<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED APRIL 30, 2000
KEMPER NEW
EUROPE FUND
"... Shareholders -- not unions or governments -- have the deciding vote in the
future of Europe's corporations. As a result, we believe European companies will
move to position themselves more strategically, and to protect their share
prices more aggressively. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
LARGEST HOLDINGS
9
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
19
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
TERMS TO KNOW
KEMPER NEW EUROPE FUND
TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER EUROPEAN
KEMPER NEW EUROPE KEMPER NEW EUROPE KEMPER NEW EUROPE REGION FUNDS
KEMPER NEW EUROPE FUND CLASS M FUND CLASS A FUND CLASS B FUND CLASS C CATEGORY AVERAGE*
------------------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
33.37 32.99 32.51 32.50 21.51
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. INVESTMENT IN FOREIGN
SECURITIES PRESENTS SPECIAL RISK CONSIDERATIONS INCLUDING FLUCTUATING CURRENCY
EXCHANGE RATES, GOVERNMENT REGULATIONS AND DIFFERENCES IN LIQUIDITY.
*LIPPER, 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
4/30/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER NEW EUROPE FUND CLASS
M $25.35 $20.59
.........................................................
KEMPER NEW EUROPE FUND CLASS
A $17.67 $14.87
.........................................................
KEMPER NEW EUROPE FUND CLASS
B $17.10 $14.49
.........................................................
KEMPER NEW EUROPE FUND CLASS
C $17.27 $14.62
.........................................................
</TABLE>
KEMPER NEW EUROPE FUND
RANKINGS AS OF 4/30/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER EUROPEAN REGION FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS M
.............................................................
<S> <C> <C> <C>
1-YEAR #15 of 151 funds
.............................................................
3-YEAR #5 of 75 funds
.............................................................
5-YEAR #1 of 38 funds
.............................................................
10-YEAR #2 of 14 funds
.............................................................
</TABLE>
DIVIDEND REVIEW
DURING THE PERIOD, KEMPER NEW EUROPE FUND MADE THE FOLLOWING DISTRIBUTIONS PER
SHARE:
<TABLE>
<CAPTION>
CLASS M CLASS A CLASS B CLASS C
..........................................................
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM
CAPITAL GAIN $5.35 $1.95 $1.95 $1.95
..........................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR INTERNATIONAL EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR Morningstar International Equity Style Box(TM)
INTERNATIONAL EQUITY placement is based on a fund's price-to-earnings
STYLE BOX] 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>
CYCLICAL STOCK A stock within an industry whose earnings tend to rise quickly
when the economy strengthens and fall quickly when the economy weakens. Examples
are automobiles, housing, paper and steel. Noncyclical industries, such as food,
insurance and drugs, are normally not as directly affected by economic changes.
EXCESS CAPACITY A company's ability to take on more debt than what it currently
services.
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.
<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,
As we enter summer, there isn't much to complain about. For all the yammering
about the "new" economy, the old economy is doing pretty well. Consumers may
hanker for a new GPS handset or a Palm Pilot, but they lust after a suburban
mansion with a garage big enough to hold their luxury car and SUV -- and state
and local governments are laying old-fashioned asphalt almost as fast as
businesses are building the information superhighway. Satisfying both old and
new desires got the economy off to a fast start in the new century -- GDP growth
rose at an annual rate of more than 5 percent in the first quarter. Even with a
modest slowdown possible in the second half, growth for the year 2000 is likely
to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation, and raised
interest rates by half a percentage point (0.50%) accordingly on May 16. The
Fed's move puts the benchmark federal funds rate at 6.5 percent, its highest
level since February 1991, and the more symbolic discount rate at 6.0 percent.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show few signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats. Why are consumers still
buying despite Greenspan's attempts to slow their splurging? There are three
answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment.
And just like consumers, businesses are borrowing to buy. You may think that
with booming sales, entrepreneurs are cash-rich and can afford it. But while
1999 saw economy-wide earnings jump 10 percent and profits of Standard and
Poor's (S&P) 500 companies leap nearly 14 percent, internal cash covered less
than 84 percent of capital spending. With the exception of 1998, that's the
lowest on record. Last year alone, corporate debt shot up by more than 11
percent to $560 billion. And new economy companies are no exception; they have
more debt than most people realize, issuing more than half of all convertible
bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Private
financial obligations must be paid with personal income and corporate profits.
When the economy slows, personal income stagnates and corporate profits often
fall -- which makes it harder to pay off those debts. Consumers and businesses
may have to sell their assets to pay off the debt, and they may risk going into
default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some indicators suggest that monetary policy has
actually been lax. Broad money and credit creation have vastly exceeded
economic activity since 1995, and no central bank can allow that to continue
indefinitely without creating
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 (5/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.40 6.00 5.50 5.60
Prime rate (2) 9.50 8.50 7.75 8.50
Inflation rate (3)* 3.00 2.60 2.30 1.50
The U.S. dollar (4) 4.30 -0.70 -0.90 6.40
Capital goods orders (5)* 17.00 12.30 2.50 14.50
Industrial production (5)* 6.10 3.70 2.90 5.20
Employment growth (6) 2.60 2.20 2.30 2.60
</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 4/30/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
inflation. If we begin to see higher core inflation, the Fed will have to deal
with all that money it's created in a less gradualist manner -- and that could
get tricky. Financial turmoil accompanied each of the Fed's last two efforts to
slow the economy down. In 1994, there was a bond market meltdown that resulted
in a Mexican debt crisis. After a more timid Fed tightening in 1997, crises in
Asia were followed by problems with Russian debt, Brazilian debt and a large
American hedge fund. We don't think this is a coincidence: The global debt
market is so vast and interconnected that it's highly vulnerable to a rise in
the cost of its basic raw material -- short-term funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
Happily, financial markets got some better news along that front in late May
and early June. A range of economic data, from retail sales to mortgage
applications to the all-important employment report, began to point to somewhat
softer economic growth. If the Fed believes that the economy is finally slowing
in response to its tightening, the end of the rate hikes could be in sight.
