<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
KEMPER NEW
EUROPE FUND
"... We believe that the weakness in the euro is not supported by macroeconomic
fundamentals in the region. A narrowing of the growth gap between the United
States and Europe, along with a slowdown in merger and acquisition activity,
should support the currency over the medium term. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
9
TERMS TO KNOW
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
18
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
23
NOTES TO FINANCIAL STATEMENTS
28
REPORT OF INDEPENDENT AUDITORS
29
TAX INFORMATION
AT A GLANCE
KEMPER NEW EUROPE FUND TOTAL RETURNS
FOR THE YEAR ENDING OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW EUROPE KEMPER NEW EUROPE LIPPER EUROPEAN REGION
KEMPER NEW EUROPE FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
------------------------------ ----------------- ----------------- -----------------------
<S> <C> <C> <C>
18.77 17.79 17.69 12.53
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. PERFORMANCE OF CLASSES WILL DIFFER. FOR ADDITIONAL INFORMATION,
PLEASE SEE THE FUND'S PROSPECTUS.
INVESTMENT IN FOREIGN SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING CURRENCY EXCHANGE RATES, SHIFTING GOVERNMENT REGULATION AND
DIFFERENCES IN LIQUIDITY.
RETURNS DURING PART OF THE PERIODS SHOWN INCLUDE THE EFFECT OF A TEMPORARY
WAIVER OF MANAGEMENT FEES AND/OR ABSORPTION OF CERTAIN OPERATING EXPENSES BY THE
INVESTMENT ADVISOR. WITHOUT SUCH WAIVER OR ABSORPTION, RETURNS WOULD HAVE BEEN
LOWER AND RATINGS OR RANKINGS MIGHT HAVE BEEN LESS FAVORABLE.
*LIPPER, 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; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER NEW EUROPE FUND CLASS
A $15.78 $14.87
.........................................................
KEMPER NEW EUROPE FUND CLASS
B $15.20 $14.49
.........................................................
KEMPER NEW EUROPE FUND CLASS
C $15.34 $14.62
.........................................................
</TABLE>
KEMPER NEW EUROPE FUND RANKINGS
AS OF 10/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER EUROPEAN REGION FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #39 of 151 funds #41 of 151 funds #42 of 151 funds
....................................................................................
5-YEAR #1 of 39 funds n/a n/a
....................................................................................
10-YEAR #3 of 17 funds n/a n/a
....................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE FISCAL YEAR, KEMPER NEW EUROPE FUND MADE THE FOLLOWING DISTRIBUTIONS
PER SHARE.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
LONG-TERM CAPITAL
GAIN $1.95 1.95 1.95
...........................................................
</TABLE>
THIS IS A NONDIVERSIFIED FUND. THIS PRESENTS GREATER RISK OF LOSS OF PRINCIPAL
AS THE FINANCIAL CONDITION OR THE MARKET'S ASSESSMENT OF THE FUND'S SECURITIES
CHANGES.
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. as of 10/31/00. The
BOX] Morningstar International Equity Style Box(TM)
placement is based on a fund's price-to-earnings
and price-to-cash-flow ratios relative to the
MSCI EAFE, as well as the size of the companies
in which it invests, or median market
capitalization. The style box represents a
snapshot of a fund's portfolio on a single day,
but it's not exact because a portfolio changes
from day to day. A longer-term view is
represented by the fund's Morningstar category,
which is based on actual investment style as
measured by the fund's underlying holdings over
the past three years.
</TABLE>
<PAGE> 3
ECONOMIC OVERVIEW
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 $290 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:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
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 (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</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 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE> 5
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
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 THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, 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.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE> 6
ECONOMIC OVERVIEW
[INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN THE FOLLOWING INTERVIEW, LEAD PORTFOLIO MANAGER CAROL FRANKLIN DISCUSSES
KEMPER NEW EUROPE FUND'S STRATEGY AND THE EUROPEAN MARKET ENVIRONMENT DURING THE
12-MONTH PERIOD ENDING OCTOBER 31, 2000.
Q WILL YOU PROVIDE A GENERAL OVERVIEW OF KEMPER NEW EUROPE FUND PERFORMANCE
FOR THE ANNUAL PERIOD?
A Kemper New Europe Fund delivered an outstanding performance on a 12-month
basis, gaining 18.77 percent (Class A shares, unadjusted for sales charges),
retaining its top-ranking status within Lipper's European funds category over
the five-year period (see page 2 for complete ranking details) and outperforming
its typical Lipper peer by roughly five percentage points. The Morgan Stanley
Capital International (MSCI) Europe Equity index delivered a paltry 1.21 percent
for the same period.
This showing owes largely to gains generated during the first half of the
period by holdings in telecommunications, media and technology -- commonly known
as the megasector TMT. The fund also benefited from rallies in long-held
positions in such stocks as Marschollek, Lautenschlaeger, a German financial
services company with a strong brand franchise, and Qiagen, a leading supplier
of biotech products based in the Netherlands. Portfolio performance was impacted
positively in the latter half of the period by holdings in the insurance sector,
an industry lately fueled by a recovery in earnings, attractive valuations,
consolidation activity and the market rotation out of TMT into the financials.
Q WILL YOU PROVIDE AN OVERVIEW OF MANAGEMENT ACTIVITY DURING THE PERIOD?
A In managing the fund, we continue to use bottom-up, fundamental research
to identify companies that we believe are key niche players, as well as
companies benefiting from structural changes in the less developed markets or
smaller firms possessing a strong global franchise. We strive to invest in
companies early in their growth cycles and hold them as they gain recognition
and scale. The fund also invests in large-cap companies that are poised to boost
their earnings through fundamental changes such as restructuring, the
introduction of a new product or entrance into a new market. We believe that our
dual focus on growth and change provides a method of risk management over time.
The portfolio has evolved significantly since the first quarter of this year.
Most notably, the fund's media holdings have been reduced and its commitments to
the financial sector have been increased to an overweight position. The fund has
a more balanced sectoral approach than it had earlier in the year, following our
decision to increase the fund's holdings in financials and pharmaceuticals.
