<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKS LONG-TERM CAPITAL APPRECIATION
Kemper
Contrarian Fund
"... We believe the fund's portfolio is built of strong,
solid companies that should rise in market price if the
narrow market broadens beyond the technology and
Internet leaders. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF
INVESTMENTS
15
FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
20
NOTES TO
FINANCIAL STATEMENTS
24
REPORT OF
INDEPENDENT AUDITORS
25
TAX INFORMATION
AT A GLANCE
KEMPER CONTRARIAN FUND TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE).
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND KEMPER CONTRARIAN KEMPER CONTRARIAN LIPPER LARGE CAP-VALUE FUNDS
CLASS A FUND CLASS B FUND CLASS C CATEGORY AVERAGE*
- ---------------------- ----------------- ----------------- ----------------------------
<S> <C> <C> <C>
- -5.06 -5.90 -6.01 12.16
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
.........................................................
<S> <C> <C>
KEMPER CONTRARIAN FUND CLASS
A $19.75 $22.90
.........................................................
KEMPER CONTRARIAN FUND CLASS
B $19.68 22.82
.........................................................
KEMPER CONTRARIAN FUND CLASS
C $19.68 22.82
.........................................................
</TABLE>
KEMPER CONTRARIAN FUND
RANKINGS AS OF 11/30/99
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP VALUE FUND CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C>
1-YEAR #261 of 268 funds #262 of 268 funds #263 of 268 funds
....................................................................................
3-YEAR 161 of 184 funds #173 of 184 funds #176 of 184 funds
....................................................................................
5-YEAR #98 of 108 funds N/A N/A
....................................................................................
10-YEAR #38 of 46 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 CHARGE HAD BEEN INCLUDED, RESULTS MAY 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>
INCOME DIVIDEND $0.3125 $0.1151 $0.0901
...............................................................................................
SHORT-TERM CAPITAL
GAIN $0.81 $0.81 $0.81
...............................................................................................
LONG-TERM CAPITAL
GAIN $0.97 $0.97 $0.97
...............................................................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. The Equity Style Box placement is based on
two variables: a fund's market capitalization
relative to the movements of the market and a fund's
valuation, which is calculated by comparing the
stocks in the fund's portfolio with the most
relevant of the three market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT FUTURE
PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY
TO DAY. A LONGER-TERM VIEW IS REPRESENTED BY THE
FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED ON ITS
ACTUAL INVESTMENT STYLE AS MEASURED BY ITS
UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE
YEARS. MORNINGSTAR HAS PLACED KEMPER CONTRARIAN FUND
IN THE LARGE VALUE CATEGORY. PLEASE CONSULT THE
PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
FEDERAL FUNDS RATE The interest rate that banks charge each other for overnight
loans that are needed to meet reserve requirements. Often considered the most
sensitive indicator of the direction of interest rates.
GROWTH STOCK Growth stocks are shares in companies that are expected to
experience rapid growth resulting from strong sales, talented management and a
dominant market position. Because these stocks are in demand, you'll find that
they're generally more expensive. How long and how strong this demand is
expected to be determines the growth potential of the stock.
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. The 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 Sector stocks are usually found in related industries, such as
financial services. Financial, economic, business and other developments may
similarly affect stocks within a market sector.
VALUE STOCK Value stocks are considered to be "bargain stocks" because they are
perceived as undervalued and attractively priced relative to a measure of their
true worth, such as earnings potential, book value, cash flow or dividend
yield. Securities may be undervalued as a result of overreaction by investors
to unfavorable news about a company, an industry or the stock market in
general, or as a result of a market decline, poor economic conditions, or
actual or anticipated unfavorable developments impacting the company.
<PAGE> 3
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question hanging
over the economy is whether the Federal Reserve Board will boost interest rates
to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. And unfortunately, all parties end. This one will, too. The questions
are when and how.
The "when" should be before the second half of the year. The Fed has already
raised interest rates three times, and is likely to raise them again on Feb. 2.
Fed officials said they left the rate at 5.5 percent in December mainly because
of "market uncertainties associated with the century-date change." But the Fed
expressed concern that "increases in demand" will foster "inflationary
imbalances" that could spark rate increases once the Y2K issue has been handled.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system (causing some stock indexes, as well as the
bond markets, to drop sharply in early January), the "how" is likely to be a
slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely costs
more. But the rate of inflation for non-energy goods and services has actually
slowed during the past year. Although most analysts are worried that the
reprieve won't last -- assuming that higher commodity prices, a softer dollar
and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
the Fed to raise the federal funds rate and the discount rate by one quarter of
a point (0.25%) each on Feb. 2. (More extreme possibilities bandied about by
bearish investors -- including a half-point rise or an emergency move before the
Fed's February meeting -- are unlikely.) We project that the result will be a
gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this
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 (12/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6) 2.10 2.10 2.30 2.70
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 11/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
one iota. As a result, we expect profits to be virtually flat in all of 2000 and
to decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JANUARY 6, 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]
TOM 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 DEGREE 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.