Markets certainly were willing to believe, and they staged a strong relief rally
in late May and early June. While we don't expect a quick end to market
volatility, a slowdown in growth would be most welcome, and would make the
outlook for both stocks and bonds better for the remainder of the year.
Sincerely,
Scudder Kemper Investments Economics Group
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 JUNE 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.
4
<PAGE> 5
PERFORMANCE UPDATE
[FRANKLIN PHOTO]
CAROL FRANKLIN IS A MEMBER OF SCUDDER KEMPER INVESTMENTS' GLOBAL EQUITY GROUP
AND SERVES AS LEAD PORTFOLIO MANAGER FOR KEMPER NEW EUROPE FUND. IN ADDITION,
CAROL MANAGES INSTITUTIONAL INTERNATIONAL EQUITY PORTFOLIOS AND RESEARCHES
INVESTMENT OPPORTUNITIES IN SEVERAL WESTERN AND EASTERN EUROPEAN COUNTRIES.
CAROL STUDIED AT THE SORBONNE AND L'INSTITUTE D'ETUDES POLITIQUES AND RECEIVED A
BACHELOR'S DEGREE IN FRENCH LITERATURE FROM SMITH COLLEGE. SHE RECEIVED AN
M.B.A. IN FINANCE FROM COLUMBIA UNIVERSITY. A CHARTERED FINANCIAL ANALYST, SHE
HAS SERVED AS PRESIDENT AND SECRETARY OF THE NEW YORK ASSOCIATION OF
INTERNATIONAL INVESTORS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER NEW EUROPE FUND ONCE AGAIN SOUNDLY OUTPACED ITS BENCHMARK INDEX AND MANY
OF ITS PEERS, REWARDING INVESTORS WITH IMPRESSIVE RETURNS FOR THE SEMIANNUAL
PERIOD ENDING APRIL 30, 2000. LEAD PORTFOLIO MANAGER CAROL FRANKLIN DISCUSSES
THE PERIOD'S CHALLENGING INVESTMENT ENVIRONMENT AND THE STEPS PORTFOLIO
MANAGEMENT TOOK TO MAINTAIN THE FUND'S REMARKABLE BUOYANCY.
Q HOW DID KEMPER NEW EUROPE FUND PERFORM DURING THE SEMIANNUAL PERIOD?
A Fund performance was strong despite a challenging investment environment
marked by extreme volatility and euro weakness. During the six months ended
April 30, 2000, the fund returned 32.99 percent (A shares unadjusted for any
sales charge), far outpacing the benchmark, index returns, unlike fund returns,
do not include fees or expenses. Morgan Stanley Capital International (MSCI)
Europe index, which returned 8.45 percent. The MSCI Europe index measures total
return in U.S. dollar terms based on the share prices and reinvested gross
dividends of approximately 600 companies in 14 European countries.
The fund also performed well against its peers. According to Lipper, Inc., the
fund finished in the top quartile of European region funds for the six-month
period ending April 30, and in the top decile of comparable funds for the one-,
three- and five-year periods.*
Fund performance was driven largely by gains in telecommunications, media and
technology -- TMT -- stocks. 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 (3.13 percent and 3.58 percent of
the portfolio, respectively, as of April 30, 2000).
* SOURCE: LIPPER, INC. AS OF APRIL 30, 2000. KEMPER NEW EUROPE FUND CLASS M
SHARES RANKED 36 OF 161 EUROPEAN REGION FUNDS FOR THE SIX-MONTH PERIOD, 15 OF
151 FOR THE ONE-YEAR PERIOD, 5 OF 75 FOR THE THREE-YEAR PERIOD, 1 OF 38 FOR
THE FIVE-YEAR PERIOD AND 2 OF 14 FOR THE 10-YEAR PERIOD.
Q WOULD YOU PLEASE PROVIDE AN OVERVIEW OF MANAGEMENT ACTIVITY DURING THE
PERIOD?
A The fund kicked off the semiannual period with robust gains in media and
cellular technology holdings. The portfolio's balance between these growth
opportunities and noncorrelated, economically sensitive holdings in oil, basic
materials and semiconductors helped the fund comfortably outpace the benchmark
in the final months of 1999.
As we entered 2000, we became increasingly weary of lofty valuations and
rising volatility in the technology sector. As a defensive move, we took profits
in some media holdings that had served the portfolio well, including L'Espresso
and Mediaset. We remain strongly positive about the prospects for the industry,
however. Sector fundamentals are excellent, and many companies are aggressively
exploiting opportunities created by booming advertising demand, media
convergence potential and consolidation. We therefore continue to maintain an
overweighted position;
5
<PAGE> 6
PERFORMANCE UPDATE
technology currently constitutes roughly 25 percent of the portfolio, compared
with the index weighting of 13 percent at April end.
