<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD (SM)
[LOGO]
Seeks to provide long-term capital growth
KEMPER
EUROPE FUND
"... While our performance was less than the
market, we don't see this as a year of mistakes.
We follow a long-term investment approach with a
focus on quality in the holdings we select. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
Contents
3
Economic Overview
5
Performance Update
9
Largest Holdings
10
Portfolio of Investments
13
Report of Independent Auditors
14
Financial Statements
16
Notes to Financial Statements
20
Financial Highlights
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 14.18%
CLASS B 13.23%
CLASS C 13.32%
LIPPER EUROPEAN REGION FUNDS CATEGORY AVERAGE* 16.19%
- --------------------------------------------------------------------------------
</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.
* 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
11/30/97 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND
CLASS A $12.43 $11.02
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND
CLASS B $12.27 $10.97
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND
CLASS C $12.28 $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 #53 of #56 of #55 of
71 funds 71 funds 71 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER EUROPE 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
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style
Box is based on a portfolio date as of November 30, 1997.) The Equity Style Box
placement is based on a fund's price-to-earnings and price-to- book ratio
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and
do not represent future performance. Please consult the prospectus for a
description of investment policies.
BOTTOM FISHER An investor who is on the lookout for stocks that have fallen to
their bottom prices before turning up. In extreme cases, bottom fishers buy
stocks and bonds of bankrupt or near bankrupt companies.
OPERATING LEVERAGE The extent to which a company's costs of operating are fixed
(rent, insurance, executive salaries) as opposed to variable (materials, direct
labor). The degree of operating leverage measures the sensitivity of a firm's
profits to changes in sales volume. A firm using a high degree of operating
leverage has a break-even point at a relatively high sales level.
EUROPEAN MONETARY UNION An economic and monetary unification of European
countries to ultimately introduce a single currency and create a more
economically competitive region.
<PAGE> 3
ECONOMIC Overview
[ALLYN PHOTO]
MAUREEN F. ALLYN, A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.,
SERVES AS THE FIRM'S CHIEF ECONOMIST. ALLYN GRADUATED SUMMA CUM LAUDE FROM
OAKLAND UNIVERSITY NEAR DETROIT, WITH A BACHELOR'S DEGREE IN PSYCHOLOGY. SHE
RECEIVED HER MASTER'S IN ECONOMICS, WITH A SPECIALIZATION IN INTERNATIONAL TRADE
AND FINANCE, FROM THE NEW SCHOOL FOR SOCIAL RESEARCH IN NEW YORK.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT ADVISOR FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPANIES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
We start 1998 optimistic about the long-term prospects of the U.S. economy and
financial markets but cautious about the next several months. The Asian
financial crisis that dominated the global investment environment in the second
half of 1997 promises to continue, posing significant risks to the economy and
investors. We look for the strength of the American consumer -- currently
enjoying rising real incomes, better employment opportunities, lower mortgage
rates and easy access to credit -- and the secular strength of the trend toward
capital spending on high technology to be sufficient to override the influence
of Asia on the U.S. In short, our best case scenario calls for the U.S. to
muddle through an unsettling period. As it has for several years, the country
should continue to enjoy relatively low interest rates and low inflation. But
the new year will be different in at least two ways, both of which can be
expected to have direct bearing on investment opportunities.
First, the economy should grow at a much slower pace. A slowdown in Asia will
depress capital goods spending and heighten import pricing pressure, putting a
damper on American corporations' pricing and profit growth at least through
1999. While the U.S. economy grew at an almost 4 percent rate in 1997, we look
for no better than 2 percent growth for the next two years -- with more than
half of the change attributable to the effect of the Asian fallout.
Disappointing corporate profits is another given for 1998. Profits had begun
to slow last year even before the height of the Asian crisis. High current
valuations, however, seem to suggest that Wall Street has yet to recognize this.
The clash between Wall Street profit expectations and actual reported earnings
is part of the risk likely to be associated with equity investing in 1998.
Volatility, such as we experienced in 1997, should continue. In fact, the
overall market volatility is not likely to reflect the turmoil that individual
equities may experience. There will be a narrowing of the number of companies
able to meet analysts' expectations and this market will be absolutely
unforgiving to those companies that fall far short.