Energy also retains a notable weighting in the portfolio, based on our belief
that the economic and commercial environment
[FRANKLIN PHOTO]
LEAD PORTFOLIO MANAGER CAROL FRANKLIN, WITH SCUDDER KEMPER INVESTMENTS, INC.
SINCE 1981, STUDIED AT THE SORBONNE AND L'INSTITUT D'ETUDES POLITIQUES IN PARIS
AND RECEIVED A BACHELOR OF ARTS DEGREE FROM SMITH COLLEGE. SHE ALSO HOLDS AN
M.B.A. FROM COLUMBIA UNIVERSITY GRADUATE SCHOOL OF BUSINESS.
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.
PERFORMANCE UPDATE
7
<PAGE> 8
PERFORMANCE UPDATE
for these companies is as good as it has been in decades. What's more, these
stocks are trading at levels lower than we have seen for many years.
Q WHAT ARE SOME OF THE MAJOR MARKET TRENDS AND EVENTS THAT SHAPED THE
DEVELOPED EUROPEAN MARKETS THROUGHOUT THE ANNUAL PERIOD ENDING OCTOBER 31, 2000?
A After several months of stellar performance in the first half of the
period -- a continuation of the outstanding run the region experienced in the
late 1990s -- the European equity markets came under intense pressure during the
latter half of the reporting period. Several challenges weighed in on the
region's markets, including concerns about higher interest rates in the United
States and the Eurozone, rising oil prices and downgrades in the
telecommunications sectors. Stock market weakness in the United States was also
a problem, as the slide in the Nasdaq average and earnings disappointments from
several bellwether stocks -- particularly in the technology sector -- depressed
European market sentiment even further. European telecom operators and their
infrastructure providers in particular faced even more problems, especially in
Germany, France and the United Kingdom. Such issues, representing a large part
of these markets, fell precipitously on the news of the very high fees extracted
from British and German auctions for third-generation licenses. Even though the
portfolio was substantially underweight in telecom and related issues when
compared with the benchmark, we did have exposure to both Nokia and Ericsson.
Nokia came under additional stress when management reported a delay in the
launch of several new, high-margin products. Ericsson announced poor results in
its mobile handset division due to a severe component shortage. However, even
though there are concerns over the short term, Nokia and Ericsson remain
formidable global competitors. Nokia management has a proven record of correctly
forecasting sector trends, and the company has the leading global market share
in mobile phones, giving it huge economies of scale. Ericsson's business is
concentrated in mobile infrastructure, where the company reported good results
and has a leading global franchise.
Perhaps the biggest challenge facing European markets, however, was persistent
euro weakness. The European Economic and Monetary Union (EMU) currency touched
new lows despite increases in short-term interest rates by the European Central
Bank (ECB). This weakness owes largely to the economic growth differential
between the Eurozone and the United States. Sentiment was also weakened by
conflicting statements from politicians and central bankers, as well as by
reports of capital flows out of the region as more and more European companies
purchased assets in the United States. That said, a weak currency has had
positive implications in that it has boosted gross domestic product growth,
helped exporters and led to the lowest level of unemployment in a decade.
Despite the recent turmoil in the European markets, there are a number of
positives that investors should consider:
- One of the most encouraging signs we see in the region is the implementation
of tax reform. In July, Germany's government approved the most far-reaching
tax package in a generation. The change in Germany's tax policy makes the
country a more attractive business location than it has been in the past and
sends a signal to other Eurozone countries to lower their tax burdens to
stimulate investment and remain competitive.
- We believe that the weakness in the euro is not supported by macroeconomic
fundamentals in the region. A narrowing of the growth gap between the United
States and Europe, along with a slowdown in merger and acquisition activity,
should support the currency over the medium term.
- Growth in the Eurozone is expected to expand, which could result in even more
job creation; countries such as Germany and Italy are already reporting the
lowest levels of unemployment in years.
- The fiscal situation has improved across Europe, thanks to the tightening in
the standards for EMU qualification and higher levels of economic growth.
- The ECB's preemptive tightening, along with the ongoing deregulation in
utility prices and technology-driven productivity improvements, should
mitigate inflation pressures.
Q WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
A We believe that the European markets will face more challenging headwinds
in the months ahead. Despite downward pressure on share prices amid the recent
market volatility, valuations in certain sectors remain stretched. Global growth
is peaking, and corporate profit expectations may still be too high. Europe,
nonetheless, remains
8
<PAGE> 9
PERFORMANCE UPDATE
an exciting investment environment from a long-term standpoint. Globalization
and the development of the single market continue to drive corporate
restructuring and consolidation. Governments are moving toward badly needed tax
and pension reform, while accounting harmonization across the Eurozone is under
review. Fostered by deregulation and a developing entrepreneurial culture, new
companies are coming to the market and, once there, are being disciplined by a
more discerning investor base. Against this backdrop, Kemper New Europe Fund is
diversified to help balance the risks and capture the rewards of the current
investment landscape.
TERMS TO KNOW
CONSOLIDATION The reduction in the number of companies in a particular industry,
brought about by merger and acquisition activity.
EUROPEAN CENTRAL BANK (ECB) The bank founded to oversee monetary policy for the
11 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.
EUROPEAN MONETARY UNION (EMU) 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.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected impact of
management, products, sales and earnings on their balance sheets and income
statements. Distinct from technical analysis, which evaluates the attractiveness
of a stock based on historical price and trading volume movements, rather than
the financial results of the underlying company.
OVERWEIGHTING/UNDERWEIGHTING The allocation of assets -- usually by sector,
industry or country -- within a portfolio relative to a benchmark index (e.g.,
the MSCI Europe index) or an investment universe.
RESTRUCTURING Implementation of major corporate changes aimed at greater
efficiency and adaptation to changing markets. Cost-cutting initiatives, debt
retirement, management realignments and the sale of noncore businesses are all
developments frequently associated with corporate restructuring.