IN A PERIOD OF OFF-THE-CHART VALUATIONS FOR A HANDFUL OF GROWTH-ORIENTED
TECHNOLOGY AND INTERNET STOCKS, KEMPER CONTRARIAN FUND'S PORTFOLIO MANAGERS
MAINTAINED THEIR STRICT VALUATION DISCIPLINE. BELOW THE TEAM EXPLAINS THE
IMPORTANCE OF ADHERING TO THEIR STOCK SELECTION PHILOSOPHY AND EXPLAINS
WHY THE PORTFOLIO THEY'VE ASSEMBLED STRUGGLED IN THE SHORT TERM BUT SHOULD BE
POISED FOR GROWTH OVER THE LONGER TERM.
Q HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT OVER THE LAST 12 MONTHS?
A Essentially we've seen a tug-of-war in the market. During the first part
of the period, growth-and index-style investments dominated. Value took the lead
in the second calendar quarter but lost its foothold to technology and Internet-
related stocks during the last part of the period.
Let's discuss the changing character of the market during the year.
1. NARROW MARKET. In December and January, the market was quite
narrow -- dominated by the largest growth stocks and by Internet fever.
Index-style investments also performed well. Remember, though, index investments
mimic the broad market. Their gains were also led by large growth and Internet
stocks. Virtually all other types of stocks were left behind. This was a
continuation of the narrow market that had existed since late 1997.
2. A BREAK FOR VALUE. In February, a break occurred in the narrow market, and
value stocks began to gain momentum. Value assumed a leadership role in the
market throughout the second calendar quarter of 1999 but could not eliminate
the foothold that large growth stocks had on the market.
3. SHIFT BACK TO LEADERSHIP BY LARGE TECHNOLOGY STOCKS AND INTERNET
COMPANIES. After the sharp second-quarter rebound, value stocks gave back their
relative gains. Concerns about sustainable earnings hurt the rallying cyclical
sector, while higher interest rates dragged down financial services stocks. The
market once again turned its favor to a small group of stocks -- primarily large
technology companies and Internet stocks. Index-style investments, buoyed by
those same market leaders, also regained momentum.
Q WHAT SPARKED AND THEN EXTINGUISHED THE SHIFT INTO VALUE STOCKS?
A In early February, the disparity between the relative performance of
growth stocks and value stocks was the widest it had been in about 20 years. In
other words, it has been that long since growth stocks had outperformed value
stocks by such a large margin. And it seemed at that exact point, a shift to
value began to occur.
Historically, at the end of each calendar year, levels of new investment
inflows typically increase. When this occurred in late 1998, the increased
investment flowed into large growth stocks or into index-style investments,
driving their already high valuations even higher. After the first of the year,
however, the heightened cash flow diminished, causing the valuations of these
same top-tier investments to falter a bit. With this pause in demand, investors
became concerned about the extreme valuations of the top-tier stocks and began
turning to more reasonably valued stocks.
5
<PAGE> 6
PERFORMANCE UPDATE
However, the market soon became concerned that these companies would not be
able to sustain their strong earnings, and demand for value began to falter.
Additionally, the Fed began raising interest rates this summer. This led to a
deep decline in financial stocks, which were already considered to be
undervalued. Financial stocks are considered to be interest-rate sensitive.
Their performance tends to decline as interest rates move higher.
Q DID ALL VALUE STOCKS BENEFIT FROM THE BRIEF RALLY?
A The primary beneficiaries were the economically sensitive cyclical-
commodity stocks (generally major manufacturers) that had performed so
poorly since the Southeast Asia crisis in 1997. During the Asia crisis,
investors shunned these stocks, believing their strong ties to the economy and
their large reliance on exports would severely hurt them. The sustained flight
from these companies left some of the country's best-known blue-chip companies
trading at multiyear lows in late 1998.
As it became apparent that the global economy was improving and the
manufacturing sector had stabilized, investors began investing in
commodity-cyclical stocks again. As a result, this area made tremendous gains
during the second calendar quarter.
As the market price of some of our cyclical holdings spiked quite quickly,
we began to take profits. We sold those that had reached our target valuations
and that we believed had reached fair market value. We also trimmed holdings as
their level of appreciation created a position we thought was too large for the
portfolio. While we do like to back each of our portfolio selections with
conviction, we also try to keep the fund's risk profile at a reasonable level.
We're therefore careful to avoid concentrating heavily in any one company or in
any one sector.
The types of companies that we eliminated from the portfolio were
essentially the "most cyclical" or "commodity-oriented" of the group, with names
that included DuPont and Georgia Pacific. We felt that after their run-up in
price, these stocks were more susceptible to declines than some of our other
cyclical holdings. Our assessment was correct, and after we eliminated our
positions, we began to see declines in these stocks.
Q WHAT DO THE FUND'S CYCLICAL HOLDINGS LOOK LIKE NOW?
A Although we eliminated and reduced holdings in this area, we still
maintain a sizable position in cyclical stocks because we believe strongly in
the sector. We maintained positions in companies that have the potential for
sustained growth over the long term -- those with strong, consistent historical
earnings records. We held on to Air Products, Praxair, Minnesota Mining and
Manufacturing (3M) and Sonoco Products. These companies have been consistent
growers over the long term even though they are in cyclical industries. We
believe that these types of stocks, as a group are also less susceptible to big
swings due to short-term market events.
