<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
*The fund commenced operations on February 16, 1990, as a closed-end fund. The
fund converted to an open-end fund on September 3, 1999, and its shares were
then reclassified as Class M shares and the fund also began to offer Class A, B
and C shares. M shares are not available for purchase and will convert to A
shares on September 3, 2000.
KEMPER NEW
EUROPE FUND
"... There has been no fundamental change to the fund's
management style. As always, we focus on a company's long-
term prospects for change, because change always creates
opportunities We uncovered opportunities in several niches
and, as a result, the fund is more diversified across sector and
market cap than it was last year at this time. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
LARGEST HOLDINGS
11
SHAREHOLDERS' MEETING
12
PORTFOLIO OF INVESTMENTS
18
FINANCIAL STATEMENTS
20
NOTES TO FINANCIAL STATEMENTS
25
FINANCIAL HIGHLIGHTS
27
REPORT OF INDEPENDENT AUDITORS
At A GLANCE
KEMPER NEW EUROPE FUND
TOTAL RETURNS
FOR THE YEAR ENDING OCTOBER 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW EUROPE KEMPER NEW EUROPE KEMPER NEW EUROPE
KEMPER NEW EUROPE FUND CLASS M FUND CLASS A FUND CLASS B FUND CLASS C
- ------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
27.95% 27.76% 26.54% 26.84%
</TABLE>
RETURNS 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.
(1)RETURNS FOR CLASS A, B AND C SHARES PRIOR TO THEIR INCEPTION OF SEPTEMBER 3,
1999, ARE DERIVED FROM THE HISTORICAL PERFORMANCE OF CLASS M 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. M
SHARES WILL CONVERT TO A SHARES, SEPTEMBER 30, 2000.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS ARE BASED UPON CHANGES IN NET ASSET
VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES
CHARGES. IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/99 10/31/98(1)
............................................................
<S> <C> <C>
KEMPER NEW EUROPE FUND CLASS
M $20.59 $22.23
............................................................
KEMPER NEW EUROPE FUND CLASS
A $14.87 --
............................................................
KEMPER NEW EUROPE FUND CLASS
B $14.49 --
............................................................
KEMPER NEW EUROPE FUND CLASS
C $14.62 --
............................................................
</TABLE>
DIVIDEND REVIEW
DURING THE FISCAL YEAR, KEMPER NEW EUROPE FUND MADE THE FOLLOWING DISTRIBUTIONS
PER SHARE.
<TABLE>
<CAPTION>
CLASS M
........................................................
<S> <C>
INCOME DIVIDEND: $0.03
........................................................
LONG TERM CAPITAL GAIN $6.13
........................................................
SHORT TERM CAPITAL GAIN $0.23
........................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX - GROWTH STYLE - MEDIUM SIZE
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL (312)
BOX] 696-6000. The Equity Style Box placement is based
on two variables: a fund's market capitalization
relative to the movements of the market and a
fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with
the most relevant of the three market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES
FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS
OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED
KEMPER NEW EUROPE FUND IN THE EUROPE STOCK
CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
BOTTOM-UP INVESTMENT STYLE. An investment style that assesses the performance of
individual companies before considering the impact of economic trends. The
companies may be identified from research reports, stock screens or personal
knowledge of the products and services. This approach, which is the opposite of
"top-down" investing, assumes that individual companies can do well even if the
industry as a whole may not be performing well.
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.
OVER/UNDERWEIGHTING. The allocation of assets--usually by sector, industry or
country--within a portfolio relative to a benchmark index (e.g., the MSCI EAFE
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 non-core businesses are all
developments frequently associated with corporate restructuring.
<PAGE> 3
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.
ECONOMIC Overview
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers were buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight
labor -- i.e., many "help-wanted" signs -- forces companies to pay a premium for
talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data released in
late October: The Bureau of Economic Analysis released its third-quarter
estimate of gross domestic product (GDP), the value of all goods and services
produced in the United States, and the Bureau of Labor Statistics released its
employment cost index (ECI), which measures what employers pay for their
workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
Nevertheless, the Federal Reserve Board raised the federal funds rate and the
discount rate by one quarter of a point (0.25%) each at its Nov. 16 meeting. Do
we think the Fed made a bad decision? Actually, no.
First, the Fed has to guard against the possibility that the old relationship
between growth and inflation will soon reassert itself. Even if the Fed shared
our belief that
3
<PAGE> 4
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 (11/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6)* 2.10 2.10 2.30 2.70
</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 10/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
Economic OVERVIEW
strong consumer demand and low unemployment isn't igniting wage-driven
inflation, the organization wouldn't be doing its job if it didn't act in the
face of any possibility that inflation might reassert itself.
More important, the Fed has to be concerned about the explosion in credit
we've seen during the last year. Almost everyone but Uncle Sam has been loading
up on debt. Companies have borrowed heavily to fund mergers, share buybacks and
new investments. Homeowners have taken out bigger mortgages on their houses and
new home equity loans. Equity shareholders have ramped up their margin debt.
Financial institutions have issued record amounts of new paper to fund their
aggressive growth. The Fed's decision to raise interest rates, thereby making
borrowing costlier, should take the frenzy out of this borrowing binge. That is
a good thing for future financial stability.
Indeed, the early positive market reaction to the Fed's move suggests that the
markets share our views that the Fed made the right decision.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
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 NOVEMBER 18, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[FRANKLIN PHOTO]
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.