9
<PAGE> 10
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDING OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER NEW EUROPE FUND CLASS A 11.92% 22.63% 14.38% 12.87% (since 9/3/99)
..................................................................................................
KEMPER NEW EUROPE FUND CLASS B 14.79 n/a n/a 18.37 (since 9/3/99)
..................................................................................................
KEMPER NEW EUROPE FUND CLASS C 17.69 n/a n/a 20.88 (since 9/3/99)
..................................................................................................
</TABLE>
KEMPER NEW EUROPE FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 2/28/90 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
A1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
2/28/90 9424.00 10000.00
9988.00 11068.00
9015.00 9920.00
9042.00 9731.00
9603.00 11275.00
10055.00 11978.00
8801.00 10796.00
9575.00 11732.00
12/31/93 11052.00 14013.00
11123.00 13643.00
11023.00 14386.00
12729.00 16271.00
13140.00 17569.00
16053.00 18736.00
17698.00 21359.00
6/30/97 19946.00 24445.00
22426.00 26527.00
30831.00 33602.00
32024.00 34195.00
33593.00 33419.00
53625.00 39745.00
53101.00 38571.00
10/31/00 48576.00 35513.00
</TABLE>
KEMPER NEW EUROPE FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 9/30/99 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
B1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
9/30/99 10000.00 10000.00
10462.00 10370.00
11646.00 10653.00
13742.00 11747.00
1/31/00 13369.00 10912.00
15874.00 11484.00
14982.00 11764.00
13864.00 11247.00
13296.00 11157.00
6/30/00 13523.00 11400.00
13620.00 11220.00
13507.00 11091.00
12680.00 10574.00
10/31/00 12032.00 10496.00
</TABLE>
KEMPER NEW EUROPE FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 9/30/99 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
C1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
9/30/99 10000.00 10000.00
10465.00 10370.00
11646.00 10653.00
13746.00 11747.00
1/31/00 13368.00 10912.00
15881.00 11484.00
14982.00 11764.00
13866.00 11247.00
13296.00 11157.00
6/30/00 13521.00 11400.00
13617.00 11220.00
13489.00 11091.00
12662.00 10574.00
10/31/00 12316.00 10496.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED,
SHARES MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. PERFORMANCE OF
CLASSES WILL DIFFER. FOR ADDITIONAL
INFORMATION, PLEASE SEE THE FUND'S
PROSPECTUS.
*RETURNS FOR CLASS A, SHARES PRIOR TO
THEIR INCEPTION OF SEPTEMBER 3, 1999,
ARE DERIVED FROM THE HISTORICAL
PERFORMANCE OF CLASS M SHARES. PRIOR TO
SEPTEMBER 3, 1999, THE FUND OPERATED AS
A CLOSED-END INVESTMENT COMPANY. ON
SEPTEMBER 3, 1999, THE FUND BECAME AN
OPEN-END INVESTMENT COMPANY AND OFFERED
ADDITIONAL CLASSES OF SHARES. THE FUND'S
PERFORMANCE MAY HAVE BEEN LOWER IF IT
HAD OPERATED AS AN OPEN-END FUND DURING
THESE PERIODS. ON SEPTEMBER 3, 2000,
CLASS M SHARES AUTOMATICALLY CONVERTED
TO CLASS A SHARES. RETURNS FOR CLASS B
AND C SHARES DERIVED FROM M SHARE
PERFORMANCE HAVE ALSO BEEN ADJUSTED TO
REFLECT THE ESTIMATED OPERATING EXPENSES
APPLICABLE TO EACH SHARE CLASS, WHICH
ARE GENERALLY HIGHER. (SEE THE FUND'S
PROSPECTUS FOR MORE COMPLETE
INFORMATION.) RETURNS DURING PART OF THE
PERIODS SHOWN INCLUDE THE EFFECT OF A
TEMPORARY WAIVER OF MANAGEMENT FEES
AND/OR ABSORPTION OF CERTAIN OPERATING
EXPENSES BY THE INVESTMENT ADVISOR.
WITHOUT SUCH WAIVER OR ABSORPTION,
RETURNS WOULD HAVE BEEN LOWER AND
RATINGS OR RANKINGS MIGHT HAVE BEEN LESS
FAVORABLE.
(1)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 ADJUSTMENT, BUT REDEMPTIONS WITHIN
ONE YEAR OF PURCHASE MAY BE SUBJECT TO A
CDSC OF 1%. FOR ADDITIONAL INFORMATION,
SEE THE PROSPECTUS, STATEMENT OF
ADDITIONAL INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
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
NEW EUROPE FUND WITH THE MSCI EUROPE
EQUITY INDEX, YOU SHOULD NOTE THAT THE
FUND'S PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGE, WHILE NO SUCH CHARGES ARE
REFLECTED IN THE PERFORMANCE OF THE
INDICES.
+THE MSCI EUROPE EQUITY INDEX IS A TOTAL
RETURN INDEX, REPORTED IN U.S. DOLLARS,
BASED ON SHARE PRICES AND REINVESTED
GROSS DIVIDENDS OF APPROXIMATELY 600
COMPANIES (ONLY THOSE SECURITIES DEEMED
SUFFICIENTLY LIQUID FOR TRADING BY
INVESTORS) FROM THE FOLLOWING 14
COUNTRIES: AUSTRIA, BELGIUM, DENMARK,
FINLAND, FRANCE, GERMANY, IRELAND,
ITALY, NETHERLANDS, NORWAY, SPAIN,
SWEDEN, SWITZERLAND AND THE UNITED
KINGDOM. THE SECURITIES REPRESENTED IN
THIS INDEX MAY EXPERIENCE LOSS OF
INVESTED PRINCIPAL AND ARE SUBJECT TO
INVESTMENT RISK. IN EXCHANGE FOR
GREATER GROWTH POTENTIAL, INVESTMENTS
IN FOREIGN SECURITIES CAN HAVE ADDED
RISKS. THESE INCLUDE CHANGES IN
CURRENCY RATES, ECONOMIC AND MONETARY
POLICY, DIFFERENCES IN AUDITING
STANDARDS AND RISKS RELATED TO
POLITICAL AND ECONOMIC DEVELOPMENTS.
