<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeks long-term capital appreciation
KEMPER
CONTRARIAN FUND
"...We've been pleased that the portfolio has
kept pace as well as it has, considering the
recent rally has favored expensive stocks
in which this fund won't invest...."
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
16
NOTES TO FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
21
SHAREHOLDERS' MEETING
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER CONTRARIAN FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 12.92%
CLASS B 12.40%
CLASS C 12,27%
LIPPER GROWTH & INCOME FUNDS CATEGORY AVERAGE* 11.91%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future performance.
returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be 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
5/31/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER CONTRARIAN FUND CLASS A $21.77 $21.13
- --------------------------------------------------------------------------------
KEMPER CONTRARIAN FUND CLASS B $21.71 $21.08
- --------------------------------------------------------------------------------
KEMPER CONTRARIAN FUND CLASS C $21.68 $21.06
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER CONTRARIAN FUND
RANKINGS AS OF 5/31/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER
GROWTH & INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #273 of #340 of #350 of
665 funds 665 funds 665 funds
- --------------------------------------------------------------------------------
3-YEAR #165 of 435 funds N/A N/A
- --------------------------------------------------------------------------------
5-YEAR #80 of 268 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #64 of 140 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED MAY 31, 1998, KEMPER CONTRARIAN FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME $0.1375 $0.0448 $0.0277
DIVIDEND
- --------------------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $0.92 $0.92 $0.92
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $0.80 $0.80 $0.80
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[STYLE/SIZE DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar's Style Box
is based on a portfolio date as of May 31, 1998.) The Equity Funds Style Box
placement is based on a fund's price-to-earnings and price-to-book ratios
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and
do not represent future performance. Please consult the prospectus for a
description of investment policies.
GRAY MONDAY The name used to identify Monday, October 27, 1997. On that day the
Dow Jones Industrial Average lost 554 points or 7 percent of its total value.
Gray Monday is a comparison to Black Monday, October 19, 1987, when the market
lost almost 23 percent of its total value.
PRICE/EARNINGS MULTIPLE A company's stock price divided by its earnings for the
past four quarters, also referred to as its P/E.
<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. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
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 (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</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, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[SASSI PHOTO]
TOM SASSI IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND
CO-PORTFOLIO MANAGER FOR KEMPER CONTRARIAN FUND. SASSI RECEIVED A BACHELOR'S OF
BUSINESS ADMINISTRATION IN MANAGEMENT AND ECONOMICS AND AN M.B.A IN FINANCE FROM
HOFSTRA UNIVERSITY. HE HAS OVER 25 YEARS EXPERIENCE IN INVESTMENT ANALYSIS AND
MANAGEMENT. IN PREVIOUS POSITIONS, SASSI HAS SERVED AS PORTFOLIO MANAGER AND
CHIEF INVESTMENT OFFICER.
[GASKIN PHOTO]
FREDERICK L. GASKIN IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND
A CO-PORTFOLIO MANAGER OF KEMPER CONTRARIAN FUND AND IS RESPONSIBLE FOR MORE
THAN $200 MILLION OF INSTITUTIONAL ASSETS. GASKIN RECEIVED A BACHELOR'S IN
FINANCE FROM APPALACHIAN STATE UNIVERSITY AND AN MBA FROM THE BABCOCK SCHOOL OF
MANAGEMENT AT WAKE FOREST UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
ACCORDING TO PORTFOLIO MANAGER TOM SASSI, THE "NIFTY FIFTY EFFECT" CONTINUED
TO DRIVE THE MARKET AVERAGES HIGHER DURING THE LAST SIX MONTHS. AS A SMALL
NUMBER OF VERY LARGE STOCKS CONTINUE THEIR UPWARD CLIMB, THEIR HEAVY WEIGHTINGS
IN THE LEADING INDICES SKEW THE OVERALL PERFORMANCE PICTURE, MAKING THE MARKET
LOOK MORE ROBUST THAN IT TRULY IS. PORTFOLIO MANAGER TOM SASSI DISCUSSES HOW
HE HAS INVESTED KEMPER CONTRARIAN FUND IN THIS ENVIRONMENT.
Q TOM, WHAT MARKET FORCES AFFECTED KEMPER CONTRARIAN FUND OVER THE SIX-MONTH
PERIOD?