EUROPEAN STOCK MARKETS HAVE MOVED HIGHER OVER THE PAST YEAR BUT HAVE DONE SO
WITH AN INCREASED LEVEL OF VOLATILITY THROUGHOUT. WHILE THE MARKETS HAVE
BENEFITED FROM THE ACCELERATING PACE OF MERGER AND RESTRUCTURING ACTIVITY, FEARS
OF HIGHER INTEREST RATES WEIGHED ON SENTIMENT THROUGHOUT THE YEAR. LEAD
PORTFOLIO MANAGER CAROL FRANKLIN RECAPS EUROPE'S RECENT MARKET ENVIRONMENT AND
KEMPER NEW EUROPE FUND'S CURRENT INVESTMENT STRATEGY.
Q HOW WOULD YOU CHARACTERIZE THE EUROPEAN REGION AT THIS TIME?
A There's little doubt that the European economic recovery appears to be
under way, as evidenced by the rising expectations for an above-average growth
rate in the year 2000. An improving global growth environment, the effect of a
weaker euro, and favorable fiscal and monetary policies have all contributed to
the upturn. Consumer confidence is high across much of Europe, as rising
disposable income and falling unemployment have reinforced investor optimism.
Additionally, deregulation in key industries such as telecommunications and
utilities should temper rising cyclical inflationary pressures, as should the
trend toward price convergence across the continent. Most important, the
estimates for overall profit growth for 1999 are being revised upward into
double digits following a number of upside earnings surprises.
Q KEMPER NEW EUROPE FUND SIGNIFICANTLY OUTPERFORMED ITS BENCHMARK FOR THE
FISCAL YEAR, RETURNING 27.76% (CLASS A SHARES UNADJUSTED FOR ANY SALES CHARGE)
VERSUS A 12.85% RETURN FOR THE MSCI EUROPE INDEX. WHAT HAS DRIVEN THE FUND'S
PERFORMANCE THIS YEAR?
A We attribute much of this success to our stock-picking capabilities,
particularly our ability to spot consolidation candidates. Merger and
acquisition activity is continuing at a rapid pace across a wide range of
sectors, due in part to the introduction of the euro, which has created a more
stable environment for cross-border capital flows. By early September, the level
of activity in 1999 had already exceeded that of the full 12 months of 1998,
which itself was a banner year. Beyond the welcome boost to share prices, the
long-term positive effects from these transactions include increased efficiency,
higher capacity utilization and improved prospects for higher sustained levels
of future profitability. During the last six months, we have benefited from
several high-profile deals. There was a hostile bid by Total Fina for Elf
Aquitane, for example, both portfolio holdings. Potential for consolidation in
the banking sector remains high with the merger of BCH and Banco Santander in
Spain, and Banque Nationale de Paris' acquisition of Paribas in France, which
helped to fuel our holdings in this sector. Another holding, BOC, Britain's
industrial gases company, was the key player in a three-way consolidation that
is still in process. The acceleration of consolidation activity proved
beneficial for the fund even in cases where we did not own shares of the
companies directly involved in deals, since merger
5
<PAGE> 6
PERFORMANCE UPDATE
activity often provides a boost to all the companies in the affected sector.
Q WHAT ARE SOME CHANGES WE'VE SEEN IN EUROPEAN CORPORATE CULTURE?
A European corporations have started to manage their balance sheets as well
as their profitability. They have also been active in the creation of value for
shareholders by means of more active capital management and restructuring
strategies. For example, Mannesmann, one of the portfolio's largest holdings,
recently announced its intentions to split the telecommunications business from
its more-cyclical engineering automotive businesses and continues to strengthen
its position in the high growth telecom market by the recently announced
acquisition of British cellular operator. Siemens, another top portfolio
holding, continued to follow through on its 10-point restructuring plan with the
announcement of the partial spin-off of Epcos, its passive-components business.
In combination, these factors have provided a positive investment backdrop for
European equities in spite of the interest-rate fears that plagued the world
markets throughout much of the summer and early fall 1999. Even when the broader
market environment is unfavorable, the positive changes taking place at so many
companies present a wide range of opportunities for astute investors. We will
continue to invest in individual stocks that stand to benefit from these ongoing
trends, a strategy that we believe will position the fund well even when the
broader indices are soft.
Q HOW HAVE YOU POSITIONED KEMPER NEW EUROPE FUND TO BENEFIT FROM THESE
TRENDS?
A The portfolio is currently balanced on two poles: stocks that are
economically sensitive, and those that we expect to exhibit above-average
growth. Earlier this year, in expectation of a recovery in growth, we increased
our exposure to cyclical stocks in chemicals, building materials and capital
goods. We also added to what had been our scant holdings in the oil sector,
buying Royal Dutch Shell and Total Fina, as well as adding to our position in
Elf Aquitane. Among growth stocks, we have found opportunities in media,
services and technology. The portfolio is underweight in health, financials,
transportation and utilities.
Q WHAT HAPPENED WITH KEMPER NEW EUROPE FUND IN SEPTEMBER, AND HOW DID THIS
CHANGE AFFECT THE MANAGEMENT OF THE FUND?
A Setting a perfect example of the benefits of the 1997 merger of Kemper
Funds and Scudder, Stevens and Clark, Kemper New Europe Fund is the efficient
blending of two funds with the same objective, the former open-end Kemper Europe
Fund and the former closed-end Scudder New Europe Fund; the merger occurred on
September 3, 1999. There has been no fundamental change to the fund's management
style. As always, we focus on a company's long-term prospects for change,
because change always creates opportunities. The change itself can take many
forms. It can mean old companies that are restructuring to meet the needs of the
marketplace or operate more efficiently. Or it can be great new growth companies
that are supporting a change in the technology industry. These can be both
growth and value companies, and we're not restricting ourselves to purely
large-cap companies, either. We uncovered opportunities in several niches and as
a result, the fund is more diversified across sector and market cap than it was
last year at this time. Of course, once a stock catches our eye, we look
carefully at its specific fundamentals and valuation.
Q ARE THERE ANY OTHER RAMIFICATIONS AS A RESULT OF THE MERGER?