SOURCE IS WIESENBERGER(R).
10
<PAGE> 11
LARGEST HOLDINGS
KEMPER NEW EUROPE FUND'S 10 LARGEST HOLDINGS*
Representing 24.9 percent of the fund's total common stock on October 31, 2000
<TABLE>
<CAPTION>
HOLDINGS COUNTRY PERCENT
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
1. TOTAL FINA ELF France 3.2%
---------------------------------------------------------------------------------------------------------
2. ROYAL DUTCH PETROLEUM Netherlands 3.1%
---------------------------------------------------------------------------------------------------------
3. SIEMENS Germany 2.8%
---------------------------------------------------------------------------------------------------------
4. MARSCHOLLEK LAUTENSCHLAEGER UND PARTNER AG Germany 2.7%
---------------------------------------------------------------------------------------------------------
5. QIAGEN Netherlands 2.6%
---------------------------------------------------------------------------------------------------------
6. VODAFONE AIRTOUCH United 2.2%
Kingdom
---------------------------------------------------------------------------------------------------------
7. NESTLE Switzerland 2.2%
---------------------------------------------------------------------------------------------------------
8. NOKIA Finland 2.1%
---------------------------------------------------------------------------------------------------------
9. AVENTIS France 2.1%
---------------------------------------------------------------------------------------------------------
10. SCHERING Germany 1.9%
---------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER NEW EUROPE FUND
Portfolio of Investments as of 10/31/2000
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS--6.4% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES--6.4%
Student Loan Marketing Association,
6.450%, 11/01/2000
(Cost $21,755,000) $21,755,000 $ 21,755,000
------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--93.6% SHARES
<S> <C> <C> <C> <C> <C> <C>
FINLAND--3.1%
JOT Automation Group Oyj
(MANUFACTURER OF HIGH TECHNOLOGY
PRODUCTION AUTOMATION SYSTEMS AND
EQUIPMENT) 541,652 1,885,770
Kone Oyj, "B"
(MANUFACTURER OF ELEVATORS) 30,000 1,757,741
Nokia Oyj
(PROVIDER OF TELECOMMUNICATIONS
SERVICES) 164,596 6,777,288
------------------------------------------------------------------------------
10,420,799
-------------------------------------------------------------------------------------------------------------------------
FRANCE--17.4%
Accor S.A.
(OPERATOR OF HOTELS, TRAVEL AGENCIES
AND RESTAURANTS) 72,550 2,938,599
Alcatel S.A.
(MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION, AND ENERGY
EQUIPMENT) 75,447 4,606,333
Altran Technologies S.A.
(PROVIDER OF ENGINEERING AND CONSULTING
SERVICES) 20,750 4,244,626
Aventis S.A.
(MANUFACTURES LIFE SCIENCE PRODUCTS) 91,400 6,597,048
Banque Nationale de Paris
(BANK) 40,800 3,519,965
Bouygues
(DEVELOPER OF LARGE PUBLIC PROJECTS,
REAL ESTATE, OFF-SHORE OIL PLATFORMS,
AND ENERGY NETWORK) 29,000 1,477,521
Cap Gemini SA
(PROVIDER OF COMPUTER CONSULTING
SERVICES) 14,331 2,287,804
Galeries Lafayette
(DEPARTMENT STORE CHAIN) 29,950 4,834,632
Infogrames Entertainment S.A.*
(DEVELOPER OF INTERACTIVE TELEVISION AND
COMPUTER GAMES) 100,350 2,100,481
Lagardere S.C.A.
(PRODUCER OF AUDIOVISUAL AND
TELECOMMUNICATION SERVICES) 70,200 3,987,932
STMicroelectronics
(MANUFACTURER OF SEMICONDUCTOR
INTEGRATED CIRCUITS) 99,400 5,017,909
Schneider Electric SA
(MANUFACTURER OF ELECTRONIC COMPONENTS
AND AUTOMATED MANUFACTURING SYSTEMS) 51,271 3,341,448
Suez Lyonnaise des Eaux SA
(DEVELOPER OF WATER AND ELECTRIC
UTILITY) 27,661 4,223,204
Total Fina ELF SA
(EXPLORER OF OIL AND NATURAL GAS) 71,000 10,164,837
------------------------------------------------------------------------------
59,342,339
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
GERMANY--20.3%
Allianz AG
(PROVIDER OF MULTI-LINE INSURANCE
SERVICES) 17,362 $ 5,904,550
Bayer AG
(PRODUCER OF CHEMICAL PRODUCTS) 122,316 5,307,484
Bayerische Hypo-und Vereinsbank
(PROVIDER OF BANKING SERVICES) 49,500 2,719,531
Commerzbank AG
(PROVIDER OF BANKING SERVICES) 72,316 2,041,787
Deutsche Bank AG (Registered)
(PROVIDER OF FINANCIAL SERVICES) 51,093 4,208,406
Deutsche Telekom AG
(TELECOMMUNICATION SERVICES) 65,855 2,463,311
Dresdner Bank AG
(PROVIDER OF BANKING SERVICES) 101,643 4,224,883
ERGO Versicherungs Gruppe AG
(INSURANCE PROVIDER) 25,208 3,489,076
Epcos AG*
(PRODUCER OF ELECTRONIC COMPONENTS AND
INTEGRATED CIRCUITS) 23,836 1,811,511
Marschollek, Lautenschlaeger und Partner
AG
(INDEPENDENT LIFE INSURANCE COMPANY) 63,300 8,546,442
Metro AG
(OPERATOR OF BUILDING, CLOTHING,
ELECTRONIC AND FOOD STORES) 55,500 2,238,572
Muenchener
Rueckversicherungs-Gesellschaft AG
(Registered)
(PROVIDER OF INSURANCE SERVICES) 12,780 4,036,996
ProSieben Sat.1 Media AG
(PRODUCER AND BROADCASTER OF TELEVISION
PROGRAMMING, OPERATOR OF INTERACTIVE
INTERNET WEBSITES) 135,200 4,259,269
SAP AG
(MANUFACTURER OF COMPUTER SOFTWARE) 5,412 886,491
SAP AG (pfd.) 9,650 1,954,340
Schering AG
(PHARMACEUTICAL AND CHEMICAL PRODUCER) 107,900 6,028,813
Siemens AG
(DEVELOPER OF ELECTRICAL PRODUCTS) 70,200 8,941,551
------------------------------------------------------------------------------
69,063,013
-------------------------------------------------------------------------------------------------------------------------
GREECE--1.1%
Alpha Bank A.E.