In an effort to achieve greater downside protection, we deployed assets in
sectors that we believed would tend not to be affected by turbulence in the
technology sector. First, we looked to oil and gas, where we expect to see an
increasingly tight balance of supply and demand. We increased our holdings in
such names as Royal Dutch Petroleum (1.63 percent of the portfolio as of April
30, 2000) and France's Total Fina (2.14 percent of the portfolio as of April 30,
2000).
Second, we increased exposure to positions in banks and financial companies
with strong fundamentals that we believe can withstand the pressure of rising
interest rates. We added to positions in Germany's Hypovereinsbank, Deutsche
Bank and Allianz, and initiated a position in Credit Suisse -- one of the
foremost names in private banking, investment banking, retail banking and
insurance in Switzerland -- which has outstanding growth potential. Credit
Suisse recently has been restructured. The management team is showing great
capability in addressing the challenges the Internet presents to the banking
industry, and leveraging its sizable insurance customer base via cost-efficient
digital distribution. And management is clearly committed to prudent capital
allocation and creating shareholder value. These additions brought our
underweight position in financials up to 14.45 percent by the end of the period.
Finally, we increased our weighting in utilities stocks with new purchases of
French-based multi-utility Suez Lyonnaise des Eaux and National Power in the
United Kingdom. Suez is a world leader in water, waste management and
independent power production. Cash flows are strong and growth prospects are
bright, since tightening environmental regulations are prompting municipalities
and industrial companies to outsource these services. National Power, an
attractively valued stock in our view, is a power generator that was privatized
by the British government in 1991. The company is restructuring and splitting
its now integrated energy business from its rapidly growing international power
business in an effort to fully realize the value of these businesses for
shareholders.
Q WHAT ARE SOME OF THE MAJOR ECONOMIC TRENDS AND POLITICAL EVENTS THAT
SHAPED THE DEVELOPED MARKETS THROUGHOUT THE PERIOD?
A Unusually high levels of volatility have marked the global market
environment during the past six months. Sparked by wild gyrations in the
technology market in the United States, daily moves of 2 to 3 percent in the
international indices have become increasingly commonplace. Amid the clamor,
it's easy to lose track of what really matters for long-term investors:
fundamentals.
Europe itself is undergoing fundamental change. The European investment
universe is being expanded and redefined as the region develops a new political
framework, new capital markets and new businesses. We're seeing the emergence of
several long-term trends that should provide a positive backdrop to the region's
markets for years to come.
Merger and acquisition activity is increasing, government intervention in the
free markets is declining, and innovation on the individual company level is
exploding. Capital markets, rather than governments, are driving change, and
corporations are seeking to be competitive on a global scale.
In combination, these important changes create an enormously positive
environment for European equities. Although external factors -- such as a
downturn in the Nasdaq average in the United States -- can have a negative
impact in the short term, we believe that these factors will contribute to an
upward bias in stock prices over time. As always, our goal is to identify
companies that are poised for growth on the basis of effective positioning in
new or growing markets and those that are restructuring or otherwise working to
enhance shareholder value.
Q HOW ARE CONSOLIDATION AND CORPORATE RESTRUCTURING AFFECTING INVESTMENT
OPPORTUNITY IN THE REGION?
A In 1999, mergers and acquisitions in Europe rose markedly. Deals in
Europe, relative to the value of their stock markets, exceeded those in the
United States. The most significant change, other than the overall size of these
transactions, is the advent of cross-border deals. What was once taboo is
happening in Europe today. Governments are stepping aside to allow even hostile
bids, such as the landmark takeover of Mannesman, the German manufacturer of
production machine and assembly systems, by Britain's Vodafone. The deal
underscored the fact that today shareholders -- not unions or
governments -- have the deciding vote in the future of Europe's corporations. As
a result, we believe European companies will move to
6
<PAGE> 7
PERFORMANCE UPDATE
position themselves more strategically, and to protect their share prices more
aggressively. This is a new phenomenon in our view, but it is the very beginning
of what will be the complete transformation of the European corporate landscape.
Q HOW SIGNIFICANTLY WERE EUROPEAN MARKETS AFFECTED BY RISING U.S. INTEREST
RATES AND STOCK MARKET VOLATILITY?
A The impact was extremely significant for a number of reasons. First, the
United States is the largest economy in the world and the driving force of
consumerism. Second, many companies in Europe obtain financing, at least in
part, in U.S. dollars. When interest rates rise, borrowing money becomes more
expensive, and companies must grow earnings to compensate. Notably, despite
strong earnings growth, many European companies have been able to compensate
only partly for the increased cost of financing.
Finally, rising volatility and the eventual collapse of the Nasdaq market had
a "tsunami effect" on technology markets throughout Europe and the world. There
is an especially high correlation between interest rates in the United States
and in Europe.
Q WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
A We are encouraged by the positive developments taking place in the
economies of the Eurozone. Business and consumer confidence levels are higher
than they have been in many years, and export growth is responding to the
stimuli of a competitive currency and favorable economic conditions worldwide.
Unemployment, a perennial problem in Europe, is declining, thanks to robust
economic growth, increasing flexibility in the European labor markets and the
growth of new industries.
We expect European economic growth to exceed 3 percent in the year 2000, up
from 2.2 percent in 1999. We believe that inflation is unlikely to be a problem,
given continued deregulation, restructuring and the availability of excess
capacity. Interest rates have already increased 125 basis points. And, although
we expect monetary policy to continue to tighten in the months ahead, we don't
expect rising interest rates to derail the growth train.
