<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 2000
Seeks long-term capital appreciation
KEMPER
CONTRARIAN FUND
"... Our conservative, risk-averse, value style was at total variance with the
market. Investment dollars poured into companies with the highest
price-to-earnings ratios and those with no earnings at all. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
INDUSTRY SECTORS
9
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
16
FINANCIAL HIGHLIGHTS
18
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER CONTRARIAN FUND TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND KEMPER CONTRARIAN FUND LIPPER LARGE-CAP VALUE
KEMPER CONTRARIAN FUND CLASS A CLASS B CLASS C FUNDS CATEGORY AVERAGE*
------------------------------ ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
-2.95 -3.22 -3.11 2.37
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE, SO THAT WHEN SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/00 11/30/99
..........................................................
<S> <C> <C> <C> <C>
KEMPER CONTRARIAN FUND CLASS A $17.08 $19.75
..........................................................
KEMPER CONTRARIAN FUND CLASS B $17.04 $19.68
..........................................................
KEMPER CONTRARIAN FUND CLASS C $17.07 $19.68
..........................................................
</TABLE>
KEMPER CONTRARIAN FUND
LIPPER RANKINGS AS OF 5/31/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP VALUE FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #331 of 337 funds #333 of 337 funds #332 of 337 funds
....................................................................................
3-YEAR #217 of 225 funds #218 of 225 funds #219 of 225 funds
....................................................................................
5-YEAR #139 of 148 funds N/A N/A
....................................................................................
10-YEAR #51 of 55 funds N/A N/A
....................................................................................
</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 SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS
FAVORABLE.
DIVIDEND REVIEW
DURING THE FISCAL YEAR, KEMPER CONTRARIAN FUND MADE THE FOLLOWING DISTRIBUTIONS
PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..................................................................................................
<S> <C> <C> <C> <C> <C>
INCOME DIVIDEND $0.19 $0.12 $0.11
..................................................................................................
SHORT-TERM CAPITAL GAIN $0.76 $0.76 $0.76
..................................................................................................
LONG-TERM CAPITAL GAIN $1.04 $1.04 $1.04
..................................................................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. The Equity Style Box placement is based
on two variables: a fund's market capitali-
zation 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 STYLE BOX 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. CATEGORY PLACEMENTS OF NEW FUNDS ARE
ESTIMATED. MORNINGSTAR HAS PLACED KEMPER
CONTRARIAN FUND IN THE LARGE VALUE CATEGORY.
PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION
OF INVESTMENT POLICIES.
</TABLE>
BEAR MARKET The opposite of a bull market, a bear market is a prolonged period
of falling prices, usually by 20 percent or more, accompanied by widespread
pessimism.
BOTTOM-UP STOCK SELECTION Individual stock selection drives the bottom-up
process. The overall sector allocation results from the individual stock
decisions. In contrast, a top-down approach begins with a determination of how
much should be invested in each market sector; stocks are then selected to meet
the predetermined sector allocations.
PRICE-TO-EARNINGS RATIO A price-to-earnings ratio, often referred to as "P/E" or
a "multiple," is a measure of how much an investor is paying for a company's
earning power. It is calculated by dividing a company's stock price by its
earnings for the most recent four quarters.
VALUATION The level at which an asset or company is trading, or the analytical
technique used to determine the value of an asset or a company.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER,
When an irresistible force such as the ebullient U.S. economy meets an immovable
object, such as a determined Federal Reserve Board, the old song is right:
Something's gotta give. One possibility -- the economy could slow down as the
Fed has ordered. Or, if market volatility becomes true distress, the Fed could
back off, as it has in the past. A third possibility is that neither the Fed nor
the economy will give way until it's too late, which could lead to a recession.
Recent evidence suggests, however, that the economy probably will slow down as
ordered.
Before explaining why, perhaps it's best to start with a review of how
monetary policy works. Central bankers often sound like witch doctors reading
animal entrails, so it's understandable that many people are confused about
monetary policy. But monetary policy still works in the same way it always has.
First, it changes the price and availability of money. More subtly, it alters
people's perceptions about and confidence in the future, thereby adjusting their
willingness to take risks.
It's a bit early to tell how the Fed's monetary policy is working so far. The
policymakers only started raising interest rates about a year ago, and it takes
at least that long for higher rates to impact borrowers. There are two reasons.
First, interest rates on many existing loans are fixed. And, a family who has
just selected a dream house isn't going to walk away if mortgage rates rise a
notch. Similarly, a company that has just approved an expansion program won't
stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The May dip in housing
starts and auto sales -- especially the higher priced, gas guzzling sport
utility vehicles -- is probably the first sign that higher rates are biting.
They will bite harder in coming months. We look for both housing starts and
vehicle sales to drop about 10 percent in 2001.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend. Corporate bond issuance through mid-June was 35 percent
below the first five and a half months of 1999.