(COMMERCIAL BANK) 47,344 1,750,238
National Bank of Greece S.A.
(BANK) 52,850 2,009,270
------------------------------------------------------------------------------
3,759,508
-------------------------------------------------------------------------------------------------------------------------
IRELAND--1.0%
Irish Life & Permanent PLC
(OPERATOR OF RETAIL FINANCIAL SERVICES
GROUP) 337,075 3,380,344
------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
ITALY--8.2%
Assicurazioni Generali
(PROVIDER OF INSURANCE AND FINANCIAL
SERVICES) 120,400 3,961,710
Banco Intesa SpA
(PROVIDER OF BANKING SERVICES) 1,189,000 4,937,137
Bulgari SpA
(MANUFACTURER AND RETAILER OF FINE
JEWELRY, LUXURY WATCHES AND PERFUMES) 231,400 2,725,363
ENI SpA
(EXPLORER AND DISTRIBUTOR OF PETROLEUM
PRODUCTS) 624,480 3,383,169
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
Gruppo Coin SpA*
(OPERATOR OF DEPARTMENT STORES SELLING
CLOTHING, ACCESSORIES, AND FURNISHINGS) 155,500 $ 2,125,890
Riunione Adriatica di Sicurta SpA
(PROVIDER OF INSURANCE SERVICES) 204,750 2,689,668
Saipem SpA
(INTERNATIONAL CONTRACTOR IN OIL AND
GAS EXPLORATION AND DRILLING,
CONSTRUCTION OF REFINERIES AND
PIPELINES) 692,500 3,610,544
San Paolo -- IMI SpA
(PROVIDER OF COMMERCIAL BANKING) 273,300 4,432,589
------------------------------------------------------------------------------
27,866,070
-------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--12.6%
ABN AMRO Holding N.V.
(PROVIDER OF FINANCIAL SERVICES) 172,291 3,994,015
Akzo Nobel N.V.
(PRODUCER AND MARKETER OF HEALTHCARE
PRODUCTS, COATINGS, CHEMICALS AND
FIBERS) 114,611 5,221,323
Heineken Holding N.V.
(PRODUCER OF BEER AND SOFT DRINKS) 12,000 652,147
Heineken Holding N.V. "A" 95,900 3,420,207
ING Groep N.V.
(PROVIDER OF INSURANCE AND FINANCIAL
SERVICES) 44,660 3,068,733
Koninklijke (Royal) Philips Electronic
N.V.
(MANUFACTURER OF LIGHTING AND
ELECTRONIC PRODUCTS) 112,895 4,439,499
Qiagen NV*
(BIOPHARMACEUTICAL COMPANY) 192,180 8,287,763
Royal Dutch Petroleum Co.
(PETROLEUM COMPANY) 164,983 9,791,263
VNU NV
(PROVIDER OF INTERNATIONAL PUBLISHING
SERVICES) 85,263 4,018,261
------------------------------------------------------------------------------
42,893,211
-------------------------------------------------------------------------------------------------------------------------
NORWAY--0.5%
Norsk Hydro ASA
(CONGLOMERATE: PRODUCER OF FERTILIZERS,
OIL AND GAS, ALUMINUM) 45,367 1,805,384
------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SPAIN--4.6%
Banco Popular Espanol SA
(RETAIL BANKING NETWORKS THROUGHOUT
EUROPE) 119,800 3,585,919
Compania Telefonica Nacional de Espana SA
(ADR)*
(TELECOMMUNICATION SERVICES) 60,256 3,491,082
Cortefiel SA
(OWNER AND OPERATOR OF VARIOUS RETAIL
CLOTHING STORES) 126,375 2,269,635
Grupo Prisa, S.A.*
(MEDIA COMPANY) 24,548 473,180
Recoletos Compania Editorial*
(PUBLISHER OF FINANCIAL, SPORTS,
WOMEN'S AND
HEALTH PUBLICATIONS) 47,700 431,373
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
Telefonica SA*
(PROVIDER OF TELECOMMUNICATION
SERVICES) 82,265 $ 1,569,649
Union Electrica Fenosa S.A.
