
BOND MARKET RALLY A sharp, short-lived rise in bond values after a period of
either little movement or falling values.
CORRECTION A reverse movement, usually downward, in the price of a group of
stocks or the overall market. Corrections are to be expected over a long term.
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.
EMERGING MARKETS A developing or emerging country can be considered to be a
country that is in the initial stages of its industrial cycle. Developing or
emerging markets involve exposure to economic structures that are generally less
diverse and mature than in the United States and to political systems that may
be less stable.
MARKET CAPITALIZATION (CAP) A measure of the size of a publicly traded company,
as determined by multiplying the current market 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.
2
<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 $79 BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations 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 November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[THOUIN PHOTO]
EDITH THOUIN IS PORTFOLIO MANAGER OF KEMPER EUROPE FUND. SHE JOINED ZURICH
INVESTMENT MANAGEMENT LIMITED (LONDON) 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.
IN ITS FIRST SEVEN MONTHS, KEMPER EUROPE FUND OUTPERFORMED BOTH ITS BENCHMARK
AND ITS PEER GROUP. PORTFOLIO MANAGER EDITH THOUIN POINTS TO SKILLED ANALYSIS
AND CAREFUL SELECTION OF SMALL AND MID-SIZE COMPANIES IN CONTINENTAL EUROPEAN
MARKETS AS THE REASONS FOR THE FUND'S STRONG START.
Q EDITH, WITH A 16% RETURN (CLASS A SHARES, UNADJUSTED FOR SALES CHARGE) FOR
THE SEVEN-MONTH PERIOD ENDED NOVEMBER 30, 1996, KEMPER EUROPE FUND IS OFF TO A
STRONG START. HOW WOULD YOU CHARACTERIZE EUROPEAN MARKETS DURING THIS PERIOD AND
HOW DID THE ENVIRONMENT INFLUENCE HOW YOU BEGAN TO BUILD AND POSITION THE
PORTFOLIO?
A European markets were mainly driven by interest rates. With the exception
of a slip in July, bond markets were very strong and, since July, outperformed
the United States bond market. Yields fell substantially in countries where one
wouldn't have expected -- Sweden, Norway and Finland, for example. Bond market
rallies in Spain and Italy were strong, which drove their equity markets higher.
The top-performing markets in Europe were generally in the smaller countries
such as Finland, Sweden, the Netherlands and Ireland. The larger markets in
Europe -- France, Germany and the United Kingdom -- were noticeably missing
among the top performers.
Since the beginning, the fund's focus was on high quality growth stocks
in the smaller European markets, especially in the retail and
pharmaceutical areas. Later in the period, we added additional emphases on
financial and technology issues. One of our emphases was on mid-size and small
capitalization companies within these sectors. Examples of the stocks we've
built the fund with include retailers from the Netherlands including Gucci
Group and Koninklijke Ahold; Swedish medical industry companies like Getinge;
and information technology services and software companies such as Tietotehdas
in Finland and Baan Company in the Netherlands. Waterford Wedgewood and
Independent Newspapers were among our Irish holdings.
Q LET'S REVIEW THE FUND'S PERFORMANCE COMPARED TO ITS BENCHMARK FOR THE SAME
PERIOD. HOW DOES THE FUND'S COMPOSITION DIFFER FROM THE FINANCIAL TIMES/
STANDARD & POOR'S ACTUARIES WORLD INDEX-EUROPE(TM)* (FT/S&P ACTUARIES WORLD
INDEX-EUROPE(TM)), AND TO WHAT EXTENT DOES THAT EXPLAIN THE FUND'S
OUTPERFORMANCE? (THE INDEX RETURNED 14.31%.)
A The fund and the index vary most in the smaller European countries where
the fund had greater exposure. The Netherlands and Spain are two countries whose
markets did particularly well. We also had a slightly greater position in Sweden
and Denmark. We had less exposure to the UK but maintained a larger position in
Ireland, which allowed us to still have a fairly strong exposure to this region.
