<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
[MORNINGSTAR RATINGS LOGO]
SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH
KEMPER EUROPE FUND
"... European and Economic Monetary
Union (EMU) continued to be a major
market driver at the start of 1998. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Largest Holdings
10
Portfolio of Investments
14
Report of Independent Auditors
15
Financial Statements
17
Notes to Financial Statements
21
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 17.25
CLASS B 15.92
CLASS C 16.48
LIPPER EUROPEAN REGION FUNDS CATEGORY AVERAGE* 20.73
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth 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.
There are special risk considerations associated with international investing,
including fluctuating exchange rates, government regulation and differences in
liquidity that may affect the volatility of the fund. Please see the fund's
prospectus for more information.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER EUROPE FUND CLASS A $14.34 $12.43
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B $14.05 $12.27
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C $14.13 $12.28
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND RANKINGS
AS OF 11/30/98
- --------------------------------------------------------------------------------
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 #64 of #71 of #68 of
95 funds 95 funds 95 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>
INCOME DIVIDEND $0.05 -- --
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.06 $0.06 $0.06
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.09 $0.09 $0.09
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc. Chicago, IL. (312) 696-6000. The Morningstar Style Box
is based on a software release date of 11/30/98. 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.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. The fund's port- folio 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 since the fund's inception. Morningstar has placed
Kemper Europe Fund in the Europe Stock category. Please consult the prospectus
for a description of investment policies.
CURRENCY DEVALUATION A significant decline of a currency's value relative to
other currencies, such as the U.S. dollar. This may be prompted by trading or
central bank intervention (or the lack of intervention) in the currency markets.
For U.S. investors who are investing overseas, a devaluation of a foreign
currency can have the effect of reducing an investment's total return.
MARKET CAPITALIZATION The value of a company's outstanding shares of common
stock, determined by multiplying the number of shares outstanding by the share
price (Shares X Price = Market Capitalization). The universe of publicly traded
companies is frequently divided into large-, mid-, and small-capitalizations.
Please note that a supplement to your fund's prospectus appears on the inside
back cover of this report.
<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 BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR
TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA
REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</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, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. 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 E. Silvia as of January 4, 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.
4
<PAGE> 5
PERFORMANCE UPDATE
[SLENDEBROEK PHOTO]
MARC SLENDEBROEK JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND IS THE
PORTFOLIO MANAGER OF KEMPER EUROPE FUND. HE IS A VICE PRESIDENT OF INTERNATIONAL
EQUITIES AND HAS A MASTER'S DEGREE IN CIVIL LAW FROM THE UNIVERSITY OF LEIDEN IN
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. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS WHEN
USED AS SALES LITERATURE.
EUROPEAN MARKETS ENJOYED A YEAR OF STRONG GROWTH DESPITE COMBATING UNPRECEDENTED
MARKET VOLATILITY IN LATE SUMMER. FOLLOWING, LEAD PORTFOLIO MANAGER MARC
SLENDEBROEK DISCUSSES THE MARKET ACTIVITY, THE FUND'S PERFORMANCE AND THE IMPACT
OF THE EURO.
Q COULD YOU PROVIDE US WITH A BRIEF OVERVIEW OF THE EVENTS THAT SHAPED
EUROPEAN MARKETS DURING THIS PERIOD?
A European and Economic Monetary Union (EMU) continued to be a major market
driver at the start of 1998. The required convergence of European interest rates
led to sharp rate declines in Spain and Italy, countries that had traditionally
been plagued by high interest rates. As rates converged to the European Central
Bank central rate, these markets saw significant gains. Also, as a result of
these lower rates, the European economy started to see an upturn in consumer
spending. In the years leading up to the EMU convergence, prospective countries
raised taxes and cut government spending to get their national accounts ready
for the single currency. This belt tightening eased in this fiscal year and
consumers found themselves with a little more change in their pockets.
Volatility outside the region, however, did throw a wrench in the largely
rosy domestic picture. During the summer months, these markets were affected by
the events taking place in the Far East and Russia. The currency crisis in
emerging markets would not have had much of an impact on Europe's overall
economy if not for the banking system that did import the problems from abroad.