On a short-term basis, international market volatility is really the
predominant theme. We expect markets to continue to see some turbulence, given
the likelihood of further increases in interest rates in both the United States
and Europe. Over the long term, we believe the markets will return to more
normal levels, and our outlook for investing in Europe is quite positive.
Nevertheless, we must remind shareholders to be aware of the short-term risks
of investing in European equities today. Valuations are not as attractive as
they have been in the past, and volatility in some sectors has made determining
a fair price complicated. And finally, while there have been important advances
in structural reforms, we must be prepared for setbacks; such is the nature of
change on a grand scale. Given these potential roadblocks, we believe that
shareholders should brace for continued volatility in the months ahead, all the
while keeping their eyes firmly fixed on the horizon, where long-term trends in
Europe can likely give rise to some outstanding future opportunities. References
to individual securities should not be considered a recommendation.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 25.5 percent of the fund's total common stock on April 30, 2000.
<TABLE>
<CAPTION>
HOLDINGS COUNTRY PERCENT
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
1. NOKIA OYJ Finland 3.7%
----------------------------------------------------------------------------------------------
2. QIAGEN NV Netherlands 3.6%
----------------------------------------------------------------------------------------------
3. MARSCHOLLEK, LAUTENSCHLAEGER UND PARTNER AG Germany 3.2%
----------------------------------------------------------------------------------------------
4. SIEMANS AG Germany 2.5%
----------------------------------------------------------------------------------------------
5. SERCO GROUP PLC United Kingdom 2.4%
----------------------------------------------------------------------------------------------
6. TOTAL FINA ELF S.A. Spain 2.2%
----------------------------------------------------------------------------------------------
7. VODAFONE AIRTOUCH PLC United Kingdom 2.2%
----------------------------------------------------------------------------------------------
8. BIPOP Italy 1.9%
----------------------------------------------------------------------------------------------
9. EPCOS AG Germany 1.9%
----------------------------------------------------------------------------------------------
10. LM ERICSSON AB Sweden 1.9%
----------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition & holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER NEW EUROPE FUND
Portfolio of Investments at April 30, 2000 (unaudited)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS--6.6% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Donaldson, Lufkin & Jenrette,
5.680%, to be repurchased at $24,833,918 on
05/01/2000 $24,830,000 $ 24,830,000
----------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost: $24,830,000) 24,830,000
----------------------------------------------------------------------------------
<CAPTION>
CORPORATE BONDS--0.0%
<S> <C> <C> <C> <C> <C>
DENMARK--0.0%
EM. TV Merchandising AG, 4.000%, 02/16/2005 195,000 183,519
----------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $189,784) 183,519
----------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--93.4% SHARES
<S> <C> <C> <C> <C> <C>
DENMARK--0.2%
Infineon Technologies AG
(MANUFACTURER AND MARKETER OF
SEMICONDUCTORS) 7,701 530,441
----------------------------------------------------------------------------------
530,441
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FINLAND--7.8%
JOT Automation Group Oyj
(MANUFACTURER OF HIGH TECHNOLOGY PRODUCTION
AUTOMATION SYSTEMS AND EQUIPMENT) 845,852 6,114,609
Nokia Oyj
(INTERNATIONAL TELECOMMUNICATIONS COMPANY) 245,396 14,080,045
Sonera Oyj
(PROVIDER OF TELECOMMUNICATION SERVICES) 105,230 5,788,981
Tietoenator Oyj
(INFORMATION TECHNOLOGY SERVICE COMPANY) 74,478 3,589,311
----------------------------------------------------------------------------------
29,572,946
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FRANCE--16.2%
Accor SA
(OPERATOR OF HOTELS, TRAVEL AGENCIES AND
RESTAURANTS) 57,890 2,150,319
Alcatel SA
(MANUFACTURER OF TRANSPORTATION,
TELECOMMUNICATION AND ENERGY EQUIPMENT) 28,300 6,561,964
Altran Technologies S.A.
(PROVIDER OF ENGINEERING AND CONSULTING
SERVICES) 19,850 4,057,551
Aventis S.A.
(MANUFACTURES LIFE SCIENCE PRODUCTS) 89,000 4,896,126
Cap Gemini SA
(PROVIDER OF COMPUTER CONSULTING SERVICES) 9,101 1,787,517
Galeries Lafayette
(DEPARTMENT STORE CHAIN) 29,950 5,095,395
Infogrames Entertainment S.A.*
(DEVELOPER OF INTERACTIVE TELEVISION AND
COMPUTER GAMES) 140,685 3,978,464
Lagardere S.C.A.
(HOLDING COMPANY WITH INTERESTS IN
PUBLISHING, DEFENSE, AUDIOVISUAL PRODUCTION
AND SERVICES, TELECOMMUNICATIONS AND MEDIA) 22,500 1,524,214
Publicis SA
(INTERNATIONAL ADVERTISING COMPANY) 9,892 4,803,221
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
STMicroelectronics N.V.
(MANUFACTURER OF SEMICONDUCTOR INTEGRATED
CIRCUITS) 32,200 $ 6,145,759
Schneider Electric SA
(MANUFACTURER OF ELECTRONIC COMPONENTS AND
AUTOMATED MANUFACTURING SYSTEMS) 56,511 3,699,753
Suez Lyonnaise des Eaux S.A.