We avoided Italy
5
<PAGE> 6
PERFORMANCE UPDATE
because of the volatility we saw there. Our weightings were in line with the
index in France and Germany.
*FT/S&P ACTUARIES WORLD INDEX-EUROPE(TM) IS A MANAGED INDEX THAT IS GENERALLY
REPRESENTATIVE OF THE EQUITY SECURITIES OF EUROPEAN MARKETS.
Q ANOTHER PERFORMANCE COMPARISON CAN BE MADE WITH THE FUND'S PEERS IN THE
EUROPEAN REGION FUNDS CATEGORY AS TRACKED BY LIPPER ANALYTICAL SERVICES, INC.
KEMPER EUROPE FUND'S RETURN OF 16% (CLASS A SHARES, UNADJUSTED FOR SALES
CHARGES) FOR THE SEVEN-MONTH PERIOD ENDED NOVEMBER 30, 1996 OUTPACED ITS PEER
GROUP AVERAGE OF 11.74% OVER THE SAME TIME PERIOD. WHAT EXPLAINS THIS
PERFORMANCE DIFFERENCE?
A Kemper Europe Fund benefited from active management and a top-notch
research team. Specifically, careful analysis of mid- and small cap companies
helped us delve into the market to find some exceptional performers. Many of our
peers have not focused on the strong, smaller corporations that contributed to
our gains. I can't say that mid- and small caps have outperformed in Europe
overall but they have done well in selected countries. We also focused on growth
and financial stocks while many of our peers leaned more toward the cyclical
holdings. While consumer cyclicals are part of the fund's portfolio, they are
not the main focus.
Q DID THE FUND'S FOCUS ON SMALLER MARKETS EXTEND TO INCLUDE EMERGING MARKETS?
A We saw plenty of opportunities in mid- and small cap companies in the more
established markets. Also, with our focus on growth stocks, we have high quality
standards that stocks in the emerging markets cannot typically meet.
Q WE'VE DISCUSSED WHAT WAS DONE TO OUTPERFORM THE MARKET BUT WERE THERE ANY
OPPORTUNITIES THAT WERE MISSED?
A Well, one sort of "miss" was in our underexposure to financial stocks
during their summer rally. Our focus at that point was on growth, and financial
stocks have more of a cyclical nature. Overall, I don't think this hurt our
performance in a significant way but we hate to miss any part of a run in
quality stocks. Another area that I might have handled differently was our
underexposure to the UK in the third quarter of 1996. We were fairly cautious in
this market because we felt much of the improved market performance was in
reaction to sentiment on politics, and we didn't expect it to last. But, the
strength of the UK sterling offset the lackluster performance of the UK market.
Fortunately, our heavy exposure to Ireland and the Irish punt, which rallied
along with the sterling, enabled us to participate in the rise of the sterling
without exposing the fund to the risks we felt existed in the UK.
I might also add that Kemper Europe Fund was established at a high point in
many markets and we had to make some early investments at higher valuations than
we would have liked. In July, we saw a correction in European markets -- a
reaction to the slip in the U.S. markets -- which gave us an opportunity to
accumulate holdings at lower prices.
Q CURRENCY FLUCTUATIONS ARE ONE OF THE SPECIAL RISKS OF INVESTING OVERSEAS.
WILL A UNIFIED EUROPEAN CURRENCY HAVE AN EFFECT ON THE FUND?
A Well, there has been a very strong drive toward creating this single
currency by 1999. In the first stage, the European Monetary Union will allow a
three percent debt to Gross Domestic Product (GDP) ratio but the goal is for
each country to have a balanced budget. All countries that want to join (and
that includes all countries in the European Community except the UK) have been
disciplined in reducing their budget deficits. This has boosted the bond and
equity markets. An additional positive side effect is that inflation has been
falling steeply in Europe -- once again benefiting both bond and equity markets.