A Market perceptions and expectations have changed several times over the
past six months. The stock market was flourishing until last fall, when markets
tumbled when it became evident that the Asian economies were in trouble. After
that, governmental and monetary action throughout the world focused on
stabilizing the situation in Asia. More recently, we've had another pullback in
overseas markets. Observers are beginning to believe that Japan may be in a
recession and Asia is not turning as quickly as expected. I think there has been
some trepidation among U.S. investors with respect to the profit outlook in the
United States. First quarter earnings were up only about one percent over a year
ago. Nine months ago the expectation was much higher. So I think the market has
been somewhat schizophrenic in its view.
Q KEMPER CONTRARIAN FUND RETURNED 12.92 PERCENT (CLASS A SHARES, UNADJUSTED
FOR ANY SALES CHARGE) FOR THE SIX-MONTH PERIOD ENDING MAY 31, 1998. THIS STRONG
PERFORMANCE PLACES IT AHEAD OF ITS PEER GROUP (THE LIPPER GROWTH AND INCOME
AVERAGE RETURN OF 11.91 PERCENT). HOWEVER, IT IS STILL LAGGING THE S&P 500. IS
THIS BECAUSE OF THE "NIFTY FIFTY" EFFECT THAT YOU MENTIONED IN THE FUND'S ANNUAL
REPORT LAST NOVEMBER?
A Exactly. This effect has been skewing the S&P and the Dow since last
summer. Over the last six to nine months, the U.S. stock market, though it is up
nicely year-to-date as measured by the S&P 500 index, has reverted to a narrow
"Nifty Fifty" tone. By that I mean that a select group of the largest
capitalization stocks, particularly those that are growth oriented and have good
fundamentals, have done much better than the average stock. Because these big
cap stocks count as a proportionately large part of the indices' returns, they
can make the performance of the market look much more robust than it actually
is.
For example, the S&P 500 index is up nearly 13 percent year-to-date
through May. If you reexamine that index weighing all stocks equally, it is
only up a little over 11 percent. Within the S&P 500 itself, 320 companies, or
64 percent of its stocks, are underperforming the market. So the "Nifty Fifty
effect" is really skewing true performance results.
The "Nifty Fifty effect" is attributable to several factors. We've seen a
flight to quality and a trend toward indexation, both of which favor the largest
market capitalization stocks. We're also seeing more money coming in from
overseas investors who favor the largest of the large cap stocks.
5
<PAGE> 6
PERFORMANCE UPDATE
We've been pleased that the portfolio has kept pace as well as it has,
considering the recent rally has favored expensive stocks in which this fund
won't invest.
Q HAVE YOU ADJUSTED THE PORTFOLIO STRUCTURE IN LIGHT OF THIS "NIFTY FIFTY"
ABERRATION? ARE YOU LOOKING AT DIFFERENT SECTORS FOR PERFORMANCE?
A The basic structure of the portfolio hasn't changed significantly. We
continue to overweight financial stocks, using a broad array of money center,
regional banks, insurance and financial services companies. We feel that the
combination of attractive valuation and strong earnings growth is still fairly
powerful in this group. We also have a meaningful weighting in basic materials
stocks such as diversified forest products, paper, chemicals and steel, and
the energy group as well.
On the other side of the coin, we have been underweighted in utility
stocks, healthcare stocks and technology stocks. Utility stocks had a nice
price movement in the last half of 1997. When the market was poor they were
relatively strong and so we took profits, which reduced utilities to an
underweighted position.
We are underweighted in healthcare because we sold a lot of those stocks
when their price to earnings multiples (P/E) rose above our market levels.
That's one of our key sell disciplines. Because of their high P/Es, most of
the good healthcare companies are out of our universe today, and we have opted
not to invest in second-tier situations.
The biggest underweight we've had for some time has been in the
technology area. We continue to hold to that position because we feel the
fundamentals are weak and will remain weak for some time. Structurally, the
fund's not too different now than it was six months ago, and we have just tried
to be opportunistic with our buys and sells.
Q YOU'RE HOLDING A LOT OF OIL STOCKS RIGHT NOW. WHY IS THAT?
A The price of crude oil is down about $10 a barrel from the high last year,
and I can't imagine that it will drop much further. Energy stocks have been
weak performers, particularly those that are more sensitive to crude oil prices.
Companies like Amoco and Atlantic Richfield have been under pressure in the
marketplace and we actually added to those stocks on weakness early this year.
At such low prices, they probably have limited downside, and if the price of
crude oil stabilizes or rises they will probably perform much better. Today they
offer some defensive attributes, but under the right circumstances they could
move up substantially.