(WATER AND ELECTRIC UTILITY) 26,791 4,202,282
Total Fina ELF S.A. "B"
(EXPLORER, DEVELOPER, PRODUCER, TRANSPORTER
AND MARKETER OF OIL AND NATURAL GAS) 54,147 8,217,467
Vivendi
(PROVIDER OF INDUSTRIAL SERVICES) 44,600 4,412,360
----------------------------------------------------------------------------------
61,532,392
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
GERMANY--18.3%
Allianz AG
(MULTI-LINE INSURANCE COMPANY) 11,722 4,514,008
BASF AG
(INTERNATIONAL CHEMICAL PRODUCER) 107,633 4,653,751
Bayer AG
(CHEMICAL PRODUCER) 103,481 4,286,040
Commerzbank AG
(PROVIDER OF BANKING SERVICES) 46,566 1,761,447
Deutsche Bank AG (Registered)
(PROVIDER OF FINANCIAL SERVICES) 40,993 2,754,618
Deutsche Telekom AG
(TELECOMMUNICATION SERVICES) 42,600 2,730,901
Dresdner Bank AG
(PROVIDER OF BANKING SERVICES) 21,018 871,492
EM.TV & Merchandising AG
(PRODUCER AND DISTRIBUTOR OF CHILDREN'S
TELEVISION PROGRAMS) 59,652 4,719,016
Epcos AG*
(PRODUCER OF ELECTRONIC COMPONENTS AND
INTEGRATED CIRCUITS) 51,272 7,249,664
HypoVereinsbank
(BANK) 46,600 2,885,627
Marschollek, Lautenschlaeger und Partner AG
(INDEPENDENT LIFE INSURANCE COMPANY) 22,700 12,013,127
PrimaCom AG*
(DEVELOPER, MANAGER AND OPERATOR OF
BROADBAND CABLE NETWORKS) 30,704 2,387,087
SAP AG
(COMPUTER SOFTWARE MANUFACTURER) 1,494 700,983
SAP AG
(MANUFACTURER OF COMPUTER SOFTWARE) 8,000 4,706,537
Schering AG
(PHARMACEUTICAL AND CHEMICAL PRODUCER) 13,200 1,866,429
Siemens AG
(ELECTRICAL ENGINEERING AND ELECTRONICS
COMPANY) 64,298 9,489,060
Thyssen Krupp AG
(MANUFACTURER OF BUILDING AND INDUSTRIAL
STEEL MATERIALS) 81,200 1,698,209
----------------------------------------------------------------------------------
69,287,996
----------------------------------------------------------------------------------
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
GREECE--1.1%
Alpha Credit Bank A.E.
(COMMERCIAL BANK) 31,563 $ 1,740,782
National Bank of Greece S.A.
(BANK) 52,850 2,258,339
----------------------------------------------------------------------------------
3,999,121
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
HUNGARY--0.0%
Graboplast Rt (GDR)*
(PRODUCER OF HOME IMPROVEMENT MATERIALS,
ARTIFICIAL LEATHER AND BOOK BINDINGS) 4 7
----------------------------------------------------------------------------------
7
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
ITALY--8.9%
Assicurazioni Generali
(MULTI-LINE INSURANCE AND FINANCIAL SERVICES
COMPANY) 91,900 2,615,574
Autogrill SpA
(OPERATOR OF HIGHWAY AND SELF SERVICE
RESTAURANTS AND SNACK BARS) 264,628 2,526,576
Banco Intesa SpA
(BANK) 680,400 2,505,685
Bipop
(COOPERATIVE BANK) 80,903 7,356,510
Class Editori SpA
(PUBLISHING HOUSE) 183,760 2,506,395
ENI SpA
(EXPLORER AND DISTRIBUTOR OF PETROLEUM
PRODUCTS) 593,880 2,953,883
Gruppo Editoriale L'Espresso
(PUBLISHER) 369,741 5,211,185
Mediaset SpA
(BROADCASTING AND TELEVISION NETWORKS) 96,850 1,571,973
Seat Pagine Gialle SpA
(PUBLISHER OF TELECOMMUNICATIONS
DIRECTORIES) 1,442,666 6,336,073
----------------------------------------------------------------------------------
33,583,854
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
LUXEMBOURG--0.2%
Carrier 1 International S.A.*
(PROVIDER OF VOICE, INTERNET AND RELATED
TELECOMMUNICATIONS SERVICES) 8,405 691,661
----------------------------------------------------------------------------------
691,661
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--11.4%
Akzo Nobel N.V.
(PRODUCER AND MARKETER OF HEALTHCARE
PRODUCTS, COATINGS, CHEMICALS AND FIBERS) 114,611 4,692,837
Equant N.V.
(PROVIDER OF INTERNATIONAL DATA NETWORK
SERVICES) 32,656 2,528,453
Getronics NV
(PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES) 69,769 4,161,727
Koninklijke KPN NV
(PROVIDER OF TELECOMMUNICATION SERVICES) 18,600 1,874,804
Koninklijke Philips Electronics N.V.
(DIVERSIFIED MANUFACTURER) 150,664 6,722,530
Qiagen NV*
(BIOPHARMACEUTICAL COMPANY) 94,645 13,735,356
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
Royal Dutch Petroleum Co.