So far, companies have been able to get around the bond market stinginess by
turning to their bankers. Banks lent businesses 8 percent more from January
through May of this year than they did during the first five months of 1999. But
some banks are beginning to worry, too. Bank examiners have been questioning the
quality of loans and the level of reserves. In response, more bankers are
tightening lending standards and raising rates. This is a textbook case of how
tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy keeps
growing at 3 percent or so, won't that guarantee such good profits that paying
the bills will be a cinch? Not necessarily. Profits are far more cyclical than
economic growth. Earnings actually fell during 1998, even though the economy
continued to roll. That was a global crisis, when foreign earnings fell sharply.
But take a look at the last "soft landing" during 1995. Revenue growth dipped
and pricing power fell, squeezing profits. The same thing is likely to happen
again in the coming slowdown -- and this time, tight labor markets could make it
even tougher for companies to control costs quickly. Assuming growth is between
2.5 percent and 3 percent by the end of 2001, we believe year-over-year profit
comparisons will have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take its
toll on capital spending. We expect growth in business outlays for buildings and
equipment to slip from over 12 percent this year to around 8 percent in 2001.
That's still quite robust, and the "high-tech imperative" is the reason why.
Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that the sector will see unit
growth of about 50 percent this year, double the growth in 1999. It's hard even
for superstars to sustain these stratospheric
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (5/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.40 6.00 5.50 5.60
Prime rate (2) 9.50 8.50 7.75 8.50
Inflation rate (3)* 3.00 2.60 2.30 1.50
The U.S. dollar (4) 4.30 -0.70 -0.90 6.40
Capital goods orders (5)* 17.00 12.30 2.50 14.50
Industrial production (5)* 6.10 3.70 2.90 5.20
Employment growth (6) 2.60 2.20 2.30 2.60
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 4/30/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
compound growth rates forever, and we do expect some moderation next year.
However, high-tech orders continue to ratchet upwards, and the shortage in
semiconductors and other components has persisted long enough to cause major
players to announce huge capacity additions.
Another battle the Fed must win before it succeeds in slowing the economy is
bringing consumers to heel. Most families still feel better off than they were
last year and much richer than they were five years ago. That's a powerful
incentive to spend and enjoy. Indeed, total real consumption has been galloping
at a 5 percent rate or better since early 1998. But consumers are so important
to the economy that if they don't start spending less freely, there won't be a
slowdown. We expect the Fed to be successful and slow down shoppers in the
months ahead -- but the victory won't be an easy one. We expect at least one
more rate hike and a few more financial fireworks before consumers and the
economy hoist the white flag.
So what will the slowdown look like? During the spring, retail sales, housing
starts and job creation slowed, but strength in high tech orders and capital
equipment production probably will help keep the slowdown from becoming too
abrupt. We expect about 3.5 percent growth in the second half. That would still
produce a hearty 5 percent growth for full year 2000. During 2001, the full
impact of the Fed's recent tightening will probably rein growth in to just 3
percent.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JUNE 29, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[SASSI PHOTO]
THOMAS SASSI IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND LEAD
PORTFOLIO MANAGER OF KEMPER CONTRARIAN FUND. SASSI RECEIVED A BACHELOR OF
BUSINESS ADMINISTRATION DEGREE IN MANAGEMENT AND ECONOMICS AND A MASTER OF
BUSINESS ADMINISTRATION DEGREE IN FINANCE FROM HOFSTRA UNIVERSITY. HE HAS MORE
THAN 25 YEARS OF EXPERIENCE IN INVESTMENT ANALYSIS AND MANAGEMENT.
[GASKIN PHOTO]
FREDERICK L. GASKIN IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC. AND
A PORTFOLIO MANAGER OF KEMPER CONTRARIAN FUND. GASKIN RECEIVED A BACHELOR'S
DEGREE IN FINANCE FROM APPALACHIAN STATE UNIVERSITY AND A MASTER OF BUSINESS
ADMINISTRATION FROM THE BABCOCK SCHOOL OF MANAGEMENT AT WAKE FOREST UNIVERSITY.
HE HAS NEARLY 15 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE.
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 AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
WILD SWINGS IN THE STOCK MARKET EFFECTIVELY DIVIDED
THIS SEMIANNUAL PERIOD IN HALF. DURING THE FIRST
HALF, INVESTORS TURNED A BLIND EYE TOWARD
FUNDAMENTALS, CHOOSING INSTEAD TO FUEL THE FIRE IN
TECHNOLOGY STOCKS AND OTHER HIGH-PRICED
"NEW-ECONOMY" NAMES. A HISTORICALLY PRECIPITOUS
DROP IN THE NASDAQ IN MARCH DOUSED THE FIRE AND
GAVE RISE TO BROADER, MORE VALUE-ORIENTED
INVESTMENT OPPORTUNITIES IN THE SECOND HALF. KEMPER
CONTRARIAN FUND WAS UNABLE TO RECOVER LOST GROUND,
HOWEVER, DESPITE STRONGLY POSITIVE RETURNS IN THE
PERIOD'S FINAL MONTHS.
Q WILL YOU PROVIDE AN OVERVIEW OF MARKET CONDITIONS DURING THE PERIOD,
HIGHLIGHTING CHALLENGES OR BENEFITS TO FUND MANAGEMENT AND PERFORMANCE?
A Trends that were in evidence early in the second half of 1999 continued to
characterize the market during the first three months of the semiannual period.
