<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKS LONG-TERM CAPITAL APPRECIATION.
KEMPER-DREMAN
FINANCIAL SERVICES FUND
"... We maintained our conservative posture and
refused to invest in speculative stocks. While this
hurt us over the last six months, it should help
the fund in the long term. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Terms to Know
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
12
Financial Statements
14
Notes to Financial Statements
17
Financial Highlights
18
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER-DREMAN FINANCIAL SERVICES
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL SERVICES FUND TOTAL RETURNS
<S> <C>
CLASS A 6.97
CLASS B 6.48
CLASS C 6.46
LIPPER FINANCIAL SERVICES FUNDS CATEGORY AVERAGE* 7.44
- --------------------------------------------------------------------------------
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS
AND PRINCIPLE VALUES WILL FLUCTUATE, SO THAT WHEN SHARES ARE REDEEMED THEY MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES. IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NET ASSET VALUE
- ----------------------------------------------------------------------------------------
AS OF AS OF
5/31/99 11/30/98
........................................................................................
<S> <C> <C>
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS A $10.27 $9.65
........................................................................................
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS B $10.19 $9.59
........................................................................................
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS C $10.21 $9.61
........................................................................................
</TABLE>
- --------------------------------------------------------------------------------
KEMPER-DREMAN FINANCIAL SERVICES FUND
LIPPER RANKINGS AS OF 5/31/99
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER FINANCIAL SERVICES FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..................................................................................................
<S> <C> <C> <C>
1-YEAR #18 of #22 of #23 of
56 funds 56 funds 56 funds
..................................................................................................
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD, KEMPER-DREMAN FINANCIAL SERVICES FUND PAID THE
FOLLOWING DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.................................................................................................
<S> <C> <C> <C>
SHORT-TERM
CAPITAL GAIN $0.02 $0.02 $0.02
.................................................................................................
INCOME DIVIDEND $0.03 n/a n/a
.................................................................................................
</TABLE>
CONCENTRATION OF THE FUND'S ASSETS IN FINANCIAL SERVICES STOCKS MAY PRESENT A
GREATER RISK THAN INVESTMENT IN A MORE DIVERSIFIED FUND. IN ADDITION, THE FUND'S
ABILITY TO CONCENTRATE INVESTMENTS IN A PARTICULAR MARKET SECTOR PRESENTS
SPECIAL RISK CONSIDERATIONS.
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
Morningstar Equity Style Box
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc. Chicago, IL. (312) 696-6000. The Equity Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
THE STYLEBOX REPRESENTS A SNAPSHOT OF THE FUND'S PORTFOLIO ON A SINGLE DAY. IT
IS NOT AN EXACT ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE PERFORMANCE.
THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY. A LONGER-TERM VIEW IS REPRESENTED
BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED ON ITS ACTUAL INVESTMENT
STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE
YEARS. MORNINGSTAR HAS PLACED KEMPER-DREMAN FINANCIAL SERVICES FUND IN THE
SPECIAL-FINANCIAL CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF
INVESTMENT POLICIES.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
As expected, the Federal Reserve Board raised its federal funds interest rate
(the rate at which banks lend to each other overnight) by one-fourth of a
percentage point in June. Although higher interest rates tend to have a
dampening effect on the market, investors rallied in response to this move. The
Dow Jones Industrial Average, which was down 50 points before the Fed's
statement on June 30, reversed course and ended the day at its highest closing
level in six weeks. The Dow went on to close at a record-setting high of 11,187
on July 7.
What led to the interest rate hike, and why does the market reaction suggest
that investors are happy about it?
It is generally recognized that a modest rate hike by the Fed may be effective
in slowing the economy sufficiently to suppress any simmering inflationary
pressures. Although the economy has been strong, there are concerns that it will
be unable to maintain its current rate of growth without prompting inflationary
pressures -- which is at the heart of the Fed's decision to raise interest
rates. The Fed is acting now to be proactive. In the past, Fed policy has been
reactive, which meant that the Fed tended to respond to inflation only when it
picked up. A rate hike now is intended to halt any future buildup in inflation.
Moreover, by hinting at an increase well in advance -- then by limiting the
increase to 25 basis points -- the Fed relieved worried investors and gave a
boost to the financial markets.