(PRODUCER AND DISTRIBUTOR OF ELECTRICAL
ENERGY) 214,347 3,966,059
------------------------------------------------------------------------------
15,786,897
-------------------------------------------------------------------------------------------------------------------------
SWEDEN--0.5%
Ericsson LM "B"
(PRODUCER OF ADVANCED SYSTEMS AND
PRODUCTS FOR WIRED AND MOBILE
COMMUNICATIONS) 136,900 1,821,499
------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--5.2%
Credit Suisse Group (Registered)
(PROVIDER OF UNIVERSAL BANKING AND
FINANCIAL SERVICES) 13,480 2,527,266
Nestle SA (Registered)
(PRODUCER OF FOOD PRODUCTS) 3,386 7,016,885
Roche Holding AG
(MANUFACTURER OF PHARMACEUTICAL AND
CHEMICAL PRODUCTS) 312 2,850,092
Serono SA
(DEVELOPER AND MARKETER OF
BIOTECHNOLOGY PRODUCTS) 3,112 2,799,501
UBS AG (Registered)
(PROVIDER OF BANKING AND ASSET
MANAGEMENT SERVICES) 17,400 2,410,348
------------------------------------------------------------------------------
17,604,092
-------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--19.1%
ARM Holdings PLC*
(DESIGNER OF RISC MICROPROCESSORS AND
RELATED TECHNOLOGY) 176,700 1,741,422
BP Amoco PLC
(PROVIDER OF OIL INTERNATIONALLY) 621,401 5,263,988
Bae Systems PLC
(PRODUCER OF MILITARY AIRCRAFT) 648,720 3,680,845
Barclays PLC
(COMMERCIAL AND INVESTMENT BANKING,
INSURANCE AND OTHER FINANCIAL SERVICES) 123,075 3,517,509
British Telecom PLC
(PROVIDER OF TELECOMMUNICATION
SERVICES) 182,991 2,142,888
Cable and Wireless PLC
(PROVIDER OF TELECOMMUNICATION
SERVICES) 92,100 1,301,436
Diageo PLC
(PRODUCER AND DISTRIBUTOR OF FOOD
PRODUCTS, BEER AND LIQUOR, OWNER OF
FAST FOOD RESTAURANTS) 548,780 5,173,733
Glaxo Wellcome PLC
(DEVELOPER OF PHARMACEUTICAL PRODUCTS) 91,905 2,642,648
Granada Compass
(PROVIDER OF AN ASSORTMENT OF
HOSPITALITY AND MEDIA SERVICES) 208,325 1,793,438
HSBC Holdings PLC
(DIVERSIFIED INTERNATIONAL BANKING AND
FINANCIAL SERVICES COMPANY) 289,490 4,120,060
J Sainsbury PLC
(RETAIL DISTRIBUTOR OF FOOD THROUGH
SUPERMARKETS) 307,730 1,727,109
Prudential Corp. PLC
(PROVIDER OF A BROAD RANGE OF FINANCIAL
SERVICES) 133,156 1,788,953
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
Reed International PLC
(PUBLISHER OF SCIENTIFIC, PROFESSIONAL
AND BUSINESS TO BUSINESS MATERIALS) 440,200 $ 4,063,946
Reuters Group PLC
(PROVIDER OF INTERNATIONAL NEWS AND
INFORMATION) 74,100 1,441,216
Rio Tinto PLC
(DEVELOPER OF MINING PRODUCTS) 156,249 2,524,937
Royal & Sun Alliance Insurance Group PLC
(INSURANCE COMPANY) 849 6,035
Serco Group PLC
(FACILITIES MANAGEMENT COMPANY) 610,390 5,617,455
SmithKline Beecham PLC
(MANUFACTURER OF PHARMACEUTICALS AND
HEALTHCARE PRODUCTS) 293,573 3,786,732
Taylor Nelson Sofres PLC
(MARKET RESEARCH COMPANY) 1,420,860 5,559,984
Vodafone AirTouch PLC
(PROVIDER OF MOBILE TELECOMMUNICATION
SERVICES) 1,725,109 7,169,328
------------------------------------------------------------------------------
65,063,662
------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $270,334,307) 318,806,818
------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $292,089,307)(a) $340,561,818
------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
(a) Based on the cost of investments of $292,482,128 for federal income tax
purposes at October 31, 2000, the gross unrealized appreciation was
$63,984,694, the gross unrealized depreciation was $15,905,004 and the net
unrealized appreciation on investments was $48,079,690.
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
At October 31, 2000, the Fund's portfolio of investments had the following
industry diversification:
<TABLE>
<CAPTION>
VALUE %
<S> <C> <C> <C>
Financial $ 86,871,430 25.5%
-------------------------------------------------------------------------------------------
Manufacturing 49,513,722 14.5%
-------------------------------------------------------------------------------------------
Energy 32,213,801 9.5%
-------------------------------------------------------------------------------------------
Service Industries 27,233,292 8.0%
-------------------------------------------------------------------------------------------
Communications 26,736,481 7.9%
-------------------------------------------------------------------------------------------
Consumer Discretionary 23,299,299 6.8%
-------------------------------------------------------------------------------------------
Technology 16,853,602 4.9%
-------------------------------------------------------------------------------------------
Consumer Staples 16,262,972 4.8%
-------------------------------------------------------------------------------------------
Health 12,078,973 3.5%
-------------------------------------------------------------------------------------------
Media 10,945,192 3.2%
-------------------------------------------------------------------------------------------
Utilities 8,189,263 2.4%
-------------------------------------------------------------------------------------------
Durables 4,606,333 1.4%
-------------------------------------------------------------------------------------------
Metals & Minerals 4,002,458 1.2%
-------------------------------------------------------------------------------------------
Total Common Stocks 318,806,818 93.6%
-------------------------------------------------------------------------------------------
Short-term Instruments 21,755,000 6.4%
-------------------------------------------------------------------------------------------
Total Investment Portfolio $340,561,818 100.0%
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value,
(cost $292,089,307) $340,561,818
----------------------------------------------------------------------------
Cash 4,118
----------------------------------------------------------------------------
Receivable for investments sold 3,120,010
----------------------------------------------------------------------------
Dividends receivable 174,885
----------------------------------------------------------------------------
Receivable for Fund shares sold 2,291,774
----------------------------------------------------------------------------
Foreign taxes recoverable 392,824
----------------------------------------------------------------------------
Due from Adviser 176,382
----------------------------------------------------------------------------
TOTAL ASSETS 346,721,811
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 6,084,176
----------------------------------------------------------------------------
Payable for Fund shares redeemed 522,589
----------------------------------------------------------------------------
Other accrued expenses 828,128
----------------------------------------------------------------------------
Total liabilities 7,434,893
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $339,286,918
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income $ (4,436)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities 48,472,511
----------------------------------------------------------------------------
Foreign currency related transactions (49,626)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 67,899,560
----------------------------------------------------------------------------
Paid-in capital 222,968,909
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $339,286,918
----------------------------------------------------------------------------
NET ASSETS VALUE
CLASS A SHARES
Net asset value and redemption price per share
($281,334,576 / 17,827,399 shares outstanding of
beneficial interest, $.01 par value, 200,000,000 shares
authorized) $15.78
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of 15.78) $16.74
----------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($40,346,356 /
2,654,974 shares outstanding of beneficial interest,
$.01 par value, 100,000,000 shares authorized) $15.20
----------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($17,605,986 /
1,147,588 shares outstanding of beneficial interest,
$.01 par value, 100,000,000 shares authorized) $15.34
----------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME (LOSS)
Dividends (net of foreign taxes withheld of $307,943) $ 3,840,411
----------------------------------------------------------------------------
Interest 1,190,169
----------------------------------------------------------------------------
Total income 5,030,580
----------------------------------------------------------------------------
Expenses:
Management fee 2,755,251
----------------------------------------------------------------------------
Services to shareholders 813,533
----------------------------------------------------------------------------
Custodian and accounting fees 788,762
----------------------------------------------------------------------------
Distribution services fees 389,071
----------------------------------------------------------------------------
Administrative service fees 928,898
----------------------------------------------------------------------------
Auditing 88,004