Primarily, we were dealing with a two-tiered market in which a very narrow band
of stocks -- mostly technology, media and telecommunications (TMT)
companies -- tended to post robust gains, while the vast majority of stocks
outside these sectors were mired in a bear market (see Terms To Know, on page
2). Major market indices, such as the Dow Jones Industrial Average and the
Nasdaq, which are heavily weighted in TMT names, climbed to all-time highs,
despite the fact that their component stocks generally did less well than the
averages and most U.S. equities declined. This something we've seen only once
before in the U.S. equity markets in the past three decades.
In the new market paradigm, it seemed investors were ever willing to pay
inordinately high prices for the so-called new-economy stocks. By the end of the
first half of the period, it seemed TMT was the only place to be. But valuations
for most of these stocks were at extremes, providing little opportunity for
value investors. Indeed, our conservative, risk-averse, value style was at total
variance with the market. Investment dollars poured into companies with the
highest price-to-earnings (P/E) ratios (see Terms To Know, page 2) and those
with no earnings. As one observer aptly put it, "Blue chips took a backseat to
poker chips."
A cornerstone of the contrarian investment philosophy is that, despite the
extremes to which human emotion may drive stocks or industry sectors from time
to time, the market as a whole is rational and will revert to the mean over
time. Theory became practice when the Nasdaq collapsed in March. This was an
important inflection point in the period, after which the market became much
more broad-based. Perhaps most important, the correction in TMT stocks created
greater opportunities for value investing than we have seen in the past 18
months, during which the markets have been particularly inhospitable to
contrarians.
Q HOW DID THE FUND PERFORM IN THIS EXTRAORDINARY MARKET ENVIRONMENT?
A The rotation created a dramatic difference in the comparative performance
of the fund between the first and second halves of the period. December began
with
5
<PAGE> 6
PERFORMANCE UPDATE
extremely weak performance, which persisted, albeit less dramatically, through
February. The fund regained its footing in March and made strides through April
and May. The strongly positive rates of return during these months, however,
were not enough to offset earlier losses, and Kemper Contrarian Fund ended the
six-month period down 2.95 percent (class A Shares, unadjusted for sales
charge). The fund underperformed both its benchmark, the Standard & Poor's 500,
and its peers in the Lipper Large-Cap Value Funds category. These returned 2.28
percent and 2.37 percent, respectively.
Our goal, of course, is to outperform both the fund's benchmark and its peers.
After eight years of excellent performance, we are indeed disappointed with our
results during this period. Our disappointment is somewhat tempered, however, by
our conviction in the efficacy of our investment discipline over time. We adhere
to that discipline strictly, regardless of market conditions. And we resist the
temptation to prop up performance in the short run by bending the rules, a
common practice in the mutual fund industry, where the competition is stiff.
Some fund managers do it by including hot stocks that don't quite meet
investment criteria. Over time, this can result in "style drift," or straying
from the fund's true objectives. Others practice what's commonly called "closet
indexing": they purchase stocks held by the index in approximately the same
proportions to keep pace with performance.
We know that our adherence to principle may have clipped returns in the short
run by keeping us out of the high-flying technology sector. But we are confident
in the time-tested validity of our approach and believe wholeheartedly that it
will result in the greatest value for shareholders.
Q WILL YOU DESCRIBE YOUR INVESTMENT DISCIPLINE?
A We follow a "bottom-up" approach (see Terms To Know, on page 2). The basis
of our strategy is thorough analysis of individual stocks. Industry sector
weightings are simply a result of the stock selection.
We look for quality companies that are out of favor with investors for one
reason or another and that have strong fundamentals and potential for growth. We
seek stocks with lower price-to-earnings ratios, higher dividend yields and
faster earnings and dividend growth rates than the respective market averages.
There is generally less risk in contrarian investing than in other styles or
disciplines. When you invest in a healthy company whose stock price is
temporarily depressed, there is greater potential for a high rate of return if
earnings revert to historical levels.
Q PLEASE PROVIDE AN EXAMPLE OF HOW THE DISCIPLINE WORKS?
A Absolutely. Minnesota Mining & Manufacturing, better known as "3M," is a
classic example. The company is a major manufacturer serving industrial,
commercial health care and consumer markets around the world. In 1998, the
company reported disappointing earnings in consecutive quarters, due primarily
to economic problems in Asia and South America, where the company has interests.
Research showed the company to have a long track record of consistent earnings,
low debt and other favorable fundamentals. In addition, the company had solid
prospects for future growth. Yet the emotional overreaction of investors to the
news drove the stock's price down significantly.
We believed the company would quickly overcome these problems and revert to
historical earnings trends. We purchased the stock at a bargain. In the two
years since, ongoing economic recovery in those regions have helped the stock
recover from previous losses and climb higher still. During the period, we
reduced our 3M holdings on price strength.
Q WERE THERE ANY OTHER NOTABLE CHANGES TO THE PORTFOLIO?