Despite the minor rate increase, the long-term economic situation appears to
be positive. The federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially for households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
This positive environment is exactly what sometimes poses risk for investors,
and is key to understanding recent volatility in the market. A strong economy
has the potential to feed inflation fears and drive up interest rates. Indeed,
recent market events illustrate the domino effect of investors reacting to
positive economic news, which they consider troubling at this point, more than
eight years into the economic expansion. Prior to its strong close in the second
quarter, the steady stream of positive economic news led to a sell-off in the
financial markets based on fears that the strong pace of economic growth would
eventually lead to higher inflation. The benchmark 30-year Treasury bond yield
rose, which pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., is expected to rise at an annual rate of 4
percent in the first half of 1999, following a tremendous fourth-quarter surge
of 6 percent. This is very much in line with what we've grown accustomed to over
the past year -- over the four quarters of 1998, the U.S. economy expanded by
4.3 percent. Some people aren't surprised at all by strong GDP growth that once
would have alarmed them. That's partially because we've grown accustomed to a
strong economy. But it's also because we've been able to absorb growth without
driving up inflation. That's important for investors. If prices had been rising
as the economy was growing, the Fed would have most likely raised short-term
interest rates earlier and more drastically, and that would have changed the
financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first half of 1999, while imports soared. This reflects the fact that the U.S.
is one of the few countries financially fit enough to buy goods produced
elsewhere in the world. But for as long as less vibrant international economies
are unable to buy U.S. goods, the profitability of U.S. companies trying to
export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which has
already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. Although the Kosovo crisis seems to be waning, past
increases in military spending on Kosovo by the 11 European Monetary Union (EMU)
countries could force them to spend less in other areas, which could have
economic implications, including higher interest rates. That's because many
European countries (especially Italy) have small economies and
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
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 (6/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Ten Year Treasury Rate 5.90 4.81 5.65 6.69
Prime Rate 7.75 8.49 8.50 8.30
Inflation* 2.03 1.62 1.44 3.03
The U.S. Dollar* -2.4 4.31 4.88 8.58
Capital goods orders* 7.73 11.44 8.10 5.52
Industrial production * 1.72 3.58 5.05 5.86
Employment growth* 2.15 2.48 2.61 2.51
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION
OF THE LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF MAY 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
little leeway in their budgets. Consequently, those countries financed unplanned
military expenditures by selling government bonds -- which, in Europe's small
bond market, typically raises interest rates. As an example, consider Italy,
which recently asked for more leeway on its deficit targets. When leeway was
granted, this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF JUNE 9, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[DREMAN PHOTO]
DAVID N. DREMAN IS CHAIRMAN OF DREMAN VALUE MANAGEMENT, L.L.C. (DVM), INC. AND
PORTFOLIO MANAGER OF KEMPER-DREMAN FINANCIAL SERVICES FUND. HE HAS MORE THAN 35
YEARS OF EXPERIENCE AS AN INVESTMENT ANALYST, ADVISOR AND MANAGER. DREMAN HOLDS
A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA, WINNIPEG CANADA.
DREMAN IS A REGULAR COLUMNIST IN FORBES and also the author of several books on
contrarian investing, including CONTRARIAN INVESTMENT STRATEGIES: THE NEXT
GENERATION (Simon & Schuster 1998).
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.
Q AFTER A DIFFICULT PERIOD IN LATE 1998, FINANCIAL SERVICES STOCKS BEGAN TO
IMPROVE. WHAT SPURRED THE BETTER PERFORMANCE?
A In 1998, a two-tier market (see Terms To Know on page 7) existed in which
the stocks of very large, growth-oriented technology, Internet and
pharmaceutical companies made strong gains, while nearly every other industry
sector, including financial services, suffered.
We began to see some improved performance in financial stocks in late
February, as the overall market became more volatile. The market, which for the
past year had blindly bid up such a small group of growth stocks, seemed to
debate whether the companies' ongoing earnings could support their extreme
valuations. Investors began to look for quality companies with solid long-term
earnings track records that were priced more conservatively.