Q WHY ARE FINANCIALS STILL A FOCUS? DO YOU EXPECT FURTHER CONSOLIDATION IN
THIS SECTOR?
A The merger activity in this sector has certainly helped the fund in this
period, and I think the trend toward consolidation seems to have further
to go. We held H.F. Ahmanson, which was taken over by Washington Mutual, and
also NationsBank, which merged with BankAmerica. Of course, not all the
companies we owned actually went through mergers, but the market psychology that
a deal could occur helped some of our stocks like J.P. Morgan and Bankers Trust.
Since we think the trend in financials is still pretty good, we're
trying to play on relative value, and focus on finding good entry points. We buy
the stocks when they're subject to interim periods of either market or
company-specific induced weakness.
Q COULD YOU POINT OUT SOME SPECIFIC STOCKS THAT DID WELL FOR YOU DURING THIS
PERIOD?
A Ford, Nestle, McDonald's, Unilever, Xerox, American General and
NationsBank were all big performers for us. Ford is up over 60 percent year to
date, Nestle is up more than 45 percent and McDonald's is up 36 percent. This
growth occurred during a time when the S&P was up about 13 percent.
We bought McDonald's during November and December of last year at about
$46 a share, down from a high of $55 earlier in the year. Most importantly, the
price was low on an absolute sense, having dramatically underperformed the S&P
for the past two years. The reason for that was the earnings were less than
expected, valuation levels were the lowest they had been in a decade and future
growth was uncertain. This created a buying opportunity. As the company's
fundamentals shaped up in the second quarter of this year, Wall Street began to
take notice. Earnings estimates went up and analysts began recommending it,
which resulted in a very substantial price increase.
We bought Ford Motor Company back in 1996, when the stock was selling at
about $20 a share. It was a classic contrarian purchase that has been a major
homerun. It had a very low P/E, a very high dividend yield, and potential
restructuring opportunities. It appeared to be a very low risk stock with very
large upside. In addition to getting very substantial price appreciation on our
investment, as shareholders we also received stock in Associates First
6
<PAGE> 7
PERFORMANCE UPDATE
Capital when it was spun off from Ford recently. That holding has done
very well also. We're still holding Ford because it pays a 3.2 percent dividend
yield and its P/E is still relatively low.
Q WHICH STOCKS DIDN'T DO AS WELL AS YOU WOULD HAVE HOPED DURING THE PERIOD?
A A few of our stocks stumbled during this time. Philip Morris is down 18
percent or so, AMP is down 11 percent and Bankers Trust is down 9 percent.
We didn't hold any really terrible stocks, which helped our results. The ones
that did decline did so within reasonable bounds. We still hold all of these,
and we've actually added to Philip Morris, AMP and Amoco on price weakness.
Q LOOKING AT YOUR MANAGEMENT STYLE, HAVE YOU CHANGED ANYTHING OVER THE PAST
SIX MONTHS IN LIGHT OF THIS "NIFTY FIFTY" SITUATION?
A Our investment strategy hasn't changed. Most of the "Nifty Fifty" stocks
have high P/Es, and because we are value investors and look for stocks
with low P/E numbers, we aren't participating in their performance.
Our strategy is risk averse, value-oriented, and contrarian in its
execution. We try to build a portfolio that is qualitatively superior to the
S&P; we want stocks whose earnings grow faster than the S&P and whose dividend
grows faster than the S&P. So we have rapid growth of earnings and dividends
but we are not paying anything close to a market multiple for that. We are also
receiving higher than market current income through the dividend.
Q YOU'VE BEEN MANAGING THE FUND WITH A SMALLER NUMBER OF HOLDINGS FOR NEARLY
A YEAR NOW. HOW HAS THAT STRATEGY WORKED OUT?
A It's been a helpful strategy, especially in today's market. Last year,
holding the larger number of names was okay because the breadth of the market
was pretty good. As the breadth deteriorated, it was better to be less broadly
exposed within the portfolio.
With a smaller number of names you can focus more closely on each
holding. If your calls are correct, you have a better chance of outperforming
the market. As you expand the number of stocks in the portfolio, you become
more market-like.
Q WHAT ARE SOME STOCKS THAT LOOK GOOD TO YOU TODAY AND WHY?
A I'm especially bullish on Philip Morris. Because of the current
anti-tobacco sentiment and the potential legislation and litigation, there is
risk associated with the stock, but we think the risk-reward ratio is in fact
quite good.