Having stated this, however, we look for the Standard & Poor's 500 to return
about 9.5 percent, including the effect of reinvested dividends. This would be
an average return and in line with the historical long-term 10 percent return of
the stock market. On the heels of the last three 20 percent-plus return years,
an investor in 1998 may weigh the 10 percent prospect against a projected 7
percent total return on bonds and consider the difference insufficient
compensation for the inherent added risk. Adopting a more conservative posture
for the new year may be an appropriate step that you'll want to discuss with
your financial representative in the context of your long-term investing
objectives.
To achieve a 9.5 percent return in 1998, the market's already high valuations
need to move even higher. We expect this to occur for a few reasons: the market
has so far demonstrated a certain complacency about the valuation levels;
American investors don't perceive there's anywhere better to go than the U.S.
equity market; and foreigners think of the U.S. market as a safe haven. All
should help support the market.
Where, then, are the opportunities likely to be in 1998? Expect to see
disparate performance within industry sectors. For example, while the financial
services sector in 1997 tended to provide across-the-board strong performance,
in 1998 we expect the sector to include its share of winners and losers. Stock
selection will be key, too, to benefiting from the technology sector. Over the
long term, we are optimistic about technology and corporate America's continuing
commitment to it. It will be difficult to participate in a market return in 1998
without having some exposure to technology-based companies. One caution: Not all
technology companies will survive the year, which raises the risk of investing
in the sector.
Conventional wisdom might argue in favor of remaining in the U.S. with your
investment dollars in 1998 and, more specifically, invested in small
capitalization companies with domestic lines of business. We'd challenge such
thinking as slower growth, slower inflation and even
<PAGE> 4
ECONOMIC OVERVIEW
[BAR GRAPH]
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.
<TABLE>
<CAPTION>
NOW (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.81 6.22 6.58 5.65
PRIME RATE(2) 8.5 8.5 8.25 8.5
INFLATION RATE(3)* 1.7 2.23 3.04 2.72
THE U.S. DOLLAR(4) 10.43 7.32 4.59 -0.57
CAPITAL GOODS ORDERS(5)* 11.61 8.58 2.23 9.56
INDUSTRIAL PRODUCTION(5)* 5.59 3.91 4.7 2.34
EMPLOYMENT GROWTH(6) 2.66 2.3 2.41 1.57
</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 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1997.
Source: Economics Department, Scudder Kemper Investment, Inc.
deflation and pricing pressures change the U.S. economic climate. The only real
antidote is growth, and from now on growth is more likely to be found outside
the United States. Today to participate in the growth from global business you'd
need to be exposed to large capitalization companies.
International investing is a promising proposition in 1998, the Asian fallout
notwithstanding. In established markets, there are attractive opportunities to
be found in Europe and in Japan. Several Japanese companies have real cash flows
and even relatively attractive valuations. In addition, the effect of the Asian
problems has not been to discourage all investment into emerging markets; rather
investors have tended to divert investment dollars and business to other
increasingly attractive emerging markets in eastern Europe, the Middle East,
Africa and Latin America.
With that 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/ Maureen Allyn
MAUREEN ALLYN
Chief Economist, Scudder Kemper Investments, Inc.
January 9, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[THOUIN PHOTO]
EDITH THOUIN IS THE PORTFOLIO MANAGER OF KEMPER EUROPE FUND. SHE JOINED
WHAT IS NOW SCUDDER KEMPER INVESTMENTS, INC. IN 1992. 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.
KEMPER EUROPE FUND UNDERPERFORMED ITS BENCHMARK INDEX AND LIPPER CATEGORY FOR
THE FISCAL YEAR. FOLLOWING, PORTFOLIO MANAGER EDITH THOUIN EXPLAINS HOW THE
FUND'S FOCUS ON QUALITY MAY HAVE CAUSED A TEMPORARY LAG BUT, OVER THE LONG
TERM, SHOULD LEAD TO STRONGER RESULTS.
Q HOW WOULD YOU CHARACTERIZE EUROPEAN MARKETS DURING THE FISCAL YEAR?
A In local currency terms, European market performance was strong across the
board. Some markets were up 40 percent or more with the best being Spain, up 52
percent, Switzerland, up 45 percent and the Netherlands, up 41 percent. This
compares to a 28.5 percent return of the Standard & Poor's 500 Stock Index* for
the same period. The strength of the U.S. dollar diminished returns roughly 10
percent, however. Switzerland still stands out in dollar terms with a 32.3
percent gain, Italy with a 33 percent return and Spain with 32.3 percent. France
was one of the weaker performers in dollar terms at 9 percent.