The defensive characteristics of financial services stocks made them a
logical alternative for investors looking for some "security." Many financial
stocks were trading at deep discounts, which meant they would tend to fall less
than their highly valued counterparts if there was a shift in the market. The
sector was also buoyed by the continuing Internet frenzy. Companies that we
don't own, like Charles Schwab, E-Trade and Ameritrade performed quite well in
terms of earnings and market price during the period as millions of people began
trading stocks online.
Late in the period, fears of higher interest rates crept into the market
and financial stocks began to stumble. Investors became concerned that higher
interest rates could have a profound effect on the businesses of companies in
the financial sector. Bank stocks seemed to be some of the hardest hit, but the
entire financial services sector was affected. We believe this correction was an
overreaction by the market and that we should see another turnaround in the next
six months as banks and other financial companies continue to show strong and
steady earnings.
Q HOW DID KEMPER-DREMAN FINANCIAL SERVICES FUND PERFORM DURING THE PERIOD?
A The fund's Class A shares gained 6.97 percent (unadjusted for any sales
charges) during the six months. By comparison, the Lipper Analytical Financial
Services Fund Category gained an average of 7.44 percent, while the S&P
Financial Index gained 10.57 percent.
Q WHAT CAUSED THE FUND TO UNDERPERFORM ITS PEERS?
A We maintained our conservative posture and refused to invest in speculative
stocks. While this hurt us over the last six months, it should help the fund in
the long term. The hottest, but most speculative area of the financial services
sector included the online-trading companies such as Charles Schwab, E-Trade and
Ameritrade. As the valuations of these stocks grew, they comprised a large
portion of the brokerage sector in the financial services index. The returns of
most other financial stocks, therefore, were dwarfed in comparison. We also
chose not to own any lower-quality lenders, another area that performed
strongly.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHY DID YOU STAY AWAY FROM THE ONLINE-TRADING COMPANIES AND LOWER-QUALITY
LENDERS?
A We view these stocks as very dangerous. The stock prices of the online
traders have been boosted by the Internet frenzy sweeping the market. Their
earnings are now very much tied to the huge volume of trading taking place,
specifically in Internet-related stocks. Although the Internet is a dynamic area
that has already begun to change the face of commerce, we don't believe that the
inflated prices these online-trading companies were trading at would ever be
justified.
The concept of online trading is appealing to the mass public. It's a new
and very exciting tool. As trading online has gained popularity, novices are
finding out that it's very easy to gain and lose money very fast. Over the past
year it seems as if all new Internet-related stocks have made tremendous gains,
but now we're seeing many of these stocks lose market value just as quickly. If
we move into a market decline, we believe many novice investors may cut their
losses and suspend their online trading activity. This would seriously hurt the
earnings of the online-trading companies.
We also stayed away from what we call "second-tier" lenders -- those who
loan money to lower-quality borrowers. These speculative lenders enjoyed strong
gains over the last six months, pushing their valuations to levels we can't
justify -- particularly in light of their riskier loan portfolios. If the
economy slows or overheats, we would expect that these lenders would be the
first to experience an increase in loan defaults.
Q HOW DID THE FUND'S BANK STOCKS PERFORM DURING THE PERIOD?
A Our bank stocks performed quite well during the first four months of the
period. As you may recall, we had built up our position in large money-center
banks last fall to take advantage of the deep discounts they were trading at
after the Russian debt crisis. The money-center banks had a great run through
this spring. We began to trim our exposure to some of these banks as their
valuations rose to levels we believed were unreasonable. As fears of higher
rates entered the market in April and May, prices of these banks got knocked
down again. However, we still believe they represent good long-term investments
for the fund.
Regional banks also continued to provide good value for the fund. We
continue to invest in them heavily. The consolidation of regional banks has
continued at a rapid pace, earnings have been consistent, and yet the prices of
many of these banks remains depressed. As consolidation continues, we expect
these banks will enjoy strong growth trends.
Q WHERE ELSE ARE YOU FINDING VALUE?
A We began adding real estate investment trusts (REITs) (see Terms To Know on
page 7) to the portfolio over the last six months. Historically, we've stayed
away from these investments because we felt that they were extremely overvalued.
However, their valuations have fallen sharply recently. This decline in price --
along with their relatively high dividend rates -- make them a very attractive
investment.