A Keep in mind that the merger of the two funds involved the conversion of
Scudder's closed-end fund into an open-end fund. That means Scudder New Europe
Fund's historical discount ceased to exist, which created an opportunity for the
closed-end shareholders: they bought at a discount and can now make a profit. To
meet these redemptions, we've incurred some capital gains, which are being
distributed to shareholders and are potentially taxable. To help curb this
activity, we've instituted a 2 percent redemption fee (payable to Kemper New
Europe Fund), charging previous closed-end fund shareholders during the first
year of open-end operations. That has helped discourage short-term trading in
Kemper New Europe Fund, which is designed for long-term investment goals.
Redemptions of shares held
6
<PAGE> 7
PERFORMANCE UPDATE
by previous closed-end fund investors in excess of $500,000 are paid in-kind
(portfolio securities rather than cash). Any exchanges or redemptions in-kind
are also subject to the 2 percent redemption fee. Thus far, the redemptions have
been largely in-kind and have been perfectly manageable; fund performance has
not been affected by this short-term oscillation of the asset base.
Additionally, the bulk of this activity seems to be coming to an end.
Q WHAT IS YOUR OUTLOOK FOR THE EUROPEAN REGION IN THE COMING YEAR?
A Looking past the volatility that is likely to accompany the millennium
transition, the prospects for European equities remain positive. Economic
strength, the rebound in the euro, and ongoing merger and restructuring activity
present an attractive backdrop for global investors. In addition, we are seeing
the development of an "equity culture" among European retail investors. Over
time, this should be a powerful force as market participants finally adjust
their heavy fixed-income weightings toward the higher return potential of
equities. Although 1999 hasn't brought the high-octane stock market gains that
we saw over the previous three years, we believe that the fundamental backdrop
remains extremely positive and that the ongoing trends of consolidation and
restructuring will continue to provide a wealth of investment opportunities for
bottom-up stock pickers.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDING OCTOBER 31, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF CLASS(1)
1-YEAR 5-YEAR (SINCE 2/16/90)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER NEW EUROPE FUND CLASS M 27.95% 23.14% 12.97%
...................................................................................................
KEMPER NEW EUROPE FUND CLASS A 20.41 21.65 12.28
...................................................................................................
KEMPER NEW EUROPE FUND CLASS B 22.74 21.68 11.88
...................................................................................................
KEMPER NEW EUROPE FUND CLASS C 26.84 22.22 12.15
...................................................................................................
</TABLE>
KEMPER NEW EUROPE FUND CLASS M
[LINE GRAPH]
Growth of an assumed $10,000 investment in Class M shares from 2/28/90 to
10/31/99
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
M1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
2/28/90 10000 10000
9446 9920
8735 11275
8801 10796
12/31/93 11057 14013
11027 14386
13120 17569
17629 21359
12/31/97 20672 26527
27160 34195
10/31/99 31143 35088
</TABLE>
KEMPER NEW EUROPE FUND CLASS A
[LINE GRAPH]
Growth of an assumed $10,000 investment in Class A shares from 2/28/90 to
10/31/99
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
A1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
2/28/90 9425 10000
8903 9920
9175 11275
8295 10796
12/31/93 10421 14013
11010 14386
13099 17569
17601 21359
12/31/97 20638 26527
27106 34195
10/31/99 31048 35088
</TABLE>
KEMPER NEW EUROPE FUND CLASS B
[LINE GRAPH]
Growth of an assumed $10,000 investment in Class B shares from 2/28/90 to
10/31/99
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
B1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
2/28/90 10000 10000
9371 9920
9565 11275
8566 10796
12/31/93 10659 14013
10529 14386
12406 17569
16513 21359
12/31/97 19176 26527
24943 34195
10/31/99 28352 35088
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
(1)RETURNS FOR CLASS A, B AND C SHARES
PRIOR TO THEIR INCEPTION OF
SEPTEMBER 3, 1999, ARE DERIVED FROM
THE HISTORICAL PERFORMANCE OF CLASS
M SHARES, ADJUSTED TO REFLECT THE
MAXIMUM SALES CHARGE OF 5.75% FOR
CLASS A SHARES AND THE CURRENT
CONTINGENT DEFERRED SALES CHARGES OF
4% AND 1%, RESPECTIVELY, FOR CLASS B
AND C 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.)
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
ALL DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 5.75%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE (CDSC) IS 4%.
CLASS C SHARES HAVE NO SALES CHARGE
ADJUSTMENT, BUT REDEMPTIONS WITHIN ONE
YEAR OF PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
TOTAL RETURN REFLECTS ANNUALIZED
CHANGE, WHILE TOTAL RETURN REFLECTS
AGGREGATE CHANGE. DURING THE PERIODS
NOTED, SECURITIES PRICES FLUCTUATED.
FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
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 INDICES, YOU SHOULD ALSO NOTE
THAT THE FUND'S PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE, WHILE NO
SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDICES.
MSCI 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.