The strength of the U.S. dollar relative to the currencies in Europe
has been beneficial for companies that are highly dependent on dollar revenues.
In Europe there is a division between multinational companies that have
production facilities in U.S. dollar-related companies and those companies that
export out of Europe to dollar markets. Both benefited significantly from a
strong dollar. For example, Germany is one of the larger capital goods
exporters in the world and that market saw very positive performance in 1997
because of it.
A main driver of the market was corporate restructuring. Early in the
year we saw large corporations undertake efforts to modify their businesses and
this was perceived very favorably by the markets. Large oil companies,
manufacturers and, near the end of the fiscal year, banks were sectors that
benefited from restructuring moves. These efforts also included merger and
acquisition activity. The merger of Union Bank of Switzerland and Swiss Bank
Corporation crowned a year of very intense merger and acquisition activity in
the financial sector.
* The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market.
Q WHAT IMPACT DID THE ASIAN CRISIS HAVE ON EUROPEAN MARKETS?
A The Asia impact, related to share price reaction, has been fairly
strong. We have seen roughly a 10 percent drop in markets from their August
highs that can be attributed to the Asia fallout. Hardest hit were those
companies with exposure in that area or those exposed to the lower currency
producing countries in the Far East. As far as the European economy is
concerned, however, the impact should be less than it will be on the U.S.
simply because it is a less important trading partner.
Q THE FUND WAS UP 14.18 PERCENT (CLASS A SHARES UNADJUSTED FOR ANY SALES
CHARGE) FOR THE FISCAL YEAR. ITS LIPPER CATEGORY, HOWEVER, WAS AT 16.19 PERCENT
AND THE FT/S&P ACTUARIES WORLD INDEX -- EUROPE** WAS UP 22.31 PERCENT. WHAT
CAUSED THE PERFORMANCE LAG?
A While our performance was less than the market, we
5
<PAGE> 6
PERFORMANCE UPDATE
don't see this as a year of mistakes. We follow a long-term investment approach
with a focus on quality in the holdings we select. The lag can be attributed, in
part, to one of the points I made about the economy. The markets have been
driven by restructuring. In managing Kemper Europe Fund, we traditionally are
not bottom fishers, that is we don't look for struggling companies with share
prices that have bottomed out. The strongest moves, particularly over the summer
and fall months, took place in lower quality, lower valued companies that found
a way to cut costs and get the stock market to speculate on improved corporate
activity.
Not focusing on lesser-quality names did negatively impact fund
performance. Equity markets will have periods when lower quality companies
suddenly have a run as a result of restructuring or merger activity. But
generally, this surge causes stronger companies to become even stronger because
of pressure from the weaker ones and the larger companies end up growing at an
even faster pace. We traditionally bet on the stronger companies because they
have better earnings trends. Although in the short-term the gains have not gone
in our favor, we believe that within the coming year the gains will be seen in
the stronger, larger names that we hold in our portfolio. We are not, however,
trying to avoid restructuring completely. In the oil sector, for example, we
are very bullish on restructuring plays and hold names like British Petroleum
and Elf Aquitaine which are likely to benefit from this trend.
The dollar strength also had an effect on the fund. We are not investors
in the heavy manufacturing, capital goods area which is a sector that tends
to benefit from a strong depreciation of the local currency. While we hold
oil companies that fall into this sector, these types of businesses tend
to have high operational leverage and the leverage is highest in the companies
with high fixed costs such as rent, insurance and executive salaries. We
believe companies with high fixed costs have the least growth potential over
time.
** Financial Times/Standard & Poor's Actuaries World Index-Europe is an
unmanaged index that is generally representative of the equity securities of
European markets.
Q SINCE THE INCEPTION OF THIS FUND, MANAGEMENT HAS BEEN FOCUSED ON KEEPING
THE FUND "TRULY EUROPEAN." DOES THIS DIFFER FROM OTHER FUNDS IN YOUR PEER GROUP?
A In terms of our strategy, we look for companies positioned to benefit from
the pick-up in the European economy because we feel they have the best growth
potential in terms of earnings and are likely to do better than companies that
have 25 to 30 percent of their earnings coming out of Asia, for example. 1998
will be the first year since the early '90s that the majority of European
consumers won't have to face higher taxes. This should boost disposable income
and lead to increased consumer demand in Europe, helping the different European
economies to gain some momentum. Following this domestic approach does
differentiate us from some of our peers who tend to steer clear of the more
"local," small and mid capitalization names.
