<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 to achieve a high rate of total return
KEMPER-DREMAN HIGH
RETURN EQUITY FUND
"... We took advantage of the slump in oil prices
and vigorously added to our oil holdings. We were right in
our assessment that oil prices would rise again, and
we've enjoyed tremendous gains from our oil and
oil service stocks this period. ..."
[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
20
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<S> <C>
CLASS A 5.21%
CLASS B 4.74%
CLASS C 4.75%
LIPPER EQUITY INCOME FUNDS CATEGORY AVERAGE* 8.53%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS 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. THIS FUND MAY
CONCENTRATE ITS INVESTMENTS IN SPECIFIC SECTORS WHICH CREATES SPECIAL RISK
CONSIDERATIONS.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
5/31/99 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS A $35.52 $35.69
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS B $35.34 $35.51
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS C $35.36 $35.54
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND RANKINGS AS OF 5/31/99
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EQUITY INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #91 of 233 funds #114 of 233 #112 of 233 funds
- -------------------------------------------------------------------------------------
3-YEAR #21 of 157 funds #40 of 157 funds #37 of 157 funds
- -------------------------------------------------------------------------------------
5-YEAR #1 of 96 funds N/A N/A
- -------------------------------------------------------------------------------------
10-YEAR #1 of 44 funds N/A N/A
- -------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD, KEMPER-DREMAN HIGH RETURN EQUITY FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.36 $0.21 $0.21
- --------------------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $0.44 $0.44 $0.44
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $1.12 $1.12 $1.12
- --------------------------------------------------------------------------------
</TABLE>
*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.
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[STYLE/SIZE 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 HIGH RETURN EQUITY
FUND IN THE LARGE VALUE 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 HIGH RETURN EQUITY 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.
THE MARKET CONTINUED TO FAVOR LARGE GROWTH STOCKS DURING KEMPER-DREMAN HIGH
RETURN EQUITY FUND'S SEMIANNUAL PERIOD -- DECEMBER 1, 1998 THROUGH MAY 31, 1999.
LEAD PORTFOLIO MANAGER DAVID DREMAN EXPLAINS WHY THE DISPARITY BETWEEN GROWTH
AND VALUE STOCKS PERSISTED AND HOW HE MANAGED THE FUND IN LIGHT OF THE TWO-TIER
MARKET.
Q BEFORE WE DISCUSS THE FUND'S PERFORMANCE, COULD YOU EXPLAIN THE DYNAMICS
OF THE MARKET OVER THE LAST SIX MONTHS?
A Certainly. A severe two-tier market continued to exist, although in April
a slight shift began. For most of the period, however, stocks that were already
overvalued (primarily technology and Internet stocks) continued to climb higher,
while fundamentally solid companies with reasonable price-to-earnings multiples
(P/Es) languished. It was a very narrow market, in which the primary benefactors
were the largest growth-style stocks. For value investors like us, those
overvalued stocks with their extremely high P/Es just don't make sense.
There was a short-lived shift to value in February, but growth stocks bounced
back firmly until April when we began to see some earnings weakness in selected
technology and Internet-related companies. We had been expecting that break. It
may take months, though, before the disparity passes and the market becomes more
balanced. There's just no way that the year-long period of sustained enthusiasm
for and overvaluation of large growth stocks can reverse itself overnight.
Q HOW DID YOU MANAGE THE FUND IN THIS NARROW MARKET ENVIRONMENT?
A We continued to look for financially sound companies with low
price-to-earnings, price-to-book, price-to-cash-flow and price-to-dividend
ratios. As contrarian investors, we're always loath to pay a premium for any
stock and we refused to adjust our investment style to pursue short-term gains.
Our focus remained in the financial services, energy and tobacco industries.
We took advantage of improving energy stocks and kept sizeable positions in each
of the other sectors. They all provide a great deal of value and have been out
of favor for what we believe are the wrong reasons.
- -------------------------------------------------------------
CONCENTRATION OF KEMPER-DREMAN
HIGH RETURN EQUITY FUND ASSETS
- -------------------------------------------------------------
(BASED ON A PERCENT OF COMMON STOCKS)
[PIE GRAPH]
<TABLE>
<CAPTION>
On 5/31/99
<S> <C>
FINANCIALS 37.00
CONSUMER STAPLES (INCLUDES TOBACCO STOCKS) 22.00
ENERGY 20.00
HEALTHCARE 10.00
ALL OTHER 11.00
</TABLE>
Q HOW DID THE FUND PERFORM?