Q HOW DO YOU SELECT INVESTMENTS FOR THE FUND?
A We're contrarian investors. We look for stocks from temporarily
undervalued, fundamentally strong, financial services companies with good
balance sheets. We screen stocks by looking for those with price-to-earnings,
price-to-book, price-to-cash-flow and price-to-dividend ratios that are low
relative to the overall market and to the financial services sector.
We've structured a relatively conservative stock portfolio that we believe
should perform favorably when the tide shifts and value stocks come back into
favor. But we're also opportunistic. If something comes crumbling down, like
REITS did over this last six months, we invest quickly to add value. We're
always looking for breaks in the market that will allow us to add quality
companies to the portfolio when their stock prices have reached or are on their
way to reaching unsustainably low points.
Q YOU MENTIONED THERE MAY BE A BIAS FOR HIGHER INTEREST RATES. IF THAT
OCCURS, WHAT MIGHT IT MEAN FOR THE FINANCIAL SERVICES SECTOR?
A In April and May investors began to shun financial services stocks in fear
of higher interest rates, and banks were hit particularly hard. Although we were
disappointed, we weren't surprised. While a rate hike would have an impact
6
<PAGE> 7
PERFORMANCE UPDATE
on financials, we believe the market overreacted, misunderstanding the revenue
streams of financial firms and over emphasizing the effect of interest rates on
their businesses.
In our opinion, the sector should weather a modest rate increase relatively
well. Historically, financial firms had only one line of business -- a
securities firm sold stocks; a commercial bank arranged corporate financing;
banks made personal loans; and an insurer sold insurance -- period. Today, a
single firm can benefit from diversification, as strong revenues from one line
of business can offset leaner earnings from another line.
Banks in particular should fare well. Bank customers pay loan-origination
fees, credit card charges and asset management fees, regardless of interest
rates. If anything, such fees may well rise in line with inflation. If we move
into a rising interest-rate environment, earnings from loans may decline, but
earnings from fees would keep earnings stable. We believe that banks should
continue to post positive earnings, which should allay the market's fears.
Q WHAT'S YOUR OUTLOOK FOR KEMPER-DREMAN FINANCIAL SERVICES FUND?
A We're expecting improving performance from regional banks, property and
casualty insurance companies, and some REITs -- which is where the fund is
invested. All in all, we believe we have constructed a good defensive all-
weather portfolio, that should perform well in the long-term.
TERMS TO KNOW
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. This trailing P/E ratio, also known as the multiple, is a
measure of how much an investor is paying for a company's earning power.
REAL ESTATE INVESTMENT TRUST (REIT) A company that manages a portfolio of
real-estate properties to earn profits for shareholders. Patterned after
investment companies, REITs make investments in a diverse array of real estate.
Equity REITs take equity positions in real estate; shareholders receive income
from the rents received from the properties and receive capital gains as
buildings are sold at a profit. Other REITs specialize in lending money to
building developers.
SECTOR Stocks are usually found in related industries, such as financial
services. Stocks within a market sector may be similarly affected by financial,
economic, business and other developments.
TWO-TIER MARKET Characteristic of a securities market in which most of the gains
are represented by only a small group of companies. In 1998's two-tier market
only the largest growth-style stocks enjoyed particularly strong gains.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
7
<PAGE> 8
INDUSTRY SECTORS
KEMPER-DREMAN FINANCIAL SERVICES FUND'S
COMPOSITION BY SECTOR*
Data shows the percentage of the common stocks in the portfolio that each sector
represented on May 31, 1999, and on November 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL KEMPER-DREMAN FINANCIAL
SERVICES FUND ON 5/31/99 SERVICES FUND ON 11/30/98
------------------------ -------------------------
<S> <C> <C>
Banks 51.5% 60.6%
Insurance 19.3% 18.5%
Consumer finance 11.1% 4.2%
Other finance 14.5% 11.9%
Service 3.6% 4.8%
</TABLE>
KEMPER-DREMAN FINANCIAL SERVICES FUND ON 5/31/99
KEMPER-DREMAN FINANCIAL SERVICES FUND ON 11/30/98
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
Representing 53.3 percent of the fund's total portfolio on May 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1. AMERICAN INTERNATIONAL GROUP The leading U.S.-based 8.3%
international insurance
organization and among the
largest underwriters of
commercial and industrial
coverage in the U.S.
