<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
Seeks to provide long-term capital growth
KEMPER
EUROPE FUND
"...Overall, the portfolio is more balanced among sectors than it
has been in the past. We've made adjustments to reflect a fundamental
change in our international economic growth profile, which
indicates a much more balanced
outlook for the economy. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Largest Holdings
9
Portfolio of Investments
14
Financial Statements
16
Notes to Financial Statements
20
Financial Highlights
22
Shareholders' Meeting
AT A GLANCE
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KEMPER EUROPE FUND
TOTAL RETURNS
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FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
CLASS A -4.51%
CLASS B -5.03%
CLASS C -4.86%
LIPPER EUROPEAN REGION FUNDS CATEGORY AVERAGE* -0.96%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN FOREIGN
SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING FLUCTUATING CURRENCY
EXCHANGE RATES, GOVERNMENT REGULATIONS AND DIFFERENCES IN LIQUIDITY.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
<TABLE>
<CAPTION>
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NET ASSET VALUE
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AS OF AS OF
5/31/99 11/30/98
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<S> <C> <C>
KEMPER EUROPE FUND CLASS A $13.61 $14.34
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KEMPER EUROPE FUND CLASS B $13.26 $14.05
- --------------------------------------------------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C $13.36 $14.13
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</TABLE>
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KEMPER EUROPE FUND
RANKINGS AS OF 5/31/99
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EUROPEAN REGION FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
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<S> <C> <C> <C>
1-YEAR #82 of 107 funds #89 of 107 funds #84 of 107 funds
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3-YEAR #54 of 71 funds #57 of 71 funds #56 of 71 funds
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</TABLE>
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DIVIDEND REVIEW
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DURING THE PERIOD, KEMPER EUROPE FUND MADE THE FOLLOWING DISTRIBUTIONS PER
SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM CAPITAL GAIN $0.09 $0.09 $0.09
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</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
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MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[Style-size Box]
Source: Morningstar, Inc. Chicago, IL (312) 696-6000. The Equity Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
THE STYLEBOX REPRESENTS A SNAPSHOT OF THE FUND'S PORTFOLIO ON A SINGLE DAY. IT
IS NOT AN EXACT ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE PERFORMANCE.
THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY. A LONGER-TERM VIEW IS REPRESENTED
BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED ON ITS ACTUAL INVESTMENT
STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE
YEARS. MORNINGSTAR HAS PLACED KEMPER EUROPE FUND IN THE EUROPE STOCK CATEGORY.
PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
EUROPEAN CENTRAL BANK (ECB) The bank founded to oversee monetary policy for the
eleven countries that converted their local currencies to the euro on January 1,
1999. The ECB's primary mission is to maintain price stability and issue euro
currency.
(EMU) EUROPEAN MONETARY UNION The integration of European economies involving,
among other changes, a move to a single currency for member nations. To qualify
for EMU membership, nations will be required to meet certain guidelines
concerning total governmental debt and annual budget deficits, designed to
ensure a strong common currency.
RESTRUCTURING The general term for major corporate changes aimed at greater
efficiency and adaptation to changing markets. Cost-cutting initiatives, debt
retirement, management realignments, and the sale of non-core businesses are all
developments frequently associated with corporate restructuring.
TRANSPARENCY The degree to which investors can evaluate if a company is managed
in the interests of shareholders. Transparency is often not as strong in
developing markets where disclosure requirements may be less stringent and
protectionism, subsidies, and cronyism may distort the business environment.
WEIGHTING (OVER/UNDER) Refers to the allocation of assets -- usually in terms of
sectors, industries, or countries -- within a portfolio relative to the
portfolio's benchmark index or investment universe.
SOURCES: SCUDDER KEMPER INVESTMENTS, INC.; BARRON'S DICTIONARY OF FINANCE AND
INVESTMENT TERMS
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
As expected, the Federal Reserve Board raised its federal funds interest rate
(the rate at which banks lend to each other overnight) by one-fourth of a
percentage point in June. Although higher interest rates tend to have a
dampening effect on the market, investors rallied in response to this move. The
Dow Jones Industrial Average, which was down 50 points before the Fed's
statement on June 30, reversed course and ended the day at its highest closing
level in six weeks. The Dow went on to close at a record-setting high of 11,187
on July 7.
What led to the interest rate hike, and why does the market reaction suggest
that investors are happy about it?
It is generally recognized that a modest rate hike by the Fed may be effective
in slowing the economy sufficiently to suppress any simmering inflationary
pressures. Although the economy has been strong, there are concerns that it will
be unable to maintain its current rate of growth without prompting inflationary
pressures -- which is at the heart of the Fed's decision to raise interest
rates. The Fed is acting now to be proactive. In the past, Fed policy has been
reactive, which meant that the Fed tended to respond to inflation only when it
picked up. A rate hike now is intended to halt any future buildup in inflation.
Moreover, by hinting at an increase well in advance -- then by limiting the
increase to 25 basis points -- the Fed relieved worried investors and gave a
boost to the financial markets.