Q HOW DID KEMPER CONTRARIAN FUND PERFORM?
A The fund performed well during the first six months of the period as it
benefited from the value rally last spring. As the market shifted its favor back
to large technology and Internet companies, the fund lagged. That's because we
weren't invested in these market leaders. Their valuations were too high, and
with many of the Internet companies, their track records were too short to fit
our stock selection criteria. The fund's Class A shares (unadjusted for a sales
charge) declined 5.06 percent for the 12-month period ended November 30, 1999.
For the same time period, the fund's benchmark, the Standard & Poor's 500 stock
index gained 20.89 percent. In broad terms, the disparity between the fund and
the index is due to the market's strong preference for mega-cap growth
stocks -- notably technology companies -- during much of the period. While the
S&P 500 includes growth and value stocks, Kemper Contrarian Fund focuses on
value stocks, which underperformed during most of the period, as we discussed in
the first question of this interview.
Despite the fund's one-year return, we're enthusiastic about the
potential for its portfolio of holdings. The drive-up in such a small group of
stocks (and the decline of so many more stocks) provided tremendous
opportunities for us to add fundamentally solid companies to the portfolio at
extremely deep discounts. We firmly believe that value will return to favor and
that when it does, the portfolio is positioned well.
Q WOULD YOU EXPLAIN THE FUND'S INVESTMENT DISCIPLINE?
A We buy companies that have above-average, long-term growth of earnings
and dividends. Because the fund is contrarian in its execution, we buy these
quality companies when they are temporarily depressed relative to a measure of
their true worth. By investing in a company when it's temporarily
6
<PAGE> 7
PERFORMANCE UPDATE
depressed, there's generally less risk, since the price of the stock is down
relative to its historical levels. If earnings revert back to the company's
historical profile, there is a potential for a high rate of return on those
stocks.
We don't, however, invest for short-term gains. Typically we'll hold a stock
anywhere from six months to two years. The key to our contrarian strategy is
that we want more upside potential than downside. When we buy a stock, we don't
expect it to decline very much, but over time we do expect it to appreciate in
value. At the time of purchase, we establish target valuations that trigger us
to sell the stock. Of course, we constantly evaluate and reevaluate our holdings
relative to their industry and the broader market. We may also adjust our sell
triggers if the fundamentals of the company change for the better or worse.
Q IN THE FUND'S SEMIANNUAL REPORT, YOU MENTIONED YOU WERE ENTHUSIASTIC ABOUT
SOME NAME-BRAND FOOD COMPANIES. HOW DID THEY FARE FOR THE REMAINDER OF THE YEAR?
A We added Heinz, Campbell's and Sara Lee during the first part of the year
when they were trading within 10 percent of their 52-week lows. We believed
these were very strong companies that suffered some lackluster earnings and had
been unfairly punished by the market.
As mentioned in the last report, we weren't expecting an immediate uptick
in their performance, but we believed they would be strong contributors to the
fund over the next one to three years. We liked their defensive qualities and
expected them to do particularly well in the case of a market downturn. That's
because consumers continue to buy food even when the economy is struggling.
Their performance during the second half of the year was quite promising.
They all performed in line with or ahead of the market. Although none posted
substantial gains, we were pleased with their performance in an environment
where the vast majority of stocks underperformed the market. In essence, they're
performing just as we anticipated they would.
Q YOU MENTIONED THAT FINANCIAL SERVICES STOCKS STRUGGLED WITH THE FED'S
TIGHTENING OF INTEREST RATES. WOULD YOU EXPAND ON THIS?
A Financial services stocks are generally considered to be interest-rate
sensitive. As interest rates rise, their performance typically slows. That's
because during times of higher interest rates, people tend to decrease their
level of borrowing. This can lead to a decline in earnings of lenders,
particularly banks. Typically, financial stocks decline as soon as market
interest rates (the coupon or interest rates on long-term bonds) begin to rise.
They also struggle if the Federal Reserve Board (the Fed) increases rates.
This year presented a different scenario. Market rates began to rise in
late 1998 and continued to rise through February 1999. During that time, there
was no noticeable change in the market price performance of financial stocks.
And, more important, the earnings and fundamentals of most financial services
companies remained intact.
Financials, however, began to lag in March as the Fed endorsed those
market rates by virtue of increasing the federal funds rate (see Terms To Know).
As soon as the Fed raised rates, investors adopted a doom-and-gloom outlook
toward financial stocks - even though these stocks had been performing well for
months as market interest rates were rising.
Since March 1999, financial services stocks have struggled on an absolute
basis. They have inhibited the fund's performance. On a relative basis, however,
their decline is in line with the broader market, which has also been
struggling.
Q HAVE YOU MADE ANY CHANGES TO KEMPER CONTRARIAN FUND'S FINANCIAL SERVICES
POSITION?
A The fund has always had a meaningful position in financial stocks, and we
continue to find a great deal of value in this sector. Although our weighting in
the sector has not changed much, we have made some structural changes. The
primary change we made was to increase our position in Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac),
which are involved in providing products and services associated with the home
loan mortgage industry. Both of these stocks had a huge run-up in price in 1998.