Q HAVE YOU MADE ANY ADJUSTMENTS TO YOUR INVESTMENT THEMES?
A We remain focused on financials. Financials in Europe are following the
pattern we are seeing in the U.S. and should surpass the U.S. in merger and
acquisition activity in the coming year. The benefits of scale are a strong
enticement for this trend but in Europe we also have the upcoming European
Monetary Union (EMU) spurring these efforts. Banks such as Barclays in the
United Kingdom and Banco Bilbao Vizcaya in Spain, are trying to reassess their
position with a focus toward doing business in a single currency environment.
We also continue to like the pharmaceutical sector. While they are
somewhat global companies, the majority of their market is Europe and the
United States. European pharmaceutical companies are truly tops in this sector
with names like Novartis, Glaxo Wellcome and Roche among the top five companies
worldwide. Patents have been issued so we expect the introduction of high
numbers of new products in the coming years. New products signal future strong
revenue and earnings growth.
The third sector we like is the oil sector. As mentioned, we believe that
restructuring is going to improve returns significantly in the European oil
sector. We like restructuring in this field because it is an industry that is
inherently extremely profitable. It is not all that difficult to be profitable
as an oil company when oil pumped at a cost of roughly $8.00 a barrel (including
taxes) can be sold to the consumer for about $16.00. The problem is
6
<PAGE> 7
PERFORMANCE UPDATE
that these companies have found it so easy to make money that they have grown
fat. They are beginning to feel the pressure to start to perform and to improve
their return on capital and that is a focus that they did not have in the past.
For instance Royal Dutch, which is one of the best positioned oil companies in
the world in terms of production profile and production cost, had a return on
capital of about 12 percent in 1997. Given their position, they should be well
north of 15 percent which is now an officially broadcasted target by the
company.
Q YOU HAVE MENTIONED EMU AND ITS EFFECT ON BANKS. WHAT OTHER EFFECTS DO YOU
FORESEE EMU HAVING ON THE MARKETS?
A With the evolution taking place in the European community, we are looking
at Europe in somewhat the same way the U.S. investor looks at the U.S. In 1999,
Europe will be operating with one, unified currency. When this happens, sector
performance will be of much more importance than market performance in Europe.
We follow a bottom-up investment strategy, focusing on companies and sectors
rather than where their head office is based, which fits well with the direction
Europe is headed.
We think it is a great opportunity for the region and that the effects of EMU
will be very positive. In the past, there has been protection given to weaker
companies in Europe because of government regulations, border restrictions and
distribution problems. Because they were protected, these weaker companies were
free to inflate prices without fear of competition. Without the barriers to
competition, these companies will be forced to reckon with stronger businesses
and adjust prices to remain competitive. With the borders down, we can start to
really concentrate on European distribution and get the European consumer into
play.
On a global basis, EMU will create a second reserve currency following the
dollar which, in terms of investments, is going to be of great importance. We
feel the flow of U.S. investments into Europe will increase significantly as a
result of EMU because the size of the currency, and therefore the risk factor of
the investment, looks much better than it did previously.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We expect to see returns grow around 10 to 15 percent in Europe in the
coming year. Interest rates should remain low and even fall further because the
rate cycle does not appear to be completed yet on the downside. This, in
combination with further revenue growth, will mean higher earnings and dividends
coming through in share prices and increased shareholder return.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED NOVEMBER 30, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS A 7.64% 15.02% (inception 5/1/96)
......................................................................................................
KEMPER EUROPE FUND CLASS B 10.23 16.71 (inception 5/1/96)
......................................................................................................
KEMPER EUROPE FUND CLASS C 13.32 18.49 (inception 5/1/96)
......................................................................................................
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in class a shares
from 5/1/96 to 11/30/97
- -------------------------------------------------------------------------------
[CLASS A]
<TABLE>
<CAPTION>
5/1/96 12/31/96 11/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS A1 10000 11037 12483
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD INDEX-EUROPE+ 10000 11715 13984
- -----------------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX++ 10000 11503 15036
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
5/1/96 12/31/96 11/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS B1 10000 11658 12775
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL TIMES/STANDARD & POOR'S ACURARIES WORLD INDEX-EUROPE+ 10000 11715 13984
- -----------------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX++ 10000 11503 15036
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
5/1/96 12/31/96 11/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS C1 10000 11658 13086
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL TIMES/STANDARD & POOR'S ACTRARIES WORLD INDEX-EUROPE+ 10000 11715 13984
- -----------------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX++ 10000 11503 15036
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
* Average annual 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 percent, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) as follows: 1-year, 3 percent; 5-year, 1
percent; since inception, 0 percent. For Class C shares there is no
adjustment for sales charge. The maximum CDSC for Class B shares is 4
percent. For Class C shares, there is a 1 percent CDSC on certain
redemptions within the first year of purchase. During the periods 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 CDSC in effect at the end
of the period for Class B shares. In comparing Kemper Europe Fund to the
indices, you should also note that the fund's performance reflects the
applicable sales charge, while no such charges are reflected in the
performance of the indices.