We saw very sharp drops in the third quarter, then moving into the fourth
quarter, dramatically high market levels. The bounce on the upside was
predominantly driven by interest rate cuts led by the U.S. and mirrored by many
developed world markets.
Finland was the best performing market in Europe, followed by Belgium,
Italy and Spain. Weaker performers were the United Kingdom, Sweden, Denmark and
Norway. The region as a whole, based on the FT/S&P Actuaries World Europe Index,
was up 27.09 percent. Telecommunications was the best performing sector,
followed by the insurance, utilities, automotive and pharmaceutical sectors.
Commodity and cyclical stocks lagged throughout the period.
Q FOR THE ANNUAL PERIOD, THE FUND WAS UP 17.25 PERCENT (CLASS A SHARES,
UNADJUSTED FOR ANY SALES CHARGE) WHILE THE FT/S&P ACTUARIES WORLD EUROPE INDEX,
AS YOU MENTIONED, WAS UP MORE THAN 27 PERCENT. WHY THE LAG?
A The reason for our lesser performance is really two-fold. First, the
incredible volatility made investing a difficult game. One way or the other, it
was hard not to find yourself in the wrong place at some point. For us, the
underweight position we took in financials as the Russian crisis hit cost us
some return as they recovered early in the fourth quarter. We remained
underweight at the end of the period because we don't think the banking
environment in Europe is particularly strong. The sharp decline in interest
rates has made it more difficult for banks to earn money. Interest margins are
under pressure. Banks are fairly well capitalized which has meant that their
lending
5
<PAGE> 6
PERFORMANCE UPDATE
standards in the domestic markets have been cut and it has become less
profitable. Of the banks we do hold in the portfolio, we are focusing on names
with strong cost-cutting measures in place. This is essential when revenue lines
are under pressure.
A second factor that impacted relative performance was the narrowing of
European markets in the second half of the year. We saw a large percentage of
the index performance come from a relatively low number of stocks. While we
owned many of these stocks, to beat the index you not only had to own them, you
had to be largely overweighted in them. This is similar to what has occurred in
the United States in the past few years. As active money managers, we try to
manage risk by diversifying, not by putting all our eggs in very few baskets.
Unfortunately, markets were rewarding very concentrated investments.
Q DID YOU MAKE ANY ADJUSTMENTS TO YOUR INVESTMENT THEMES?
A In comparison to last year, we did increase exposure to the
telecommunications sector. This includes mobile as well as fixed operators. We
own fixed operators in markets such as Spain where deregulation and
privatization efforts should drive further growth. On the mobile side, we have
holdings in nearly all European markets. In certain markets, we are seeing the
number of mobile products exceeding the fixed market. Cellular business is
definitely booming in the region.
We remain overweight in business services. As confidence in the economy
builds, we expect to see strong gains in this sector. The holdings in this theme
should continue to benefit from the restructuring and outsourcing activity that
is taking place in Europe.
After taking profits in the pharmaceutical sector early in the fiscal
period, we built up our position again leaving us with an over-weighted position
at the end of the period. In a low interest rate, low growth and low inflation
environment such as we have in Europe, good quality pharmaceuticals are well
positioned to see positive earnings growth.
An emerging theme is designed to capitalize on the return of the European
consumer. We are building positions in both food and general retail holdings.
Q WHAT WERE SOME OF YOUR TOP-PERFORMING HOLDINGS IN THE PORTFOLIO? WHAT
NAMES LAGGED?
A Among our financial holdings, Aegon, a Dutch insurance company was an
outstanding contributor to the portfolio as was Bank of Ireland. In the
telecommunications area, Mannesmann, a German telecommunications and industrial
conglomerate, and Telecom Italia Mobile, an Italian cellular telephone company,
were very strong throughout the year.
In the business services area, Rentokil, a United Kingdom-based company,
was strong. And among our pharmaceutical holdings, Glaxo Wellcome, also a
British company, was a top name.
While stocks like British Petroleum were hurt by poor sector performance,
other laggards seemed to come from across all industries. Aalberts, a Dutch
capital goods company; Technip, a French engineering name; and Unique, a Dutch
employment services company, were among the lesser performing positions.