A In addition to 3M, we took profits on Atlantic Richfield after it was
acquired by BP Amoco. In terms of new purchases, we established a position in
Diebold, the nation's leading provider of automatic teller machines. The stock
price had dropped nearly in half after the company reported disappointing
earnings and concerns arose regarding the long-term growth prospects in the ATM
business. We saw the first real opportunity since 1995 to buy this century-old
company with a long track record of earnings performance and a healthy balance
sheet. We seized the opportunity to significantly add to our position in Diebold
and two other stocks with strong fundamentals that also had suffered price
declines: Becton, Dickenson, a health care company; and Equifax, a consumer and
commercial credit information and operations services provider.
6
<PAGE> 7
PERFORMANCE UPDATE
Q PHILIP MORRIS, THE FUND'S THIRD-LARGEST HOLDING, SEEMS TO BE A PERENNIAL
LIGHTENING ROD FOR CONTROVERSY. CAN YOU ELUCIDATE THE STOCK'S POSITIVE
ATTRIBUTES AND EXPLAIN WHY THE FUND CONTINUES TO OWN IT?
A There is no doubt that the company's main product, tobacco, is
controversial. And the persistent onslaught of political, legislative and legal
challenges because of it recently has driven the stock's price down to
historical lows, along with those of some other industry leaders. Although we
reduced our holdings in 1999, Philip Morris is the only tobacco company we
currently own.
We have continued to hang on to the stock because it remains fundamentally
strong: Company management is astute; its interests are diverse; and it has
demonstrated an ability to grow earnings and dividends despite extreme
adversity. Even when the stock's price had dropped to $19 per share, the company
was paying a dividend yield of 10 percent. While we recognize and appreciate the
downside of owning the company, we believe that it will provide rewards to our
shareholders over time.
Q WHAT IS YOUR OUTLOOK FOR INVESTING?
A It is likely that the Federal Reserve will continue to raise interest
rates and that the economy will decelerate as a result. The average, so-called
old-economy stock has already more than discounted the likelihood of this
happening. Not so, we believe, for the new-economy stocks, which are likely to
be further depressed.
In any case, we believe that the market is beginning to broaden. Investors
have begun to see that TMT stocks are not invulnerable, as once they may have
seemed to be. As I said earlier, the market may be extreme and emotional in the
short run, but logic and rationalism eventually prevail. History has shown that
to be true, which is why we believe that the collapse of the Nasdaq in March
will prove to be a watershed event in modern stock market history.
Look at the "consensus markets" of the past. Generally when a single sector
has dominated -- the "Nifty 50" in 1972, energy in 1980 or personal computers in
1983, for example -- the upside was greater than anyone had anticipated. And
each time, the downside proved more extreme and long-lasting than anyone thought
possible. After their initial fall, the former leadership stocks entered a bear
market, and investors returned to the broader market with an eye toward quality
and quantitative analysis.
While there isn't a direct parallel, we believe that to some extent history
will repeat itself. The market recently has shown little tolerance for
disappointing earnings. We believe that, good companies will begin to shrug off
bad news and recover more quickly. Also, we look for some of the less well-known
or highly publicized names, many of which have fared poorly in recent years, to
begin to outperform some of today's leaders. But we don't expect technology
stocks to fade from the public consciousness. Technology is still a growth
industry with tremendous upside potential.
Q DO YOU HAVE ANY CLOSING COMMENTS?
A Kemper Contrarian Fund is well positioned in quality companies with low
valuations (see Terms To Know, on page 2), high current income and earnings
growth prospects that are well above the averages. We will continue to try to
upgrade the quality of the portfolio when we can, while maintaining a low median
P/E and a high current yield.
We remind our shareholders that the markets tend to change quickly and often
radically, and that relative fund performance can change just as quickly. It's
our belief that patience and a commitment to disciplined investing will be
rewarded in time. Kemper's tag line, "Long-term investing in a short-term
world," isn't just advertising. Our eyes are always on the horizon, which is
where we urge our shareholders to keep theirs firmly fixed as well.
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, 2000, and on November 30, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND ON KEMPER CONTRARIAN FUND ON
5/31/00 11/30/99
------------------------- -------------------------
<S> <C> <C>
Finance 26.80 27.90
Consumer nondurables 24.40 27.20
Capital goods 19.90 19.90
Health care 8.30 4.80
Energy 6.50 5.60
Technology 5.70 3.50
Other 4.60 7.00
Transportation 2.00 2.50
Communication services 1.00 0.00
Basic materials 0.80 1.60
</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, 2000, compared with the
industry sectors that make up the fund's benchmark, the Standard & Poor's 500
stock index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND ON
5/31/00 S & P 500 INDEX ON 5/31/00
------------------------- --------------------------
<S> <C> <C>
Finance 26.80 12.90
Consumer nondurables 24.40 18.40
Capital goods 19.90 8.10
Health care 8.30 10.20
Energy 6.50 5.30
Technology 5.70 32.30
Other 4.60 0.00
Transportation 2.00 0.60
Communication services 1.00 7.30
Basic materials 0.80 2.30
Utilities 0.00 2.60
</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 31.8 percent of the fund's total investment portfolio on May 31,
2000.