(PETROLEUM COMPANY) 108,243 $ 6,240,168
United Pan-Europe Communications N.V.*
(OWNER AND OPERATOR OF BROADBAND
COMMUNICATIONS NETWORKS) 92,032 3,349,899
----------------------------------------------------------------------------------
43,305,774
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
NORWAY--0.4%
Norsk Hydro ASA
(CONGLOMERATE: PRODUCER OF FERTILIZERS, OIL
AND GAS, ALUMINUM) 45,367 1,661,721
----------------------------------------------------------------------------------
1,661,721
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
PORTUGAL--0.7%
Jeronimo Martins SGPS, S.A.
(FOOD PRODUCER AND RETAILER) 153,843 2,744,631
----------------------------------------------------------------------------------
2,744,631
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SPAIN--6.4%
Acerinox SA* 41,300 1,633,603
Amadeus Global Travel Distribution*
(OPERATOR OF A TRAVEL RESERVATION SYSTEM) 115,057 1,416,573
Compania Telefonica Nacional de Espana SA
(ADR)
(TELECOMMUNICATION SERVICES) 57,556 3,813,085
Corp. Financiera Reunida, SA*
(HOLDING COMPANY WITH INTEREST IN HOTELS,
LAND DEVELOPMENT, WINE AND CLOTHING
INDUSTRIES) 283,431 3,182,889
Cortefiel SA
(OWNER AND OPERATOR OF VARIOUS RETAIL
CLOTHING STORES) 118,675 2,493,827
Sogecable SA*
(PROVIDER OF CABLE TELEVISION) 38,412 1,585,733
Telefonica Publicidad e Informacion, SA*
(PUBLISHER OF TELEPHONE DIRECTORIES) 60,303 2,385,258
Telefonica S.A.*
(PROVIDER OF TELECOMMUNICATION SERVICES) 176,077 3,919,415
Union Electrica Fenosa S.A.
(PRODUCER AND DISTRIBUTOR OF ELECTRICAL
ENERGY) 204,547 3,918,906
----------------------------------------------------------------------------------
24,349,289
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SWEDEN--1.9%
Telefonektiebolaget LM Ericsson AB "B"
(MANUFACTURER OF TELECOMMUNICATIONS
EQUIPMENT) 79,900 7,128,977
----------------------------------------------------------------------------------
7,128,977
----------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--2.0%
ABB, Ltd.
(MANUFACTURER OF EQUIPMENT FOR POWER
GENERATION AND DISTRIBUTION) 22,427 2,518,060
Roche Holding AG
(DEVELOPS AND MANUFACTURES PHARMACEUTICAL
AND CHEMICAL PRODUCTS) 495 5,172,885
----------------------------------------------------------------------------------
7,690,945
----------------------------------------------------------------------------------
</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>
UNITED KINGDOM--17.9%
ARM Holdings PLC*
(DESIGNER OF RISC MICROPROCESSORS AND
RELATED TECHNOLOGY) 88,000 $ 887,973
Aegis Group PLC
(INDEPENDENT MEDIA SERVICES GROUP) 1,490,750 4,049,920
BOC Group plc
(DIVERSIFIED CHEMICAL COMPANY) 373,401 6,127,087
BP Amoco PLC
(INTEGRATED WORLD OIL COMPANY) 347,951 2,995,182
Barclays PLC
(COMMERCIAL AND INVESTMENT BANKING,
INSURANCE AND OTHER FINANCIAL SERVICES) 188,130 4,798,430
Billiton PLC
(RESOURCE GROUP THAT EXPLORES, PRODUCES AND
MARKETS ALUMINUM AND OTHER METAL PRODUCTS) 607,347 2,253,400
British Telecom PLC
(PROVIDER OF TELECOMMUNICATION SERVICES) 182,991 3,266,865
Cobham PLC
(MANUFACTURER OF AEROSPACE COMPONENTS) 251,204 3,482,423
Compass Group PLC
(INTERNATIONAL CATERING GROUP) 194,025 2,786,140
Glaxo Wellcome PLC
(PHARMACEUTICAL COMPANY) 91,224 2,811,080
J Sainsbury plc
(RETAIL DISTRIBUTOR OF FOOD THROUGH
SUPERMARKETS) 307,730 1,600,362
National Power PLC
(ELECTRICITY GENERATION COMPANY) 574,654 2,607,141
Prudential Corp. PLC
(PROVIDER OF A BROAD RANGE OF FINANCIAL
SERVICES) 270,756 4,140,167
Rio Tinto PLC
(MINING COMPANY) 156,249 2,425,609
Royal & Sun Alliance Insurance Group plc
(INSURANCE COMPANY) 817 4,566
Serco Group PLC
(FACILITIES MANAGEMENT COMPANY) 1,247,190 9,003,039
SmithKline Beecham PLC
(MANUFACTURER OF ETHICAL DRUGS AND
HEALTHCARE PRODUCTS) 56,241 768,315
Taylor Nelson Sofres PLC
(MARKET RESEARCH COMPANY) 1,420,860 5,465,830
Vodafone AirTouch PLC
(PROVIDER OF MOBILE TELECOMMUNICATION
SERVICES) 1,784,961 8,146,660
----------------------------------------------------------------------------------
67,620,189
----------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $229,475,274) 353,699,944
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO
(Cost: $254,495,058) (a) $378,713,463
----------------------------------------------------------------------------------
</TABLE>
NOTES TO KEMPER NEW EUROPE PORTFOLIO OF INVESTMENTS
* Non-income producing security.
(a) The cost for federal income tax purposes was $254,495,058. At April 30,
2000, net unrealized appreciation for all securities based on tax cost was
$124,218,405. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess value over tax cost of
$139,843,976 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $15,625,571.