A The fund's Class A shares gained 5.21 percent (unadjusted for any sales
charges) for the period. This compares to the 12.6 percent gain of the Standard
& Poor's 500 Stock Index for the same six-month period. The Lipper Analytical
Services Equity Income Category gained 8.53 percent. The Lipper category
represents a group of 241 equity funds that seek relatively
5
<PAGE> 6
PERFORMANCE UPDATE
high current income and growth of income by investing at least 60 percent of
their portfolios in equities. The disparity of the fund's performance relative
to its Lipper category may be linked to the two-tier market that existed during
the period.
Q FINANCIAL SERVICES STOCKS MAKE UP THE LARGEST PORTION OF THE FUND'S
PORTFOLIO. HOW DID THEY PERFORM?
A Financials, as a sector, performed well -- the S&P Financial Index gained
10.57 percent for the six-month period. This gain, however, is somewhat
deceiving since much of it can be attributed to the largest companies within the
index. These primarily included the fast growing group of online trading
companies -- stocks that we don't own. The rest of the sector posted more modest
gains.
Q WHY DID YOU STAY AWAY FROM THE ONLINE TRADING COMPANIES THAT PERFORMED SO
WELL?
A We considered them to be very speculative. So much of online trading
companies' recent success has been tied to the huge volume of trading associated
with the myriad new Internet stocks introduced to the market. It seems like
anything with a ".com" attached to its name has immediately skyrocketed. Many of
these companies, however, have also declined precipitously after reaching their
improbable highs.
Online trading companies like Charles Schwab, E-Trade and Ameritrade have
appealed to individual investors looking to hop on the latest bandwagon and make
a quick buck. The concept of online trading is very appealing to the mass
public. It's a new and very exciting tool. As trading online has gained
popularity, however, novices are finding out that its just as easy to lose a
bundle as it is to make a bundle when trading stocks -- especially when you
don't understand the companies in which you're investing.
We see these online trading stocks as speculative for just that reason. As
novice investors lose money, their enthusiasm for active trading is likely to
wane. Additionally, if we move into a market decline, we believe many investors
may cut their losses and suspend their online trading activity altogether. This
would seriously hurt the long-term earnings potential of the online-trading
companies.
Q WHAT AREAS OF THE FINANCIAL SERVICES SECTOR APPEAL TO YOU?
A We have a large position in banks -- both the large money-center and
smaller regional institutions.
Prior to the start of the period, we had built up our position in money-center
banks. They had suffered serious price declines in the wake of the Russian debt
crisis last summer. These companies gained tremendous ground from their lows
last fall through March 1999. We trimmed exposure to these banks as they reached
unsustainable levels. In April and May these banks got knocked down again as
fears of higher interest rates entered the market. We think the decline in their
value represents an overreaction by the market. We see them as good long-term
investments for the fund.
As we saw opportunities, we increased our investment in regional banks. Many
of them traded at deep discounts that weren't warranted in our opinion. Most had
strong, consistent earnings, no foreign exposure and low valuations, which made
them likely takeover candidates. The consolidation trends in this area continue,
making these good investments for the fund.
Q WHAT ABOUT THE FUND'S OIL STOCKS? HOW HAS THE RISE IN CRUDE OIL PRICES AND
THE CONSOLIDATION OF MAJOR OIL COMPANIES HELPED THE FUND?
A Yes, our energy selections performed extremely well during the period. Oil
and oil service stocks had been beaten up quite a bit as the price of crude oil
dipped below $10 a barrel in late 1998. We took advantage of the slump in oil
prices and vigorously added to our oil holdings. We were right in our assessment
that oil prices would rebound and we've enjoyed tremendous gains from our oil
stocks this period.
The fund also benefited from the continuing consolidation in oils. Late in
1998, Amoco, a large holding for the fund, was taken over by British Petroleum.
The new entity BPAmoco then took over another of our major oil holdings. We took
profits by liquidating our position in BPAmoco during the first quarter of 1999.