+ Financial Times/Standard & Poor's Actuaries World Index-Europe is an
unmanaged 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 10 LARGEST HOLDINGS*
REPRESENTING 39.4 PERCENT OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COMPANY COUNTRY % OF NET ASSETS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. NOVARTIS Switzerland 7.0%
- ------------------------------------------------------------------------------------------
2. GLAXO WELLCOME United Kingdom 5.2%
- ------------------------------------------------------------------------------------------
3. KONINKLIJKE AHOLD Netherlands 4.1%
- ------------------------------------------------------------------------------------------
4. BRITISH PETROLEUM United Kingdom 4.0%
- ------------------------------------------------------------------------------------------
5. ROYAL DUTCH PETROLEUM Netherlands 3.9%
- ------------------------------------------------------------------------------------------
6. ROCHE HOLDINGS Switzerland 3.7%
- ------------------------------------------------------------------------------------------
7. TOTAL, S.A. France 3.5%
- ------------------------------------------------------------------------------------------
8. REPSOL, S.A. Spain 2.9%
- ------------------------------------------------------------------------------------------
9. TELECOM ITALIA MOBILE Italy 2.6%
- ------------------------------------------------------------------------------------------
10. CIBA SPECIALTY CHEMICALS Switzerland 2.5%
- ------------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--22.0%
Glaxo Wellcome
PHARMACEUTICAL COMPANY 56,514 $ 1,239
British Petroleum
INTEGRATED OIL COMPANY 70,304 960
Barclays, PLC
BANKING 19,503 469
BBA Group, PLC
DIVERSIFIED ENGINEERING COMPANY 73,489 467
HBSC Holdings
BANKING 18,300 465
Tesco, PLC
FOOD RETAILER 57,700 465
Marks & Spencer, PLC
CONSUMER GOODS AND FOODS RETAILER 38,000 390
Rentokil Group, PLC
SERVICES COMPANY 90,000 378
Prudential Corp., PLC
FINANCIAL SERVICES 30,000 322
(a)British Bio-Technology Group
PHARMACEUTICAL COMPANY 49,910 103
--------------------------------------------------------------------------
5,258
- -----------------------------------------------------------------------------------------------------------------------
NETHERLANDS--21.2%
Koninklijke Ahold, N.V.
FOOD RETAILER 37,155 991
Royal Dutch Petroleum
INTEGRATED OIL COMPANY 18,000 937
Aegon, N.V.
INSURANCE COMPANY 6,930 591
(a)Baan Company, N.V.
SOFTWARE APPLICATIONS 7,225 519
De Boer Unigro, N.V.
FOOD RETAILER 12,530 426
Getronics, N.V.
INFORMATION AND COMMUNICATION SERVICES 10,000 344
Aalberts Industries, N.V.
CAPITAL GOODS AND COMPONENTS 11,605 295
Nedcon Groep
RACKING SYSTEMS MANUFACTURER 5,000 263
Sligro Beheer, N.V.
FOOD PRODUCTS DISTRIBUTOR 4,000 257
Unique International, N.V.
TEMPORARY EMPLOYMENT 11,390 245
Beter Bed Holding, N.V.
FURNITURE RETAILER 8,500 190
--------------------------------------------------------------------------
5,058
- -----------------------------------------------------------------------------------------------------------------------
SWITZERLAND--13.2%
Novartis
PHARMACEUTICAL COMPANY 1,048 1,675
Roche Holdings, A.G.
PHARMACEUTICAL COMPANY 98 877
Ciba Specialty Chemicals
CHEMICAL PRODUCER 5,565 592
--------------------------------------------------------------------------
3,144
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANCE--8.7% Total, S.A.
OIL AND GAS COMPANY 8,000 $ 840
Elf Aquitaine
OIL AND GAS COMPANY 5,100 591
Carrefour, S.A.