Despite the minor rate increase, the long-term economic situation appears to
be positive. The federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially for households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
This positive environment is exactly what sometimes poses risk for investors,
and is key to understanding recent volatility in the market. A strong economy
has the potential to feed inflation fears and drive up interest rates. Indeed,
recent market events illustrate the domino effect of investors reacting to
positive economic news, which they consider troubling at this point, more than
eight years into the economic expansion. Prior to its strong close in the second
quarter, the steady stream of positive economic news led to a sell-off in the
financial markets based on fears that the strong pace of economic growth would
eventually lead to higher inflation. The benchmark 30-year Treasury bond yield
rose, which pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., is expected to rise at an annual rate of 4
percent in the first half of 1999, following a tremendous fourth-quarter surge
of 6 percent. This is very much in line with what we've grown accustomed to over
the past year -- over the four quarters of 1998, the U.S. economy expanded by
4.3 percent. Some people aren't surprised at all by strong GDP growth that once
would have alarmed them. That's partially because we've grown accustomed to a
strong economy. But it's also because we've been able to absorb growth without
driving up inflation. That's important for investors. If prices had been rising
as the economy was growing, the Fed would have most likely raised short-term
interest rates earlier and more drastically, and that would have changed the
financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first half of 1999, while imports soared. This reflects the fact that the U.S.
is one of the few countries financially fit enough to buy goods produced
elsewhere in the world. But for as long as less vibrant international economies
are unable to buy U.S. goods, the profitability of U.S. companies trying to
export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which has
already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. Although the Kosovo crisis seems to be waning, past
increases in military spending on Kosovo by the 11 European Monetary Union (EMU)
countries could force them to spend less in other areas, which could have
economic implications, including higher interest rates. That's because many
European countries (especially Italy) have small economies and
3
<PAGE> 4
ECONOMIC OVERVIEW
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ECONOMIC GUIDEPOSTS
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ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE
OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (6/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Ten Year Treasury Rate 5.90 4.81 5.65 6.69
Prime Rate 7.75 8.49 8.50 8.30
Inflation* 2.03 1.62 1.44 3.03
The U.S. Dollar* -2.4 4.31 4.88 8.58
Capital goods orders* 7.73 11.44 8.10 5.52
Industrial production * 1.72 3.58 5.05 5.86
Employment growth* 2.15 2.48 2.61 2.51
</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 MAY 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
little leeway in their budgets. Consequently, those countries financed unplanned
military expenditures by selling government bonds -- which, in Europe's small
bond market, typically raises interest rates. As an example, consider Italy,
which recently asked for more leeway on its deficit targets. When leeway was
granted, this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF JUNE 9, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[FRANKLIN PHOTO]
CAROL FRANKLIN IS A MEMBER OF SCUDDER KEMPER INVESTMENTS' GLOBAL EQUITY GROUP
AND SERVES AS LEAD PORTFOLIO MANAGER FOR KEMPER EUROPE FUND. IN ADDITION, CAROL
MANAGES INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIOS AND RESEARCHES INVESTMENT
OPPORTUNITIES IN SEVERAL WESTERN AND EASTERN EUROPEAN COUNTRIES. SHE RECEIVED AN
MBA FROM COLUMBIA UNIVERSITY. A CHARTERED FINANCIAL ANALYST, SHE HAS SERVED AS
PRESIDENT AND SECRETARY OF THE NEW YORK ASSOCIATION OF INTERNATIONAL INVESTORS.
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED SCUDDER KEMPER INVESTMENTS, LONDON OFFICE IN 1994. HE IS
A VICE PRESIDENT OF INTERNATIONAL EQUITIES AND A PORTFOLIO MANAGER FOR KEMPER
EUROPE FUND. HE ALSO SERVES ON THE MANAGEMENT TEAM OF KEMPER INTERNATIONAL FUND.
MARC HOLDS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN IN THE
NETHERLANDS.
[GREGORY PHOTO]
JOAN GREGORY, A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC., IS A MEMBER
OF THE GLOBAL EQUITY GROUP. SHE SERVES AS A PORTFOLIO MANAGER OF KEMPER EUROPE
FUND AND SEVERAL INSTITUTIONAL INTERNATIONAL PORTFOLIOS.
AFTER STAGING AN EXUBERANT RALLY FOLLOWING THE SUCCESSFUL LAUNCH OF THE EURO,
STOCKS IN EUROPE FELL WHEN INVESTORS BECAME CONCERNED ABOUT A NEGATIVE POLITICAL
ENVIRONMENT IN GERMANY AND SLOWING GROWTH THROUGHOUT THE REGION. VETERAN
EUROPEAN EQUITY FUND MANAGER CAROL FRANKLIN WAS BROUGHT ABOARD KEMPER EUROPE
FUND'S MANAGEMENT TEAM AS LEAD PORTFOLIO MANAGER IN APRIL. HERE, THE MANAGEMENT
TEAM DISCUSSES THE EUROPEAN MARKETS.
Q AFTER REBOUNDING FROM THEIR LOWS IN DECEMBER, EUROPEAN STOCK MARKETS
PROVIDED FLAT PERFORMANCE IN THE NEW YEAR THROUGH MAY 31, 1999 AMID A MORE
CHALLENGING INVESTMENT ENVIRONMENT. WHAT WERE THE MAIN EVENTS AFFECTING THE
MARKETS?
A The most significant economic event during the period was the start of the
European Monetary Union (EMU) (see Terms To Know on page 2). On January 1 of
this year, Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain agreed to unify their economic
and monetary policies and use a single currency, the euro. The new currency
started out strongly against the dollar, but weakened as growth in the region
slowed. Although consumer confidence in a number of European countries remained
high, business confidence began to deteriorate when growth in the major
continental economies failed to meet expectations.
The principal reason for the drop in the euro and the weaker market
performance has been slowing growth in gross domestic product (GDP) throughout
the region, especially relative to the strong growth rates in the United States.
Having topped 3 percent in the first half of 1998, European GDP growth averaged
only about 1.3 percent in the first quarter of 1999. Looking at individual
country activity, we did see the strength of peripheral countries such as Spain,
Ireland and Holland, as well as a steadily growing France, help offset the GDP
declines in Germany and Italy.
Concerns about political instability in Germany also contributed to weaker
stock market performance. An unsatisfactory tax reform package, tensions within
the country's uneasy coalition government, and the attempts of Finance Minister
Oskar LaFontaine to jawbone the newly established European Central Bank (ECB)
(see Terms To Know on page 2) into lowering interest rates all weighed on market
sentiment. LaFontaine's abrupt resignation in March prompted an enthusiastic
rally in German shares and raised hopes among European investors that Prime
Minister Gerhard Schroeder would be able to conduct a more cohesive and
pro-business policy. Three weeks after LaFontaine's resignation, the ECB did
indeed announce that rates would be cut a larger than expected .50% to 2.50% in
an effort to stimulate growth on the continent.