A lot of the companies in the tobacco industry are only average in terms
of their growth characteristics. But Philip Morris is a very high-quality
company that, over the long run, has been a strong growth stock. This stock is
selling at a very low P/E multiple with a record-high relative dividend yield.
When you combine that with a good growth record and a strong financial
position, it would suggest that over the long run the stock would probably do
well. Most important, this is a diversified company with food and other
operations. Considering this diversification and the low valuation, you're
paying very little for tobacco.
While we've increased our weighting in Philip Morris recently, we
probably have a smaller allocation to tobacco now than we did at the start
of the period because we sold our holdings in UST, Inc. on a rally earlier this
year. Today that stock has dropped back to an extreme low. While it is
statistically cheap and has a high dividend yield, it just doesn't have the
longer-term growth characteristics of Philip Morris.
We've also recently added Lubrizol, a maker of automotive oil additives.
It's down a lot in price, is statistically cheap, has modest long-term
growth but generates a lot of excess cash flow. It can do a share buyback and
raise its dividend, so we thought the risk-reward was good. We've also added
Kimberly Clark, a consumer products company with a strong paper component. That
company is down 20 percent from its high due to recently disappointing earnings
and downgradings by various Wall Street analysts. While it may have another
difficult quarter or two, we feel that at current valuation levels the
risk-reward is fairly favorable.
Q GOING FORWARD, WHAT DO YOU EXPECT FOR THE S&P AND THE MARKET IN GENERAL?
A I would argue that we have been in a camouflaged correction for the last
nine or 10 months even though the S&P 500 and the Dow Industrials have hit new
highs.
Because of the "Nifty Fifty" effect that we discussed earlier, most
stocks have not done nearly as well as the broad indexes. An awful lot of
stocks are 20 or 30 percent off their highs. When you have breadth as bad as
this, that to me is a correction. So I would say that we are in the process of
a correction in the market and that it will be a few months before the
long-term
7
<PAGE> 8
PERFORMANCE UPDATE
upward trend resumes. Perhaps this consolidation may even culminate
with an actual sharp decline in the S&P or the Dow like we saw last fall. I do
think the market will do nicely once the correction has run its course.
Investing in this kind of market, our emphasis has to be on risk
aversion, selectivity and taking advantage of opportunities that look promising
for the long term.
Q SO ALTHOUGH WE'RE EXPERIENCING THIS CORRECTION, YOU'RE STILL CAUTIOUSLY
OPTIMISTIC IN YOUR OUTLOOK FOR THE FUND?
A We're moving into a period of time in which a fund like this should do
quite well relative to competing funds. There should be some opportunities to
buy into some quality companies at good prices.
This market tone means investors need to exhibit greater caution and
care than usual and recognize the environment in which they're operating. There
are good companies out there that meet our philosophy and have very attractive
one- to three-year rates of return. We're ready to step in and buy those, even
though there may be some short-term downside.
8
<PAGE> 9
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON MAY 31, 1998, AND ON NOVEMBER 30, 1997.
[SIX-MONTH COMPARISON GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND KEMPER CONTRARIAN FUND
ON 5/31/98 ON 11/30/98
<S> <C> <C>
FINANCE 30.8% 29.5%
CONSUMER NONDURABLES 18.5% 20.9%
ENERGY 14.8% 14.3%
BASIC INDUSTRIES 10.7% 8.6%
CAPITAL GOODS 9.7% 9.8%
TECHNOLOGY 8.9% 4.5%
HEALTH CARE 5.3% 7.2%
UTILITIES 2.1% 4.3%
TRANSPORTATION 1.5% 2,1%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF THE KEMPER CONTRARIAN FUND REPRESENTED ON MAY 31, 1998, COMPARED TO THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE STANDARD & POOR'S 500
STOCK INDEX.
[STANDARD & POOR'S 500 STOCK INDEX COMPARISON]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND STANDARD & POOR'S INDEX
ON 5/31/98 ON 11/30/98
<S> <C> <C>
FINANCE 30.5% 17.8%
CONSUMER NONDURABLES 18.5% 22.0%
ENERGY 14.8% 8.4%
BASIC INDUSTRIES 10.7% 4.8%
CAPITAL GOODS 9.7% 8.8%
TECHNOLOGY 8.9% 13.8%
HEALTH CARE 5.3% 11.5%
UTILITIES 2.1% 9.4%
TRANSPORTATION 1.5% 1.1%
CONSUMER DURABLES 0.0% 2.6%
</TABLE>
* The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
Representing 25.7 percent of the fund's total net assets on May 31, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the U.S. Through its 3.9%
Miller Brewing subsidiary, it is also the country's
second-largest brewer. This company is also a major
branded food producer through its Kraft Foods
subsidiaries.
2. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie Mac", this corporation 3.0%
CORP. provides for the transfer of capital between mortgage
lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
3. AMOCO Engaged in the exploration, development and production 2.9%
of crude oil and natural gas, and in the refining and
marketing of petroleum products and petrochemicals.
4. ATLANTIC RICHFIELD Engaged in exploring, developing and producing 2.4%
petroleum which includes petroleum liquids and natural
gas.
5. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae", this is a private 2.4%
ASSOCIATION corporation federally chartered to provide financial
products and services that increase the availability
and affordability of housing to low, moderate and
middle-income Americans.
6. NESTLE Nestle is the largest food processor in the world. Its 2.3%
activities encompass the production and marketing of
dairy products, coffee, chocolate and confectionery,
culinary products, frozen foods and ice cream,
refrigerated products, mineral water, other drinks, pet
foods and pharmaceuticals.
7. GENERAL ELECTRIC COMPANY Operates in major businesses including power 2.3%
generators, appliances, lighting, plastics, medical
systems, aircraft engines, financial services and
broadcasting.
8. XEROX Develops, manufactures, markets, services and finances 2.2%
a broad range of document processing equipment.
9. C.R. BARD Designs, manufactures, packages, distributes and sells 2.2%
medical, surgical, diagnostic and patient care devices.
10. BANC ONE Operates approximately 65 banks with 1,502 offices 2.1%
throughout the United States. Offers depository and
lending services to individuals and commercial
customers. Through its subsidiaries, provides data
processing, venture capital investment and merchant
banking, trust, brokerage, investment management and
equipment leasing services.
</TABLE>
* The fund's holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER CONTRARIAN FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKING--10.7% Banc One Corp. 90,900 $ 5,011
Bankers Trust New York Corp. 22,000 2,717
Chase Manhattan Corp. 30,000 4,078
First Union Corp. 85,000 4,702
NationsBank 60,000 4,545
PNC Bank Corp., N.A. 65,000 3,754
----------------------------------------------------------------------
24,807
- -----------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--9.0% Dow Chemical Co. 38,000 3,681
Eastman Chemical Co. 40,000 2,680
Georgia Pacific Timber Group 40,000 942
Georgia-Pacific Corp. 20,000 1,284
Louisiana-Pacific Corp. 150,000 2,991
Lubrizol Corp. 125,000 4,344
Nucor Corp. 45,000 2,317
Sonoco Products Co. 75,900 2,652
----------------------------------------------------------------------
20,891
- -----------------------------------------------------------------------------------------------------
CAPITAL GOODS--8.1% AMP, Inc. 122,000 4,636
Crown Cork & Seal Co. 54,000 2,801
General Electric Co. 64,000 5,336
Minnesota Mining & Manufacturing 40,000 3,705
Pitney Bowes, Inc. 50,000 2,350
----------------------------------------------------------------------
18,828
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--4.0% Ford Motor Co. 78,000 4,046
May Department Stores Co. 56,500 3,634
V.F. Corp. 32,800 1,745
----------------------------------------------------------------------
9,425
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES--11.5%
Kimberly-Clark Corp. 45,000 2,230
McDonald's Corp. 70,000 4,594
Nestle, S.A., ADR 51,000 5,424
Philip Morris Cos. 242,900 9,078
Unilever, N.V., ADR 36,000 2,842
Wendy's International 100,100 2,471
----------------------------------------------------------------------
26,639
- -----------------------------------------------------------------------------------------------------
ENERGY--12.3%
AMOCO Corp. 158,000 6,606
Atlantic Richfield Co. 71,500 5,640
Chevron Corp. 21,000 1,677
Exxon Corp. 61,000 4,300
Mobil Corp. 28,000 2,184
Praxair, Inc. 70,000 3,452
Royal Dutch Petroleum Co. 40,000 2,242
Texaco 45,000 2,599
----------------------------------------------------------------------
28,700
- -----------------------------------------------------------------------------------------------------
FINANCE--14.8%
American General Corp. 48,000 3,222
American International Group, Inc. 31,000 3,838
Associates First Capital Corp. 40,443 3,026
Conseco, Inc. 90,400 4,215
Federal Home Loan Mortgage Corp. 152,000 6,916
Federal National Mortgage Association 92,000 5,508
General Re Corp. 6,000 1,319
H.F. Ahmanson & Co. 49,000 3,736
J.P. Morgan & Co. 22,000 2,732
----------------------------------------------------------------------
34,512
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER
OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--4.4% American Home Products Corp. 60,000 2,899
Bristol-Myers Squibb Co. 21,000 2,258
C.R. Bard 146,000 5,064
----------------------------------------------------------------------
10,221
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--5.8% Diebold 95,000 2,779
Hewlett-Packard Co. 35,000 2,174
Raytheon Co. 61,000 3,336
Xerox Corp. 50,000 5,138
----------------------------------------------------------------------
13,427
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3% (a) FDX Corp. 46,500 2,982
----------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.8% GTE Corp. 70,000 4,082
----------------------------------------------------------------------
TOTAL COMMON STOCKS--83.7%
(Cost: $161,481) 194,514
----------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PRINCIPAL
INSTRUMENTS--16.0% AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Yield--5.49% to 5.56%
Due--June 1998
Bell Atlantic Network Funding Corp. $5,300 5,291
Eastman Kodak Company 4,500 4,484
GTE Corp. 8,000 7,975
Madison Funding Corp. 3,050 3,045
Transamerica Finance Corp. 5,310 5,291
Other 11,000 10,995
---------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--16.0%
(Cost: $37,081) 37,081
---------------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(Cost: $198,562) 231,595
---------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.3% 718
---------------------------------------------------------------------
NET ASSETS--100% $232,313