8
<PAGE> 9
PERFORMANCE UPDATE
KEMPER NEW EUROPE FUND CLASS C
[LINE GRAPH]
Growth of an assumed $10,000 investment in Class C shares from 2/28/90 to
10/31/99
<TABLE>
<CAPTION>
KEMPER NEW EUROPE FUND CLASS
C1 MSCI EUROPE EQUITY INDEX+
---------------------------- -------------------------
<S> <C> <C>
2/28/90 10000 10000
9390 9920
9607 11275
8623 10796
12/31/93 10756 14013
10648 14386
12577 17569
16779 21359
12/31/97 19530 26527
25465 34195
10/31/99 29007 35088
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER NEW EUROPE FUND'S 15 LARGEST HOLDINGS*
Representing 34.0 percent of the fund's total common stock on October 31, 1999
<TABLE>
<CAPTION>
COMPANY COUNTRY PERCENT
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
1. MARSCHOLLEK LAUTENSCHLAEGER UND PARTNER AG Germany 3.4%
- -------------------------------------------------------------------------------------------------
2. BANCA POPOLARE DI BRESCIA SPA Italy 2.7%
- -------------------------------------------------------------------------------------------------
3. GRUPPO EDITORIALE L'ESPRESSO Italy 2.6%
- -------------------------------------------------------------------------------------------------
4. SERCO GROUP PLC United Kingdom 2.5%
- -------------------------------------------------------------------------------------------------
5. JOT AUTOMATION GROUP OYJ Finland 2.4%
- -------------------------------------------------------------------------------------------------
6. TOTAL S.A. France 2.4%
- -------------------------------------------------------------------------------------------------
7. SIEMENS AG Germany 2.3%
- -------------------------------------------------------------------------------------------------
8. TAYLOR NELSON SOFRES PLC United Kingdom 2.2%
- -------------------------------------------------------------------------------------------------
9. NOKIA OYJ Finland 2.2%
- -------------------------------------------------------------------------------------------------
10. QIAGEN NV Netherlands 2.1%
- -------------------------------------------------------------------------------------------------
11. AUTOGRILL Italy 2.1%
- -------------------------------------------------------------------------------------------------
12. CASTORAMA-DUBOIS INVESTISSEMENTS France 1.9%
- -------------------------------------------------------------------------------------------------
13. UNITED PAN-EUROPE COMMUNICATIONS Netherlands 1.8%
- -------------------------------------------------------------------------------------------------
14. MANNESMANN Germany 1.7%
- -------------------------------------------------------------------------------------------------
15. ESAT TELECOM GROUP Ireland 1.7%
- -------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
10
<PAGE> 11
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
A special shareholder's meeting was held on July 27, 1999, for Kemper Europe
Fund. Shareholders were asked to vote on the issue of a plan to reorganize the
fund with Scudder New Europe Fund. Following are the results on the issue:
1) Agreement and Plan of Reorganization.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,267,795 71,590 124,812
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER NEW EUROPE FUND, INC.
Portfolio of Investments at October 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
REPURCHASE AGREEMENTS--6.7% PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(c) Repurchase Agreement with Donaldson,
Lufkin & Jenrette, dated 10/29/99, 5.20%, due
11/01/99 $ 19,050 $ 19,050
-------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.3% NUMBER OF SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINLAND--7.0%
JOT Automation Group Oyj
(DEVELOPER OF PRODUCTION AUTOMATION SYSTEMS) 1,265,152 6,536
Nokia Oyj
(MANUFACTURER OF TELECOMMUNICATION
NETWORKS AND EQUIPMENT) 51,649 5,925
Pohjola Insurance Co., Ltd. "B"
(INSURANCE COMPANY) 59,215 3,184
Sonera Oyj
(PROVIDER OF TELECOMMUNICATION SERVICES) 68,630 2,066
Tietoenator Oyj Abp
(MANUFACTURER OF COMPUTER SOFTWARE) 74,478 2,591
-------------------------------------------------------------------------------
20,302
-------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
FRANCE--16.2%
Accor SA
(PROVIDER OF CATERING, HOTEL AND
TRAVEL SERVICES) 11,578 2,612
Altran Technologies SA
(PROVIDER OF ENGINEERING AND
CONSULTING SERVICES) 12,450 4,278
Cap Gemini Sogeti SA
(SOFTWARE CONSULTANTS) 4,301 653
Castorama-Dubois Investissements
(RETAILER SPECIALIZING IN HOME REPAIR) 16,522 4,961
Etablissements Economiques du Casino
Guichard-Perrachon SA
(OPERATOR OF SUPERMARKETS AND
CONVENIENCE STORES) 30,726 3,499
GFI Informatique
(PROVIDER OF COMPUTER CONSULTING AND SYSTEMS
INTEGRATION SERVICES) 9,594 860
Galeries Lafayette
(DEPARTMENT STORE CHAIN) 18,350 2,708
Groupe GTM
(ENGINEERING, ROAD CONSTRUCTION AND
ELECTRICAL
INSTALLATION SERVICES COMPANY) 16,160 1,772
(a) Infogrames Entertainment SA
(DEVELOPER OF INTERACTIVE TELEVISION AND
COMPUTER GAMES) 47,337 4,397
Publicis SA
(INTERNATIONAL ADVERTISING COMPANY) 17,242 4,366
Rhone-Poulenc SA "A"
(PHARMACEUTICAL COMPANY) 10,353 581