FOOD RETAILER 770 412
Technip, S.A.
ENGINEERING COMPANY 2,188 227
--------------------------------------------------------------------------
2,070
- -----------------------------------------------------------------------------------------------------------------------
SPAIN--7.1%
Repsol, S.A.
OIL AND GAS COMPANY 16,000 692
Banco Popular Espanol, S.A.
BANKING 4,800 306
Prosegur, Cia de Seguridad, S.A.
SECURITY SERVICES PROVIDER 30,000 300
Banco Santander, S.A.
BANKING 6,690 202
Banco Bilbao Vizcaya, S.A.
BANKING 6,185 187
--------------------------------------------------------------------------
1,687
- -----------------------------------------------------------------------------------------------------------------------
GERMANY--6.3%
SAP, A.G.
SOFTWARE DEVELOPER 1,730 503
Mannesmann, A.G.
CAPITAL GOODS PRODUCER 1,000 465
Veba, A.G.
ELECTRIC UTILITY 4,800 285
SGL CARBON, A.G.
CHEMICAL PRODUCER 1,925 248
--------------------------------------------------------------------------
1,501
- -----------------------------------------------------------------------------------------------------------------------
IRELAND--5.9%
Independent Newspapers, PLC
PUBLISHER 88,452 515
Clondalkin Group, PLC
PRINTING COMPANY 56,439 471
Bank of Ireland
BANKING 32,110 434
--------------------------------------------------------------------------
1,420
- -----------------------------------------------------------------------------------------------------------------------
ITALY--4.9%
Telecom Italia Mobile
MOBILE TELECOMMUNICATIONS PROVIDER 153,000 619
Telecom Italia, SpA
TELECOMMUNICATIONS PROVIDER 90,000 561
--------------------------------------------------------------------------
1,180
- -----------------------------------------------------------------------------------------------------------------------
PORTUGAL--2.4%
Electricidade
ELECTRICITY PROVIDER 32,000 584
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SWEDEN--2.1% Industri Matematik
INFORMATION TECHNOLOGY SERVICES 10,000 $ 273
L.M. Ericsson Telephone Co., "B"
TELECOMMUNICATIONS EQUIPMENT
MANUFACTURER 3,250 133
Skandia Forsakrings, A.B.
INSURANCE COMPANY 2,000 105
--------------------------------------------------------------------------
511
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--93.8%
(Cost: $21,613) 22,413
--------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--5.8%
Yield--5.49% to 5.78%
Due--December 1997
Federal National Mortgage Association $ 400 399
Greentree Financial 1,000 997
--------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--5.8%
(Cost: $1,396) 1,396
--------------------------------------------------------------------------
TOTAL INVESTMENTS--99.6%
(Cost: $23,009) 23,809
--------------------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.4% 101
--------------------------------------------------------------------------
NET ASSETS--100% $23,910
--------------------------------------------------------------------------
</TABLE>
At November 30, 1997, the Fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Energy $ 4,020 16.8
- ----------------------------------------------------------------------------------------
Health Care 3,892 16.3
- ----------------------------------------------------------------------------------------
Finance 3,082 12.9
- ----------------------------------------------------------------------------------------
Consumer Cyclicals 2,973 12.4
- ----------------------------------------------------------------------------------------
Consumer Staples 2,293 9.6
- ----------------------------------------------------------------------------------------
Utilities 2,050 8.6
- ----------------------------------------------------------------------------------------
Capital Goods 1,833 7.7
- ----------------------------------------------------------------------------------------
Technology 1,429 6.0
- ----------------------------------------------------------------------------------------
Basic Industries 841 3.5
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 22,413 93.8
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS, CASH AND OTHER NET ASSETS 1,497 6.2
- ----------------------------------------------------------------------------------------
NET ASSETS $23,910 100.0
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $23,009,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation was $1,443,000, the
gross unrealized depreciation was $643,000 and the net unrealized appreciation
on investments was $800,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
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,
1997, and the related statement of operations for the year then ended and
statement of changes in net assets and the financial highlights for the year
then ended and 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
audits.