----------------------------------------------------------------------------
Legal 127,236
----------------------------------------------------------------------------
Directors' fees and expenses 38,606
----------------------------------------------------------------------------
Reports to shareholders 369,244
----------------------------------------------------------------------------
Registration fees 129,851
----------------------------------------------------------------------------
Other 13,715
----------------------------------------------------------------------------
Total expenses before reductions 6,442,171
----------------------------------------------------------------------------
Expense reductions (26,004)
----------------------------------------------------------------------------
Total expenses 6,416,167
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,385,587)
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 108,041,199
----------------------------------------------------------------------------
Foreign currency related transactions (381,679)
----------------------------------------------------------------------------
107,659,520
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the year
on:
Investments (50,841,450)
----------------------------------------------------------------------------
Foreign currency related transactions (46,616)
----------------------------------------------------------------------------
(50,888,066)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 56,771,454
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 55,385,867
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (1,385,587) (147,575)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) 107,659,520 111,396,837
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the year (50,888,066) (33,443,269)
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 55,385,867 77,805,993
-----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income:
Class M -- (401,627)
-----------------------------------------------------------------------------------------------------
From net realized gains:
Class A (4,041,547) --
-----------------------------------------------------------------------------------------------------
Class B (2,779,084) --
-----------------------------------------------------------------------------------------------------
Class C (879,171) --
-----------------------------------------------------------------------------------------------------
Class M (21,828,574) (103,184,000)
-----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 702,177,373 112,471,531
-----------------------------------------------------------------------------------------------------
Reinvestment of distributions 7,115,484 7,397,998
-----------------------------------------------------------------------------------------------------
Cost of shares redeemed (691,086,104) (159,994,898)
-----------------------------------------------------------------------------------------------------
Redemption fees 623,305 1,983,027
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 18,830,058 (38,142,342)
-----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 44,687,549 (63,921,976)
-----------------------------------------------------------------------------------------------------
Net assets at beginning of year 294,599,369 358,521,345
-----------------------------------------------------------------------------------------------------
Net assets at end of year (including accumulated
distributions in excess of net investment income of $4,436
and $16,254, respectively) $ 339,286,918 294,599,369
-----------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
SEPTEMBER 3, 1999 (C)
YEAR ENDED TO
OCTOBER 31, 2000 OCTOBER 31, 1999
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.87 14.27
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.09) (0.03)
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 2.95 0.63
----------------------------------------------------------------------------------------------------------
Total from investment operations 2.86 0.60
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
----------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.78 14.87
----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 18.77 4.20**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 281 32
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.74 1.63*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.72 1.63*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.55) (1.21)*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87 58*
----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SEPTEMBER 3, 1999 (C)
YEAR ENDED TO
OCTOBER 31, 2000 OCTOBER 31, 1999
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.49 13.91
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.20) (0.05)
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 2.86 0.63
----------------------------------------------------------------------------------------------------------
Total from investment operations 2.66 0.58
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
----------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.20 14.49
----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 17.79 4.17**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 40 20
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.64 2.36*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.63 2.36*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.21) (1.95)*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87 58*
----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SEPTEMBER 3, 1999 (C)
YEAR ENDED TO
OCTOBER 31, 2000 OCTOBER 31, 1999
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.62 14.02
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.20) (0.04)
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 2.87 0.64
----------------------------------------------------------------------------------------------------------
Total from investment operations 2.67 0.60
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
----------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.34 14.62
----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 17.69 4.28**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 17 5
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.67 2.40*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.66 2.40*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.18) (1.99)*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 87 58*
----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Commencement of Class.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper New Europe Fund Inc. (the "Fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
diversified management investment company organized
as a Maryland Corporation.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 M shares, are no longer
offered and automatically converted to Class A
shares on September 3, 2000.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used. 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 value
as determined in good faith by the Valuation
Committee of the Board of Directors.
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
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates
of the transactions.
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 income accrued and the U.S. dollar
amount actually received. That portion of both
realized and unrealized gains and losses on
investments that result from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with the net realized and
unrealized gains and losses on investment
securities.
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis. All discounts are
accreted for both tax and financial reporting
purposes.
REDEMPTION FEES. For the period September 3, 1999
to September 3, 2000, Class M shares were subject
to a 2% fee on exchanges and redemptions (including
redemptions in-kind). The redemption fee is
accounted for as an addition to paid-in capital.
--------------------------------------------------------------------------------
2 PURCHASES & SALES
OF SECURITIES For the year ended October 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $301,708,464
Proceeds from sales 307,089,365
--------------------------------------------------------------------------------
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
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
$250 million of average daily net assets declining
to .62% of average daily net assets in excess of
$12.5 billion. For the year ended October 31, 2000
the Fund incurred a management fee of $2,755,251,
which is equal to an annual effective rate of .74%
of the Fund's average daily net assets.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. ("KDI"). Underwriting
commissions retained by KDI in connection with the
distribution of Class A shares for the year ended
October 31, 2000 are $69,745.