The only negative effect has been seen in France and Germany where fiscal
restraint has had the effect of restraining growth.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHERE ARE EUROPEAN MARKETS TODAY COMPARED TO WHERE THE U.S. MARKET IS?
A It's been said that Europe is where the U.S. was 10 years ago. If you look
at the corporate restructuring taking place in Europe, I think it is reminiscent
of the U.S. in the mid-1980s. We are seeing a drive among European corporations
toward enhancing shareholder value -- companies are realizing that the owners of
the company are the shareholders, not the management or employees. This
thinking, mergers, share buybacks and other restructuring moves we are seeing,
have propelled share prices higher. In the U.S., the drive to reach a balanced
budget has been a hot topic for several years and the U.S. bond markets have
benefited from the prospect of such an initiative. Now, with the initiatives of
the EMU, we are seeing a similar drive toward balanced budgets in Europe and
similar reactions from the bond and equity markets.
Q WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A We really expect more of the same -- an environment of modest growth and
low inflation. We are seeing some strong year-end numbers from European
companies. With elections coming in the UK in May, we remain cautious and will
maintain a lesser exposure to that market. We plan to remain focused on
continental Europe where we are seeing good valuations and strong earnings. As
far as Germany and France are concerned, we remain skeptical because we aren't
seeing signs of any sort of economic acceleration. A sell-off in the U.S.
markets is one risk we face in the coming months because European markets tend
to mimic U.S. market activity but we would expect European markets to recover
quickly from any sudden dip. With these factors in mind, we feel our focus on
large growth stocks and thriving smaller companies well positions the fund for
the environment.
7
<PAGE> 8
PERFORMANCE UPDATE
KEMPER EUROPE FUND
- ------------------------------------------------------------------------------
TOTAL RETURNS*
- ------------------------------------------------------------------------------
FOR PERIOD ENDED NOVEMBER 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
CLASS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND CLASS A 9.32% (SINCE 5/1/96)
- ---------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B 11.47% (SINCE 5/1/96)
- ---------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C 14.47% (SINCE 5/1/96)
- ---------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Europe Fund Class A FROM 5/1/96 THROUGH 11/30/96
- -------------------------------------------------------------------------------
[LINE GRAPH]
<TABLE>
<CAPTION>
5/1/96 9/30/96 11/30/96
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS A(1) 10000 9921 10933
FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD INDEX-EUROPE(TM)+ 10000 10595 11431
STANDARD & POOR'S 500 STOCK INDEX++ 10000 10626 11703
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Europe Fund Class B FROM 5/1/96 THROUGH 11/30/96
- -------------------------------------------------------------------------------
[LINE GRAPH]
<TABLE>
<CAPTION>
5/1/96 9/30/96 11/30/96
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS B(1) 10000 10484 11147
FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD INDEX-EUROPE(TM)+ 10000 10595 11431
STANDARD & POOR'S 500 STOCK INDEX++ 10000 10626 11703
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Europe Fund Class C FROM 5/1/96 THROUGH 11/30/96
- -------------------------------------------------------------------------------
[LINE GRAPH]
<TABLE>
<CAPTION>
5/1/96 9/30/96 11/30/96
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS C(1) 10000 10484 11447
FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD INDEX-EUROPE(TM)+ 10000 10595 11431
STANDARD & POOR'S 500 STOCK INDEX++ 10000 10626 11703
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Returns 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.
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends and for
Class A shares adjustment for the maximum sales charge of 5.75%, for Class B
shares adjustment for the maximum contingent deferred sales charge (CDSC) of
4% and for Class C shares adjustment for the 1% CDSC. During the period
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred sales
charge in effect at the end of the period for Class B and Class C shares. In
comparing Kemper Europe Fund to the indices, you should also note that the
fund's performance reflects the maximum sales charge, while no such charges
are reflected in the performance of the indices.