We conducted our audits 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, 1997, 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 audits provide 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, 1997, the results of its operations, the changes in
its net assets and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $23,009) $23,809
- -----------------------------------------------------------------------
Cash 776
- -----------------------------------------------------------------------
Receivable for:
Investments sold 217
- -----------------------------------------------------------------------
Fund shares sold 121
- -----------------------------------------------------------------------
Dividends 28
- -----------------------------------------------------------------------
TOTAL ASSETS 24,951
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Investments purchased 966
- -----------------------------------------------------------------------
Fund shares redeemed 6
- -----------------------------------------------------------------------
Management fee 11
- -----------------------------------------------------------------------
Distribution services fee 7
- -----------------------------------------------------------------------
Administrative services fee 5
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 19
- -----------------------------------------------------------------------
Trustees' fees and other 27
- -----------------------------------------------------------------------
Total liabilities 1,041
- -----------------------------------------------------------------------
NET ASSETS $23,910
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $22,771
- -----------------------------------------------------------------------
Undistributed net realized gain on investments and foreign
currency transactions 285
- -----------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 799
- -----------------------------------------------------------------------
Undistributed net investment income 55
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $23,910
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($11,789 / 948 shares outstanding) $12.43
- -----------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $13.19
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($11,141 / 908 shares outstanding) $12.27
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($980 / 80 shares outstanding) $12.28
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------
Dividends (less foreign taxes withheld of $23) $189
- --------------------------------------------------------------------
Interest 47
- --------------------------------------------------------------------
Total investment income 236
- --------------------------------------------------------------------
Expenses:
Management fee 95
- --------------------------------------------------------------------
Distribution services fee 45
- --------------------------------------------------------------------
Administrative services fee 27
- --------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 68
- --------------------------------------------------------------------
Professional fees 15
- --------------------------------------------------------------------
Trustees' fees and other 31
- --------------------------------------------------------------------
Total expenses before expense waiver 281
- --------------------------------------------------------------------
Less expenses waived and absorbed by investment manager 33
- --------------------------------------------------------------------
Total expenses after expense waiver 248
- --------------------------------------------------------------------
NET INVESTMENT LOSS (12)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- --------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 321
- --------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 517
- --------------------------------------------------------------------
Net gain on investments 838
- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $826
- --------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR MAY 1
ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996
- ----------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (12) --
- ----------------------------------------------------------------------------------------------------
Net realized gain 321 48
- ----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 517 282
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 826 330
- ----------------------------------------------------------------------------------------------------
Net equalization credits 35 9
- ----------------------------------------------------------------------------------------------------
Distribution from net realized gain (51) --
- ----------------------------------------------------------------------------------------------------
Net increase from capital share transactions 19,244 3,417
- ----------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 20,054 3,756
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Beginning of period 3,856 100
- ----------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of $55 at November 30, 1997) $23,910 3,856
- ----------------------------------------------------------------------------------------------------
</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
November 30, 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 the exchange or, if there is no
recent sale price available, at the last current
bid quotation. Portfolio securities that are
primarily traded on foreign securities exchanges
are generally valued at the preceding closing
values of such securities on their respective
exchanges where primarily traded. A security that
is listed or traded on more than one exchange is
valued at the quotation on the exchange determined
to be the primary market for such security by the
Board of Trustees or its delegates. All other
securities not so traded are valued at the last
current bid quotation if market quotations are
available. Fixed income securities are valued by
using market quotations, or independent pricing
services that use prices provided by market makers
or estimates of market values obtained from yield
data relating to instruments or securities with
similar characteristics. Equity options are valued
at the last sale price unless the bid price is
higher or the asked price is lower, in which event
such bid or asked price is used. Financial futures
and options thereon are valued at the settlement
price established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts and foreign currencies are
valued at the forward and current exchange rates,
respectively, prevailing on the day of valuation.
Other securities and assets are valued at fair
value as determined in good faith by the Board of
Trustees.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rates of exchange are
determined in good faith by the Board of Trustees.
Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the
rates of exchange prevailing on the respective
dates of such transactions. The Fund includes that
portion of the results of operations resulting from
changes in
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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. The Fund
may make an election under the Internal Revenue
Code so that shareholders may claim a tax credit or
deduction for their share of foreign taxes paid by
the Fund.
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 INVESTMENT MANAGER COMBINATION. Zurich Insurance
Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the
names of the Fund's principal underwriter and
shareholder service agent were changed to Kemper
Distributors, Inc. (KDI) and Kemper Service Company
(KSvC), respectively.
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper and pays a management
fee at an annual rate of .75% of the first
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
$250 million of average daily net assets declining
to .62% of average daily net assets in excess of
$12.5 billion. However, Scudder Kemper agreed to
reduce its management fee to .50% until May 1,
1997. For the year ended November 30, 1997, the
Fund incurred a management fee of $69,000 after a
waiver of $26,000 by Scudder Kemper.