Finally, it is rumored that Texaco, another Fund holding, may be taken over in
1999. This takeover and rumored takeover activity has been extremely positive
for the fund as the prices of those stocks have been bid up by the market and
helped to buoy the oil sector in general.
Q WHAT ABOUT THE FUND'S TOBACCO HOLDINGS? THERE STILL SEEMS TO BE A LOT OF
LITIGATION SURROUNDING THE INDUSTRY.
A We firmly believe that the worst of the litigation is over for the tobacco
industry. Last year a
6
<PAGE> 7
PERFORMANCE UPDATE
settlement was reached with a group of 46 states that filed lawsuits against the
tobacco companies. What we're seeing now are sporadic individual suits. Some of
these individual plaintiffs have won large awards, some have not. In any case,
the tobacco companies should be able to absorb the cost of such litigation
without hurting their bottom line. We're of course monitoring our tobacco
holdings very closely and will make adjustments as necessary.
Q WHAT WERE THE MOST POSITIVE EVENTS FOR THE FUND DURING THE PERIOD?
A The amount of takeover activity (actual and rumored) in companies held by
the fund has been a tremendous boon. We own high-quality companies that have
been knocked down. Now others are seeing the value and buying them. In addition
to the oil company takeovers, there have been rumors of other takeovers in 1999
in our energy and financial services holdings. We haven't had a period like this
in the fund's history where there was so much activity in such a short period of
time. With less than 50 stocks in the portfolio, this has a profound impact on
the fund.
Q WHAT ABOUT DISAPPOINTMENTS?
A The performance of our tobacco stocks was a big disappointment. However,
at the end of the period we began to see some strengthening, but they're still
down for the six-months ended May 31. We're heartened by the market's favorable
response to the RJR Nabisco spin-off of its international tobacco business to
Japan Tobacco, which is expected to take place in June. With the sale of the
international tobacco business, it is expected the RJR's debt will be
dramatically reduced, which should enable it to put more money back into its
domestic Reynolds Tobacco unit. Based on the success of this split, we believe
that Philip Morris may also follow suit and break up its business units. If that
were to happen, it could be very positive for the fund.
Q WHAT DO YOU EXPECT FROM THE MARKETS IN THE COMING MONTHS, AND HOW WILL YOU
POSITION THE FUND?
A We hope to see the two-tier market dissipate into a more balanced market,
which would be positive for value investors. With the concern of higher interest
rates, it's likely that volatility will continue, but we'll manage the fund
conservatively to mitigate as much of that volatility as possible. If volatility
knocks down areas that we like, we'll become more aggressive in adding them to
the portfolio.
TERMS TO KNOW
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. A company's stock price divided by its earnings for the
past four quarters. The 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.
SECTOR. Stocks usually found in related industries, such as financial services.
Financial, economic, business and other developments may similarly affect stocks
within a market sector.
VOLATILITY. Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
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, a two-tier
market existed in which only the largest growth-style stocks enjoyed
particularly strong gains.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on May 31, 1999, and on November 30, 1998.
[SIX-MONTH COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND ON 5/31/99 EQUITY FUND ON 11/30/98
<S> <C> <C>
Finance 37.2% 42.2%
Consumer staples 21.7% 23.2%
Energy 19.6% 20.1%
Health care 9.8% 5.3%
Consumer cyclicals 6.6% 3.7%
Utilities 2.3% 2.1%
Capital goods 2.1% 2.0%
Service industries 0.7% 0.0%
Basic materials 0.0% 1.4%
</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-Dreman High Return Equity Fund represented on May 31, 1999,
compared to the industry sectors that make up the fund's benchmark, the Standard
& Poor's 500 Stock Index.