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
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 charge
("CDSC") from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the year ended October 31, 2000 are $466,593 of
which $29,135 is unpaid at October 31, 2000.
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 paid by KDI
for the year ended October 31, 2000 are $928,898,
of which $179,195 is unpaid at October 31, 2000. In
addition $20 was paid by KDI to affiliates.
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 $592,047
for the year ended October 31, 2000, of which
$226,990 is unpaid at October 31, 2000.
FUND ACCOUNTING. Scudder Fund Accounting
Corporation, ("SFAC") is responsible for
determining the daily net asset value per share and
maintaining the portfolio and general accounting
records of the fund. For the year ended October 31,
2000, the amount charged to the Fund by SFAC
aggregated $328,527 of which $93,414 is unpaid at
October 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended October 31,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $38,606 to independent
trustees of which $13,861 is unpaid at October 31,
2000.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 21,394,307 $ 379,176,231 3,537,337 $ 50,121,617
-------------------------------------------------------------------------------------
Class B 1,936,215 33,738,988 244,265 3,393,378
-------------------------------------------------------------------------------------
Class C 1,937,866 34,551,811 164,572 2,536,536
-------------------------------------------------------------------------------------
Class M* 503 261,665 -- --
-------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 221,165 3,618,249 -- --
-------------------------------------------------------------------------------------
Class B 163,364 2,592,451 -- --
-------------------------------------------------------------------------------------
Class C 52,824 846,770 -- --
-------------------------------------------------------------------------------------
Class M* 2,477 58,014 405,811 7,397,998
-------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (20,399,212) (363,773,616) (3,423,097) (49,398,470)
-------------------------------------------------------------------------------------
Class B (815,396) (13,810,607) (443,547) (6,585,907)
-------------------------------------------------------------------------------------
Class C (1,215,873) (21,926,973) (115,900) (1,731,521)
-------------------------------------------------------------------------------------
Class M* (1,457,728) (37,126,230) (5,065,967) (102,279,000)
-------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 14,433,898 254,448,678 -- --
-------------------------------------------------------------------------------------
Class B (41,927) (717,042) -- --
-------------------------------------------------------------------------------------
Class M* (10,021,893) (253,731,636)
-------------------------------------------------------------------------------------
REDEMPTION FEE
Class M* -- 623,305 -- 1,983,027
-------------------------------------------------------------------------------------
ACQUISITION OF KEMPER EUROPE FUND
Class A -- -- 2,063,000 29,444,000
-------------------------------------------------------------------------------------
Class B -- -- 1,612,000 22,435,000
-------------------------------------------------------------------------------------
Class C -- -- 324,000 4,541,000
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ 18,830,058 $ (38,142,342)
-------------------------------------------------------------------------------------
</TABLE>
* M Class shares are no longer offered and
automatically converted to Class A shares on
September 3, 2000.
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
transfer agent where by credits realized as a
result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the
period the Fund's transfer agent fees were reduced
by $26,004 under these arrangements.
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper Funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemptions requests that otherwise
might require the untimely disposition of
securities. The Participants are charged an annual
commitment fee which is allocated pro rata among
each of the Participants. Interest is calculated
based on the market rates at the time of the
borrowing. The Fund may borrow up to a maximum of
33 percent of its net assets under this agreement.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7 ACQUISITION OF ASSETS On September 3, 1999, the Fund acquired all the net
assets of Kemper Europe Fund pursuant to a plan of
reorganization approved by shareholders on July 20,
1999. The acquisition was accomplished by a
tax-free exchange of 2,063,000, 1,612,000, and
324,000 shares of Class A, Class B, and Class C
shares, respectively, of the Fund (valued at
$29,444,000, 22,435,000, and 4,541,000,
respectively) for 2,063,000, 1,612,000, and 324,000
shares of Class A, Class B, and Class C shares,
respectively, of Kemper Europe Fund outstanding on
September 3, 1999. Kemper Europe Fund's net assets
at that date ($56,420,000), including $3,474,000 of
unrealized appreciation were combined with those of
the Fund. The aggregate net assets of the Fund
immediately before the acquisition were
$326,129,000. The combined net assets of the Fund
immediately following the acquisition were
$382,549,000.
27
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER NEW EUROPE FUND, INC.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper New Europe Fund, Inc. as of
October 31, 2000, and the related statements of operations for the year then
ended, changes in net assets and financial highlights for the periods indicated
herein. 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 auditing standards generally
accepted in the United States. 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 October 31, 2000, by correspondence with the custodian or other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Kemper New Europe Fund, Inc. at October 31, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 20, 2000
28
<PAGE> 29
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $1.95 per share from net long-term capital gains
during its year ended October 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$113,800,000 as capital gain dividends for its year ended October 31, 2000, of
which 100% represents 20% rate gains.
The Fund paid foreign taxes of $491,879 and earned $491,879 of foreign source
income during the year ended October 31, 2000. Pursuant to section 853 of the
Internal Revenue Code, the Fund designates $0.023 per share as foreign taxes
paid and $0.023 per share as income earned from foreign sources for the year
ended October 31, 2000.
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 account, please call 1-800-621-1048.
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY MAUREEN E. KANE
Trustee President Assistant Secretary
JAMES R. EDGAR PHILIP COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK BRENDA LYONS
Trustee JOHN R. HEBBLE Assistant Treasurer
Treasurer
FREDERICK T. KELSEY
Trustee CAROL L. FRANKLIN
Vice President
THOMAS W. LITTAUER
Chairman, Trustee and Vice KATHRYN L. QUIRK
President Vice President
FRED B. RENWICK WILLIAM F. TRUSCOTT
Trustee Vice President
JOHN G. WEITHERS LINDA J. WONDRACK
Trustee Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
TRANSFER AND SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN BROWN BROTHERS HARRIMAN & CO.
40 Water Street
Boston, MA 02109
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
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.
KNEUF - 2 (12/22/00) 4985