This year, the stocks began to underperform somewhat, probably in response to
the huge gains they made last year. There were also some concerns that new
governmental regulation may be introduced. In any event, the fundamentals of
these companies are good, and we don't believe any of these are long-term
issues. We, therefore, have increased our commitment to these companies.
We've also added to our position in property and casualty insurers. We
purchased insurers Allstate and Chubb. Both have strong fundamentals but were
trading at deep discounts when we added them. Pricing in the insurance industry
had been weak, but we felt it would
7
<PAGE> 8
PERFORMANCE UPDATE
begin to improve soon. Unfortunately, we were early in our assessment, and
property and casualty insurers fell further. This decline hurt the fund, but we
did begin to see improvement in pricing late in the year. The recent passage of
the new financial services reform act (the Gramm-Leach-Bliley Act of 1999) was
also very positive. It offers tremendous opportunities for increased merger and
acquisition activity in the financial services sector that could enhance the
sector's performance.
Although banks have struggled the most in this higher-interest-rate
environment, we continue to invest there. Many quality companies are trading at
deep discounts that we don't believe are justified for the long term.
Q WERE THERE ANY SPECIFIC HOLDINGS THAT DISAPPOINTED YOU DURING THE PERIOD?
A
First Union, a regional banking company, disappointed us. After several
years of strong performance, the stock declined during the period as it suffered
through two quarters of poor earnings. The disappointing earnings, we believe,
are a lingering result of last year's acquisitions of CoreStates and The Money
Store by First Union. We've followed this stock for about 15 years and believe
that First Union is and has been a very well run bank. Its current low P/E and
still-attractive dividend yield makes it very positive for the fund on a
long-term basis. We've since added to our position at a deep discount.
Additionally, Bank One suffered from some growing pains associated with its
merger with First Chicago/ NBD. Again, we believe this is a temporary situation,
and we added to our Bank One position after the stock's price declined.
Q WHAT AREAS HELPED THE FUND?
A As we discussed earlier, our cyclical holdings helped the fund greatly
during the second calendar quarter. The fund's oil and oil service stocks also
made strong gains during the year. At the end of last year, crude oil prices and
the market price of oil stocks were quite depressed. Since that time, the price
of oil has nearly doubled. This of course supported strong gains in the fund's
energy sector. Two of the best performers were Exxon and BPAmoco. Both benefited
as oil prices rose, and news of a potential merger with Atlantic Richfield and
its perceived economies of scale also buoyed BPAmoco.
Q GIVEN THE ROTATIONAL MARKET YOU DISCUSSED, WHAT WAS TURNOVER IN THE FUND
LIKE?
A The extreme rotation in the market did cause a higher-than-average
turnover rate in the first three months of 1999. We adhere strictly to our sell
criteria, and we didn't alter it this period. Typically our criteria don't
trigger a sell for a year or two after we've purchased a stock, but for some
stocks this period, it took just a couple of months. We do expect our turnover
activity to return to more normal levels, if the market does not experience the
same rotation it did at the end of 1999.
Q WHAT'S YOUR OUTLOOK FOR THE MARKET?
A The tug-of-war between value and growth is likely to continue as new
economic and earnings statistics are reported. We firmly believe that there will
be a reversion to the mean and that strong performance in the market will move
beyond the current small group of technology and Internet leaders. We believe
that last spring, we began to see an inflection point signaling a shift from
growth back to value-style stocks. The process, however, will be a very long
one, which will require a change in investor psychology. As mentioned before, we
believe Kemper Contrarian Fund's portfolio is built of strong, solid companies
that should benefit if the narrow market broadens beyond the technology and
Internet leaders.
8
<PAGE> 9
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER CONTRARIAN FUND CLASS A -10.53% 10.08% 17.28% 12.35% 12.78% (since 3/18/88)
........................................................................................................
KEMPER CONTRARIAN FUND CLASS B -8.49 10.67 n/a n/a 14.49 (since 9/11/95)
........................................................................................................
KEMPER CONTRARIAN FUND CLASS C -6.01 11.10 n/a n/a 14.69 (since 9/11/95)
........................................................................................................
</TABLE>
KEMPER CONTRARIAN FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 3/31/88 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND S & P 500 COMPOSITE CONSUMER PRICE INDEX -
CLASS A1 INDEX+ US++
---------------------- ------------------- ----------------------
<S> <C> <C> <C>
3/31/88 9426 10000 10000
10062 10727 10343
11903 13651 10824
11180 12755 11485
12/31/91 14145 16111 11837
15747 16830 12180
17176 18017 12515
17171 17740 12850
12/31/95 24824 23791 13176
28405 28612 13614
36567 37484 13845
43578 47481 14069
11/30/99 40793 53655 14464
</TABLE>
KEMPER CONTRARIAN FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 9/30/95 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND S & P 500 COMPOSITE CONSUMER PRICE INDEX -
CLASS B1 INDEX+ US++
---------------------- ------------------- ----------------------
<S> <C> <C> <C>
9/30/95 10000 10000 10000
11069 10539 10020
12/31/96 12576 12675 10352
12/31/97 16021 16605 10529
18918 21034 10698
11/30/99 17366 23769 10999
</TABLE>
KEMPER CONTRARIAN FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 9/30/95 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND S & P 500 COMPOSITE CONSUMER PRICE INDEX -
CLASS C1 INDEX+ US++
---------------------- ------------------- ----------------------
<S> <C> <C> <C>
9/30/95 10000 10000 10000
11070 10539 10020
12/31/96 12566 12675 10352
12/31/97 15996 16605 10529
18862 21034 10698
11/30/99 17495 23769 10999
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND, FOR
CLASS A SHARES, ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75% AND FOR
CLASS B SHARES, ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3%. CLASS C SHARES
HAVE NO ADJUSTMENT FOR SALES CHARGE.