[STANDARD & POOR'S COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND ON 5/31/99 S&P 500 INDEX ON 5/31/99
<S> <C> <C>
Finance 37.2% 16.4%
Consumer staples 21.7% 13.2%
Energy 19.6% 6.1%
Health care 9.8% 10.7%
Consumer cyclicals 6.6% 8.8%
Utilities 2.3% 3.0%
Capital goods 2.1% 8.04%
Service industries 0.7% 0.0%
Technology 0.0% 20.3%
Communications services 0.0% 9.1%
Basic materials 0.0% 3.3%
Transportation 0.0% 1.0%
</TABLE>
+ THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
Representing 45.6 percent of the fund's total common stock holdings on May 31,
1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the 8.1%
U.S. Through its 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. ATLANTIC RICHFIELD Engaged in exploring, developing 5.3%
and producing petroleum, which
includes petroleum liquids and
natural gas. The company is also
involved in the refining and
marketing of petroleum products,
transportation, the mining and
sale of coal and interests in
intermediate, chemicals and
specialty products.
- -------------------------------------------------------------------------------------
3. RJR NABISCO The second largest producer of 5.2%
primarily branded cigarettes.
Through its majority-owned
subsidiary, it is the leading
producer of crackers and cookies
in the U.S. market with
significant products in various
other food categories both
domestically and internationally.
- -------------------------------------------------------------------------------------
4. CONOCO An integrated, international 5.0%
energy company involved in the
discovery, development, production
and sale of crude oil, natural gas
and natural gas liquids.
- -------------------------------------------------------------------------------------
5. BANC ONE Provides data processing, venture 4.8%
capital investment and merchant
banking, trust, brokerage,
investment management and
equipment leasing.
- -------------------------------------------------------------------------------------
6. UST A holding company for four wholly 3.9%
owned subsidiaries involved in
tobacco, wine and entertainment
distribution. The company's
primary subsidiary is United
States Tobacco, a global leader in
the production of chewing tobacco
and snuff.
- -------------------------------------------------------------------------------------
7. FNMA Often referred to as "Fannie Mae," 3.7%
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.
- -------------------------------------------------------------------------------------
8. TENET HEALTHCARE Provides a broad range of health 3.5%
care services through the
ownership and management of acute
care hospitals and related
businesses.
- -------------------------------------------------------------------------------------
9. FHLMC Often referred to as "Freddie 3.1%
Mac," this corporation provides
for the transfer of capital
between mortgage lenders and
mortgage security investors,
enabling mortgage lenders to
provide a continuous flow of funds
to borrow.
- -------------------------------------------------------------------------------------
10. PNC BANK Engaged in the operation of a 3.0%
variety of financial services,
including mortgage, community,
consumer, private and corporate
banking, secured lending and asset
management.
- -------------------------------------------------------------------------------------
</TABLE>
* The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Portfolio of Investments at May 31, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--5.5%
(a)Borders Group, Inc. 7,274,625 $ 124,578
Dayton Hudson Corp. 212,800 13,407
(a)Fruit of the Loom, Inc. 4,746,100 48,944
(a)Toys "R" Us, Inc. 5,671,700 130,804
---------------------------------------------------------------------------------
317,733
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--18.3%
Imperial Tobacco Group ADR 986,150 21,942
Philip Morris Companies, Inc. 11,680,100 450,414
RJR Nabisco Holdings Corp. 9,375,200 290,045
UST, Inc. 7,078,200 215,885
Universal Corp. 2,534,850 66,223
---------------------------------------------------------------------------------
1,044,509
- --------------------------------------------------------------------------------------------------------------------
ENERGY--16.5%
Atlantic Richfield Co. 3,504,200 293,258
Conoco Inc. 10,385,154 281,697
Diamond Offshore Drilling, Inc. 1,059,500 28,871