Q IN JANUARY 1999, THE SINGLE CURRENCY, THE EURO, WILL BE LAUNCHED. HOW DO
YOU EXPECT THE CONVERSION TO AFFECT YOUR MANAGEMENT OF THE FUND?
A In terms of how to position the fund to profit from EMU, we feel that
game has already been played. Going forward, the direct management of the fund
will not change significantly. Our bottom-up process remains in place. The
convergence to a single currency should boost consumer spending in Europe as
well as increase outside investor interest. With Europe operating for the first
time as a single market, pricing differences on similar products are much more
difficult for companies to sustain which is good for inflation and good for
consumers. In industrial as well as consumer products we are seeing some
significant price cuts.
Our thoughts are focused on what the impact of the closer integration of
Europe will be on several industries. Do not forget that an integral part of the
euro introduction has been the creation of competitive markets in previously
national or non-liberalized industries. There are significant opportunities for
utility, telecommunications and corporate services. Companies that operate in a
low cost environment can now enter new markets previously closed to outside
competition (or to operators that have been enabled to cut costs through
deregulation).
6
<PAGE> 7
PERFORMANCE UPDATE
Q SO WHERE DO YOU SEE THINGS GOING FROM HERE?
A We are very positive about the prospects for Europe. With interest rates
as low as they are, equity markets are not overvalued. We are seeing significant
upside potential in stocks. While we need to see markets broaden a bit for some
of the more mid-sized names to benefit, the potential for a strong year is
definitely there.
European market growth is falling back a bit because of a slowdown in global
trade but the region remains very competitive with other developed markets. On
the consumer side, things look good because of disposable income gains and lower
taxation levels. Restructuring and privatization efforts also continue. The
environment in Europe is solid and we believe the growth is sustainable.
Q ARE THERE ANY RISKS TO THIS OUTLOOK?
A While valuations seem in line with the current interest rate environment,
an increase in rates could negatively impact the market. A second risk as we
move through '99 to the year 2000, is growing concern about the millennium bug.
As coverage of this issue heightens throughout the year, we could see some
backlash in the markets.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER EUROPE FUND CLASS A 10.49% 15.88% (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B 12.92 16.55 (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C 16.48 17.71 (inception 5/1/96)
- --------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS A(1) EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------ ---------------------
<S> <C> <C> <C>
5/1/96 9425.00 10000.00 10000.00
9841.00 10183.00 10290.00
9921.00 10596.00 10606.00
12/31/96 11037.00 11715.00 11492.00
11468.00 12248.00 11801.00
12684.00 13322.00 13860.00
13246.00 14450.00 14897.00
12/31/97 12788.00 14499.00 15325.00
15105.00 17454.00 17462.00
16197.00 18281.00 18038.00
13615.00 15583.00 16247.00
11/30/98 14635.00 17773.00 18631.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS B(1) EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------- ---------------------
<S> <C> <C> <C>
5/1/96 10000.00 10000.00 10000.00
10410.50 10183.00 10290.00
10484.20 10596.00 10606.00
12/31/96 11657.80 11715.00 11492.00
12084.10 12248.00 11801.00
13352.20 13322.00 13860.00
13906.30 14450.00 14897.00
12/31/97 13387.30 14499.00 15325.00
15782.10 17454.00 17462.00
16871.70 18281.00 18038.00
14142.40 15583.00 16247.00
11/30/98 14856.30 17773.00 18631.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER EUROPE FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 5/1/96 to
11/30/98
<TABLE>
<CAPTION>
FINANCIAL TIMES/STANDARD
KEMPER EUROPE FUND & POOR'S ACTUARIES WORLD STANDARD & POOR'S 500
CLASS C()1 EUROPE INDEX+ STOCK INDEX++
------------------ ------------------------- ---------------------
<S> <C> <C> <C>
5/1/96 10000.00 10000.00 10000.00
10421.00 10183.00 10290.00
10484.00 10596.00 10606.00
12/31/96 11658.00 11715.00 11492.00
12095.00 12248.00 11801.00
13352.00 13322.00 13860.00
13906.00 14450.00 14897.00
12/31/97 13398.00 14499.00 15325.00
15793.00 17454.00 17462.00
16915.00 18281.00 18038.00
14196.00 15583.00 16247.00
11/30/98 15243.00 17773.00 18631.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends and, where indicated,
adjustment for the maximum sales charge. The maximum sales charge for
Class A shares is 5.75%. For Class B shares the maximum contingent
deferred sales charge (CDSC) is 4%. Class C shares have no sales charge
adjustment, but redemptions within one year of purchase may be subject to
a contingent deferred sales charge of 1%. Share classes invest in the same
underlying portfolio. Average annual total return reflects annualized
change while total return reflects aggregate change. 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
MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDICES.