Another surprise in the European political arena was the investigation by the
European Parliament of the European Commission, an action that ultimately
resulted in the resignation of all the Commissioners. European stock markets
were not concerned by this event. In fact, the push toward greater
accountability, and democracy is a step forward for Europe. We feel that the
prompt appointment of Romano Prodi as the
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS 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.
5
<PAGE> 6
PERFORMANCE UPDATE
next European commissioner is a further positive. Prodi, the former Prime
Minister of Italy, is well respected, reform-minded, and pro-growth. On the
downside, the crisis in Kosovo has brought armed conflict to the doorstep of the
Eurozone.
Q THE FUND RETURNED -4.51 PERCENT (CLASS A SHARES, UNADJUSTED FOR SALES
CHARGE) FOR THE 6-MONTH PERIOD WHILE THE FT/S&P WORLD EUROPE INDEX* WAS UP 0.88
PERCENT. WHAT CONTRIBUTED TO THIS UNDERPERFORMANCE?
A The largest reason for the underperformance was the aggressive shift
toward more economically sensitive areas. In local currency terms, the oil
sector rose 12.2 percent, steels rose nearly 18 percent, and non-food retail was
up 29 percent. We were quite underweight in oil, had no exposure in steel and
only a small position in non-food retail. Negatively impacted by the investor
bias toward cyclical names, our overweight positions in insurance,
pharmaceuticals and food and drug retailers hurt us, as those sectors dropped 15
percent, 10.1 percent and 4.1 percent respectively.
It is not unusual for more cyclical stocks to start a new year strong
because optimism about economic growth is typically high at the beginning of the
year. However, these stocks generally cool off by the end of the first quarter.
This year, the shift toward cyclical areas such as oil and steel has been more
pronounced and longer than we expected. We believe this reflects the more
balanced situation in the global economies compared to the situation we've had
in the past 18 to 24 months. To our credit, telecommunications stocks have
performed well, rising 18.9 percent during the period. Our overweighting in this
sector boosted our performance.
* THE FT/S&P WORLD EUROPE INDEX IS A GENERALLY ACCEPTED BENCHMARK OF
EUROPEAN MARKET PERFORMANCE. IT CANNOT BE INVESTED IN DIRECTLY. SOURCE IS
DATASTREAM.
Q HOW WAS THE FUND POSITIONED IN DIFFERENT BUSINESS SECTORS, AND HOW DID
THOSE POSITIONS CHANGE OVER THE PERIOD? DID ANY SECTORS STAND OUT AS ESPECIALLY
STRONG PERFORMERS?
A Overall, the portfolio is more balanced among sectors than it has been in
the past. We've made adjustments to reflect a fundamental change in our
international economic growth profile, which indicates a much more balanced
outlook for the economy. In this environment, it is less desirable to have an
oversized position in any one area.
To achieve this balance, we have increased our position in the energy
sector to 10 percent from 4 percent by adding such new names as Total, Royal
Dutch and ENI. We also increased exposure to Elf Aquitaine. While maintaining
our 12 percent exposure to communication firms, we took profits in Telecom
Italia Mobile and British Telecom. We've also added to our underweight position
in the finance sector, increasing that position to 20 percent from 10 percent by
adding new names like Argentaria, Barclays, Prudential and UBS.
The adjustment made to the management team in April has also contributed
to the broadening of the portfolio. With the additional depth of knowledge
provided by expanding the management team, we've identified some new stocks that
represented very good value. We expanded our exposure in France, for example,
with the addition of Casino, an operator of food and convenience stores;
Compagnie de Saint-Gobain, a distributor of building materials; Air Liquide, a
producer of industrial gases; and Rhone Poulenc, a pharmaceutical and chemical
name.
Q YOU MENTIONED EARLIER THAT THERE WAS SOME DISPARITY BETWEEN THE GDP
FIGURES OF THE VARIOUS EUROPEAN COUNTRIES. HAS THIS AFFECTED REGIONAL
PERFORMANCE, AND HAVE YOU ADJUSTED THE FUND'S COUNTRY WEIGHTINGS (SEE TERMS TO
KNOW ON PAGE 2) TO REFLECT THIS?
A In terms of regional performance, there has been an unusually sharp
divergence between European countries. In local currency terms, Finland was the
best performing country, rising 45.8 percent* on the strength of Nokia, a
telecommunications giant. Belgium, dominated by banks and utilities, dropped 3.2
percent*. Among the larger countries, France was up 13.7 percent*, buoyed by
strong consumer confidence and by being such a diverse market, while Germany
dropped 1.2 percent*.
Although we are more evenly balanced today, we are overweight in France
and Italy versus the FT/S&P World Europe Index. Both have strong companies in
sectors we are favoring. In Italy, we have found some attractive media names
such as Gruppo Editoriale L'Espresso, which has a stronghold in the newspaper
and radio business, and Seat Pagine Gialle, a yellow pages company with an
aggressive internet strategy. In France we are also focusing on some media names
as well as leisure giants such as Accor, a provider of hotel and travel
services. This market really offers a nice cross-section of industries, which
helped our efforts to balance out the portfolio a bit late in the period. We
have lowered our weightings in Holland and Sweden to finance the additions in
France and Italy.
* SOURCE FOR THE COUNTRY INDICES IS DATASTREAM AND FT/S&P WORLD INDICES. THESE
INDICES PROVIDE A GENERAL REPRESENTATION OF THE PERFORMANCE OF THESE MARKETS.
6
<PAGE> 7
PERFORMANCE UPDATE
Q CAN YOU SHARE WITH US SOME OF THE NAMES THAT HAVE REWARDED THE FUND DURING
THIS PERIOD, AND PERHAPS SOME THAT DIDN'T MEET YOUR EXPECTATIONS?