- --------------------------------------------------------------------------------
2. CITIGROUP A worldwide bank holding company 7.9%
that provides a broad array of
financial services.
- --------------------------------------------------------------------------------
3. BANKAMERICA Holding company with subsidiaries 7.5%
engaged in full service retail
and corporate banking, corporate
finance, capital markets,
investment advisory and trust,
and other financial service
activities.
- --------------------------------------------------------------------------------
4. FNMA Often referred to as "Fannie 5.3%
Mae," this is a private
corporation federally chartered
to provide financial products and
services that increase the
availability and affordability of
housing to low, moderate and
middle-income Americans.
- --------------------------------------------------------------------------------
5. BANC ONE Provides data processing, venture 5.1%
capital investment and merchant
banking, trust, brokerage,
investment management and
equipment leasing.
- --------------------------------------------------------------------------------
6. FIRST UNION Engaged in commercial, investment 4.2%
and mortgage banking, providing
retail and commercial banking,
retail investment, mortgage, home
equity, leasing, insurance,
capital markets, cash management
and securities brokerage
services.
- --------------------------------------------------------------------------------
7. PNC BANK Engaged in the operation of a 4.1%
variety of financial services,
including mortgage, community,
consumer, private and corporate
banking, secured lending and
asset management.
- --------------------------------------------------------------------------------
8. WELLS FARGO Bank holding company with 3.8%
subsidiaries engaged in
commercial banking.
- --------------------------------------------------------------------------------
9. PRISON REALTY Prison Realty Trust, a real 3.6%
TRUST estate investment trust, is the
world's largest private sector
owner and developer of prisons
and jails.
- --------------------------------------------------------------------------------
10. KEYCORP. Engaged in commercial banking 3.5%
operations and related financial
activities.
- --------------------------------------------------------------------------------
</TABLE>
*THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER DREMAN FINANCIAL SERVICES FUND
Portfolio of Investments at May 31, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS--99.0% NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--50.9% BANC ONE CORP 194,772 $ 11,017
BancWest Corporation 63,400 2,409
Bank of America Corp. 249,356 16,130
BankBoston Corp. 42,500 2,013
Chase Manhattan Corp. 101,600 7,366
Colonial BancGroup, Inc. 93,320 1,201
Corus Bankshares, Inc. 42,800 1,370
First Citizens BancShares, Inc. "A" 2,500 206
First Union Corp. 197,298 9,088
Fleet Financial Group Inc. 165,800 6,819
J.P. Morgan & Co., Inc. 26,400 3,678
KeyCorp 215,300 7,482
Mellon Bank Corp. 75,600 2,698
National Bank of Canada 242,100 3,609
North Fork Bancorporation, Inc. 45,995 980
PNC Bank Corp. 155,200 8,885
People's Heritage Financial Group, Inc. 50,000 937
Popular, Inc. 65,900 2,006
Provident Financial Group 28,270 1,210
Republic New York Corp. 85,300 5,794
Summit Bancorp. 40,000 1,638
SunTrust Banks, Inc. 44,900 3,031
Valley National Bank 6,720 189
Washington Mutual, Inc. 77,474 2,959
Wells Fargo Co. 206,900 8,276
-----------------------------------------------------------------------------
110,991
- -----------------------------------------------------------------------------------------------------------
CONSUMER FINANCE--11.0% American Express Credit Corp. 44,700 5,417
Associates First Capital Corp. 3,000 123
Citigroup Inc. 256,950 17,023
SLM Holding Corp. 31,100 1,291
-----------------------------------------------------------------------------
2 3,854
- -----------------------------------------------------------------------------------------------------------
INSURANCE--19.1% Allstate Corp. 117,300 4,274
American International Group, Inc. 157,200 17,970
Chubb Corp. 24,800 1,738
Cigna Corp. 29,300 2,732
Jefferson Pilot Corp. 14,350 971
Lincoln National Corp. 16,900 1,720
Marsh & McLennan Companies, Inc. 27,550 2,004
Ohio Casualty Corp. 69,500 2,645
Safeco Corp. 44,000 1,933
St. Paul Companies, Inc. 95,700 3,403
Torchmark Corp. 25,500 851
Transamerica Corp. 20,000 1,468
-----------------------------------------------------------------------------
41,709
- -----------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--3.6% Franklin Resources, Inc. 34,200 1,488
Lehman Brothers Holdings, Inc. 13,900 759
Merrill Lynch & Co., Inc. 62,100 5,216
Raymond James Financial, Inc. 17,450 386
-----------------------------------------------------------------------------
7,849
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER FINANCIAL
COMPANIES--14.4%
Bear Stearns Companies, Inc. 28,455 $ 1,263
Federal Home Loan Mortgage Corp. 122,300 7,132
Federal National Mortgage Association 169,100 11,499
Golden West Financial Corp. 7,400 702
Goldman Sachs Group, Inc. 16,400 1,114
Household International, Inc. 40,200 1,744
Prison Realty Trust, Inc. 620,600 7,835
-----------------------------------------------------------------------
31,289
-----------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $207,608) 215,692
-----------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.0% PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
(a) State Street Bank and Trust Company,
dated 5/28/99, 4.80%, due 6/1/99
(Cost $2,224) $ 2,224 2,224