ENSCO International, Inc. 2,296,400 40,761
(a)Global Marine, Inc. 1,757,100 24,709
(a)Noble Drilling Corp. 1,806,200 32,737
Texaco, Inc. 2,539,900 166,364
Tidewater, Inc. 981,500 25,090
Transocean Offshore, Inc. 1,960,100 48,268
-----------------------------------------------------------------------------
941,755
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL--31.3%
American International Group, Inc. 225,000 25,720
BANC ONE CORP 4,768,479 269,717
Bank of America Corp. 2,545,081 164,635
Bank of New York Co., Inc. 642,800 22,980
BankBoston Corp. 776,700 36,796
Bankers Trust New York Corp. 587,850 54,413
Citigroup, Inc. 1,824,000 120,840
Federal Home Loan Mortgage Corp. 2,923,900 170,500
Federal National Mortgage Association 3,032,800 206,230
First Union Corp. 1,618,320 74,544
Fleet Financial Group, Inc. 2,564,400 105,461
J.P. Morgan & Co., Inc. 162,400 22,624
KeyCorp 3,800,500 132,067
National Bank of Canada 1,166,900 17,393
Ohio Casualty Corp. 145,800 5,550
PNC Bank Corp. 2,965,635 169,783
Republic New York Corp. 1,906,000 129,489
Safeco Corp. 175,500 7,711
St. Paul Companies, Inc. 731,010 25,997
SunTrust Banks, Inc. 434,208 29,309
---------------------------------------------------------------------------------
1,791,759
- --------------------------------------------------------------------------------------------------------------------
HEALTH--8.2%
Columbia/HCA Healthcare Corp. 2,117,200 49,887
(a)Humana, Inc. 13,330,170 167,460
(a)LifePoint Hospitals, Inc. 111,431 1,114
McKesson HBOC, Inc. 1,649,500 56,186
(a)Tenet Healthcare Corp. 7,882,300 193,116
(a)Triad Hospitals, Inc. 111,431 1,128
---------------------------------------------------------------------------------
468,891
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING--1.7%
Koninklijke (Royal) Philips Electronics N.V. 701,300 $ 60,312
Xerox Corp. 676,200 37,994
---------------------------------------------------------------------------------
98,306
- --------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--.6%
Prison Realty Trust, Inc. (REIT) 2,837,600 35,825
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
UTILITIES--2.0%
Columbia Energy Group 1,632,900 87,360
Consolidated Natural Gas Corp. 423,100 25,148
---------------------------------------------------------------------------------
112,508
---------------------------------------------------------------------------------
TOTAL COMMON STOCKS--84.1%
(Cost: $4,345,769) 4,811,286
---------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--15.9%
(b)Repurchase agreement
State Street Bank and Trust Company
dated 5/28/99, 4.80%, due 6/1/99 $ 13,660 13,660
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
(c)Commercial Paper
Yield--4.34%-5.01%
Due--June and July 1999
American Express Credit Corp. 40,000 39,846
American Honda Financial 25,000 24,947
Barton Capital Corp. 30,000 29,858
Broadway Capital Corp. 30,000 29,848
Ciesco L.P. 65,000 64,896
Duke Energy Corp. 48,000 47,942
Ford Motor Credit Co. 40,000 39,991
General Electric Capital Corp. 42,000 41,949
General Motors Acceptance Corp. 75,000 74,853
Mont Blanc Capital Corp. 30,000 29,964
Salomon Smith Barney Holdings 45,000 44,909
U.S. Treasury Bill 45,000 44,824
Variable Funding Corp. 21,000 29,975
Windmill Funding Corp. 30,000 29,910
Xerox Credit Corp. 70,000 69,735
Other 255,165 254,279
---------------------------------------------------------------------------------
897,726
---------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--15.9%
(Cost $911,386) 911,386
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $5,257,155) $5,722,672
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized 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.
(c) The fund has entered into exchange traded S&P 500 index futures in order to
take advantage of anticipated market conditions and effectively invest in
equities approximately $767,467,000 of money market instruments. As a
result, approximately 97.3% of the fund's net assets are effectively
invested in equities. (See Note 6 of the Notes to Financial Statements.)
Based on the cost of investments of $5,257,155,000 for federal income tax
purposes at May 31, 1999, the gross unrealized appreciation was $679,984,000,
the gross unrealized depreciation was $214,467,000 and the net unrealized
appreciation on investments was $465,517,000.