+ FINANCIAL TIMES/STANDARD & POOR'S ACTUARIES WORLD EUROPE INDEX IS AN
UNMANAGED INDEX THAT IS GENERALLY REPRESENTATIVE OF THE EQUITY SECURITIES
OF EUROPEAN MARKETS. INVESTORS CANNOT ACTUALLY MAKE INVESTMENTS IN THE
INDEX.
++ THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS TOWERSDATA. INVESTORS
CANNOT ACTUALLY MAKE INVESTMENTS IN THIS INDEX.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 15 LARGEST HOLDINGS*
Representing 47.4 percent of the fund's total common stock on November 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COMPANY COUNTRY PERCENT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1. NOVARTIS Switzerland 4.1%
- ----------------------------------------------------------------------------------------------------------
2. GLAXO WELLCOME United Kingdom 4.0%
- ----------------------------------------------------------------------------------------------------------
3. TELECOM ITALIA Italy 3.8%
- ----------------------------------------------------------------------------------------------------------
4. BRITISH TELECOM United Kingdom 3.5%
- ----------------------------------------------------------------------------------------------------------
5. EMPRESA NACIONAL DE Spain 3.5%
ELECTRICIDAD
- ----------------------------------------------------------------------------------------------------------
6. VIAG Germany 3.4%
- ----------------------------------------------------------------------------------------------------------
7. RENTOKIL INITIAL United Kingdom 3.2%
- ----------------------------------------------------------------------------------------------------------
8. KONINKLIJKE NUMICO Netherlands 3.0%
- ----------------------------------------------------------------------------------------------------------
9. GROUPE DANONE France 2.9%
- ----------------------------------------------------------------------------------------------------------
10. KONINKLIJKE AHOLD Netherlands 2.8%
- ----------------------------------------------------------------------------------------------------------
11. ING GROEP Netherlands 2.7%
- ----------------------------------------------------------------------------------------------------------
12. COMPANIA TELEFONICA NACIONAL Spain 2.7%
DE ESPANA
- ----------------------------------------------------------------------------------------------------------
13. SOCIETE LYONNAISE DES EAUX France 2.7%
- ----------------------------------------------------------------------------------------------------------
14. GETRONICS Netherlands 2.6%
- ----------------------------------------------------------------------------------------------------------
15. UNILEVER United Kingdom 2.5%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER EUROPE FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED KINGDOM--25.5% Bodycote International, PLC
HOLDING COMPANY 45,000 $ 649
British Petroleum, PLC
MAJOR INTEGRATED WORLD OIL COMPANY 85,494 1,335
British Telecom, PLC
TELECOMMUNICATION SERVICES 162,700 2,229
Compass Group, PLC
INTERNATIONAL CATERING GROUP 142,350 1,501
Glaxo Wellcome, PLC
PHARMACEUTICAL COMPANY 79,350 2,509
Hays, PLC
BUSINESS SERVICES 117,000 988
(a)National Westminster Bank
BANK 31,225 570
Orange, PLC
OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK 67,270 688
Reed International, PLC
PUBLISHER OF SCIENTIFIC, PROFESSIONAL
AND BUSINESS TO BUSINESS MATERIALS 89,562 705
Rentokil Initial, PLC
SERVICES COMPANY 305,500 2,031
Select Appointments Holdings
RECRUITMENT SERVICES FOR TEMPORARY AND
PERMANENT STAFF 63,542 656
SmithKline Beecham, PLC
MANUFACTURER OF ETHICAL DRUGS AND
HEALTHCARE PRODUCTS 50,000 614
Unilever, PLC
MANUFACTURER OF BRANDED AND PACKAGED
CONSUMER GOODS, FOOD, DETERGENTS AND
PERSONAL CARE PRODUCTS 149,793 1,558
Vodafone Group, PLC
TELECOMMUNICATIONS PROVIDER 44,538 658
Zeneca Group, PLC
MANUFACTURER OF PHARMACEUTICAL AND
AGROCHEMICAL PRODUCTS AND SPECIALTY
CHEMICALS 23,334 970
--------------------------------------------------------------------------
17,661
- -----------------------------------------------------------------------------------------------------------------------
NETHERLANDS--15.9% Aegon Insurance Group, N.V.