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of April 30, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value, (cost $254,495,058) $378,713,463
----------------------------------------------------------------------------
Foreign currency, at value, (cost $74,444) 73,872
----------------------------------------------------------------------------
Receivable for investments sold 3,429,160
----------------------------------------------------------------------------
Dividends receivable 578,260
----------------------------------------------------------------------------
Interest receivable 13,214
----------------------------------------------------------------------------
Receivable for Fund shares sold 869,267
----------------------------------------------------------------------------
Foreign taxes recoverable 317,584
----------------------------------------------------------------------------
Other assets 54,131
----------------------------------------------------------------------------
TOTAL ASSETS 384,048,951
----------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 52,510
----------------------------------------------------------------------------
Payable for Fund shares redeemed 564,583
----------------------------------------------------------------------------
Unrealized depreciation on forward currency exchange
contracts 2,167
----------------------------------------------------------------------------
Other accrued expenses 202,580
----------------------------------------------------------------------------
Total liabilities 821,840
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $383,227,111
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ (1,367,827)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities 124,218,405
----------------------------------------------------------------------------
Foreign currency related transactions (45,228)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 73,056,275
----------------------------------------------------------------------------
Paid-in capital 187,365,486
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $383,227,111
----------------------------------------------------------------------------
NET ASSETS VALUE
CLASS A SHARES
Net asset value and redemption price per share
($62,232,189 / 3,521,808 shares outstanding of beneficial
interest, $.01 par value, 200,000,000 shares authorized) $17.67
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $17.67) $18.75
----------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($39,226,373 /
2,293,868 shares outstanding of beneficial interest, $.01
par value, 100,000,000 shares authorized) $17.10
----------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($18,062,313 /
1,046,020 shares outstanding of beneficial interest, $.01
par value, 100,000,000 shares authorized) $17.27
----------------------------------------------------------------------------
CLASS M SHARES
Net asset value and redemption price ($263,706,236 /
10,402,095 shares outstanding of beneficial interest, $.01
par value, 100,000,000 shares authorized) $25.35
----------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended April 30, 2000 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $182,456) $ 1,170,762
----------------------------------------------------------------------------
Interest 539,150
----------------------------------------------------------------------------
Total Income 1,709,912
----------------------------------------------------------------------------
Expenses:
Management fee 1,387,534
----------------------------------------------------------------------------
Services to shareholders 422,229
----------------------------------------------------------------------------
Custodian and accounting fees 305,389
----------------------------------------------------------------------------
Distribution services fees 146,894
----------------------------------------------------------------------------
Administrative service fees 468,821
----------------------------------------------------------------------------
Auditing 43,675
----------------------------------------------------------------------------
Legal 7,500
----------------------------------------------------------------------------
Trustees' fees and expenses 10,000
----------------------------------------------------------------------------
Reports to shareholders 96,260
----------------------------------------------------------------------------
Registration fees 57,721
----------------------------------------------------------------------------
Other 115,716
----------------------------------------------------------------------------
Total expenses 3,061,739
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,351,827)
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 72,590,174
----------------------------------------------------------------------------
Foreign currency related transactions (152,565)
----------------------------------------------------------------------------
72,437,609
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments 24,904,443
----------------------------------------------------------------------------
Foreign currency related transactions (42,218)
----------------------------------------------------------------------------
24,862,225
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 97,299,834
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 95,948,007
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
2000 OCTOBER 31,
(UNAUDITED) 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (1,351,827) (147,575)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) 72,437,609 111,396,837
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 24,862,225 (33,443,269)
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 95,948,007 77,805,993
-----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income:
Class M -- (401,627)
-----------------------------------------------------------------------------------------------------
From net realized gains:
Class A (4,043,781) --
-----------------------------------------------------------------------------------------------------
Class B (2,779,349) --
-----------------------------------------------------------------------------------------------------
Class C (879,253) --
-----------------------------------------------------------------------------------------------------
Class M (21,825,460) (103,184,000)
-----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 299,781,805 112,471,531
-----------------------------------------------------------------------------------------------------
Reinvestment of distributions 7,117,878 7,397,998
-----------------------------------------------------------------------------------------------------
Cost of shares redeemed (285,235,077) (159,994,898)
-----------------------------------------------------------------------------------------------------
Redemption fees 542,972 1,983,027
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from fund share
transactions 22,207,578 (38,142,342)
-----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 88,627,742 (63,921,976)
-----------------------------------------------------------------------------------------------------
Net assets at beginning of period 294,599,369 358,521,345
-----------------------------------------------------------------------------------------------------
Net assets at end of period (including accumulated
distributions in excess of net investment income of
$(1,367,827) and $(16,000), respectively) $ 383,227,111 294,599,369
-----------------------------------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
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
SIX MONTHS ENDED SEPTEMBER 3, 1999 (F)
APRIL 30, 2000 TO
(UNAUDITED) OCTOBER 31, 1999
<S> <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) (0.08) (0.03)
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 4.83 0.63
------------------------------------------------------------------------------------------------------
Total from investment operations 4.75 0.60
------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.67 14.87
------------------------------------------------------------------------------------------------------
TOTAL RETURN % (b) 32.99** 4.20**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 62 32
------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.74* 1.63*
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (0.83)* (1.21)*
------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79* 58*
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED SEPTEMBER 3, 1999 (F)