+ Financial Times/Standard & Poor's Actuaries World Index-Europe(TM) is a
managed index that is generally representative of the equity securities
of European markets.
++ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 5 LARGEST HOLDINGS*
REPRESENTING 19% OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON NOVEMBER 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Holdings Percent
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. British Petroleum Explores, produces and processes crude oil, petroleum 5.3%
UNITED KINGDOM products and natural gas.
2. Glaxo Wellcome Researches, develops and manufactures prescription 4.1%
UNITED KINGDOM drugs.
3. Bayer A.G. Manufactures a wide variety of chemical products. 3.3%
GERMANY
4. ABN AMRO Bank The largest Dutch bank with over 500 offices in more 3.2%
NETHERLANDS than 50 countries.
5. Barclays PLC One of the largest banking and financial services 3.1%
UNITED KINGDOM groups in the world.
</TABLE>
*Portfolio holdings and composition are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BELGIUM--.9% Generale de Banque
BANKING 100 $ 36,000
- ---------------------------------------------------------------------------------------------------------------------
DENMARK--4.7% Copenhagen Airports
AIRPORT OPERATOR 700 73,000
Inwear Group
FASHION RETAILER 2,400 109,000
----------------------------------------------------------------------------
182,000
- ---------------------------------------------------------------------------------------------------------------------
FINLAND--1.2% (a)Tietotehdas Oy
INFORMATION TECHNOLOGY 600 47,000
- ---------------------------------------------------------------------------------------------------------------------
FRANCE--8.8% Cap Gemini Sogeti
INFORMATION TECHNOLOGY 800 38,000
Carrefour S.A.
FOOD RETAILER 165 102,000
Christian Dior S.A.
LUXURY GOODS MANUFACTURER 76 11,000
Clarins
COSMETIC PRODUCTS 280 40,000
Elf Aquitaine
OIL AND GAS PRODUCER 800 70,000
Grand Optical Photoservice
PHOTO DEVELOPING AND PRESCRIPTION OPTICAL
MANUFACTURING 100 16,000
Primagaz Cie
PETROLEUM DISTRIBUTOR 280 31,000
Technip S.A.
ENGINEERING COMPANY 344 32,000
----------------------------------------------------------------------------
340,000
- ---------------------------------------------------------------------------------------------------------------------
GERMANY--8.1% Bayer A.G.
CHEMICAL COMPANY 3,000 121,000
Fresenius A.G.
PHARMACEUTICAL COMPANY 950 78,000
Mannesmann A.G.
CAPITAL GOODS PRODUCER 100 42,000
Veba, A.G.
ELECTRIC UTILITY 1,200 70,000
----------------------------------------------------------------------------
311,000
- ---------------------------------------------------------------------------------------------------------------------
IRELAND--5.7% Bank of Ireland
BANKING 9,000 78,000
Independant Newspapers PLC
PUBLISHER 14,452 76,000
Kerry Group PLC
FOOD PROCESSING 1,670 19,000
Waterford Wedgewood PLC
FINE CHINA AND CRYSTAL MANUFACTURER 36,600 47,000
----------------------------------------------------------------------------
220,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITALY--1.5% Bulgari SpA
LUXURY GOODS MANUFACTURER 1,440 $ 27,000
Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 13,000 30,000
----------------------------------------------------------------------------
57,000
- ---------------------------------------------------------------------------------------------------------------------
NETHERLANDS--19.8% ABN AMRO Bank
BANKING 1,805 117,000
Aalberts Industries N.V.
CAPITAL GOODS AND COMPONENTS 360 45,000
Baan Company N.V.
SOFTWARE SERVICING 1,050 37,000
De Boer Winkelbedrijven
FOOD RETAILER 1,000 68,000
Endemol Entertainment
TELEVISION PROGRAMMING 2,200 75,000
GTI Holding
ENGINEERING SERVICES 180 23,000
Goudsmit N.V.