INSURANCE COMPANY 26 3
Aalberts Industries
CAPITAL GOODS COMPONENTS 26,205 618
Apothekers Cooperatie OPG
DISTRIBUTOR OF PHARMACEUTICAL AND
MEDICAL PRODUCTS 22,750 714
Content Beheer
RECRUITMENT SERVICES FOR TEMPORARY STAFF 37,550 685
Getronics, N.V.
PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES 36,723 1,606
ING Groep, N.V.
INSURANCE AND FINANCIAL SERVICES 29,690 1,700
Koninklijke Ahold, N.V.
INTERNATIONAL FOOD RETAILER 50,551 1,753
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Koninklijke Numico, N.V.
NUTRITIONAL FOOD SPECIALIST 44,266 $ 1,910
Nedcon Groep
RACKING SYSTEMS MANUFACTURER 9,104 185
Unique International, N.V.
OPERATOR OF RETAIL CLOTHING STORES,
EMPLOYMENT AGENCIES, TECHNICAL TRADE
SCHOOLS AND ENGINEERING SERVICES 28,290 718
Vedior, N.V. CVA
TEMPORARY EMPLOYMENT SERVICES 53,344 1,088
--------------------------------------------------------------------------
10,980
- -----------------------------------------------------------------------------------------------------------------------
FRANCE--11.2% AXA, S.A.
INSURANCE GROUP PROVIDING INSURANCE,
FINANCE AND REAL ESTATE SERVICES 6,040 780
Alcatel Alsthom
MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION AND ENERGY EQUIPMENT 5,553 734
Compagnie Francaise d'Etudes et de
Construction Technip
BUILDER OF FACTORIES WHICH PRODUCE
ENERGY PRODUCTS 1,123 95
Groupe Danone
PRODUCER OF PACKAGED FOODS AND BEVERAGES 6,210 1,812
Sanofi, S.A.
RESEARCHER AND MANUFACTURER OF HEALTH
CARE PRODUCTS AND BEAUTY AIDS 6,000 1,071
Societe Lyonnaise des Eaux, S.A.
WATER UTILITY 8,600 1,698
Societe Nationale Elf Aquitaine
PETROLEUM COMPANY 3,300 411
Television Francaise
TELEVISION BROADCASTING 6,615 1,157
--------------------------------------------------------------------------
7,758
- -----------------------------------------------------------------------------------------------------------------------
GERMANY--9.5% Bayerische Vereinsbank A.G.
COMMERCIAL BANK 13,200 1,143
GEHE A.G.
PHARMACEUTICALS DISTRIBUTOR 20,000 1,279
Mannesmann A.G.
DIVERSIFIED CONSTRUCTION AND TECHNOLOGY
COMPANY 11,750 1,271
Metro A.G.
OPERATOR OF BUILDINGS, CLOTHING AND FOOD
STORES AND SUPERMARKETS 12,000 748
VIAG A.G.