THE MAXIMUM CDSC FOR CLASS B SHARES IS
4%. FOR CLASS C SHARES, THERE IS A 1%
CDSC ON CERTAIN REDEMPTIONS WITHIN THE
FIRST YEAR OF PURCHASE. SHARE CLASSES
INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN
REFLECTS ANNUALIZED CHARGES WHICH
TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CDSC IN EFFECT AT THE
END OF THE PERIOD FOR CLASS B
SHARES. IN COMPARING KEMPER
CONTRARIAN FUND TO THE STANDARD &
POOR'S 500 STOCK INDEX+ AND THE
CONSUMER PRICE INDEX++, YOU SHOULD
NOTE THAT THE FUND'S PERFORMANCE
REFLECTS THE DEDUCTION OF MAXIMUM
SALES CHARGE, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDICES.
(+) THE STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS WIESENBERGER.
INVESTORS CANNOT ACTUALLY MAKE
INVESTMENTS IN THIS INDEX.
(++) THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. SOURCE IS
WIESENBERGER.
9
<PAGE> 10
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON NOVEMBER 30, 1999, AND ON NOVEMBER 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CONTRARIAN FUND ON KEMPER CONTRARIAN FUND ON
11/30/99 11/30/98
------------------------- -------------------------
<S> <C> <C>
FINANCE 30.0 32.8
CONSUMER NONDURABLES 29.5 15.3
CAPITAL GOODS 21.2 11.2
ENERGY 6.0 11.3
HEALTH CARE 5.2 4.8
TECHNOLOGY 3.8 6.2
TRANSPORTATION 2.6 1.3
BASIC MATERIALS 1.7 15.4
UTILITIES 1.1 1.1
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF THE KEMPER CONTRARIAN FUND REPRESENTED ON NOVEMBER 30, 1999, 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
11/30/99 S & P 500 INDEX ON 11/30/98
------------------------- ---------------------------
<S> <C> <C>
FINANCE 30 15.5
CONSUMER NONDURABLES 29.5 20.9
CAPITAL GOODS 21.2 8.4
ENERGY 6 5.9
HEALTH CARE 5.2 10.7
TECHNOLOGY 3.8 23.5
TRANSPORTATION 2.6 0.8
BASIC MATERIALS 1.7 3
UTILITIES 0 2.8
COMMUNICATION SERVICES 0 8.5
</TABLE>
* The Standard & Poor's 500 stock index is an unmanaged index generally
representative of the U.S. stock market.
10
<PAGE> 11
LARGEST HOLDINGS
KEMPER CONTRARIAN FUND'S 10 LARGEST HOLDINGS*
Representing 31.77 percent of the fund's portfolio on November 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
HOLDING DESCRIPTION PERCENT
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
1. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie 4.70%
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.
- -------------------------------------------------------------------------------------
2. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie 4.31%
ASSOCIATION (FNMA) Mae," this is a private
corporation federally chartered
to provide financial products and
services that increase the
availability and affordability of
housing to low-, moderate- and
middle-income Americans.
- -------------------------------------------------------------------------------------
3. SONOCO PRODUCTS Engaged in the manufacture of 3.21%
paper and converted paper
products for sale principally to
other manufacturers.
- -------------------------------------------------------------------------------------
4. PHILIP MORRIS The largest cigarette maker in 3.05%
the 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.
- -------------------------------------------------------------------------------------
5. EMERSON ELECTRIC Emerson Electric Company is 3.01%
engaged principally in the
worldwide design, manufacture and
sale of a broad range of
electrical, electromechanical and
electronic products and systems.
- -------------------------------------------------------------------------------------
6. KEYCORP KeyCorp is a bank holding company 3.00%
that provides banking, equipment
leasing, fiduciary and other
financial services to its
corporate, individual and
institutional customers.
- -------------------------------------------------------------------------------------
7. EXXON Engaged in the exploration, 2.92%
production, manufacture,
transportation and sale of crude
oil, natural gas and petroleum
products.
- -------------------------------------------------------------------------------------
8. EQUIFAX Equifax, Inc. is engaged in 2.54%
operations including consumer and
commercial credit information
services, payment services,
software, modeling, analytics,
consulting and direct-to-consumer
services.
- -------------------------------------------------------------------------------------
9. AIR PRODUCTS AND CHEMICALS Air Products and Chemicals is a 2.54%
supplier of industrial gases and
related industrial process
equipment and is a producer of
certain chemicals. APD is also
involved in the power generation
and flue gas treatment business.