A Our top performer was Content (which we sold at the end of March), an
undervalued temporary employment agency from the Netherlands that rose
dramatically in a corporate takeover. We also saw strong growth in
telecommunication stocks. United Kingdom-based Orange and Vodafone Group both
enjoyed strong gains and the German firm Mannesman was a strong contributor in
this sector. We continue to hold these three strong performers. TF1, a French
broadcasting company that also had a nice run, benefited from technological
advances and strong ad volumes.
On the downside, we were hurt by poor performances by Rentokil in the
United Kingdom, which dropped on news of a downgrade of performance
expectations. The large German bank holding company HypoVereinsbank was also off
significantly. The drop in the stock was induced by a recently revealed real
estate and loan scandal that occurred in one of the banks prior to acquisition
by Vereinsbank. We continue to hold HypoVereinsbank, as it has a low valuation
and we believe it remains the best-managed German bank.
Q WHAT IS YOUR OUTLOOK FOR THE REGION AND FOR THE FUND?
A European stock markets face a number of challenges in the months ahead. We
feel that business confidence must improve in order for the markets to add to
their gains. Lower interest rates and a weaker euro should serve to support
increased business investment and stronger exports, which in turn would revive
growth in Germany and Italy. In the meantime, governments need to move forward
with structural reforms in order to support sustainable economic progress.
Despite the near term risks, the longer-term picture remains positive as
corporate restructuring, merger and acquisition activity, and share buybacks all
demonstrate the resolve of European corporations to become more profitable,
shareholder-oriented, and globally competitive. In this environment, we will
continue to search for the individual companies most likely to emerge as the
winners in Europe's new economy. We expect the world economic growth to be more
evenly spread in the coming years, so we have balanced the fund more evenly in
terms of growth versus value. Most signs coming from other corners of the world
are positive, which is good news for a region that has grown increasingly
dependent on export growth.
We think valuations in the region are attractive, particularly versus
European bonds and U.S. equities. Although unemployment is a problem, the
consumer appears very healthy. Savings rates are high, and there is significant
resilient purchasing power. A recovery in some of the lagging economies like
Germany and Italy would also be very welcome news.
COUNTRY WEIGHTINGS
<TABLE>
<CAPTION>
MAY 31, 1999 NOVEMBER 30, 1998
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
UNITED KINGDOM 30% UNITED KINGDOM 28%
- ---------------------------------------------------------------------------------------------------
FRANCE 18 NETHERLANDS 17
- ---------------------------------------------------------------------------------------------------
NETHERLANDS 15 FRANCE 12
- ---------------------------------------------------------------------------------------------------
ITALY 11 GERMANY 11
- ---------------------------------------------------------------------------------------------------
GERMANY 9 ITALY 10
- ---------------------------------------------------------------------------------------------------
SWITZERLAND 5 SPAIN 7
- ---------------------------------------------------------------------------------------------------
SPAIN 5 SWITZERLAND 6
- ---------------------------------------------------------------------------------------------------
FINLAND 3 SWEDEN 5
- ---------------------------------------------------------------------------------------------------
IRELAND 2 PORTUGAL 3
- ---------------------------------------------------------------------------------------------------
SWEDEN 2 OTHER 1
- ---------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 15 LARGEST HOLDINGS*
Representing 32.5 percent of the fund's common stock holdings on May 31,
1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
HOLDINGS COUNTRY PERCENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
1. COMPANHIA Spain 3.2%
TELEFONICA NATIONAL
DE ESPANA
- -----------------------------------------------------------------------------------------------
2. BRITISH TELECOM United Kingdom 2.9%
- -----------------------------------------------------------------------------------------------
3. BP AMOCO United Kingdom 2.8%
- -----------------------------------------------------------------------------------------------
4. UBS Switzerland 2.8%
- -----------------------------------------------------------------------------------------------
5. KONINKLIJKE AHOLD Netherlands 2.3%
- -----------------------------------------------------------------------------------------------
6. ASSICURAZIONA GENERALI Italy 2.1%
- -----------------------------------------------------------------------------------------------
7. ELF AQUITAINE France 2.0%
- -----------------------------------------------------------------------------------------------
8. SIEMENS Germany 2.0%
- -----------------------------------------------------------------------------------------------
9. TOTAL France 1.9%
- -----------------------------------------------------------------------------------------------
10. MANNESMANN Germany 1.8%
- -----------------------------------------------------------------------------------------------
11. NOKIA Finland 1.8%
- -----------------------------------------------------------------------------------------------
12. BANK OF IRELAND Ireland 1.8%
- -----------------------------------------------------------------------------------------------