PROVIDER OF ELECTRICAL POWER AND NATURAL
GAS SERVICES, ALUMINUM PRODUCTS,
CHEMICALS, CERAMICS AND GLASS 3,500 2,157
--------------------------------------------------------------------------
6,598
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITALY--8.7% AEM
ELECTRIC AND GAS UTILITY 600,000 $ 900
Assicurazioni Generali, SpA
LIFE AND PROPERTY INSURANCE COMPANY 25,250 943
Istituto Bancario San Paolo di Torino
COMMERCIAL BANK 72,556 1,190
Telecom Italia, SpA
TELECOMMUNICATIONS, ELECTRONICS AND
NETWORK CONSTRUCTION 295,000 2,390
Telecom Italia Mobile, SpA
CELLULAR TELECOMMUNICATION SERVICES 93,000 609
--------------------------------------------------------------------------
6,032
- -----------------------------------------------------------------------------------------------------------------------
SPAIN--6.6% Centros Comerciales Continente, S.A.
HYPERMARKET CHAIN 21,000 684
Compania Telefonica Nacional de Espana,
S.A.
TELECOMMUNICATION SERVICES 36,164 1,698
Empresa Nacional de Electricidad, S.A.
ELECTRIC POWER UTILITY 83,109 2,168
--------------------------------------------------------------------------
4,550
- -----------------------------------------------------------------------------------------------------------------------
SWITZERLAND--5.4% Nestle, S.A.
FOOD MANUFACTURER 560 1,163
Novartis, A.G.
PHARMACEUTICAL COMPANY 1,358 2,549
--------------------------------------------------------------------------
3,712
- -----------------------------------------------------------------------------------------------------------------------
SWEDEN--4.2% Astra, A.B. "A"
PHARMACEUTICAL COMPANY 53,000 970
Gambro, A.B.
HEALTHCARE SERVICES AND MEDICAL
TECHNOLOGY PROVIDER 77,750 951
(a)Industri Matematik
INFORMATION TECHNOLOGY SERVICES 26,500 166
Securitas, A.B.
INSTALLATION OF SECURITY SYSTEMS AND
PROVIDER OF GUARD SERVICES 54,500 810
--------------------------------------------------------------------------
2,897
- -----------------------------------------------------------------------------------------------------------------------
PORTUGAL--2.3% Electricidade de Portugal, S.A.
ELECTRIC UTILITY 70,254 1,556
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
IRELAND--1.1% Bank of Ireland, PLC
BANK 37,833 776
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
GREECE--.4% Panafon, S.A.
PROVIDER OF MOBILE TELEPHONE SERVICES 16,153 289
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--90.8%
(Cost: $59,600) 62,809
--------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--4.59% to 5.07%
INSTRUMENTS--9.2% Due--December 1998 and January 1999
Bell Atlantic Network Funding Corp. $1,370 $ 1,360
Dresdner U.S. Finance, Inc. 3,000 2,989
UBS Finance Corp. 2,000 1,996
--------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--9.2%
(Cost: $6,345) 6,345
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $65,945) $69,154
--------------------------------------------------------------------------
</TABLE>
At November 30, 1998, the fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Healthcare $11,627 16.8
- ----------------------------------------------------------------------------------------
Communications 8,561 12.4
- ----------------------------------------------------------------------------------------
Consumer Staples 8,196 11.8
- ----------------------------------------------------------------------------------------
Service Industries 7,682 11.1
- ----------------------------------------------------------------------------------------
Finance 7,104 10.3
- ----------------------------------------------------------------------------------------
Utilities 6,322 9.1
- ----------------------------------------------------------------------------------------
Manufacturing 4,880 7.1
- ----------------------------------------------------------------------------------------
Consumer Discretionary 2,933 4.2
- ----------------------------------------------------------------------------------------
Technology 1,771 2.6
- ----------------------------------------------------------------------------------------
Miscellaneous 3,733 5.4
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 62,809 90.8
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 6,345 9.2
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $69,154 100.0
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $66,251,000 for federal income tax purposes
at November 30, 1998, the gross unrealized appreciation was $6,217,000, the
gross unrealized depreciation was $3,314,000 and the net unrealized appreciation
on investments was $2,903,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER EUROPE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Europe Fund as of November 30,
1998, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 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, 1998, by correspondence with the custodian. 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, 1998, 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 19, 1999
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost $65,945) $69,154
- -----------------------------------------------------------------------
Receivable for:
Investments sold 805
- -----------------------------------------------------------------------
Fund shares sold 255
- -----------------------------------------------------------------------
Dividends 156
- -----------------------------------------------------------------------
Reimbursement from Adviser 151