STMicroelectronics
(MANUFACTURER OF SEMICONDUCTOR
INTEGRATED CIRCUITS) 27,172 2,392
Schneider SA
(MANUFACTURER OF ELECTRONIC COMPONENTS AND
AUTOMATED MANUFACTURING SYSTEMS) 48,011 3,315
Societe Television Francaise 1
(TELEVISION BROADCASTING) 3,235 1,016
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Suez Lyonnaise des Eaux
(WATER AND ELECTRIC UTILITY) 12,091 $ 1,957
Total SA "B"
(EXPLORER, DEVELOPER AND PRODUCER OF
OIL AND GAS) 47,747 6,469
-------------------------------------------------------------------------------
45,836
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
GERMANY--15.8%
Allianz AG
(MULTI-LINE INSURANCE COMPANY) 9,972 3,043
BASF AG
(INTERNATIONAL CHEMICAL PRODUCER) 46,933 2,115
Bayer AG
(CHEMICAL PRODUCER) 50,881 2,087
Commerzbank AG
(BANK) 46,566 1,780
Deutsche Bank AG (Registered)
(PROVIDER OF FINANCIAL SERVICES) 53,793 3,868
EM.TV & Merchandising AG
(PRODUCER AND DISTRIBUTOR OF CHILDREN'S
TELEVISION PROGRAMS) 59,652 2,956
EM.TV & Merchandising AG (Rights) 59,652 1
(a) Epcos AG
(PRODUCER OF ELECTRONIC COMPONENTS AND
INTEGRATED CIRCUITS) 24,672 1,014
Mannesmann AG (Registered)
(MANUFACTURER OF PRODUCTION MACHINERY AND
ASSEMBLY SYSTEMS) 28,996 4,571
Marschollek, Lautenschlaeger und
Partner AG
(INSURANCE COMPANY) 43,014 9,093
(a) Medion AG
(MARKETER AND DISTRIBUTOR OF MULTIMEDIA
PRODUCTS AND VARIOUS CONSUMER APPLIANCES) 9,694 2,606
(a) PrimaCom AG
(DEVELOPER, MANAGER AND OPERATOR OF
BROADBAND CABLE NETWORKS) 30,704 1,531
SAP AG
(COMPUTER SOFTWARE MANUFACTURER) 1,494 556
SAP AG (pfd.) 9,265 4,092
Siemens AG
(ELECTRICAL ENGINEERING AND
ELECTRONICS COMPANY) 67,298 6,056
-------------------------------------------------------------------------------
45,369
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
GREECE--3.0%
Alpha Credit Bank A.E
(COMMERCIAL BANK) 31,563 2,421
Delta Informatics SA
(CORPORATE INFORMATION SERVICES) 33,189 3,648
National Bank of Greece SA
(BANK) 37,750 2,715
-------------------------------------------------------------------------------
8,784
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
IRELAND--1.6%
(a) ESAT Telecom Group PLC (ADR)
(PROVIDER OF TELECOMMUNICATION SERVICES) 98,690 4,416
-------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ITALY--10.7%
Autogrill SpA
(OPERATOR OF HIGHWAY AND SELF SERVICE
RESTAURANTS AND SNACK BARS) 528,528 $ 5,661
Banca Popolare di Brescia SpA
(COOPERATIVE BANK) 168,303 7,142
Class Editori SpA
(PUBLISHING HOUSE) 240,360 2,030
ENI SpA
(EXPLORER AND DISTRIBUTOR OF
PETROLEUM PRODUCTS) 593,880 3,481
Gruppo Editoriale L'Espresso
(PUBLISHER) 323,464 7,043
Mediaset SpA
(BROADCASTING AND TELEVISION NETWORKS) 369,750 3,699
Seat Pagine Gialle SpA
(PUBLISHER OF TELECOMMUNICATION DIRECTORIES
AND PROVIDER OF ADVERTISING SERVICES) 1,019,666 1,457
-------------------------------------------------------------------------------
30,513
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
NETHERLANDS--11.4%
Akzo Nobel NV
(PRODUCER AND MARKETER OF HEALTHCARE
PRODUCTS, COATINGS, CHEMICALS AND FIBERS) 62,211 2,685
(a) Equant NV
(PROVIDER OF INTERNATIONAL DATA
NETWORK SERVICES) 43,056 4,199
Getronics NV
(PROVIDER OF COMPUTER INSTALLATION AND
MAINTENANCE SERVICES) 47,269 2,362
Gucci Group NV (New York Shares)
(Registered)
(DESIGNER AND PRODUCER OF PERSONAL LUXURY
ACCESSORIES AND APPAREL) 51,495 4,158
Koninklijke (Royal) Philips Electronics NV
(MANUFACTURER OF CONSUMER ELECTRONICS) 25,066 2,577
Laurus NV
(INTERNATIONAL FOOD RETAILER) 12,722 284
Nutreco Holding NV
(PRODUER OF LIVESTOCK FEED AND NUTRITION) 89,962 3,083
(a) Qiagen NV
(BIOPHARMACEUTICAL COMPANY) 106,145 5,665
Royal Dutch Petroleum Co.
(PETROLEUM COMPANY) 44,943 2,693
(a) United Pan-Europe Communications NV
(PROVIDER OF TELECOMMUNICATION SERVICES) 63,864 4,922
-------------------------------------------------------------------------------
32,628
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
NORWAY--1.2%
Norsk Hydro AS
(CONGLOMERATE: PRODUCER OF FERTILIZERS, OIL
AND GAS, ALUMINUM) 81,967 3,276
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
POLAND--0.8%
(a)(b) ITI Group SA
(PROVIDER OF TELECOMMUNICATION SERVICES) 10,424 2,398
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
PORTUGAL--1.5%
Jeronimo Martins SGPS SA
(FOOD PRODUCER AND RETAILER) 153,843 4,305
-------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SPAIN--6.3%
(a) Baron de Ley SA
(WINE PRODUCER) 94,466 $ 2,540
(a) Compania Telefonica Nacional de
Espana SA (ADR)
(PROVIDER OF TELECOMMUNICATION SERVICES) 56,428 2,818
Cortefiel SA
(OWNER AND OPERATOR OF VARIOUS RETAIL
CLOTHING STORES) 162,375 4,251
(a) NH Hotele SA
(HOLDING COMPANY WITH INTERESTS IN HOTELS,
LAND
DEVELOPMENT, WINE AND CLOTHING INDUSTRIES) 283,431 3,212
(a) Sogecable SA
(PROVIDER OF CABLE TELEVISION) 38,412 1,057
(a) Telefonica Publicidad e Informacion SA
(PUBLISHER OF TELEPHONE DIRECTORIES) 60,303 1,318
(a) Telefonica SA
(PROVIDER OF TELECOMMUNICATION SERVICES) 172,625 2,846
-------------------------------------------------------------------------------
18,042
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
SWITZERLAND--1.4%
ABB Ltd.