- -------------------------------------------------------------------------------------
10. SEARS, ROEBUCK & CO. A leading retailer of apparel, 2.49%
home and automotive products and
related services for families
throughout North America.
- -------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER CONTRARIAN FUND
Portfolio of Investments at November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--7.0% PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Bank, 5.57%*, 12/1/1999
(cost: $21,168) $21,168 $ 21,168
---------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--93.0% NUMBER OF SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION--1.6%
FOREST PRODUCTS
Georgia Pacific Timber Group 194,000 4,813
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.1%
DEPARTMENT CHAIN STORES--6.4%
J.C. Penney Co., Inc. 212,600 4,744
May Department Stores 209,750 7,053
Sears, Roebuck & Co. 220,000 7,521
---------------------------------------------------------------------------
19,318
HOME FURNISHINGS--1.7%
Newell Rubbermaid, Inc. 155,000 5,086
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--16.6%
ALCOHOL & TOBACCO--3.0%
Philip Morris Companies, Inc. 350,100 9,212
---------------------------------------------------------------------------
FOOD & BEVERAGE--9.6%
Albertson's, Inc. 75,000 2,395
Campbell Soup Co. 115,400 5,150
H.J. Heinz Co. 135,000 5,653
Hershey Foods Corp. 85,000 4,176
Sara Lee Corp. 225,000 5,456
Unilever NV(New York Shares) 110,178 5,998
---------------------------------------------------------------------------
28,828
PACKAGE GOOD/ COSMETICS--1.8%
International Flavors & Fragrances, Inc. 146,200 5,382
---------------------------------------------------------------------------
TEXTILES--2.2%
VF Corp. 225,800 6,746
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
DURABLES--3.0%
AEROSPACE--1.0%
United Technologies Corp. 55,000 3,108
---------------------------------------------------------------------------
AUTOMOBILES--2.0%
Ford Motor Co. 115,000 5,807
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--5.6%
OIL COMPANIES
BP Amoco Plc (ADR) 81,914 4,992
Exxon Corp. 111,000 8,804
Texaco, Inc. 50,700 3,089
---------------------------------------------------------------------------
16,885
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--27.9%
BANKS--12.5%
Bank One Corp. 145,900 5,143
Bank of America Corp. 125,000 7,313
First Union Corp. 183,900 7,115
KeyCorp 335,000 9,045
Washington Mutual, Inc. 177,320 5,142
Wells Fargo Co. 85,000 3,952
---------------------------------------------------------------------------
37,710
INSURANCE--5.9%
Allstate Corp. 260,600 6,824
American General Corp. 71,400 5,235
Chubb Corp. 109,300 5,854
---------------------------------------------------------------------------
17,913
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C> <C> <C>
OTHER FINANCIAL COMPANIES--9.0%
Federal Home Loan Mortgage Corp. 287,000 $ 14,171
Federal National Mortgage Association 195,000 12,992
---------------------------------------------------------------------------
27,163
REAL ESTATE--.5%
Post Properties Inc. (REIT) 35,000 1,334
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--4.8%
MEDICAL SUPPLY & SPECIALTY--1.0%
Becton, Dickinson & Co. 110,000 2,998
---------------------------------------------------------------------------
PHARMACEUTICALS--3.8%
Abbott Laboratories 187,800 7,136
American Home Products Corp. 85,000 4,420
---------------------------------------------------------------------------
11,556
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--16.9%
CHEMICALS--1.3%
Praxair, Inc. 83,500 3,726
---------------------------------------------------------------------------
CONTAINERS & PAPER--3.2%
Sonoco Products Co. 421,900 9,704
---------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--2.2%
Minnesota Mining & Manufacturing Co. 68,500 6,546
---------------------------------------------------------------------------
ELECTRICAL PRODUCTS--4.2%
Emerson Electric Co. 159,100 9,069
Thomas & Betts Corp. 84,600 3,468
---------------------------------------------------------------------------
12,537
MACHINERY/COMPONENTS--2.2%
Ingersoll-Rand Co. 30,000 1,453
Pitney Bowes, Inc. 110,000 5,273
---------------------------------------------------------------------------
6,726
OFFICE EQUIPMENT/ SUPPLIES--1.3%
Xerox Corp. 145,000 3,924
---------------------------------------------------------------------------
SPECIALTY CHEMICALS--2.5%
Air Products & Chemicals, Inc. 236,600 7,660
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.5%
PRINTING/PUBLISHING
Equifax, Inc. 310,000 7,673
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--3.5%
DIVERSE ELECTRONIC PRODUCTS--2.5%
Diebold, Inc. 327,000 7,501
---------------------------------------------------------------------------
MILITARY ELECTRONICS--1.0%
Raytheon Co. "B" 100,000 3,068
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.5%
RAILROADS
Burlington Northern Santa Fe Corp. 100,000 2,900
CSX Corp. 130,700 4,648
---------------------------------------------------------------------------
7,548
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--93.0%
(Cost: $304,589) 280,472
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $325,757)(a) $301,640
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $325,763. At November 30, 1999,
net unrealized depreciation on investments was $24,123. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $15,423 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax over market value of $39,546.