- -----------------------------------------------------------------------
TOTAL ASSETS 70,521
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Cash overdraft 784
- -----------------------------------------------------------------------
Payable for:
Investments purchased 1,342
- -----------------------------------------------------------------------
Fund shares redeemed 843
- -----------------------------------------------------------------------
Distribution services fee 2
- -----------------------------------------------------------------------
Administrative services fee 5
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 136
- -----------------------------------------------------------------------
Trustees' fees and other 101
- -----------------------------------------------------------------------
Total liabilities 3,213
- -----------------------------------------------------------------------
NET ASSETS $67,308
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $64,143
- -----------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (50)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 3,215
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $67,308
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($32,386 / 2,259 shares outstanding) $14.34
- -----------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $15.21
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($30,831 / 2,194 shares outstanding) $14.05
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($4,091 / 289 shares outstanding) $14.13
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------
Dividends (less foreign taxes withheld of $89) $ 611
- ----------------------------------------------------------------------
Interest 252
- ----------------------------------------------------------------------
Total investment income 863
- ----------------------------------------------------------------------
Expenses:
Management fee 349
- ----------------------------------------------------------------------
Distribution services fee 174
- ----------------------------------------------------------------------
Administrative services fee 103
- ----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 775
- ----------------------------------------------------------------------
Professional fees 19
- ----------------------------------------------------------------------
Reports to shareholders 63
- ----------------------------------------------------------------------
Trustees' fees and other 43
- ----------------------------------------------------------------------
Total expenses before expense waiver 1,526
- ----------------------------------------------------------------------
Less expenses waived and absorbed by investment manager 560
- ----------------------------------------------------------------------
Total expenses after expense waiver 966
- ----------------------------------------------------------------------
NET INVESTMENT LOSS (103)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 35
- ----------------------------------------------------------------------
Change in net unrealized appreciation on investments and
assets and liabilities in foreign currencies 2,416
- ----------------------------------------------------------------------
Net gain on investments 2,451
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,348
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
- -----------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (103) (12)
- -----------------------------------------------------------------------------------------
Net realized gain 35 321
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,416 517
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,348 826
- -----------------------------------------------------------------------------------------
Net equalization credits -- 35
- -----------------------------------------------------------------------------------------
Distribution from net investment income (49) --
- -----------------------------------------------------------------------------------------
Distribution from net realized gain (304) (51)
- -----------------------------------------------------------------------------------------
Total dividends to shareholders (353) (51)
- -----------------------------------------------------------------------------------------
Net increase from capital share transactions 41,403 19,244
- -----------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 43,398 20,054
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------
Beginning of year 23,910 3,856
- -----------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $55 for the year ended November 30, 1997) $67,308 23,910
- -----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Europe Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares (none sold through
November 30, 1998) 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 SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges 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
17
<PAGE> 18
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.
EQUALIZATION ACCOUNTING. Prior to December 1, 1997,
the fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of December
1, 1997, the fund discontinued using equalization.
This change has no effect on the fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in-capital previously reported
through November 30, 1997 by $44,000.