<TABLE>
<CAPTION>
HOLDINGS DESCRIPTION PERCENT
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae," 4.3%
ASSOCIATION (FNMA) 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.
--------------------------------------------------------------------------------------
2. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie 3.9%
CORP. (FHLMC) 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.
--------------------------------------------------------------------------------------
3. PHILIP MORRIS The largest cigarette maker in the 3.5%
United States. 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.
--------------------------------------------------------------------------------------
4. DIEBOLD The company is the leading 3.1%
producer of automated teller
machines (ATMs) in the U.S. In
addition, Diebold sells other
products designed to automate and
extend the availability of banking
services.
--------------------------------------------------------------------------------------
5. FIRST UNION The bank has nearly 2,000 branches 3.0%
in 12 U.S. states and Washington,
D.C. It also offers investment
products, such as mutual funds,
corporate finance, home equity
lending (through its Money Store
unit) and insurance products.
--------------------------------------------------------------------------------------
6. SONOCO PRODUCTS Engaged in the manufacture of 2.9%
paper and converted paper products
for sale principally to other
manufacturers.
--------------------------------------------------------------------------------------
7. BECTON, DICKINSON The company's subsidiary, Medical 2.9%
Systems is a global leader in the
manufacture of syringes and other
diabetes care, infusion therapy
and drug injection products. The
company's other divisions
manufacture microbiology products,
cellular analysis systems, test
kits and consumer health care
products.
--------------------------------------------------------------------------------------
8. EQUIFAX Equifax, Inc. is engaged in 2.8%
operations including consumer and
commercial credit information
services, payment services,
software, modeling, analytics,
consulting and direct-to-consumer
services.
--------------------------------------------------------------------------------------
9. MAY DEPARTMENT STORES The retailer operates 2.7%
approximately 400 department
stores throughout the U.S. under
11 names, including: Lord &
Taylor, Filene's, Robinsons-May,
and L.S. Ayres. The company
primarily sells designer-label
apparel, shoes, cosmetics and home
furnishings.
--------------------------------------------------------------------------------------
10. EMERSON ELECTRONICS Emerson Electronics Company is 2.7%
engaged principally in the
worldwide design, manufacture and
sale of a broad range of
electrical, electromechanical and
electronic products and systems.
--------------------------------------------------------------------------------------
</TABLE>
* THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER CONTRARIAN FUND
Portfolio of Investments at May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS--4.6% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
State Street Bank and Trust Company, dated
05/31/00 at 6.37%, to be repurchased at
$10,048,778 on 06/01/00 (a) (Cost
$10,047,000) $10,047,000 $ 10,047,000
--------------------------------------------------------------------------------
COMMON STOCKS--95.4% NUMBER OF SHARES
CONSUMER DISCRETIONARY--7.0%
DEPARTMENT & CHAIN STORES--5.0%
J.C. Penney Co., Inc. 149,600 2,711,500
May Department Stores 192,750 5,794,547
Sears, Roebuck & Co. 60,000 2,216,250
--------------------------------------------------------------------------------
10,722,297
HOME FURNISHINGS--2.0%
Newell Rubbermaid, Inc. 166,300 4,365,375
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--14.6%
ALCOHOL & TOBACCO--3.5%
Philip Morris Companies, Inc. 286,100 7,474,363
--------------------------------------------------------------------------------
FOOD & BEVERAGE--5.6%
Albertson's, Inc. 75,000 2,746,875
H.J. Heinz, Co. 115,500 4,526,156
Sara Lee Corp. 266,100 4,789,800
--------------------------------------------------------------------------------
12,062,831
PACKAGE GOODS/ COSMETICS--3.2%
International Flavors & Fragrances, Inc. 72,200 2,454,800
Unilever NV (New York Shares) 90,178 4,582,170
--------------------------------------------------------------------------------
7,036,970
TEXTILES--2.3%
VF Corp. 176,800 5,071,950
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
DURABLES--3.9%
AEROSPACE--1.7%
United Technologies Corp. 60,000 3,626,250
--------------------------------------------------------------------------------
AUTOMOBILES--2.2%
Dana Corp. 80,000 2,065,000
Ford Motor Co. 55,000 2,670,938
--------------------------------------------------------------------------------
4,735,938
-----------------------------------------------------------------------------------------------------------------------------
ENERGY--6.5%
OIL & GAS PRODUCTION
BP Amoco PLC 66,914 3,638,446
Exxon Mobil Corp. 62,000 5,165,375
Texaco, Inc. 92,300 5,301,481
--------------------------------------------------------------------------------
14,105,302
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL--26.8%
BANKS--13.5%
Bank of America Corp. 90,000 5,000,625
First Union Corp. 183,900 6,470,981
KeyCorp 244,000 5,124,000
PNC Bank Corp. 50,000 2,518,750
Wachovia Corp. 40,000 2,765,000
Washington Mutual, Inc. 186,820 5,371,075
Wells Fargo Co. 40,000 1,810,000
--------------------------------------------------------------------------------
29,060,431
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
INSURANCE--5.2%
Allstate Corp. 162,600 $ 4,308,900
American General Corp. 37,400 2,395,938
Chubb Corp. 64,300 4,501,000
--------------------------------------------------------------------------------
11,205,838
OTHER FINANCIAL COMPANIES--8.1%
Federal Home Loan Mortgage Corp. 187,000 8,321,500
Federal National Mortgage Association 153,000 9,199,125
--------------------------------------------------------------------------------
17,520,625
-----------------------------------------------------------------------------------------------------------------------------
HEALTH--8.3%
MEDICAL SUPPLY & SPECIALTY--2.9%
Becton, Dickinson & Co. 215,000 6,275,313
--------------------------------------------------------------------------------
PHARMACEUTICALS--5.4%
Abbott Laboratories 132,800 5,403,300
Bristol-Myers Squibb Co. 40,000 2,202,500
Johnson & Johnson, Inc. 21,000 1,879,500
Merck & Co., Inc. 30,000 2,238,750
--------------------------------------------------------------------------------
11,724,050
-----------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--1.0%
TELEPHONE/COMMUNICATIONS
BellSouth Corp. 22,000 1,027,125
SBC Communications, Inc. 25,000 1,092,188
--------------------------------------------------------------------------------
2,119,313
-----------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.8%
PRINTING/PUBLISHING
Equifax, Inc. 218,000 6,035,875
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--16.0%
CHEMICALS--1.9%
E.I. du Pont de Nemours & Co. 41,300 2,023,700
Praxair, Inc. 48,500 2,037,000