13. ORANGE United Kingdom 1.7%
- -----------------------------------------------------------------------------------------------
14. SEAT PAGINE GIALLE Italy 1.7%
- -----------------------------------------------------------------------------------------------
15. ISTITUTO BANCARIO Italy 1.7%
SAN PAOLO DI TORINO
- -----------------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
]PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER VALUE
COMMON STOCKS OF SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--28.3%
(a) BOC Group PLC
PRODUCER OF INDUSTRIAL GASES 50,000 $ 863
BP Amoco PLC
MAJOR INTEGRATED WORLD OIL COMPANY 90,190 1,613
Barclays PLC
COMMERCIAL AND INVESTMENT BANKING,
INSURANCE AND OTHER FINANCIAL SERVICES 30,000 911
Bodycote International PLC
HOLDING COMPANY 45,000 606
British Telecom PLC
TELECOMMUNICATION SERVICES 99,986 1,657
(a) Carlton Communications PLC
TELEVISION POST PRODUCTION PRODUCTS AND
SERVICES 57,300 457
Compass Group PLC
INTERNATIONAL CATERING GROUP 52,350 531
(a) Dixon Group PLC
RETAILER OF HIGH TECHNOLOGY CONSUMER
ELECTRONICS AND COMPUTER RELATED PRODUCTS 39,600 720
Glaxo Wellcome PLC
PHARMACEUTICAL COMPANY 31,050 871
(a) Great Universal Stores PLC "A"
CATALOG HOME SHOPPING, RETAILING, FINANCE
AND PROPERTY INVESTMENT 27,300 291
Hays PLC
BUSINESS SERVICES 62,720 583
(a) Marks & Spencer, PLC
RETAILER OF CONSUMER GOODS AND FOODS 125,000 789
(a) National Westminster Bank
PROVIDER OF BANKING AND FINANCIAL SERVICES 34,425 783
Orange PLC
OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK 69,270 956
(a) Perpetual PLC
HOLDING COMPANY 5,700 304
Prudential Corporation PLC
PROVIDER OF BROAD RANGE OF FINANCIAL
SERVICES 28,950 380
Reed International PLC
PUBLISHER OF SCIENTIFIC, PROFESSIONAL AND
BUSINESS TO BUSINESS MATERIALS 109,562 801
Rentokil Intitial PLC
ENVIRONMENTAL SERVICES COMPANY 205,500 836
Rio Tinto PLC
MINING COMPANY 21,600 316
Select Appointments Holdings PLC
RECRUITMENT SERVICES COMPANY 63,542 779
SmithKline Beecham PLC
MANUFACTURER OF ETHICAL DRUGS AND
HEALTHCARE PRODUCTS 50,145 653
Unilever PLC
MANUFACTURER OF BRANDED AND PACKAGED
CONSUMER GOODS INCLUDING FOOD AND
DETERGENTS 62,315 550
Vodafone Group PLC
TELECOMMUNICATION SERVICES 44,799 851
- --------------------------------------------------------------------------------------------------------------------
17,101
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANCE--16.9%
AXA S.A.
INSURANCE GROUP PROVIDING INSURANCE,
FINANCE AND REAL ESTATE SERVICES 5,440 $ 627
Accor S.A.
PROVIDER OF CATERING, HOTEL AND TRAVEL
SERVICES 2,400 589
Air Liquide
LEADING PRODUCER OF INDUSTRIAL GASES 3,300 497
Castorama-Dubois Investissements
RETAILER SPECIALIZING IN HOME REPAIR 1,350 329
Compagnie de Saint-Gobain
GLASS MANUFACTURER 4,220 662
Elf Aquitaine S.A.
PETROLEUM COMPANY 7,820 1,132
Etablissements Economiques du Casino
Guichard-Perrachon S.A.
OPERATOR OF SUPERMARKETS AND CONVENIENCE
STORES 3,300 313
Groupe Danone
PRODUCER OF PACKAGED FOODS AND BEVERAGES 2,510 691
Imetal S.A.
MANUFACTURER OF BUILDING MATERIALS 2,860 364
Rhone-Poulenc S.A. "A"
PHARMACEUTICAL COMPANY 16,700 792
Sanofi-Synthelabo S.A.
MANUFACTURER OF HEALTH CARE PRODUCTS AND
MEDICAL AND SURGICAL EQUIPMENT 14,800 624
Suez Lyonnaise des Eaux
WATER AND ELECTRIC UTILITY 4,000 663
Television Francaise
TELEVISION BROADCASTING 3,685 884
Total S.A. "B"
INTERNATIONAL OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION 9,000 1,093
Vivendi
PROVIDER OF WATER PURIFICATION AND
DISTRIBUTION, ENERGY, WASTE MANAGEMENT,
CONSTRUCTION, HEALTHCARE AND COMMUNITY
SERVICES 24,780 930
-----------------------------------------------------------------------------
10,190
- ------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--14.1%
Aalberts Industries
CAPITAL GOODS AND COMPONENTS 28,505 624
Akzo Nobel, N.V.
PRODUCER AND MARKETER OF HEALTHCARE
PRODUCTS, COATINGS, CHEMICALS AND FIBERS 16,100 668
(a) Equant, N.V.
PROVIDER OF INTERNATIONAL DATA NETWORK
SERVICES 4,200 346
Getronics, N.V.
PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES 24,323 938
ING Groep, N.V.
INSURANCE AND FINANCIAL SERVICES 14,790 790
Koninklijke Ahold, N.V.
INTERNATIONAL FOOD RETAILER 37,551 1,310
Koninklijke Numico, N.V.
NUTRITIONAL FOOD MANUFACTURER 21,266 771
Laurus, N.V.
INTERNATIONAL FOOD RETAILER 14,500 333
Philips Electronics, N.V.
LEADING MANUFACTURER OF ELECTRICAL
EQUIPMENT 5,000 429
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royal Dutch Petroleum Co.
OWNER OF 60% OF ROYAL DUTCH/SHELL GROUP 12,400 $ 691
Unique International, N.V.
OPERATOR OF RETAIL CLOTHING STORES,
EMPLOYMENT AGENCIES, TECHNICAL TRADE
SCHOOLS, ENGINEERING SERVICES 28,290 646
VNU, N.V.
INTERNATIONAL PUBLISHING COMPANY 8,900 378
Vedior, N.V. CVA
TEMPORARY EMPLOYMENT SERVICES 31,344 580
-----------------------------------------------------------------------------
8,504
- ------------------------------------------------------------------------------------------------------------------------
ITALY--10.5%
Assicurazioni Generali
LIFE AND PROPERTY INSURANCE COMPANY 33,000 1,173
Banca Popolare di Brescia SpA
COOPERATIVE BANK 22,500 888
Ente Nazionale Idrocarburi SpA
EXPLORATION AND PRODUCTION OF OIL, NATURAL
GAS AND CHEMICALS 123,000 768
Gruppo Editoriale L'Espresso
PUBLISHER 56,200 926
Istituto Bancario San Paolo di Torino
COMMERCIAL BANK 69,856 943
Seat Pagine Gialle SpA
PUBLISHER OF TELECOMMUNICATION DIRECTORIES
AND PROVIDER OF ADVERTISING SERVICES 701,000 954
Telecom Italia SpA
PROVIDER OF TELECOMMUNICATIONS, ELECTRONICS
AND NETWORK CONSTRUCTION 66,000 680
-----------------------------------------------------------------------------
6,332
- ------------------------------------------------------------------------------------------------------------------------
GERMANY--8.6%
Allianz A.G.