---------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $198,562,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $36,049,000, the gross
unrealized depreciation was $3,016,000 and the net unrealized appreciation on
investments was $33,033,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------
Investments, at value
(Cost: $198,562) $231,595
- ------------------------------------------------------------------------------
Cash 1,225
- ------------------------------------------------------------------------------
Receivable for:
Investments sold 753
- ------------------------------------------------------------------------------
Fund shares sold 509
- ------------------------------------------------------------------------------
Dividends 623
- ------------------------------------------------------------------------------
TOTAL ASSETS 234,705
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------------
Payable for:
Investments purchased 1,946
- ------------------------------------------------------------------------------
Fund shares redeemed 69
- ------------------------------------------------------------------------------
Management fee 138
- ------------------------------------------------------------------------------
Distribution services fee 61
- ------------------------------------------------------------------------------
Administrative services fee 39
- ------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 137
- ------------------------------------------------------------------------------
Directors' fees 2
- ------------------------------------------------------------------------------
Total liabilities 2,392
- ------------------------------------------------------------------------------
NET ASSETS $232,313
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------------
Paid-in capital $189,613
- ------------------------------------------------------------------------------
Undistributed net realized gain on
investments 9,179
- ------------------------------------------------------------------------------
Net unrealized appreciation on
investments 33,033
- ------------------------------------------------------------------------------
Undistributed net investment income 488
- ------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $232,313
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($131,714/6,049 shares outstanding) $21.77
- ------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10%
of net asset value or 5.75% of offering price) $23.10
- ------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($90,918/4,188 shares outstanding) $21.71
- ------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($9,681/447 shares outstanding) $21.68
- ------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------
Dividends $ 2,018
- -------------------------------------------------------------------------------
Interest 819
- -------------------------------------------------------------------------------
Total investment income 2,837
- -------------------------------------------------------------------------------
Expenses:
Management fee 768
- -------------------------------------------------------------------------------
Distribution services fee 332
- -------------------------------------------------------------------------------
Administrative services fee 233
- -------------------------------------------------------------------------------
Custodian and transfer agent fees and
related expenses 442
- -------------------------------------------------------------------------------
Reports to shareholders 61
- -------------------------------------------------------------------------------
Registration fees 19
- -------------------------------------------------------------------------------
Professional fees 4
- -------------------------------------------------------------------------------
Directors' fees and other 7
- -------------------------------------------------------------------------------
Total expenses 1,866
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 971
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------
Net realized gain on sales of
investments 8,977
- -------------------------------------------------------------------------------
Net realized gain from futures
transactions 275
- -------------------------------------------------------------------------------
Net realized gain 9,252
- -------------------------------------------------------------------------------
Change in net unrealized appreciation
on investments 13,336
- -------------------------------------------------------------------------------
Net gain on investments 22,588
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $23,559
- -------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------
Net investment income $ 971 1,298
- ------------------------------------------------------------------------------------------
Net realized gain 9,252 14,815
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation 13,336 11,557
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 23,559 27,670
- ------------------------------------------------------------------------------------------
Distribution from net investment
income (904) (963)
- ------------------------------------------------------------------------------------------
Distribution from net realized gain (14,639) (533)
- ------------------------------------------------------------------------------------------
Total dividends to shareholders (15,543) (1,496)
- ------------------------------------------------------------------------------------------
Net increase from capital share
transactions 46,182 74,349
- ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 54,198 100,523
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of period 178,115 77,592
- ------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income of $488 and $421, respectively) $ 232,313 178,115
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Contrarian Fund (the Fund) is a separate
series of Kemper Value Series (KVS) (formerly known
as Kemper Value Fund, Inc.), an open-end management
investment company organized as a corporation in
the state of Maryland. KVS is authorized to issue 3
billion shares of $.01 par value common stock.