TEMPORARY EMPLOYMENT AGENCY 530 47,000
Gucci Group N.V.
LUXURY GOODS MANUFACTURER 660 48,000
Hagemeyer N.V.
WHOLESALER 554 44,000
Internationale Nederlanden Groep
BANKING AND INSURANCE 2,284 80,000
Koninklijke Ahold N.V.
FOOD RETAILER 1,406 88,000
Nutricia Verenigde Bedryven
SPECIALTY NUTRITION PRODUCTS MANUFACTURER 325 50,000
Randstad Holding N.V.
TEMPORARY EMPLOYMENT AGENCY 550 42,000
----------------------------------------------------------------------------
764,000
- ---------------------------------------------------------------------------------------------------------------------
NORWAY--2.4% Schibsted A/S
PUBLISHER 5,000 91,000
- ---------------------------------------------------------------------------------------------------------------------
SPAIN--7.1% Banco Bilbao Vizcaya
BANKING 1,095 55,000
Empresa Nacional de Electricidad S.A.
ELECTRIC UTILITY 920 62,000
Iberdrola, S.A.
ELECTRIC UTILITY 4,800 55,000
PRYCA Centros, S.A.
FOOD RETAILER 1,200 25,000
Tele Pizza, S.A.
FOOD DELIVERY SERVICES 2,000 49,000
Vidrala, S.A.
GLASS BOTTLE MANUFACTURER 470 29,000
----------------------------------------------------------------------------
275,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWEDEN--1.6% L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT MANUFACTURER 750 $ 23,000
Getinge Industrier AB
MEDICAL SUPPLY COMPANY 1,930 37,000
----------------------------------------------------------------------------
60,000
- ---------------------------------------------------------------------------------------------------------------------
SWITZERLAND--5.6% Alusuisee-Lonza Holding
ALUMINUM, CHEMICALS AND PACKAGING MANUFACTURER 76 60,000
Ciba-Geigy Limited
PHARMACEUTICAL COMPANY 76 94,000
Roche Holding AG
PHARMACEUTICAL COMPANY 8 62,000
----------------------------------------------------------------------------
216,000
- ---------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--27.0% BBA Group PLC
DIVERSIFIED ENGINEERING COMPANY 9,036 53,000
Barclays PLC
BANKING 6,600 113,000
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 14,910 53,000
British Petroleum
PETROLEUM PRODUCER 16,799 194,000
Dixons Group PLC
ELECTRONICS RETAILER 3,040 29,000
Glaxo Wellcome
PHARMACEUTICAL COMPANY 9,000 148,000
Granada Group PLC
ENTERTAINMENT AND COMMUNICATIONS COMPANY 4,180 61,000
Laura Ashley Holdings PLC
RETAILER 12,000 41,000
Next PLC
RETAILER 3,760 37,000
Pearson PLC
MEDIA AND ENTERTAINMENT COMPANY 5,200 64,000
Reed International PLC
PUBLISHER 5,600 108,000
Rentokil Group PLC
SERVICES COMPANY 7,500 55,000
Zeneca Group PLC
PHARMACEUTICAL COMPANY 3,080 85,000
----------------------------------------------------------------------------
1,041,000
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--94.4%
(Cost: $3,358,000) 3,640,000
----------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.22%
INSTRUMENTS--5.2%
Due--December 1996
(Cost: $199,000)
Federal Home Loan Mortgage Corp. $200,000 199,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.6%
(Cost: $3,557,000) 3,839,000
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.4% 17,000
----------------------------------------------------------------------------
NET ASSETS--100% $3,856,000
----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
At November 30, 1996, the Fund's portfolio of investments had the following
industry diversification:
<TABLE>
<CAPTION>
VALUE %
---------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples $ 710,000 18.4
---------------------------------------------------------------------------------------------
Consumer Cyclicals 688,000 17.8
---------------------------------------------------------------------------------------------
Health Care 573,000 14.9
---------------------------------------------------------------------------------------------
Finance 479,000 12.4
---------------------------------------------------------------------------------------------
Energy 295,000 7.7
---------------------------------------------------------------------------------------------
Capital Goods 250,000 6.5
---------------------------------------------------------------------------------------------
Utilities 217,000 5.6
---------------------------------------------------------------------------------------------
Basic Industries 210,000 5.4
---------------------------------------------------------------------------------------------
Technology 145,000 3.8
---------------------------------------------------------------------------------------------
Transportation 73,000 1.9
---------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 3,640,000 94.4
---------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS AND OTHER NET ASSETS 216,000 5.6
---------------------------------------------------------------------------------------------
NET ASSETS $3,856,000 100.0
---------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $3,557,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $292,000, the gross
unrealized depreciation was $10,000 and the net unrealized appreciation on
investments was $282,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER EUROPE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Europe Fund as of November 30,
1996, and the related statements of operations and changes in net assets and the
financial highlights for the period from May 1, 1996 (commencement of
operations) to November 30, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Europe Fund at November 30, 1996, the results of its operations, the changes in
its net assets and the financial highlights for the period from May 1, 1996 to
November 30, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $3,557,000) $3,839,000