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 $5,257,155) $5,722,672
- --------------------------------------------------------------------------
Receivable for:
Investments sold 25
- --------------------------------------------------------------------------
Fund shares sold 11,320
- --------------------------------------------------------------------------
Dividends and interest 13,919
- --------------------------------------------------------------------------
Daily variation margin on open futures contract 10,013
- --------------------------------------------------------------------------
TOTAL ASSETS 5,757,949
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 9,936
- --------------------------------------------------------------------------
Fund shares redeemed 4,256
- --------------------------------------------------------------------------
Management fee 3,543
- --------------------------------------------------------------------------
Distribution services fee 1,599
- --------------------------------------------------------------------------
Administrative services fee 1,078
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,513
- --------------------------------------------------------------------------
Directors' fees and other 446
- --------------------------------------------------------------------------
Total liabilities 23,371
- --------------------------------------------------------------------------
NET ASSETS $5,734,578
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $4,961,863
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 299,349
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments 465,517
- --------------------------------------------------------------------------
Futures (2,665)
- --------------------------------------------------------------------------
Undistributed net investment income 10,514
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $5,734,578
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,741,232 / 77,182 shares outstanding) $35.52
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value of 5.75% of offering price) $37.69
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($2,427,165 / 68,690 shares outstanding) $35.34
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($537,974 / 15,216 shares outstanding) $35.36
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($28,207 / 794 shares outstanding) $35.53
- --------------------------------------------------------------------------
</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 $504) $ 64,378
- ------------------------------------------------------------------------
Interest 26,030
- ------------------------------------------------------------------------
Total investment income 90,408
- ------------------------------------------------------------------------
Expenses:
Management fee 18,600
- ------------------------------------------------------------------------
Distribution services fee 10,483
- ------------------------------------------------------------------------
Administrative services fee 6,426
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 8,020
- ------------------------------------------------------------------------
Professional fees 59
- ------------------------------------------------------------------------
Reports to shareholders 420
- ------------------------------------------------------------------------
Registration fees 384
- ------------------------------------------------------------------------
Directors' fees and other 133
- ------------------------------------------------------------------------
Total expenses 44,525
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 45,883
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on:
Investments 218,993
- ------------------------------------------------------------------------
Futures 81,735
- ------------------------------------------------------------------------
300,728
- ------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on:
Investments (68,792)
- ------------------------------------------------------------------------
Futures (2,665)
- ------------------------------------------------------------------------
(71,457)
- ------------------------------------------------------------------------
Net gain on investments 229,271
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $275,154
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended May 31, 1999 (unaudited) and for the year ended November
30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 45,883 78,258
- -----------------------------------------------------------------------------------------------
Net realized gain 300,728 230,228
- -----------------------------------------------------------------------------------------------
Change in net unrealized depreciation (71,457) 203,426
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 275,154 511,912
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (43,132) (85,786)
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (229,843) (135,946)
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders (272,975) (221,732)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 543,778 1,966,720
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 545,957 2,256,900
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of period 5,188,621 2,931,721
- -----------------------------------------------------------------------------------------------
END OF PERIOD $5,734,578 5,188,621
- -----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman High Return Equity Fund (the fund) is
a separate series of Kemper Value Series, Inc.
(KVS), an open-end management investment company
organized as a corporation in the state of
Maryland. KVS is authorized to issue three 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 are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
generally 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 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. Futures contracts are valued at the
most recent settlement price. 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 Directors.
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 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 the fund's net assets
attributable to that class by the number of shares
of the class outstanding.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
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 quarterly
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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The fund 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 $18,600,000 for the
period ended May 31, 1999. 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
paid in connection with the distribution of Class A
shares for the six months ended May 31, 1999 are
$602,000.
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
$13,916,000.
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 $6,426,000, of which $3,000 was paid by KDI to
affiliates.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$5,987,000 for the six months ended May 31, 1999.
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the six months
ended May 31, 1999, the fund made no payments to
its officers and incurred directors' fees of
$70,000 to independent directors.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended May 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,151,258
Proceeds from sales 557,183
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
---------------------------------------------------------------------------------
Class A 21,552 $ 730,440 40,754 $1,379,719
---------------------------------------------------------------------------------
Class B 10,702 362,678 31,947 1,078,528
---------------------------------------------------------------------------------
Class C 3,978 134,820 7,836 264,584
---------------------------------------------------------------------------------
Class I 297 10,173 569 19,165
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------------
Class A 3,794 127,721 3,218 106,200
---------------------------------------------------------------------------------
Class B 3,089 103,816 2,506 81,999
---------------------------------------------------------------------------------
Class C 571 19,179 385 12,591
---------------------------------------------------------------------------------
Class I 49 1,665 69 2,252
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------------
Class A (16,876) (574,054) (18,866) (634,115)
---------------------------------------------------------------------------------
Class B (8,272) (279,484) (7,892) (262,838)
---------------------------------------------------------------------------------
Class C (2,322) (78,368) (1,841) (61,206)
---------------------------------------------------------------------------------
Class I (426) (14,808) (598) (20,159)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------------
Class A 904 30,969 1,444 48,468
---------------------------------------------------------------------------------
Class B (908) (30,969) (1,450) (48,468)
---------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS $ 543,778 $1,966,720
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The fund has entered into exchange traded financial
futures contracts in order to help protect itself
from anticipated market conditions and, as such,
bears the risk that arises from entering into these
contracts.