--------------------------------------------------------------------------------
4,060,700
CONTAINERS & PAPER--2.9%
Sonoco Products Co. 287,900 6,351,794
--------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--1.5%
Minnesota Mining & Manufacturing Co. 37,800 3,241,350
--------------------------------------------------------------------------------
ELECTRICAL PRODUCTS--3.8%
Emerson Electric Co. 97,900 5,776,100
Thomas & Betts Corp. 88,800 2,519,700
--------------------------------------------------------------------------------
8,295,800
MACHINERY/COMPONENTS--2.1%
Pitney Bowes, Inc. 106,400 4,628,400
--------------------------------------------------------------------------------
OFFICE EQUIPMENT/ SUPPLIES--1.8%
Xerox Corp. 141,000 3,824,625
--------------------------------------------------------------------------------
SPECIALTY CHEMICALS--2.0%
Air Products & Chemicals, Inc. 121,600 4,210,400
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--5.7%
COMPUTER SOFTWARE--1.5%
Computer Associates International, Inc. 62,000 3,193,000
--------------------------------------------------------------------------------
DIVERSE ELECTRONIC PRODUCTS--3.1%
Diebold, Inc. 223,000 6,759,688
--------------------------------------------------------------------------------
MILITARY ELECTRONICS--1.1%
Raytheon Co. "B" 100,000 2,343,750
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
CONSTRUCTION--0.8%
FOREST PRODUCTS
Louisiana-Pacific Corp. 150,000 $ 1,687,500
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.0%
AIR FREIGHT--0.7%
FedEx Corp.* 45,000 1,591,876
--------------------------------------------------------------------------------
RAILROADS--1.3%
Burlington Northern Santa Fe Corp. 50,000 1,181,250
CSX Corp. 72,700 1,581,225
--------------------------------------------------------------------------------
2,762,475
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $228,726,339) 206,094,079
--------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $238,773,339)(b) $216,141,079
--------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing.
(a) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(b) The cost for federal income tax purposes was $238,773,339. At May 31, 2000,
the net unrealized depreciation for all securities based on tax cost was
$22,632,261. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess market value over tax cost of
$8,701,323 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $31,333,584.
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of May 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $238,773,339) $216,141,079
----------------------------------------------------------------------------
Cash 261
----------------------------------------------------------------------------
Receivable for investments sold 476,515
----------------------------------------------------------------------------
Dividend receivable 832,970
----------------------------------------------------------------------------
Interest receivable 1,778
----------------------------------------------------------------------------
Receivable for Fund shares sold 443,392
----------------------------------------------------------------------------
Foreign taxes recoverable 6,966
----------------------------------------------------------------------------
TOTAL ASSETS 217,902,961
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 3,730,955
----------------------------------------------------------------------------
Payable for Fund shares redeemed 546,914
----------------------------------------------------------------------------
Accrued management fee 132,696
----------------------------------------------------------------------------
Other accrued expenses 305,217
----------------------------------------------------------------------------
TOTAL LIABILITIES 4,715,782
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $213,187,179
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income $ 570,618
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions (22,632,262)
----------------------------------------------------------------------------
Accumulated net realized gain (loss) (19,126,030)
----------------------------------------------------------------------------
Paid-in-capital 254,374,853
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $213,187,179
----------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($125,365,762 / 7,339,636 shares of capital stock
outstanding,
$.01 par value, 320,000,000 shares authorized) $17.08
----------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $17.08) $18.12
----------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($74,648,119 /
4,380,990 shares of capital stock outstanding, $.01 par
value, 320,000,000 shares authorized) $17.04
----------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($13,173,298 /
771,824 shares of capital stock outstanding, $.01 par
value, 80,000,000 shares authorized) $17.07
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
----------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $15,184) $ 3,596,947
----------------------------------------------------------------------------
Interest 317,500
----------------------------------------------------------------------------
Total income 3,914,447
----------------------------------------------------------------------------
Expenses:
Management fee 869,602
----------------------------------------------------------------------------
Services to shareholders 526,350
----------------------------------------------------------------------------
Custodian fees 796
----------------------------------------------------------------------------
Distribution services fees 358,622
----------------------------------------------------------------------------
Administrative services fees 291,291
----------------------------------------------------------------------------
Auditing 13,176
----------------------------------------------------------------------------
Legal 3,477
----------------------------------------------------------------------------
Trustees' fees and expenses 11,267
----------------------------------------------------------------------------
Reports to shareholders 97,306
----------------------------------------------------------------------------
Registration fees 34,868
----------------------------------------------------------------------------
Total expenses, before expense reductions 2,206,755
----------------------------------------------------------------------------
Expense reductions (8,525)
----------------------------------------------------------------------------
Total expenses, after expense reductions 2,198,230
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,716,217
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
----------------------------------------------------------------------------
Net realized gain (loss) from investment transactions (19,165,825)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 1,485,067
----------------------------------------------------------------------------
Net gain (loss) on investment transactions (17,680,758)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(15,964,541)