APRIL 30, 2000 TO
(UNAUDITED) OCTOBER 31, 1999
<S> <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) (0.13) (0.05)
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 4.69 0.63
------------------------------------------------------------------------------------------------------
Total from investment operations 4.56 0.58
------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.10 14.49
------------------------------------------------------------------------------------------------------
TOTAL RETURN % (b) 32.51** 4.17**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 39 20
------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 2.51* 2.36*
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.60)* (1.95)*
------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79* 58*
------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED SEPTEMBER 3, 1999 (F)
APRIL 30, 2000 TO
(UNAUDITED) OCTOBER 31, 1999
<S> <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) (0.12) (0.04)
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 4.72 0.64
------------------------------------------------------------------------------------------------------
Total from investment operations 4.60 0.60
------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (1.95) --
------------------------------------------------------------------------------------------------------
Total distributions (1.95) --
------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.27 14.62
------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 32.50** 4.28**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 18 5
------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 2.54* 2.40*
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.63)* (1.99)*
------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79* 58*
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS M
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
2000 ------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $20.59 22.23 19.96 16.60 13.24 11.61
---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (0.08) (.00)(c) (.00) (0.01) 0.05 0.05
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 10.18 4.62 4.47 3.43 3.36 1.58
---------------------------------------------------------------------------------------------------------------------
Total from investment operations 10.10 4.62 4.47 3.42 3.41 1.63
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- (0.03) (0.09) (0.06) (0.05) --
---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (5.35) (6.36) (2.11) -- -- --
---------------------------------------------------------------------------------------------------------------------
Total distributions (5.35) (6.39) (2.20) (0.06) (0.05) --
---------------------------------------------------------------------------------------------------------------------
Redemption fees (a) .01 .13 -- -- -- --
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.35 20.59 22.23 19.96 16.60 13.24
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (d) 33.37** 27.95 27.70 20.66 25.92 14.04
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 264 295 359 320 266 213
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.48* 1.68(e) 1.41 1.49 1.51 1.62
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (0.57)* -- (0.01) (0.03) 0.31 0.39
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 79* 58 41 45 35 32
---------------------------------------------------------------------------------------------------------------------
</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) Net investment income per share includes non-recurring dividend income
amounting to $.08 per share.
(d) The performance of Class M shares reflects performance of the Fund in
closed-end form. The Fund's performance may have been lower if it had
operated as an open-end fund during these periods.
(e) Includes reorganization expense ratio of .20%.
(f) Commencement of Class.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper New Europe Fund (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 will automatically convert 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 generally accepted accounting
principles 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 Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
be maintained at such a level that the market value
is equal to at least the principal amount of the
repurchase price plus accrued interest.
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.
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. 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 are 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
PURCHASE & SALES
OF SECURITIES For the six months ended April 30, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $136,410,554
Proceeds from sales (147,009,679)
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. For the six
months ended April 30, 2000 the Fund incurred a
management fee of $1,387,534, 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 six months
ended April 30, 2000 are $36,020.
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 six months ended April 30, 2000 are
$146,893.
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 six months ended April 30, 2000 are
$468,821, of which $249,678 was unpaid at April 30,
2000. In addition $12 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 $283,468
for the six months ended April 30, 2000, of which
$279,293 was unpaid at April 30, 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 six months ended April
30, 2000, the amount charged to the Fund by SFAC
aggregated $97,389.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the six months ended April
30, 2000, the Fund made no payments to its officers
and incurred trustees' fees of $10,000 to
independent trustees.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 13,924,734 $ 253,563,817 3,537,337 $ 50,121,617
-------------------------------------------------------------------------------------
Class B 1,223,696 22,015,412 244,265 3,393,378
-------------------------------------------------------------------------------------
Class C 1,309,302 24,202,576 164,572 2,536,536
-------------------------------------------------------------------------------------
Class M -- -- --
-------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 221,129 3,617,666 -- --
-------------------------------------------------------------------------------------
Class B 163,543 2,595,428 -- --
-------------------------------------------------------------------------------------
Class C 52,824 846,770 -- --
-------------------------------------------------------------------------------------
Class M 2,477 58,014 405,811 7,397,998
-------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (12,801,295) (235,545,309) (3,423,097) (49,398,470)
-------------------------------------------------------------------------------------
Class B (506,090) (8,753,694) (443,547) (6,585,907)
-------------------------------------------------------------------------------------
Class C (688,878) (13,244,523) (115,900) (1,731,521)
-------------------------------------------------------------------------------------
Class M (1,077,022) (27,691,551) (5,065,967) (102,279,000)
-------------------------------------------------------------------------------------
REDEMPTION FEE
Class M -- 542,972 -- 1,983,000
-------------------------------------------------------------------------------------
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 $ 22,207,578 $ (38,142,342)
-------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5
LINE OF CREDIT The Fund and several Kemper Funds (the
"Participants") share in a $750 million revolving
credit facility 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.
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
JAMES R. EDGAR 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 BRENDA LYONS
Trustee CAROL L. FRANKLIN Assistant Treasurer
Vice President
THOMAS W. LITTAUER
Trustee and Vice President ANN M. MCCREARY
Vice President
FRED B. RENWICK
Trustee KATHRYN L. QUIRK
Vice President
JOHN G. WEITHERS
Trustee WILLIAM F. TRUSCOTT
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 PRICEWATERHOUSECOOPERS LLP
160 Federal Street
Boston, MA 02110
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
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unless preceded or accompanied by a
Kemper Global and International Funds
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KNEUF - 3 (6/25/00) 1114270
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