(MANUFACTURER OF EQUIPMENT FOR POWER
GENERATION AND DISTRIBUTION) 22,427 2,261
Clariant AG (Registered)
(MANUFACTURER OF DYE CHEMICALS) 2,689 1,178
Roche Holdings AG
(PRODUCER OF DRUGS AND MEDICINES) 55 661
-------------------------------------------------------------------------------
4,100
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--16.4%
Aegis Group PLC
(INDEPENDENT MEDIA SERVICES GROUP) 1,490,750 3,923
Avis Europe PLC
(CAR RENTAL SERVICES) 696,980 3,004
BOC Group PLC
(PRODUCER OF INDUSTRIAL GASES) 44,301 955
BP Amoco PLC
(EXPLORER AND PRODUCER OF OIL AND NATURAL
GAS) 257,451 2,503
Barclays PLC
(COMMERCIAL AND INVESTMENT BANKING,
INSURANCE AND OTHER FINANCIAL SERVICES) 95,530 2,934
Billiton PLC
(RESOURCE GROUP THAT EXPLORES, PRODUCES AND
MARKETS ALUMINUM AND OTHER METAL PRODUCTS) 56,847 248
British Telecom PLC
(TELECOMMUNICATION SERVICES) 39,991 726
Cobham PLC
(MANUFACTURER OF AEROSPACE COMPONENTS) 251,204 3,041
Compass Group PLC
(INTERNATIONAL CATERING GROUP) 194,025 2,074
(a) Flextech PLC
(BROADCASTER OF ENTERTAINMENT PROGRAMS) 195,692 2,833
Glaxo Wellcome PLC
(PHARMACEUTICAL COMPANY) 19,124 565
HSBC Holdings PLC
(FINANCIAL COMPANY) 270 3
J Sainsbury PLC
(RETAIL DISTRIBUTOR OF FOOD THROUGH
SUPERMARKETS) 307,730 1,850
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
National Power PLC
(ELECTRICITY GENERATION COMPANY) 256,654 $ 1,743
(a) Orange PLC
(OPERATOR OF DIGITAL MOBILE TELEPHONE
NETWORK) 61,054 1,518
Prudential Corp. PLC
(PROVIDER OF BROAD RANGE OF FINANCIAL
SERVICES) 270,756 4,248
Rio Tinto PLC (Registered)
(MINING COMPANY) 28,249 483
Serco Group PLC
(FACILITIES MANAGEMENT COMPANY) 232,465 6,691
SmithKline Beecham PLC
(MANUFACTURER OF ETHICAL DRUGS AND HEALTHCARE
PRODUCTS) 55,834 721
Taylor Nelson Sofres PLC
(MARKET RESEARCH COMPANY) 1,969,360 5,944
Vodafone Group PLC
(PROVIDER OF TELECOMMUNICATION SERVICES) 75,051 350
WPP Group PLC
(ADVERTISING AGENCY) 60,881 662
-------------------------------------------------------------------------------
47,019
-------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $167,674) 266,988
-------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $186,724) $286,038
-------------------------------------------------------------------------------
</TABLE>
At October 31, 1999, the fund's portfolio of investments had the following
industry diversification (dollars in thousands):
<TABLE>
<CAPTION>
VALUE %
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Financial $ 43,644 15.2
- ----------------------------------------------------------------------------------------
Technology 34,892 12.2
- ----------------------------------------------------------------------------------------
Service Industries 33,239 11.6
- ----------------------------------------------------------------------------------------
Manufacturing 31,774 11.1
- ----------------------------------------------------------------------------------------
Communications 29,303 10.2
- ----------------------------------------------------------------------------------------
Media 27,195 9.5
- ----------------------------------------------------------------------------------------
Consumer Discretionary 21,506 7.5
- ----------------------------------------------------------------------------------------
Consumer Staples 17,867 6.2
- ----------------------------------------------------------------------------------------
Energy 15,145 5.3
- ----------------------------------------------------------------------------------------
Durables 6,045 2.2
- ----------------------------------------------------------------------------------------
Utilities 3,700 1.3
- ----------------------------------------------------------------------------------------
Health 1,947 0.7
- ----------------------------------------------------------------------------------------
Metals & Minerals 731 0.3
- ----------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 266,988 93.3
- ----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS 19,050 6.7
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $286,038 100.0
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $2,398 (.81% of net assets). These
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at October 31, 1999 aggregated $1,981. These securities may also
have certain restrictions as to resale.
(c) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
Based on the cost of investments of $186,750 for federal income tax purposes at
October 31, 1999, the gross unrealized appreciation was $101,816, the gross
unrealized depreciation was $2,528 and the net unrealized appreciation on
investments was $99,288.