At the time the fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, payments are made
on a daily basis between the fund and the broker as
the market value of the futures contract fluctuates
and are recorded for financial reporting purposes
as unrealized gains or losses by the fund. At May
31, 1999, the market value of assets pledged by the
fund to cover margin requirements for open futures
positions was $44,824,000. The fund also had liquid
assets in excess of the face amount of open futures
contracts. At May 31, 1999, the following futures
contracts were owned by the fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION UNREALIZED
TYPE AMOUNT POSITION MONTH LOSS
---- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C>
S&P 500 Index $767,467,000 Long June '99 $2,665,000
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
SIX MONTHS YEAR ELEVEN MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
MAY 31, NOVEMBER 30, NOVEMBER 30, -----------------------
1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $35.69 33.52 26.52 21.49 15.11 15.50
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37 .73 .54 .39 .26 .25
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.38 3.80 6.89 5.75 6.76 (.39)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 1.75 4.53 7.43 6.14 7.02 (.14)
- --------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .36 .86 .37 .38 .24 .25
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.56 1.50 .06 .73 .40 --
- --------------------------------------------------------------------------------------------------------------
Total dividends 1.92 2.36 .43 1.11 .64 .25
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.52 35.69 33.52 26.52 21.49 15.11
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.21% 14.25 28.15 28.79 46.86 (.99)
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 1.20% 1.19 1.22 1.21 1.25 1.25
- --------------------------------------------------------------------------------------------------------------
Net investment income 2.15% 2.28 2.38 2.12 1.55 1.58
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 1.20% 1.19 1.22 1.21 1.57 1.39
- --------------------------------------------------------------------------------------------------------------
Net investment income 2.15% 2.28 2.38 2.12 1.23 1.44
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
CLASS B
---------------------------------------------------------------
SIX MONTHS YEAR ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $35.51 33.37 26.44 21.47 19.45
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .45 .31 .19 .07
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.38 3.75 6.84 5.72 2.41
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 1.60 4.20 7.15 5.91 2.48
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .56 .16 .21 .06
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.56 1.50 .06 .73 .40
- ----------------------------------------------------------------------------------------------------------
Total dividends 1.77 2.06 .22 .94 .46
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.34 35.51 33.37 26.44 21.47
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.74% 13.22 27.10 27.63 12.88
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses 2.07% 2.06 2.12 2.20 2.00
- ----------------------------------------------------------------------------------------------------------
Net investment income 1.28% 1.41 1.48 1.13 .61
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses 2.07% 2.06 2.12 2.31 2.35
- ----------------------------------------------------------------------------------------------------------
Net investment income 1.28% 1.41 1.48 1.02 .26
- ----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------------
CLASS C
----------------------------------------------------------------
SIX MONTHS YEAR ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $35.54 33.38 26.45 21.48 19.45
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .45 .32 .20 .09
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.37 3.79 6.83 5.72 2.41
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.59 4.24 7.15 5.92 2.50
- -----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .58 .16 .22 .07
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.56 1.50 .06 .73 .40
- -----------------------------------------------------------------------------------------------------------
Total dividends 1.77 2.08 .22 .95 .47
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.36 35.54 33.38 26.45 21.48
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.75% 13.32 27.10 27.66 12.94
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 2.06% 2.01 2.10 2.22 1.95
- -----------------------------------------------------------------------------------------------------------