- ---------------------------------------------------------------------------------------------------------
Cash 45,000
- ---------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 293,000
- ---------------------------------------------------------------------------------------------------------
Fund shares sold 137,000
- ---------------------------------------------------------------------------------------------------------
Dividends 2,000
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 4,316,000
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 452,000
- ---------------------------------------------------------------------------------------------------------
Management fee 1,000
- ---------------------------------------------------------------------------------------------------------
Distribution services fee 1,000
- ---------------------------------------------------------------------------------------------------------
Administrative services fee 1,000
- ---------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 3,000
- ---------------------------------------------------------------------------------------------------------
Trustees' fees 2,000
- ---------------------------------------------------------------------------------------------------------
Total liabilities 460,000
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $3,856,000
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Paid-in capital $3,527,000
- ---------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 47,000
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 282,000
- ---------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,856,000
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,925,600 / 174,800 shares outstanding) $11.02
- ---------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net asset value or 5.75% of offering price) $11.69
- ---------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to contingent deferred sales charge) per
share ($1,589,400 / 144,900 shares outstanding) $10.97
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to contingent deferred sales charge) per
share ($341,000 / 31,100 shares outstanding) $10.97
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
For the period from May 1, 1996 (commencement of operations) to November
30, 1996
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------------------------
Dividends (less foreign taxes withheld) $ 12,000
- ------------------------------------------------------------------------------------------------------------------------------
Interest 7,000
- ------------------------------------------------------------------------------------------------------------------------------
Total investment income 19,000
- ------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 7,000
- ------------------------------------------------------------------------------------------------------------------------------
Distribution services fee 4,000
- ------------------------------------------------------------------------------------------------------------------------------
Administrative services fee 2,000
- ------------------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 7,000
- ------------------------------------------------------------------------------------------------------------------------------
Professional fees 28,000
- ------------------------------------------------------------------------------------------------------------------------------
Trustees' fees and other 3,000
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 51,000
- ------------------------------------------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment manager 32,000
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 19,000
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME --
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign currency transactions 48,000
- ------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and assets and liabilities in foreign currencies 282,000
- ------------------------------------------------------------------------------------------------------------------------------
Net gain on investments 330,000
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $330,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
OPERATIONS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------
<S> <C>
Net realized gain $ 48,000
- ----------------------------------------------------------------------------------
Change in net unrealized appreciation 282,000
- ----------------------------------------------------------------------------------
Net increase in net assets resulting from operations 330,000
- ----------------------------------------------------------------------------------
Net equalization credits 9,000
- ----------------------------------------------------------------------------------
Net increase from capital share transactions 3,417,000
- ----------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 3,756,000
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------
Beginning of period 100,000
- ----------------------------------------------------------------------------------
END OF PERIOD $3,856,000
- ----------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
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 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
November 30, 1996) 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
17
<PAGE> 18
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 and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles. These
differences are primarily due to differing
treatments for certain transactions such as foreign
currency transactions.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .75% of the first $250 million of average daily