* Annualized yield at time of purchase, not a coupon rate.
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments in securities, at value (Cost $325,757) $301,640
- ------------------------------------------------------------------------
Cash 4
- ------------------------------------------------------------------------
Dividends receivable 905
- ------------------------------------------------------------------------
Receivable for Fund shares sold 1,057
- ------------------------------------------------------------------------
Foreign taxes recoverable 5
- ------------------------------------------------------------------------
Other assets 1
- ------------------------------------------------------------------------
TOTAL ASSETS 303,612
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Payable for investments purchased 231
- ------------------------------------------------------------------------
Payable for Fund shares redeemed 2,310
- ------------------------------------------------------------------------
Accrued management fee 199
- ------------------------------------------------------------------------
Other accrued expenses and payables 516
- ------------------------------------------------------------------------
TOTAL LIABILITIES 3,256
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $300,356
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) $ 1,104
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities (24,117)
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) 26,483
- ------------------------------------------------------------------------
Paid-in capital 296,886
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $300,356
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($173,310 /
8,776 shares of capital stock outstanding, $.01 par value,
320,000,000 shares authorized) $19.75
- ------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $19.75) $20.95
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($109,184 /
5,548 shares of capital stock outstanding, $.01 par value,
320,000,000 shares authorized) $19.68
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($17,862 / 908
shares of capital stock outstanding, $.01 par value,
80,000,000 shares authorized) $19.68
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $83) $ 7,097
- ------------------------------------------------------------------------
Interest 1,859
- ------------------------------------------------------------------------
Total income 8,956
- ------------------------------------------------------------------------
Expenses:
Management fee 2,257
- ------------------------------------------------------------------------
Services to shareholders 1,194
- ------------------------------------------------------------------------
Custodian fees 21
- ------------------------------------------------------------------------
Distribution services fees 987
- ------------------------------------------------------------------------
Administrative services fees 731
- ------------------------------------------------------------------------
Auditing 58
- ------------------------------------------------------------------------
Legal 8
- ------------------------------------------------------------------------
Directors' fees and expenses 12
- ------------------------------------------------------------------------
Reports to shareholders 186
- ------------------------------------------------------------------------
Registration fees 25
- ------------------------------------------------------------------------
Other 9
- ------------------------------------------------------------------------
Total expenses, before expense reductions 5,488
- ------------------------------------------------------------------------
Expense reductions (15)
- ------------------------------------------------------------------------
Total expenses, after expense reductions 5,473
- ------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 3,483
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ------------------------------------------------------------------------
Net realized gain (loss) from investments 33,787
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (58,042)
- ------------------------------------------------------------------------
Net gain (loss) on investment transactions (24,255)
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(20,772)
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1999 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) $ 3,483 $ 2,094
- ------------------------------------------------------------------------------------------
Net realized gain (loss) 33,787 20,814
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (58,042) 14,228
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS (20,772) 37,136
- ------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (2,361) (1,532)
- ------------------------------------------------------------------------------------------
Class B (610) (302)
- ------------------------------------------------------------------------------------------
Class C (66) (17)
- ------------------------------------------------------------------------------------------
From net realized gains
Class A (11,045) (8,332)
- ------------------------------------------------------------------------------------------
Class B (8,696) (5,809)
- ------------------------------------------------------------------------------------------
Class C (1,068) (498)
- ------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 203,332 111,181
- ------------------------------------------------------------------------------------------
Reinvestment of distributions 22,138 15,706
- ------------------------------------------------------------------------------------------
Cost of shares redeemed (144,209) (61,935)
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS 81,261 64,952
- ------------------------------------------------------------------------------------------
Increase (decrease) in net assets 36,643 85,598
- ------------------------------------------------------------------------------------------
Net assets at beginning of period 263,713 178,115
- ------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income (loss) of $1,104 and $664, respectively) $ 300,356 $263,713
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
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 FOR THE PERIOD FROM
YEAR ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
--------------- NOVEMBER 30, ------------ OPERATIONS) TO
1999 1998 1997 1996 DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.90 21.13 16.93 16.20 12.18
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .34(a) .28 .23 .23 .26
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (1.40) 3.48 4.25 2.07 5.05
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.06) 3.76 4.48 2.30 5.31
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.31) (.27) (.20) (.22) (.24)
- ------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.78) (1.72) (.08) (1.35) (1.05)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (2.09) (1.99) (.28) (1.57) (1.29)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.75 22.90 21.13 16.93 16.20
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) (5.06) 19.51 26.58** 14.42(B) 44.57 (B)**
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 173 152 101 47 19
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense reductions (%) 1.41 1.37 1.35* 1.25 1.66*
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 1.40 1.37 1.35* 1.23 1.25*
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.53 1.36 1.47* 1.56 1.85*
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30*
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> --------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------
FOR THE FOR THE PERIOD FROM
YEARS ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