MULTI-LINE INSURANCE COMPANY 2,415 660
Bayer A.G.
LEADING CHEMICAL PRODUCER 17,600 685
HypoVereinsbank A.G.
COMMERCIAL BANK 11,500 621
Gehe A.G.
PHARMACEUTICALS DISTRIBUTOR 9,600 472
Mannesmann A.G.
DIVERSIFIED CONSTRUCTION AND TECHNOLOGY
COMPANY 7,550 1,031
Metro A.G.
OPERATOR OF BUILDING, CLOTHING, DEPARTMENT,
ELECTRONIC AND FOOD STORES 9,000 568
Siemens A.G.
ELECTRICAL ENGINEERING AND ELECTRONICS
COMPANY 16,800 1,130
-----------------------------------------------------------------------------
5,167
- ------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--4.9%
ABB A.G.
MANUFACTURER OF RAIL TRANSIT SYSTEMS AND
ALL OF THE COMPONENTS NECESSARY TO GENERATE
AND DISTRIBUTE ELECTRICITY THROUGH ITS
SUBSIDIARIES 220 311
Novartis A.G.
PHARMACEUTICAL COMPANY 288 418
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Roche Holdings A.G.
PRODUCER OF DRUGS AND MEDICINES 60 $ 634
UBS A.G.
PROVIDER OF BANKING AND ASSET MANAGEMENT
SERVICES 5,440 1,573
-----------------------------------------------------------------------------
2,936
- ------------------------------------------------------------------------------------------------------------------------
SPAIN--4.5%
Argentaria S.A.
BANK 41,000 919
Compania Telefonica Nacional de Espana S.A.
TELECOMMUNICATION SERVICES 38,080 1,825
-----------------------------------------------------------------------------
2,744
- ------------------------------------------------------------------------------------------------------------------------
FINLAND--2.8%
Nokia OYJ
MANUFACTURER OF TELECOMMUNICATION NETWORKS
AND EQUIPMENT 14,400 1,024
Pohjola Insurance Co., Ltd. "B"
INSURANCE COMPANY 14,200 651
-----------------------------------------------------------------------------
1,675
- ------------------------------------------------------------------------------------------------------------------------
IRELAND--2.1%
Bank of Ireland PLC
BANK 53,079 982
ESAT Telecom Group PLC (ADR)
PROVIDER OF TELECOMMUNICATION SERVICES 7,400 274
-----------------------------------------------------------------------------
1,256
- ------------------------------------------------------------------------------------------------------------------------
SWEDEN--1.8%
Gambro A.B.
HEALTHCARE SERVICES AND MEDICAL TECHNOLOGY
PROVIDER 39,750 397
Securitas A.B.
INSTALLS SECURITY SYSTEMS AND PROVIDER OF
GUARD SERVICES 46,500 662
-----------------------------------------------------------------------------
1,059
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--94.5%
(Cost $56,963) 56,964
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(B)REPURCHASE
AGREEMENT--.2%
Chase Manhattan Bank, dated 5/28/99, 4.625%,
due 6/1/99 $ 141 141
- ------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--5.3%
Yield--4.68%
Due--June 1999
Federal Home Loan Mortgage Corp.
(Cost $3,200) 3,200 3,200
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $60,304) $60,305
-----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
At May 31, 1999, the fund's portfolio of investments had the following industry
diversification (dollars in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
VALUE %
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Financial $12,207 20.2
- ----------------------------------------------------------------------------------------
Service Industries 7,738 12.8
- ----------------------------------------------------------------------------------------
Communications 7,267 12.1
- ----------------------------------------------------------------------------------------
Manufacturing 7,139 11.8
- ----------------------------------------------------------------------------------------
Energy 5,793 9.6
- ----------------------------------------------------------------------------------------
Consumer Staples 5,418 9.0
- ----------------------------------------------------------------------------------------
Health 4,069 6.7
- ----------------------------------------------------------------------------------------
Consumer Discretionary 2,439 4.0
- ----------------------------------------------------------------------------------------
Media 2,267 3.8
- ----------------------------------------------------------------------------------------
Technology 1,284 2.1
- ----------------------------------------------------------------------------------------
Utilities 663 1.1
- ----------------------------------------------------------------------------------------
Construction 364 0.6
- ----------------------------------------------------------------------------------------
Metals and Minerals 316 0.5
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 56,964 94.5
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 3,341 5.5
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $60,305 100.0
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or U.S.
Government agency securities. The collateral is monitored daily by the fund
so that its market value is at least equal to the carrying value of the
repurchase agreement.