net assets declining to .62% of average daily net
assets in excess of $12.5 billion. However, ZKI has
agreed to a reduction of its management fee to .50%
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
until the earlier of May 1, 1997 or the date when
the Fund's net assets reach $100 million. The Fund
incurred a management fee of $7,000 for the period
ended November 30, 1996. In addition, ZKI has
agreed to temporarily waive or absorb certain
operating expenses of the Fund. Under these
arrangements, ZKI waived and absorbed expenses of
$32,000 for the period ended November 30, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS -----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Period ended November 30, 1996 $5,000 24,000 1,000
</TABLE>
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 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 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
RECEIVED BY KDI PAID BY KDI TO FIRMS
----------------- --------------------
<S> <C> <C>
Period ended November 30, 1996 $4,000 30,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. 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:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY KDI
THE FUND TO KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Period ended November 30, 1996 $2,000 4,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company is the shareholder service
agent of the Fund. Under the agreement, KSvC
received shareholder services fees of $2,000 for
the period ended November 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the period ended November 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $3,000 to independent trustees.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $4,235,000
Proceeds from sales 926,000
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
NOVEMBER 30, 1996
----------------------------
SHARES AMOUNT
<S> <C> <C>
------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------
Class A 203,000 $2,030,000
------------------------------------------------------------------------
Class B 161,000 1,616,000
------------------------------------------------------------------------
Class C 27,000 278,000
------------------------------------------------------------------------
------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------
Class A (32,000) (325,000)
------------------------------------------------------------------------
Class B (18,000) (182,000)
------------------------------------------------------------------------
------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------
Class A 1,000 10,000
------------------------------------------------------------------------
Class B (1,000) (10,000)
------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $3,417,000
------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM MAY 1, 1996 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30,
1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------ ---------- ----------
<S> <C> <C> <C>
- ------------------------------------------------------------------------ ---------- ----------
Net asset value, beginning of period $ 9.50 9.50 9.50
- ------------------------------------------------------------------------ ---------- ----------
Income from investment operations:
Net investment income (loss) .01 (.02) (.01)
- ------------------------------------------------------------------------ ---------- ----------
Net realized and unrealized gain 1.51 1.49 1.48
- ------------------------------------------------------------------------ ---------- ----------
Total from investment operations 1.52 1.47 1.47
- ------------------------------------------------------------------------ ---------- ----------
Net asset value, end of period $11.02 10.97 10.97
- ------------------------------------------------------------------------ ---------- ----------
TOTAL RETURN (NOT ANNUALIZED) 16.00% 15.47 15.47
- ------------------------------------------------------------------------ ---------- ----------
- ------------------------------------------------------------------------ ---------- ----------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ------------------------------------------------------------------------ ---------- ----------
Expenses 1.49% 2.44 2.34
- ------------------------------------------------------------------------ ---------- ----------
Net investment income (loss) .46% (.49) (.39)
- ------------------------------------------------------------------------ ---------- ----------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ------------------------------------------------------------------------ ---------- ----------
Expenses 4.74% 5.63 5.50
- ------------------------------------------------------------------------ ---------- ----------
Net investment loss (2.79)% (3.68) (3.55)
- ------------------------------------------------------------------------ ---------- ----------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------
Net assets at end of period $3,856,000
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 96%
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period ended November 30, 1996 was
$.0313. Foreign commissions usually are lower than U.S. commissions when expressed as cents per share due to
the lower per share price of many non-U.S. securities.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
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 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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://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.
KEURF - 2 (1/97) 1027560
Printed in the U.S.A. [KEMPER FUNDS LOGO]