Net investment income 1.29% 1.46 1.50 1.11 .66
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 2.06% 2.01 2.10 2.33 2.30
- -----------------------------------------------------------------------------------------------------------
Net investment income 1.29% 1.46 1.50 1.00 .31
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
CLASS I
----------------------------------------------------------------
SIX MONTHS YEAR ELEVEN MONTHS YEAR NOV. 1
ENDED ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $35.71 33.51 26.49 21.51 19.90
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .95 .75 .54 .04
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.35 3.76 6.81 5.70 2.03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.81 4.71 7.56 6.24 2.07
- -----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .43 1.01 .48 .53 .06
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.56 1.50 .06 .73 .40
- -----------------------------------------------------------------------------------------------------------
Total dividends 1.99 2.51 .54 1.26 .46
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.53 35.71 33.51 26.49 21.51
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.41% 14.83 28.71 29.36 10.47
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses .79% .76 .83 .88 .47
- -----------------------------------------------------------------------------------------------------------
Net investment income 2.56% 2.71 2.77 2.45 1.99
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses .79% .76 .83 .88 .85
- -----------------------------------------------------------------------------------------------------------
Net investment income 2.56% 2.71 2.77 2.45 1.61
- -----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR ENDED
ENDED YEAR ENDED ENDED DECEMBER 31,
MAY 31, NOVEMBER 30, NOVEMBER 30, -----------------------------
1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $5,734,578 5,188,621 2,931,721 737,834 98,196 35,005
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 26% 7 5 10 18 12
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. waived a portion of its management fee and absorbed
certain operating expenses of the fund through the year ended December 31, 1996.
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.
19
<PAGE> 20
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper-Dreman High Return Equity 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>
87,373,033 1,170,335 2,842,649
</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>
86,690,079 1,044,654 3,651,283
</TABLE>
3) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
<TABLE>
<CAPTION>
Diversification
For Against Abstain
<S> <C> <C>
59,524,975 3,806,849 7,616,958
</TABLE>
<TABLE>
<CAPTION>
Borrowing
For Against Abstain
<S> <C> <C>
59,486,488 3,845,603 7,616,691
</TABLE>
<TABLE>
<CAPTION>
Senior securities
For Against Abstain
<S> <C> <C>
59,530,338 3,802,253 7,616,192
</TABLE>
<TABLE>
<CAPTION>
Concentration
For Against Abstain
<S> <C> <C>
59,523,355 3,809,236 7,616,192
</TABLE>
<TABLE>
<CAPTION>
Underwriting of securities
For Against Abstain
<S> <C> <C>
59,520,199 3,813,466 7,615,117
</TABLE>
<TABLE>
<CAPTION>
Investment in real estate
For Against Abstain
<S> <C> <C>
59,511,117 3,822,549 7,615,117
</TABLE>
<TABLE>
<CAPTION>
Purchase of commodities
For Against Abstain
<S> <C> <C>
59,469,996 3,863,670 7,615,117
</TABLE>
<TABLE>
<CAPTION>
Lending
For Against Abstain
<S> <C> <C>
59,513,052 3,820,613 7,615,117
</TABLE>
<TABLE>
<CAPTION>
Margin purchases and short sales
For Against Abstain
<S> <C> <C>
59,416,680 3,917,020 7,615,082
</TABLE>
<TABLE>
<CAPTION>
Pledging of assets
For Against Abstain
<S> <C> <C>
59,424,122 3,907,310 7,617,351
</TABLE>
<TABLE>
<CAPTION>
Restricted and illiquid securities
For Against Abstain
<S> <C> <C>
59,448,199 3,884,426 7,616,157
</TABLE>
<TABLE>
<CAPTION>
Investment in mineral exploration
For Against Abstain
<S> <C> <C>
59,418,705 3,913,801 7,616,276
</TABLE>
20
<PAGE> 21
NOTES
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS&OFFICERS
DIRECTORS OFFICERS
JAMES E. AKINS MARK S. CASADY CORNELIA SMALL
Director President Vice President
JAMES R. EDGAR PHILIP J. COLLORA LINDA J. WONDRACK
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Director JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Director ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER ELIZABETH C. WERTH
Director and Vice President KATHRYN L. QUIRK Assistant Secretary
Vice President
FRED B. RENWICK BRENDA LYONS
Director THOMAS F. SASSI Assistant Treasurer
Vice President
JOHN G. WEITHERS
Director
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- --------------------------------------------------------------------------------
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.
KDHRF - 3 (7/26/99) 1080130