----------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED MAY 31 NOVEMBER 30
------------- -------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
------------------------------------------------------------------------------------------------
Operations:
Net investment gain (loss) $ 1,716,217 $ 3,482,651
------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (19,165,825) 33,786,921
------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 1,485,067 (58,042,329)
------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (15,964,541) (20,772,757)
------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (1,533,966) (2,360,617)
------------------------------------------------------------------------------------------------
Class B (622,615) (609,901)
------------------------------------------------------------------------------------------------
Class C (93,325) (65,989)
------------------------------------------------------------------------------------------------
(2,249,906) (3,036,507)
------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net realized gains
Class A (15,253,413) (11,045,046)
------------------------------------------------------------------------------------------------
Class B (9,611,802) (8,696,036)
------------------------------------------------------------------------------------------------
Class C (1,578,185) (1,068,004)
------------------------------------------------------------------------------------------------
(26,443,400) (20,809,086)
------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 76,048,177 203,332,721
------------------------------------------------------------------------------------------------
Reinvestment of distributions 26,681,033 22,138,346
------------------------------------------------------------------------------------------------
Cost of shares redeemed (145,240,626) (144,209,275)
------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS (42,511,416) 81,261,792
------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (87,169,263) 36,643,442
------------------------------------------------------------------------------------------------
Net assets at beginning of period 300,356,442 263,713,000
------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $570,618 and $1,104,307, respectively) $ 213,187,179 $ 300,356,442
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
FOR THE PERIOD
SIX MONTHS FOR THE FROM
ENDED YEAR ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
MAY 31, NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
2000 --------------- NOVEMBER 30, ------------ OPERATIONS) TO
(UNAUDITED) 1999 1998 1997 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.75 22.90 21.13 16.93 16.20 12.18
----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .15(a) .34(a) .28 .23 .23 .26
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.83) (1.40) 3.48 4.25 2.07 5.05
----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.68) (1.06) 3.76 4.48 2.30 5.31
----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.31) (.27) (.20) (.22) (.24)
----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions (1.80) (1.78) (1.72) (.08) (1.35) (1.05)
----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.99) (2.09) (1.99) (.28) (1.57) (1.29)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.08 19.75 22.90 21.13 16.93 16.20
----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) (2.95)** (5.06) 19.51 26.58** 14.42 44.57**
----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 125 173 152 101 47 19
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense
reductions (%) 1.49* 1.41 1.37 1.35* 1.25 1.66*
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) 1.49* 1.40 1.37 1.35* 1.23 1.25*
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.88* 1.53 1.36 1.47* 1.56 1.85*
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 41* 88 64 77* 95 30*
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE PERIOD
SIX MONTHS FOR THE FROM
ENDED YEARS ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
MAY 31, NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
2000 -------------- NOVEMBER 30, ------------ OPERATIONS) TO
(UNAUDITED) 1999 1998 1997 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.68 22.82 21.08 16.92 16.20 15.26
---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .07(a) .14(a) .08 .08 .11 .07
---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.79) (1.38) 3.46 4.22 2.07 1.85
---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.72) (1.24) 3.54 4.30 2.18 1.92
---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.12) (.12) (.08) (.06) (.11) (.07)
---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions (1.80) (1.78) (1.72) (.08) (1.35) (.91)
---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.92) (1.90) (1.80) (.14) (1.46) (.98)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.04 19.68 22.82 21.08 16.92 16.20
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) (3.22)** (5.90) 18.32 25.44** 13.61 12.83**
---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 75 109 100 71 29 6
---------------------------------------------------------------------------------------------------------------------------
Ratio to expenses, before expense
reductions (%) 2.47* 2.29 2.31 2.26* 2.34 2.36*
---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) 2.47* 2.29 2.31 2.26* 2.11 2.00*
---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .88* .64 .42 .56* .68 .88*
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 41* 88 64 77* 95 30*
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
FOR THE PERIOD
SIX MONTHS FOR THE FROM
ENDED YEAR ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
MAY 31, NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
2000 -------------- NOVEMBER 30, ------------ OPERATIONS) TO
(UNAUDITED) 1999 1998 1997 1996 DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $19.68 22.82 21.06 16.90 16.20 15.26
---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .08(a) .12(a) .05 .06 .11 .08
---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.78) (1.39) 3.47 4.20 2.05 1.85
---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.70) (1.27) 3.52 4.26 2.16 1.93
---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.09) (.04) (.02) (.11) (.08)
---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions (1.80) (1.78) (1.72) (.08) (1.35) (.91)
---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.91) (1.87) (1.76) (.10) (1.46) (.99)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.07 19.68 22.82 21.06 16.90 16.20
---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) (3.11)** (6.01) 18.25 25.26** 13.51 12.85**
---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 13 18 12 6 2 .2
---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense
reductions (%) 2.35* 2.36 2.40 2.47* 2.80 2.31*
---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) 2.35* 2.35 2.40 2.47* 2.12 1.95*
---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.00* .58 .33 .35* .67 .93*
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 41* 88 64 77* 95 30*
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charge.