-----------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $209,832) $217,916
-----------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Repurchase agreements are fully collaterized by U.S. Treasury or Government
agency securities. The collateral is monitored daily by the fund so that its
market value is at least equal to the carrying value of the repurchase
agreement.
Based on the cost of investments of $209,832,000 for federal income tax purposes
at May 31, 1999, the gross unrealized appreciation was $21,607,000, the gross
unrealized depreciation was $13,523,000 and the net unrealized appreciation on
investments was $8,084,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $209,832) $217,916
- ------------------------------------------------------------------------
Cash 1
- ------------------------------------------------------------------------
Receivable for:
Investments sold 5,748
- ------------------------------------------------------------------------
Fund shares sold 500
- ------------------------------------------------------------------------
Dividends and interest 341
- ------------------------------------------------------------------------
Deferred organization expense 8
- ------------------------------------------------------------------------
TOTAL ASSETS 224,514
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 4,458
- ------------------------------------------------------------------------
Fund shares redeemed 353
- ------------------------------------------------------------------------
Management fee 122
- ------------------------------------------------------------------------
Distribution services fee 166
- ------------------------------------------------------------------------
Administrative services fee 383
- ------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 238
- ------------------------------------------------------------------------
Trustees' fees and other 155
- ------------------------------------------------------------------------
Total liabilities 5,875
- ------------------------------------------------------------------------
NET ASSETS $218,639
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $210,894
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (555)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 8,084
- ------------------------------------------------------------------------
Undistributed net investment income 216
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $218,639
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($96,887 /
9,433 shares outstanding) $10.27
- ------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of net asset value or 5.76% of offering price) $10.90
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($103,707 / 10,176 shares outstanding) $10.19
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($18,045 / 1,767 shares outstanding) $10.21
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $10) $ 2,210
- ----------------------------------------------------------------------------------------------------------
Interest income 143
- ----------------------------------------------------------------------------------------------------------
Total investment income 2,353
- ----------------------------------------------------------------------------------------------------------
Expenses:
Management fee 831
- ----------------------------------------------------------------------------------------------------------
Distribution services fee 450
- ----------------------------------------------------------------------------------------------------------
Administrative services fee 277
- ----------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 387
- ----------------------------------------------------------------------------------------------------------
Professional fees 13
- ----------------------------------------------------------------------------------------------------------
Reports to shareholders 55
- ----------------------------------------------------------------------------------------------------------
Registration fees 20
- ----------------------------------------------------------------------------------------------------------
Amortization of organization expenses 1
- ----------------------------------------------------------------------------------------------------------
Trustees' fees and other 43
- ----------------------------------------------------------------------------------------------------------
Total expenses 2,077
- ----------------------------------------------------------------------------------------------------------
Less expense waived and absorbed by investment manager (81)
- ----------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 1,996
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 357
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments 146
- ----------------------------------------------------------------------------------------------------------
Foreign currency transactions 1
- ----------------------------------------------------------------------------------------------------------
Net realized gain 147
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments 13,578
- ----------------------------------------------------------------------------------------------------------
Net gain on investments 13,725
- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,082
- ----------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 9
MAY 31, 1999 TO
(UNAUDITED) NOVEMBER 30, 1998
- ----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 357 186