The Fund currently offers four classes of shares.
Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none sold
through May 31, 1998) are offered to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Fixed income securities are valued by using market
quotations, or independent pricing services that
use prices provided by market makers or estimates
of market values obtained from yield data relating
to instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Other securities
and assets are valued at fair value as determined
in good faith by the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended May 31, 1998.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income quarterly
and net realized capital gains at least 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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. KVS has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Fund pays a management fee at
an 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
$768,000 for the six months ended May 31, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
KVS has an underwriting and distribution services
agreement with Kemper Distributors, Inc. (KDI).
Underwriting commissions paid in connection with
the distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED COMMISSIONS ALLOWED
BY KDI BY KDI TO FIRMS
----------- -------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 45,000 395,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES PAID
DISTRIBUTION FEES BY KDI
AND CDSC ---------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Six months ended May 31, 1998 $ 375,000 558,000 11,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KVS 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. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid by the Fund are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID
THE FUND TO KDI BY KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Six months ended May 31, 1998 $ 233,000 238,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KVS's transfer agent,
Kemper Service Company (KSvC) is the shareholder
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $359,000
for the six months ended May 31, 1998.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of Scudder Kemper. During the six months
ended May 31, 1998, the Fund made no payments to
its officers and incurred directors' fees of $4,000
to independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $80,255
Proceeds from sales 54,233
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED
SIX MONTHS ENDED NOVEMBER 30,
MAY 31, 1998 1997
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
---------------------------------------------------------------------------
Class A 1,315 $27,789 2,547 $49,549
---------------------------------------------------------------------------
Class B 956 20,191 2,064 39,824
---------------------------------------------------------------------------
Class C 183 3,839 212 4,085
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------
Class A 440 8,549 52 1,044
---------------------------------------------------------------------------
Class B 301 5,814 19 372
---------------------------------------------------------------------------
Class C 24 462 1 19
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------
Class A (633) (13,387) (623) (12,321)
---------------------------------------------------------------------------
Class B (298) (6,212) (361) (7,133)
---------------------------------------------------------------------------
Class C (41) (863) (55) (1,090)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------
Class A 122 2,585 58 1,143
---------------------------------------------------------------------------
Class B (123) (2,585) (58) (1,143)
---------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $46,182 $74,349
---------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS A
--------------------------------------------------
SIX MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
MAY 31, NOVEMBER 30, -----------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.13 16.93 16.20 12.18 13.62
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .23 .23 .26 .28
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 2.37 4.25 2.07 5.05 (.28)
- -------------------------------------------------------------------------------------------
Total from investment operations 2.50 4.48 2.30 5.31 --
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .14 .20 .22 .24 .28
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 1.05 1.16
- -------------------------------------------------------------------------------------------
Total dividends 1.86 .28 1.57 1.29 1.44
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.77 21.13 16.93 16.20 12.18
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.92% 26.58 14.42 44.57 (.03)
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 1.41% 1.35 1.23 1.25 1.25
- -------------------------------------------------------------------------------------------
Net investment income .08% 1.47 1.56 1.85 1.89
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 1.41% 1.35 1.25 1.66 1.42
- -------------------------------------------------------------------------------------------
Net investment income .08% 1.47 1.54 1.44 1.71
- -------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------
CLASS B
----------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, DEC. 31, DEC. 31,
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.08 16.92 16.20 15.26
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .04 .08 .11 .07
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 2.35 4.22 2.07 1.85
- ---------------------------------------------------------------------------------------