-------------- NOVEMBER 30, ------------ OPERATIONS) TO
1999 1998 1997 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.82 21.08 16.92 16.20 15.26
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14(a) .08 .08 .11 .07
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (1.38) 3.46 4.22 2.07 1.85
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.24) 3.54 4.30 2.18 1.92
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.12) (.08) (.06) (.11) (.07)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.78) (1.72) (.08) (1.35) (.91)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (1.90) (1.80) (.14) (1.46) (.98)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 19.68 22.82 21.08 16.92 16.20
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) (5.90) 18.32 25.44** 13.61(B) 12.83 (B)**
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 109 100 71 29 6
- -----------------------------------------------------------------------------------------------------------------------
Ratio to expenses, before expense reductions (%) 2.29 2.31 2.26* 2.34 2.36*
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 2.29 2.31 2.26* 2.11 2.00*
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .64 .42 .56* .68 .88*
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30*
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> --------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------
FOR THE FOR THE PERIOD FROM
YEAR ENDED ELEVEN YEAR ENDED SEPTEMBER 11, 1995
NOVEMBER 30, MONTHS ENDED DECEMBER 31, (COMMENCEMENT OF
-------------- NOVEMBER 30, ------------ OPERATIONS) TO
1999 1998 1997 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.82 21.06 16.90 16.20 15.26
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .12(a) .05 .06 .11 .08
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (1.39) 3.47 4.20 2.05 1.85
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.27) 3.52 4.26 2.16 1.93
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.04) (.02) (.11) (.08)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.78) (1.72) (.08) (1.35) (.91)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (1.87) (1.76) (.10) (1.46) (.99)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.68 22.82 21.06 16.90 16.20
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(C) (6.01) 18.25 25.26** 13.51(B) 12.85 (B)**
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 18 12 6 2 .2
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense reductions
(%) 2.36 2.40 2.47* 2.80 2.31*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions (%) 2.35 2.40 2.47* 2.12 1.95*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .58 .33 .35* .67 .93*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 88 64 77* 95 30*
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
* Annualized
** Not Annualized
19
<PAGE> 20
NOTHES 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 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 Directors.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
sub-custodian bank, receives delivery of the
underlying securities, the amount of which at the
time of purchase and each subsequent business day
is required to be maintained at such a level that
the market value is equal to at least the principal
amount of the repurchase price plus accrued
interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made 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 year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $322,272
Proceeds from sales 247,348
- --------------------------------------------------------------------------------
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 $2,257,000 for the
year ended November 30, 1999, which is equivalent
to an annual effective rate of .73% of the Fund's
average daily net assets.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares for the
year ended November 30, 1999 are $71,000.
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
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
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 year ended November 30, 1999 are
$1,289,000.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. 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 year
ended November 30, 1999 are $731,000 of which
$98,000 is unpaid. Additionally, $1,000 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 of $934,000 for
the year ended November 30, 1999 of which $224,000
is unpaid.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of Scudder Kemper. For the year ended
November 30, 1999, the Fund made no payments to its
officers and incurred directors' fees of $12,000 to
independent directors.
- --------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1999 1998
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
Class A 5,569 $121,635 2,870 $ 60,856
------------------------------------------------------------------------------
Class B 2,791 61,362 1,698 36,004
------------------------------------------------------------------------------
Class C 651 14,208 435 9,096
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 630 13,208 475 9,293
------------------------------------------------------------------------------
Class B 387 8,073 307 5,943
------------------------------------------------------------------------------
Class C 41 857 24 470
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (4,321) (94,440) (1,776) (37,255)
------------------------------------------------------------------------------
Class B (1,724) (36,790) (737) (15,339)
------------------------------------------------------------------------------
Class C (322) (6,852) (202) (4,116)
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 277 6,127 247 5,225
------------------------------------------------------------------------------
Class B (278) (6,127) (248) (5,225)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ 81,261 $(64,952)
------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
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 period,
the Fund's custodian fees were reduced by $15,000
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.
23
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER CONTRARIAN FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Contrarian Fund as of November
30, 1999, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1995. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of November 30, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Contrarian Fund at November 30, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years then ended
and the financial highlights for each of the fiscal periods since 1995, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
January 18, 2000
24
<PAGE> 25
TAX INFORMATION
TAX INFORMATION
The Fund paid a distribution of $.97 per share from net long-term capital gains
during the year ended November 30, 1999, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$21,500,000 as capital gain dividends for its year ended November 30, 1999, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Funds
fiscal year ended November 30, 1999 qualified for the dividends received
deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-621-1048.
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
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 LINDA J. WONDRACK
ARTHUR R. GOTTSCHALK Vice President
Director JAMES M. EYSENBACH
Vice President MAUREEN E. KANE
FREDERICK T. KELSEY Assistant Secretary
Director JOHN R. HEBBLE
Treasurer CAROLINE PEARSON
THOMAS W. LITTAUER Assistant Secretary
Director and Vice President ANN M. MCCREARY
Vice President BRENDA LYONS
FRED B. RENWICK Assistant Treasurer
Director KATHRYN L. QUIRK
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)
This report is not to be distributed unless preceded or accompanied by a Kemper
Equity Funds/Value Style prospectus.
Printed on recycled paper in the U.S.A.
KCF - 2 (1/28/00) 1099520