- ----------------------------------------------------------------------------------------------------------
Net realized gain 147 (248)
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 13,578 (5,494)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,082 (5,556)
- ----------------------------------------------------------------------------------------------------------
Distribution from net investment income (323) --
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain (458) --
- ----------------------------------------------------------------------------------------------------------
Total dividends to shareholders (781) --
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (18,823) 229,617
- ----------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (5,522) 224,061
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Beginning of period 224,161 100
- ----------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $216 and $182 respectively) $218,639 224,161
- ----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman Financial Services Fund (the fund) is
a diversified series of Kemper Equity Trust (the
Trust), an open-end management investment company
organized as a business trust under the laws of
Massachusetts. The fund commenced operations on
March 9, 1998. The fund currently offers three
classes of shares. Class A shares are sold to
investors subject to an initial sales charge. Class
B shares are sold without an initial sales charge
but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares six
years after issuance. Class C shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences. The Board of
Trustees has approved, subject to shareholder
approval, a change in the classification of the
fund to a non-diversified fund. Shareholders will
consider this matter at a shareholder meeting
scheduled for July 29, 1999.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq) for which there have been sales, are
valued at the most recent sale price reported. If
there are no such sales, the value is the most
recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. All other securities are
valued at their fair market value as determined in
good faith by the Valuation Committee of the Board
of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is
recorded on the accrual basis. Realized gains and
losses from investment transactions are reported on
an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
share is determined separately for each class by
dividing the fund's net assets attributable to that
class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income
semi-annually and net realized capital gains
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
ORGANIZATIONAL COSTS. Costs incurred by the fund in
connection with its organization and initial
registration of shares have been deferred and are
being amortized on a straight-line basis over a
five-year period.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .75%
of the first $250 million of average daily net
assets declining to .62% of average daily net
assets in excess of $12.5 billion. The fund
incurred a management fee of $786,000 for the six
months ended May 31, 1999, after a fee waiver of
$45,000 by Scudder Kemper. In addition, Scudder
Kemper has agreed to temporarily absorb certain
operating expenses of the fund. Dreman Value
Management, L.L.C. serves as sub-adviser with
respect to the investment and reinvestment of
assets in the fund, and is paid by Scudder Kemper
for its services.
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 May 31,
1999 are $20,000.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the six months ended May 31, 1999 are $681,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees paid by the
fund to KDI for the six months ended May 31, 1999
are $241,000 after a fee waiver of $36,000 by
Scudder Kemper.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
SHAREHOLDER SERVICES AGREEMENT. Kemper Service
Company (KSvC), is the transfer, dividend paying
and shareholder service agent for the fund. The
fund incurred shareholder services fees of $244,000
for the period ended May 31, 1999.
FUND ACCOUNTING AGENT. Scudder Fund Accounting
Corporation is responsible for determining the
daily net asset value per share and maintaining the
portfolio and general accounting records of the
fund. The fund incurred accounting fees of $45,000
for the period ended May 31, 1999, of which $14,000
is unpaid.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the period ended May 31, 1999,
the fund made no payments to its officers and
incurred trustees' fees of $11,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1999, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $17,384
Proceeds from sales 30,080
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1999 MARCH 9, TO
(UNAUDITED) NOVEMBER 30, 1998
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 3,118 $ 32,031 14,095 $137,426
-----------------------------------------------------------------------------
Class B 1,462 14,726 11,393 111,288
-----------------------------------------------------------------------------
Class C 463 4,701 1,951 19,033
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 53 511 -- --
-----------------------------------------------------------------------------
Class B 20 191 -- --
-----------------------------------------------------------------------------
Class C 3 31 -- --
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (4,949) (50,052) (2,888) (26,782)
-----------------------------------------------------------------------------
Class B (1,695) (16,912) (1,008) (9,043)