Based on the cost of investments of $60,304,000 for federal income tax purposes
at May 31, 1999, the gross unrealized appreciation was $4,081,000, the gross
unrealized depreciation was $4,080,000 and the net unrealized appreciation on
investments was $1,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $60,304) $60,305
- -----------------------------------------------------------------------
Receivable for:
Fund shares sold 29
- -----------------------------------------------------------------------
Interest and dividends 250
- -----------------------------------------------------------------------
Foreign taxes recoverable 91
- -----------------------------------------------------------------------
Reimbursement from Advisor 137
- -----------------------------------------------------------------------
TOTAL ASSETS 60,812
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------
Cash overdraft 29
- -----------------------------------------------------------------------
Payable for:
Fund shares redeemed 33
- -----------------------------------------------------------------------
Distribution services fee 4
- -----------------------------------------------------------------------
Administrative services fee 8
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 122
- -----------------------------------------------------------------------
Accrued reorganization expenses 102
- -----------------------------------------------------------------------
Trustees' fees and other 15
- -----------------------------------------------------------------------
Total liabilities 313
- -----------------------------------------------------------------------
NET ASSETS $60,499
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $60,564
- -----------------------------------------------------------------------
Undistributed net realized gain on investments (90)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies (6)
- -----------------------------------------------------------------------
Undistributed net investment income 31
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $60,499
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($29,545 /
2,171 shares outstanding) $13.61
- -----------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of net asset value or 5.75% of offering price) $14.44
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($26,641 / 2,009 shares outstanding) $13.26
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($4,313 / 323 shares outstanding) $13.36
- -----------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $87) $ 723
- -----------------------------------------------------------------------
Interest income 131
- -----------------------------------------------------------------------
Total investment income 854
- -----------------------------------------------------------------------
Expenses:
Management fee 265
- -----------------------------------------------------------------------
Distribution services fee 134
- -----------------------------------------------------------------------
Administrative services fee 88
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 500
- -----------------------------------------------------------------------
Professional fees 45
- -----------------------------------------------------------------------
Reports to shareholders 35
- -----------------------------------------------------------------------
Reorganization expenses 102
- -----------------------------------------------------------------------
Trustees' fees and other 11
- -----------------------------------------------------------------------
Total expenses 1,180
- -----------------------------------------------------------------------
Less expense waived and absorbed by investment manager (357)
- -----------------------------------------------------------------------
Total expense after expense waiver 823
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 31
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 415
- -----------------------------------------------------------------------
Net realized loss from futures transactions (30)
- -----------------------------------------------------------------------
Net realized gain 385
- -----------------------------------------------------------------------
Change in net unrealized depreciation on investments and
assets and liabilities in foreign currencies (3,221)
- -----------------------------------------------------------------------
Net loss on investments (2,836)
- -----------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,805)
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED
1999 NOVEMBER 30,
(UNAUDITED) 1998
- ----------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ 31 $ (103)
- ----------------------------------------------------------------------
Net realized gain 385 35
- ----------------------------------------------------------------------
Change in net unrealized
appreciation (depreciation) (3,221) 2,416
- ----------------------------------------------------------------------
Net increase in net assets resulting
from operations (2,805) 2,348
- ----------------------------------------------------------------------
Distribution from net investment
income -- (49)
- ----------------------------------------------------------------------
Distribution from net realized gain (425) (304)
- ----------------------------------------------------------------------
Total dividends to shareholders (425) (353)
- ----------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (3,579) 41,403
- ----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS (6,809) 43,398
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------
Beginning of period 67,308 23,910
- ----------------------------------------------------------------------
END OF PERIOD $60,499 67,308
- ----------------------------------------------------------------------
</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 currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares (none sold through
May 31, 1999) are offered to a limited group of
investors, are not subject to initial or contingent
deferred sales charges and generally 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 SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchange are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq), for which there have been sales, are
valued at the most recent sale price reported. If
there are no such sales, the value is the most
recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Forward foreign currency exchange
contracts are valued at the prevailing forward
exchange rates of the underlying currencies on that
day. Money market instruments purchased with an
original maturity of sixty days or less are valued
at amortized cost. All other securities are valued
at their fair market value as determined in good
faith by the Valuation Committee of the Board of
Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates of exchange. Purchases and sales of
investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
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.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses from sales and maturities of forward
foreign currency exchange contracts, disposition of
foreign currencies, and the difference between the
amount of net investment income accrued and the
U.S. dollar amount actually received. That portion
of both realized and unrealized gains
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
and losses on investments that result from
fluctuations in foreign currency exchange rates is
not separately disclosed.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. 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. 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 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.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was 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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .75%
of the first $250 million of average daily net
assets declining to .62% of average daily net
assets in excess of $12.5 billion. The fund
incurred management fees of $195,000 for the six
months ended May 31, 1999, after a fee waiver by
Scudder Kemper.
In addition, Scudder Kemper has agreed to
temporarily absorb certain operating expenses of
the fund. Under these arrangements, Scudder Kemper
waived and absorbed expenses of $357,000 for the
six months ended May 31, 1999.
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 for the six months ended May 31, 1999 are
$13,000.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees
(after an expense waiver) and CDSC received by KDI
for the six months ended May 31, 1999 are $84,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (ASF) paid by
the fund to KDI for the six months ended May 31,
1999 are $20,000, after an expense waiver by
Scudder Kemper.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of $252,000
for the six months ended May 31, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended May 31,
1999, the fund made no payments to its officers and
incurred trustees' fees of $5,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $47,733
Proceeds from sales 50,761
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1999
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 7,869 $ 113,761 7,283 $107,825
------------------------------------------------------------------------------
Class B 1,156 16,528 3,914 56,766
------------------------------------------------------------------------------
Class C 216 3,082 294 4,309
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 13 196 15 187
------------------------------------------------------------------------------
Class B 13 187 11 142
------------------------------------------------------------------------------
Class C 2 25 1 11
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (8,021) (116,255) (6,034) (89,091)
------------------------------------------------------------------------------
Class B (1,303) (18,492) (2,591) (37,533)
------------------------------------------------------------------------------
Class C (184) (2,611) (86) (1,213)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 51 727 47 699
------------------------------------------------------------------------------
Class B (51) (727) (48) (699)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (3,579) $ 41,403
------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 PROPOSED
REORGANIZATION The Board of Trustees of the fund approved, subject
to shareholder approval and certain contingencies,
an Agreement and Plan of Reorganization (the
"Plan") providing: (i) that the fund would transfer
to Scudder New Europe Fund, Inc. (the "Scudder
Europe Fund") all of its assets in exchange for
Class A, B and C shares of the Scudder Europe Fund
and the assumption by Scudder Europe Fund of all
the fund's liabilities, (ii) that such shares of
Scudder Europe Fund would be distributed to
shareholders of the fund in liquidation of the
fund, and (iii) that the fund would be subsequently
be terminated. A shareholder meeting is scheduled
for July 20, 1999 to consider the matter. If
approved, the reorganization is expected to close
on or about September 1, 1999. The fund's
proportionate share of reorganization expenses
amounted to $101,573 as of May 31, 1999.