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $186,724) $286,038
- ------------------------------------------------------------------------
Cash 227
- ------------------------------------------------------------------------
Foreign currency, at value (Cost: $62) 62
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 936
- ------------------------------------------------------------------------
Interest and dividends 100
- ------------------------------------------------------------------------
Investments sold 8,528
- ------------------------------------------------------------------------
Foreign taxes recoverable 343
- ------------------------------------------------------------------------
Other assets 5
- ------------------------------------------------------------------------
TOTAL ASSETS 296,239
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Payable for:
Investments purchased 827
- ------------------------------------------------------------------------
Fund shares redeemed 333
- ------------------------------------------------------------------------
Accrued management fee 139
- ------------------------------------------------------------------------
Other accrued expenses 341
- ------------------------------------------------------------------------
Total liabilities 1,640
- ------------------------------------------------------------------------
NET ASSETS $294,599
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $165,157
- ------------------------------------------------------------------------
Accumulated net realized gain 30,147
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 99,314
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on foreign
currency related transactions (3)
- ------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (16)
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $294,599
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($32,381 /
2,177 shares outstanding) $14.87
- ------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of
net asset value or 5.75% of offering price) $15.78
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($20,467 /
1,413 shares outstanding) $14.49
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($5,449 / 373
shares outstanding) $14.62
- ------------------------------------------------------------------------
CLASS M SHARES
Net asset value and redemption price per share ($236,302 /
11,477 shares outstanding) $20.59
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $420) $ 4,645
- ------------------------------------------------------------------------
Interest 1,123
- ------------------------------------------------------------------------
Total investment income 5,768
- ------------------------------------------------------------------------
Expenses:
Management fee 3,815
- ------------------------------------------------------------------------
Distribution services fee 28
- ------------------------------------------------------------------------
Administrative services fee 114
- ------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 612
- ------------------------------------------------------------------------
Reorganization expenses 681
- ------------------------------------------------------------------------
Auditing 98
- ------------------------------------------------------------------------
Legal 268
- ------------------------------------------------------------------------
Reports to shareholders 131
- ------------------------------------------------------------------------
Directors' fees 75
- ------------------------------------------------------------------------
Registration fee 8
- ------------------------------------------------------------------------
Other 86
- ------------------------------------------------------------------------
Total expenses 5,916
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (148)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 111,397
- ------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on
investments (33,416)
- ------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on
foreign currency related transactions (27)
- ------------------------------------------------------------------------
Net gain on investments 77,954
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 77,806
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------
Net investment loss $ (148) (30)
- --------------------------------------------------------------------------------------------
Net realized gain 111,397 47,008
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (33,443) 25,345
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 77,806 72,323
- --------------------------------------------------------------------------------------------
Distribution from net investment income -- Class M (402) (1,444)
- --------------------------------------------------------------------------------------------
Distribution from net realized gain -- Class M (103,184) (33,783)
- --------------------------------------------------------------------------------------------
Total dividends to shareholders (103,586) (35,227)
- --------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (38,142) 1,132
- --------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (63,922) 38,228
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of year 358,521 320,293
- --------------------------------------------------------------------------------------------
END OF YEAR (including accumulated distributions in excess
of net investment income of $16 and $2,821, respectively) $ 294,599 358,521
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION
OF THE FUND Kemper New Europe Fund, Inc. (the "fund") (formerly
known as Scudder New Europe Fund, Inc.) is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
management investment company organized as a
Maryland Corporation.
The fund operated as a closed-end investment
company from February 9, 1990 (commencement of
operations) to September 3, 1999. The fund
converted to open-end status and combined, as the
surviving entity, with the Kemper Europe Fund
("KEF"), on September 3, 1999 (the
"Reorganization"). The fund's former closed-end
share class was renamed Class M shares upon the
Reorganization. In addition, the holders of Class
A, Class B, and Class C shares of KEF became
holders of the corresponding class of shares of the
fund.
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 by the fund in the preparation of its
financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES 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.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
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
exchange rates at period end. 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 between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
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 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.
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. These differences primarily relate to
investments in forward contracts, passive foreign
investment companies, and foreign denominated
investments. 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 and
premiums are accreted/amortized 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.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The fund had a management
agreement with Scudder Kemper Investments, Inc.
("Scudder Kemper") which was in effect prior to
September 3, 1999 whereby the fund agreed to pay a
monthly investment management fee of 1/12 of the
annual rate of 1.25% of the first $75 million of
average weekly net assets declining to 1.10% of
average weekly net assets in excess of $200
million.
Effective September 3, 1999, the fund adopted a new
management agreement 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 year
ended October 31, 1999, the fund incurred
management fees pursuant to both agreements of
$3,815,000, which is equal to an annual effective
rate of .96% 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
paid in connection with the distribution of Class A
shares for the period September 3, 1999 through
October 31, 1999 are $76,000, of which $14,000 was
retained by KDI.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the period September 3, 1999 through October
31, 1999 are $44,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. KDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on assets of fund accounts the firms service.
Administrative services fees (ASF) incurred by the
fund to KDI for the period September 3, 1999
through October 31, 1999 are $114,000.
Additionally, $123,000 is unpaid at October 31,
1999.
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 $78,000
for the period September 3, 1999 through October
31, 1999. Additionally, $93,000 is unpaid.
Prior to September 3, 1999, the fund had a
shareholder services agreement with Scudder Service
Corporation ("SSC"), a subsidiary of Scudder
Kemper. Shareholder services fees paid by the fund
to SSC for the period November 1, 1998 through
September 3, 1999 were $12,500.
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,
1999, the amount charged to the fund by SFAC
aggregated $213,000, of which $56,000 is unpaid at
October 31, 1999.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the year ended
October 31, 1999, the fund made no payments to its
officers and incurred directors fees of $75,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $187,033
Proceeds from sales 361,044
The sales of investment securities includes the
market value of securities relating to
redemptions-in-kind during the period, upon which
the fund recognized a net realized gain of $11,541.
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
--------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
SHARES SOLD
-----------------------------------------------------------------------------
Class A 3,537 $ 50,122 -- $ --
-----------------------------------------------------------------------------
Class B 245 3,394 -- --
-----------------------------------------------------------------------------
Class C 165 2,536 -- --
-----------------------------------------------------------------------------
Class M -- -- -- --
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-----------------------------------------------------------------------------
Class A -- -- -- --
-----------------------------------------------------------------------------
Class B -- -- -- --
-----------------------------------------------------------------------------
Class C -- -- -- --
-----------------------------------------------------------------------------
Class M 406 7,398 75 1,132
-----------------------------------------------------------------------------
SHARES REDEEMED
-----------------------------------------------------------------------------
Class A (3,423) (49,398) -- --
-----------------------------------------------------------------------------
Class B (444) (6,586) -- --
-----------------------------------------------------------------------------
Class C (116) (1,732) -- --
-----------------------------------------------------------------------------
Class M (5,054) (102,279) -- --
-----------------------------------------------------------------------------
REDEMPTION FEE
-----------------------------------------------------------------------------
Class M -- 1,983 -- --
-----------------------------------------------------------------------------
ACQUISITION OF KEMPER EUROPE FUND
-----------------------------------------------------------------------------
Class A 2,063 29,444
-----------------------------------------------------------------------------
Class B 1,612 22,435
-----------------------------------------------------------------------------
Class C 324 4,541
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARES TRANSACTIONS $(38,142) $1,132
-----------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 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 redemption
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 the
agreement.