- --------------------------------------------------------------------------------
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. However, the
fund incurred no management fees for the year ended
November 30, 1998, after a fee waiver by Scudder
Kemper.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
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 $560,000 for the
year ended November 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS RETAINED ALLOWED BY KDI
BY KDI TO FIRMS
-------------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $22,000 217,000
</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 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 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
(AFTER EXPENSE WAIVER) COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
---------------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $58,000 432,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF (AFTER
EXPENSE WAIVER)
PAID BY THE ASF PAID BY KDI
FUND TO KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $51,000 113,000
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
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 $581,000
for the year ended November 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1998, the fund made no payments to its officers and
incurred trustees' fees of $15,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended November 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $93,829
Proceeds from sales 55,937
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
Class A 7,283 $107,825 1,001 $12,178
------------------------------------------------------------------------------
Class B 3,914 56,766 1,144 14,017
------------------------------------------------------------------------------
Class C 294 4,309 53 637
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 15 187 2 24
------------------------------------------------------------------------------
Class B 11 142 4 43
------------------------------------------------------------------------------
Class C 1 11 -- --
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (6,034) (89,091) (243) (2,992)
------------------------------------------------------------------------------
Class B (2,591) (37,533) (372) (4,615)
------------------------------------------------------------------------------
Class C (86) (1,213) (4) (48)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 47 699 13 161
------------------------------------------------------------------------------
Class B (48) (699) (13) (161)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $ 41,403 $19,244
------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------
CLASS A
-----------------------------
YEAR ENDED MAY 1 TO
NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.43 11.02 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .03 .01
- ------------------------------------------------------------------------
Net realized and unrealized gain 2.07 1.51 1.51
- ------------------------------------------------------------------------
Total from investment operations 2.11 1.54 1.52
- ------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .05 -- --
- ------------------------------------------------------------------------
Distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Total dividends .20 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.34 12.43 11.02
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.25% 14.18 16.00
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 1.53% 1.52 1.49
- ------------------------------------------------------------------------
Net investment income .32% .34 .46
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.28% 1.75 4.74
- ------------------------------------------------------------------------
Net investment income (loss) (.43)% .11 (2.79)
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------
CLASS B
-----------------------------
YEAR ENDED MAY 1 TO
NOVEMBER 30, NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.27 10.97 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05) (.05) (.02)
- ------------------------------------------------------------------------
Net realized and unrealized gain 1.98 1.48 1.49
- ------------------------------------------------------------------------
Total from investment operations 1.93 1.43 1.47
- ------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.05 12.27 10.97
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.92% 13.23 15.47
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.67% 2.45 2.44
- ------------------------------------------------------------------------
Net investment loss (.82)% (.59) (.49)
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 4.42% 2.66 5.63
- ------------------------------------------------------------------------
Net investment loss (2.57)% (.80) (3.68)
- ------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------
CLASS C
----------------------------
YEAR ENDED
NOVEMBER 30, MAY 1 TO
-------------- NOVEMBER 30,
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $12.28 10.97 9.50
- ------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.05) (.01)
- ------------------------------------------------------------------------
Net realized and unrealized gain 2.00 1.49 1.48
- ------------------------------------------------------------------------
Total from investment operations 2.00 1.44 1.47
- ------------------------------------------------------------------------
Less distribution from net realized gain .15 .13 --
- ------------------------------------------------------------------------
Net asset value, end of period $14.13 12.28 10.97
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.48% 13.32 15.47
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.08% 2.38 2.34
- ------------------------------------------------------------------------
Net investment loss (.23)% (.52) (.39)
- ------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses 2.89% 2.59 5.50
- ------------------------------------------------------------------------
Net investment loss (1.04)% (.73) (3.55)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, MAY 1 TO
------------------------ NOVEMBER 30,
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $67,308 23,910 3,856
- ----------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 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.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid a distribution of $.09 per share from net long-term capital gains
during the year ended November 30, 1998, of which 22% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$401,000 as capital gain dividends for the year ended November 30, 1998, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
22
<PAGE> 23
NOTES
KEMPER EUROPE FUND
SUPPLEMENT TO PROSPECTUS
DATED MARCH 1, 1998
The Board of Trustees of the Kemper Europe Fund has agreed in principle to
propose to shareholders that the fund be reorganized into the Scudder New Europe
Fund, Inc. In connection with the reorganization, the Scudder New Europe Fund,
which is currently a closed-end investment company, will be converted to an
open-end investment company (mutual fund). After the reorganization, it is
expected that the Scudder New Europe Fund will change its name to the Kemper
Europe Fund, Inc. and will become a part of the Kemper family of funds.
The reorganization is expected to occur during the third quarter of 1999 and is
subject to a number of conditions, including final approval by the board and
approval by shareholders of each fund.
January 29, 1999
THIS PROSPECTUS SUPPLEMENT IS NOT PART OF THE FUND'S ANNUAL REPORT.
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 MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President KATHRYN L. QUIRK Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee CORNELIA SMALL
Vice President
JOHN B. TINGLEFF
Trustee
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 Avenue
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
[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 Europe Fund prospectus.
KEUF - 2 (1/29/99) 1064440