Total from investment operations 2.39 4.30 2.18 1.92
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .04 .06 .11 .07
- ---------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- ---------------------------------------------------------------------------------------
Total dividends 1.76 .14 1.46 .98
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 21.71 21.08 16.92 16.20
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.40% 25.44 13.61 12.83
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 2.29% 2.26 2.11 2.00
- ---------------------------------------------------------------------------------------
Net investment income (loss) (.80)% .56 .68 .88
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 2.29% 2.26 2.34 2.36
- ---------------------------------------------------------------------------------------
Net investment income (loss) (.80)% .56 .45 .52
- ---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------
CLASS C
---------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, DEC. 31 DEC. 31,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.06 16.90 16.20 15.26
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 .06 .11 .08
- --------------------------------------------------------------------------------------
Net realized and unrealized gain 2.36 4.20 2.05 1.85
- --------------------------------------------------------------------------------------
Total from investment operations 2.37 4.26 2.16 1.93
- --------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .03 .02 .11 .08
- --------------------------------------------------------------------------------------
Distribution from net realized gain 1.72 .08 1.35 .91
- --------------------------------------------------------------------------------------
Total dividends 1.75 .10 1.46 .99
- --------------------------------------------------------------------------------------
Net asset value, end of period $ 21.68 21.06 16.90 16.20
- --------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.27% 25.26 13.51 12.85
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.51% 2.47 2.12 1.95
- --------------------------------------------------------------------------------------
Net investment income (loss) (1.02 )% .35 .67 .93
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.51% 2.47 2.80 2.31
- --------------------------------------------------------------------------------------
Net investment income (loss) (1.02 )% .35 (.01 ) .57
- --------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
MAY 31, NOVEMBER 30, -------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $ 232,313 178,115 77,592 25,482 12,983
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 61% 77 95 30 16
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTES:
Total return does not reflect the effect of any sales charges. Data for the
period ended May 31, 1998 is unaudited.
The investment manager waived a portion of its management fee and absorbed
certain operating expenses of the Fund through the period ended December 31,
1996.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Shareholders of Kemper Contrarian Fund (KCF), one of three series of
Kemper Value Fund, Inc., shareholders were asked to vote on five separate
issues: election of the eight members to the Board of Directors, ratification of
Ernst & Young LLP as independent auditors, approval of a new investment
management agreement with Scudder Kemper Investments, Inc., approval of changes
in the fund's fundamental investment policies to permit a master/feeder fund
structure and approval of a new rule 12b-1 distribution plan with Zurich Kemper
Distributors, Inc. for Class B shares and Class C shares. All three series of
Kemper Value Fund, Inc. voted in the aggregate for election of Directors and
selection of auditors and separately for the other items, with the Class B and
Class C shareholders voting separately for the new Rule 12b-1 distribution plan.
The following are the results for each issue:
1) Election of Directors (all series).
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Atkins 75,383,520 1,019,732
Arthur R. Gottschalk 75,374,970 1,028,281
Frederick T. Kelsey 75,381,005 1,022,247
Daniel Pierce 75,379,579 1,023,673
Fred B. Renwick 75,413,453 989,799
John B. Tingleff 75,398,856 1,004,396
Edmond D. Villani 75,368,163 1,035,088
John B. Weithers 75,411,770 991,482
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year (all series).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
74,654,361 520,089 1,228,802
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc. (KCF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
3,981,206 66,946 95,502
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure (KCF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
3,445,762 198,916 224,301
</TABLE>
5) To approve a new rule 12b-1 distribution plan with Zurich Kemper
Distributors, Inc. (KCF).
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 1,528,665 39,127 52,780 59,072
Class C 143,120 4,285 5,569 629
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
DANIEL PIERCE MARK CASADY
Chairman and Director President
JAMES E. AKINS PHILIP J. COLLORA
Director Vice President and
Secretary
ARTHUR R. GOTTSCHALK
Director JOHN R. HEBBLE
Treasurer
FREDERICK T. KELSEY
Director THOMAS H. FORESTER
Vice President
FRED B. RENWICK
Director FREDERICK L. GASKIN
Vice President
JOHN B. TINGLEFF
Director JERARD K. HARTMAN
Vice President
EDMOND D. VILLANI
Director THOMAS W. LITTAUER
Vice President
JOHN G. WEITHERS
Director ANN M. MCCREARY
Vice President
KATHRYN L. QUIRK
Vice President
THOMAS F. SASSI
Vice President
STEVEN T. STOKES
Vice President
LINDA J. WONDRACK
Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
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.
KCF-3 (7/98) 1050280