In addition, Scudder Kemper has agreed to
temporarily waive certain operating expenses of the
Fund. Under this arrangement, Scudder Kemper waived
expenses of $7,000 for the year ended November 30,
1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED BY
RETAINED BY KDI KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Year ended November 30, 1997 $20,000 99,000
</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 (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION
FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY KDI PAID BY KDI TO FIRMS
--------------- --------------------
<S> <C> <C>
Year ended November 30, 1997 $60,000 259,000
</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 (AFTER
EXPENSE WAIVER)
PAID BY ASF PAID BY KDI
THE FUND TO KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Year ended November 30, 1997 $20,000 37,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $32,000 for the year ended
November 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1997, the Fund made no payments to its officers and
incurred trustees' fees of $14,000 to independent
trustees.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended November 30, 1997, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $30,686
Proceeds from sales 12,720
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MAY 1 TO
NOVEMBER 30, 1997 NOVEMBER 30, 1996
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,001 $12,178 203 $2,030
----------------------------------------------------------------------------
Class B 1,144 14,017 161 1,616
----------------------------------------------------------------------------
Class C 53 637 27 278
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2 24 -- --
----------------------------------------------------------------------------
Class B 4 43 -- --
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (243) (2,992) (32) (325)
----------------------------------------------------------------------------
Class B (372) (4,615) (18) (182)
----------------------------------------------------------------------------
Class C (4) (48) -- --
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 13 161 1 10
----------------------------------------------------------------------------
Class B (13) (161) (1) (10)
----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $19,244 $3,417
----------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------- -------------------------- --------------------------
CLASS A CLASS B CLASS C
--------------------------- -------------------------- --------------------------
MAY 1 MAY 1 MAY 1
YEAR ENDED TO YEAR ENDED TO YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 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 (.05) (.02) (.05) (.01)
- ----------------------------------------------------------- -------------------------- --------------------------
Net realized and unrealized
gain 1.51 1.51 1.48 1.49 1.49 1.48
- ----------------------------------------------------------- -------------------------- --------------------------
Total from investment
operations 1.54 1.52 1.43 1.47 1.44 1.47
- ----------------------------------------------------------- -------------------------- --------------------------
Less distribution from net
realized gain .13 -- .13 -- .13 --
- ----------------------------------------------------------- -------------------------- --------------------------
Net asset value, end of period $12.43 11.02 12.27 10.97 12.28 10.97
- ----------------------------------------------------------- -------------------------- --------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.18% 16.00 13.23 15.47 13.32 15.47
- ----------------------------------------------------------- -------------------------- --------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------- -------------------------- --------------------------
Expenses after expense waiver 1.52% 1.49 2.45 2.44 2.38 2.34
- ----------------------------------------------------------- -------------------------- --------------------------
Net investment income (loss) .34% .46 (.59) (.49) (.52) (.39)
- -------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------
Expenses 1.75% 4.74 2.66 5.63 2.59 5.50
- ----------------------------------------------------------- -------------------------- --------------------------
Net investment income (loss) .11% (2.79) (.80) (3.68) (.73) (3.55)
- ----------------------------------------------------------- -------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------
MAY 1
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period (in thousands) $23,910 3,856
- ------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 101% 96
- ------------------------------------------------------------------------------------------
Average commission rate paid per share on stock
transactions(a) $ .0461 .0313
- ------------------------------------------------------------------------------------------
</TABLE>
NOTES: (a) 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.
Total return does not reflect the effect of any sales charges. The
investment manager has agreed to temporarily waive certain operating
expenses of the Fund. The Other Ratios to Average Net Assets are
computed without this expense waiver.
20
<PAGE> 21
NOTES
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY LINDA J. WONDRACK
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP COLLORA JOHN R. HEBBLE
Trustee Vice President, Assistant Treasurer
Secretary and Treasurer
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JERALD K. HARTMAN Assistant Secretary
Vice President
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
FRED B. RENWICK ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
JOHN B. TINGLEFF
Trustee KATHRYN L. QUIRK
Vice President
EDMOND D. VILLANI
Trustee STEVEN H. REYNOLDS
Vice President
JOHN G. WEITHERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
FOREIGN CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL
60606 www.kemper.com
[RECYCLED LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Europe Fund prospectus.
KEUF - 2 (1/98) 1041960
Printed in the U.S.A.
[KEMPER FUNDS LOGO]