-----------------------------------------------------------------------------
Class C (398) (4,050) (255) (2,305)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(18,823) $229,617
-----------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------ --------------------- ---------------------
CLASS A CLASS B CLASS C
------------------------ --------------------- ---------------------
<CAPTION>
SIX SIX SIX
MONTHS MAR. 9, 1998 MONTHS MAR. 9, 1998 MONTHS MAR. 9, 1998
ENDED TO ENDED TO ENDED TO
MAY 31, NOV. 30, MAY 31, NOV. 30, MAY 31, NOV. 30,
1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------- --------------------- ---------------------
Net asset value, beginning of period $9.65 9.50 9.59 9.50 9.61 9.50
- ------------------------------------------------------------------- --------------------- ---------------------
Income from investment operations:
Net investment income (loss) .08 .03 (.01) (.01) (.01) (.01)
- ------------------------------------------------------------------- --------------------- ---------------------
Net realized and unrealized gain .59 .12 .63 .10 .63 .12
- ------------------------------------------------------------------- --------------------- ---------------------
Total from investment operations .67 .15 .62 .09 .62 .11
- ------------------------------------------------------------------- --------------------- ---------------------
Less dividends:
Distribution from net investment income (.03) -- -- -- -- --
- ------------------------------------------------------------------- --------------------- ---------------------
Distribution from net realized gain (.02) -- (.02) -- (.02) --
- ------------------------------------------------------------------- --------------------- ---------------------
Total dividends (.05) -- (.02) -- (.02) --
- ------------------------------------------------------------------- --------------------- ---------------------
Net asset value, end of period $10.27 9.65 10.19 9.59 10.21 9.61
- ------------------------------------------------------------------- --------------------- ---------------------
TOTAL RETURN (NOT ANNUALIZED) 6.97% 1.58 6.48 .95 6.46 1.16
- ------------------------------------------------------------------- --------------------- ---------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------- --------------------- ---------------------
Expenses absorbed by the fund 1.32% 1.36 2.22 2.14 2.20 2.11
- ------------------------------------------------------------------- --------------------- ---------------------
Net investment income (loss) .81% .55 (.10) (.23) (.09) (.20)
- ------------------------------------------------------------------- --------------------- ---------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------- --------------------- ---------------------
Expenses 1.43% 1.55 2.25 2.29 2.24 2.26
- ------------------------------------------------------------------- --------------------- ---------------------
Net investment income (loss) .70% .36 (.14) (.38) (.13) (.35)
- ------------------------------------------------------------------- --------------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------------
MARCH 9, 1998
SIX MONTHS ENDED TO
MAY 31, NOVEMBER 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period (in thousands) $218,639 224,161
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 32% 5
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive a portion of its
management fee and absorb certain operating expenses of the fund. The Other
Ratios to Average Net Assets are computed without this expense waiver or
absorption. Data for the period ended May 31, 1999 is unaudited.
17
<PAGE> 18
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper-Dreman Financial Services Fund shareholders were asked
to vote on three separate issues: approval of the new Investment Management
Agreement between the fund and Scudder Kemper Investments, Inc., approval of the
new Sub-Advisory Agreement between Scudder Kemper Investments, Inc. and Dreman
Value Management, L.L.C. and to modify or eliminate certain policies and to
eliminate the shareholder approval requirements as to certain other matters. The
following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
15,833,431 182,115 409,663
</TABLE>
2) Approval of the new Sub-Advisory Agreement between Scudder Kemper
Investments, Inc. and Dreman Value Management, L.L.C., as applicable. This
item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
15,683,190 161,630 580,389
</TABLE>
3) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
9,256,955 571,923 1,303,569
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
9,252,514 576,160 1,303,775
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
9,240,109 588,565 1,303,775
</TABLE>
18
<PAGE> 19
NOTES
19
<PAGE> 20
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY MAUREEN E. KANE
Trustee President Assistant Secretary
JAMES R. EDGAR PHILIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
FREDERICK T. KELSEY BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
KATHRYN L. QUIRK
Trustee and Vice President LINDA J. WONDRACK
Vice President
FRED B. RENWICK
Trustee JOHN R. HEBBLE
Treasurer
JOHN G. WEITHERS
Trustee
- ---------------------------------------------------------------------
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
- ---------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ---------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- ---------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- ---------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Value Style prospectus.
KDFSF - 3 (7/26/99) 1080150