(c) Total return would have been lower had certain expenses not been waived.
* Annualized.
** Not Annualized.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Contrarian Fund (the "Fund") is a
diversified series of Kemper Value Series (the
"Corporation") which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end diversified management
investment company organized as a Maryland
Corporation.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I (none sold through
November 30, 1999) shares 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles, which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities, which are
traded on U.S. or foreign stock exchanges, are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bids 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 that are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bids and asked quotations, the most recent bid
quotation shall be used.
Money market instruments purchased with an original
maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
which at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made quarterly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually. The timing and characterization
of certain income and capital gains distributions
are determined annually in accordance with federal
tax regulations which may differ from generally
accepted accounting principles. As a result, net
investment income (loss) and net realized gain
(loss) on investment transactions for a reporting
period may differ significantly from distributions
during such period. Accordingly, the Fund may
periodically make reclassifications among certain
of its capital accounts without impacting the net
asset value of the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
--------------------------------------------------------------------------------
2 PURCHASE AND SALES
OF SECURITIES For the six months ended May 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $ 46,717,602
Proceeds from sales 103,414,839
--------------------------------------------------------------------------------
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 $869,602 for the six
months ended May 31, 2000.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended May 31,
2000 are $12,367.
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, 2000 are $621,714.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. 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
month ended May 31, 2000 are $291,291 of which
$83,684 is unpaid. Additionally, $116 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 of $449,511 for
the six months ended May 31, 2000 of which $68,172
is unpaid.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or trustees of
Scudder Kemper. For the six months ended May 31,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $11,267 to independent
trustees.
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 2000 NOVEMBER 30,
(UNAUDITED) 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 3,540,693 $ 57,190,406 5,569,903 $121,635,216
-------------------------------------------------------------------------------
Class B 765,119 12,700,638 2,791,163 61,362,998
-------------------------------------------------------------------------------
Class C 302,356 4,873,033 650,660 14,207,828
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 968,712 15,835,802 629,616 13,208,339
-------------------------------------------------------------------------------
Class B 583,374 9,525,921 386,426 8,072,545
-------------------------------------------------------------------------------
Class C 80,744 1,319,310 41,068 857,462
SHARES REDEEMED
Class A (6,024,123) (96,336,450) (4,321,345) (94,440,024)
-------------------------------------------------------------------------------
Class B (2,437,769) (39,340,934) (1,723,955) (36,790,233)
-------------------------------------------------------------------------------
Class C (518,920) (8,279,142) (322,175) (6,852,339)
CONVERSION OF SHARES
Class A 77,898 $ 1,284,100 276,903 6,126,679
-------------------------------------------------------------------------------
Class B (78,041) (1,284,100) (277,683) (6,126,679)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(42,511,416) $ 81,261,792
-------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the six
months ended May 31, 2000, the Fund's custodian and
transfer agent fees were reduced by $796 and
$7,729, respectively, under these arrangements.
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS&OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
JAMES E. AKINS MARK S. CASADY THOMAS F. SASSI
Director President Vice President
JAMES R. EDGAR PHILIP J. COLLORA WILLIAM F. TRUSCOTT
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK LINDA J. WONDRACK
Director JAMES M. EYSENBACH Vice President
Vice President
FREDERICK T. KELSEY MAUREEN E. KANE
Director JOHN R. HEBBLE Assistant Secretary
Treasurer
THOMAS W. LITTAUER CAROLINE PEARSON
Director and Vice President ANN M. MCCREARY Assistant Secretary
Vice President
FRED B. RENWICK BRENDA LYONS
Director KATHRYN L. QUIRK Assistant Treasurer
Vice President
JOHN G. WEITHERS
Director LOIS R. ROMAN
Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
CUSTODIAN STATE STREET BANK & TRUST CO.
225 Franklin Street
Boston, MA 02109
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Value Style prospectus.
KCF - 3 (7/25/00) 1116560
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