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30, MAY 1 TO
MAY 31, --------------- NOVEMBER 30,
1999 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $14.34 12.43 11.02 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05(a) .04 .03 .01
- --------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.69) 2.07 1.51 1.51
- --------------------------------------------------------------------------------------
Total from investment operations (.64) 2.11 1.54 1.52
- --------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .05 -- --
- --------------------------------------------------------------------------------------
Distribution from net realized gain .09 .15 .13 --
- --------------------------------------------------------------------------------------
Total dividends -- .20 .13 --
- --------------------------------------------------------------------------------------
Net asset value, end of period $13.61 14.34 12.43 11.02
- --------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (4.51)% 17.25 14.18 16.00
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 1.60%(b) 1.53 1.52 1.49
- --------------------------------------------------------------------------------------
Net investment income .33%(c) .32 .34 .46
- --------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.26%(b) 2.28 1.75 4.74
- --------------------------------------------------------------------------------------
Net investment income (loss) --(c) (.43) .11 (2.79)
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
CLASS B
-------------------------------------------
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30, MAY 1 TO
MAY 31, --------------- NOVEMBER 30,
1999 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $14.05 12.27 10.97 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05)(a) (.05) (.05) (.02)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.65) 1.98 1.48 1.49
- --------------------------------------------------------------------------------------
Total from investment operations (.70) 1.93 1.43 1.47
- --------------------------------------------------------------------------------------
Less distribution from net realized gain .09 .15 .13 --
- --------------------------------------------------------------------------------------
Net asset value, end of period $13.26 14.05 12.27 10.97
- --------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (5.03)% 15.92 13.23 15.47
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.80%(b) 2.67 2.45 2.44
- --------------------------------------------------------------------------------------
Net investment loss (.27)%(c) (.82) (.59) (.49)
- --------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 4.28%(b) 4.42 2.66 5.63
- --------------------------------------------------------------------------------------
Net investment loss (1.01)%(c) (2.57) (.80) (3.68)
- --------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS C
-------------------------------------------
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30, MAY 1 TO
MAY 31, --------------- NOVEMBER 30,
1999 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $14.13 12.28 10.97 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss --(a) -- (.05) (.01)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain (.68) 2.00 1.49 1.48
- --------------------------------------------------------------------------------------
Total from investment operations (.68) 2.00 1.44 1.47
- --------------------------------------------------------------------------------------
Less distribution from net realized gain .09 .15 .13 --
- --------------------------------------------------------------------------------------
Net asset value, end of period $13.36 14.13 12.28 10.97
- --------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (4.86)% 16.48 13.32 15.47
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.40%(b) 2.08 2.38 2.34
- --------------------------------------------------------------------------------------
Net investment loss (.02)%(c) (.23) (.52) (.39)
- --------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.88%(b) 2.89 2.59 5.50
- --------------------------------------------------------------------------------------
Net investment loss (.26)%(c) (1.04) (.73) (3.55)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30, MAY 1 TO
MAY 31, --------------- NOVEMBER 30,
1999 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $60,499 67,308 23,910 3,856
- --------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 147% 132 101 96
- --------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net assets are computed without this expense waiver or
absorption. Data for the period ended May 31, 1999 is unaudited.
(a) Net investment income per share includes non-recurring dividend income
amounting to $.01 per share for each class.
(b) Includes reorganization expense ratio of .14%.
(c) Not annualized.
21
<PAGE> 22
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper Europe Fund shareholders were asked to vote on three
separate issues: approval of the new Investment Management Agreement between the
fund and Scudder Kemper Investments, Inc., approval of the new Sub-Advisory
Agreement for the fund with Scudder Investments (U.K.) Limited and to modify or
eliminate certain policies and to eliminate the shareholder approval
requirements as to certain other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,191,679 40,328 96,886
</TABLE>
2) To approve the new Sub-Advisory Agreement for the fund with Scudder
Investments (U.K.). This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,170,628 35,545 122,720
</TABLE>
3) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment Objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,930,397 125,876 214,546
</TABLE>
Investment policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,934,768 121,506 214,546
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,932,895 123,379 214,546
</TABLE>
Borrowing
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,934,941 121,756 214,123
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,938,335 117,939 214,546
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,938,335 117,939 214,546
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,937,028 119,245 214,546
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,937,442 118,832 214,546
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,935,415 120,859 214,546
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,935,117 121,156 214,546
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,933,604 122,670 214,546
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,935,027 121,246 214,546
</TABLE>
Pledging of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,938,147 118,126 214,546
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,933,711 122,562 214,546
</TABLE>
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY
Trustee President
JAMES R. EDGAR PHILIP COLLORA
Trustee Vice President and
Secretary
ARTHUR R. GOTTSCHALK
Trustee JOHN R. HEBBLE
Treasurer
FREDERICK T. KELSEY
Trustee ANN M. MCCREARY
Vice President
THOMAS W. LITTAUER
Trustee and Vice President KATHRYN L. QUIRK
Vice President
FRED B. RENWICK CORNELIA SMALL
Trustee Vice President
JOHN G. WEITHERS LINDA J. WONDRACK
Trustee Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
BRENDA LYONS
Assistant Treasurer
- --------------------------------------------------------------------------
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
- --------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------
CUSTODIAN THE CHASE MANHATTAN BANK
Chase Metro Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Global and International Funds
prospectus.
KEUF - 3 (7/27/99) 1080100