- --------------------------------------------------------------------------------
7 ACQUISITION OF ASSETS
(IN THOUSANDS) 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, 1,612, and 324 shares
of Class A, Class B, and Class C shares,
respectively, of the fund (valued at $29,444,
22,436, and 4,541, respectively) for 2,063, 1,612,
and 324 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), including
$3,474 of unrealized appreciation were combined
with those of the fund. The aggregate net assets of
the fund immediately before the acquisition were
$326,129. The combined net assets of the fund
immediately following the acquisition were
$382,549.
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------------------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
SEPTEMBER 3, 1999 SEPTEMBER 3, 1999 SEPTEMBER 3, 1999
(COMMENCEMENT OF (COMMENCEMENT OF (COMMENCEMENT OF
CLASS) TO CLASS) TO CLASS) TO
OCTOBER 31, 1999 OCTOBER 31, 1999 OCTOBER 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.27 13.91 14.02
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.03) (.05) (.04)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain .63 .63 .64
- ----------------------------------------------------------------------------------------------------
Total from investment operations .60 .58 .60
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $14.87 14.49 14.62
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%) (b) 4.20 4.17 4.28
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------
Expenses (%) 1.63 2.36 2.40
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (%) (1.21) (1.95) (1.99)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
CLASS M
----------------------------------------------
YEARS ENDED OCTOBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------
Net asset value, beginning of period $22.23 19.96 16.60 13.24 11.61
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.00)(c) (.00) (.01) .05 .05
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 4.62 4.47 3.43 3.36 1.58
- -----------------------------------------------------------------------------------------
Total from investment operations 4.62 4.47 3.42 3.41 1.63
- -----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.03) (.09) (.06) (.05) --
- -----------------------------------------------------------------------------------------
Net realized gains on investment
transactions (6.36) (2.11) -- -- --
- -----------------------------------------------------------------------------------------
Total distributions (6.39) (2.20) (.06) (.05) --
- -----------------------------------------------------------------------------------------
Redemption fees .13 -- -- -- --
- -----------------------------------------------------------------------------------------
Net asset value, end of period $20.59 22.23 19.96 16.60 13.24
- -----------------------------------------------------------------------------------------
TOTAL RETURN
- -----------------------------------------------------------------------------------------
Per share net asset value (%) (b)(d) 27.95% 27.70 20.66 25.92 14.04
- -----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
Expenses (%) 1.68(e) 1.41 1.49 1.51 1.62
- -----------------------------------------------------------------------------------------
Net investment income (loss) (%) (.00) (.01) (.03) .31 .39
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 295 359 320 266 213
- -----------------------------------------------------------------------------------------
Portfolio turnover rate (%) 57.8 41.4 44.7 35.3 32.4
- -----------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL HIGHLIGHTS
(a) Based on monthly average shares outstanding during the period.
(b) Total investment returns reflect changes in net asset value per share during
each period and assume that dividends and capital gains distributions, if
any, were reinvested.
(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%.
NOTE: Total return does not reflect the effect of any sales charges.
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 three additional classes of shares.
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The fund paid a distribution to Class M shares of $6.132 per share from net
long-term capital gains during the year ended October 31, 1999, of which 100%
represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$107,000,000 as capital gain dividends for the year ended October 31, 1999, of
which 100% represents 20% rate gains.
The fund paid foreign taxes of $530,712 and earned $437,541 of foreign source
income during the year ended October 31, 1999.
Pursuant to Section 853 of the Internal Revenue Code, the fund designates $0.035
per share as foreign taxes paid and $0.028 per share as income earned from
foreign sources for the year ended October 31, 1999.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
26
<PAGE> 27
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, 1999, and the related statements of operations, changes in net
assets and the financial highlights for the year then ended. 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. The Statement of
Changes in Net Assets and the financial highlights prior to 1999 were audited by
other auditors whose report dated December 4, 1998, expressed an unqualified
opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 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, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 22, 1999
27
<PAGE> 28
CHANGE OF ACCOUNTANTS
In April, 1999, based on the recommendation of the
Audit Committee of Scudder New Europe Fund, Inc.,
its Board of Directors determined not to retain
PricewaterhouseCoopers LLP as the fund's
independent auditor for periods after it became an
open-end fund and completed its merger with Kemper
Europe Fund and voted to appoint Ernst & Young LLP
for such periods. These actions, except for the
merger, became effective on July 20, 1999 upon
shareholder approvals. For the fiscal years ended
October 31, 1998 and 1997 and for the six month
period ended April 30, 1999, PricewaterhouseCoopers
LLP's audit reports on the financial statements
contained no adverse opinion or disclaimer of
opinion; nor were their reports qualified as to
uncertainty, audit scope, or accounting principles.
Further, for the period through July 20, 1999 and
the aforementioned periods, there were no
disagreements between the Fund and
PricewaterhouseCoopers LLP on accounting
principles, financial statement disclosure or audit
scope, which if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them
to make reference to the disagreement in their
reports.
28
<PAGE> 29
NOTES
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 CORNELIA SMALL
Trustee President Vice President
JAMES R. EDGAR PHILIP COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President KATHRYN L. QUIRK Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee
JOHN G. WEITHERS
Trustee
</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>
[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 (12/30/99) 1096740
