<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
[MORNINGSTAR RATINGS LOGO]
Seeks long-term capital appreciation
KEMPER SMALL CAP
VALUE FUND
"... We clearly have a portfolio of stocks that are cheap. More important, we
believe it is a portfolio of stocks with great potential to rise as the market
broadens out. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
19
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
25
NOTES TO
FINANCIAL STATEMENTS
29
REPORT OF
INDEPENDENT AUDITORS
AT A GLANCE
KEMPER SMALL CAP VALUE FUND TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE KEMPER SMALL CAP VALUE LIPPER SMALL-CAP VALUE
KEMPER SMALL CAP VALUE FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
- ----------------------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
- -0.28 -1.04% -0.86% 5.17%
</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. INVESTING IN SECURITIES
OF SMALL COMPANIES MAY INVOLVE A GREATER RISK OF LOSS AND MORE ABRUPT
FLUCTUATION IN THE MARKET PRICES THAN INVESTING IN LARGER COMPANIES.
*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 MAY HAVE BEEN LESS
FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
.........................................................
<S> <C> <C>
KEMPER SMALL CAP VALUE FUND
CLASS A $17.75 $17.80
.........................................................
KEMPER SMALL CAP VALUE FUND
CLASS B $17.15 $17.33
.........................................................
KEMPER SMALL CAP VALUE FUND
CLASS C $17.24 $17.39
.........................................................
</TABLE>
KEMPER SMALL CAP VALUE
FUND RANKINGS AS OF 11/30/99
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SMALL CAP VALUE FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C>
1-YEAR #192 of 306 funds #206 of 306 funds #203 of 306 funds
....................................................................................
3-YEAR #149 of 164 funds #156 of 164 funds #154 of 164 funds
....................................................................................
5-YEAR #48 of 101 funds N/A N/A
....................................................................................
</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 SMALL CAP VALUE FUND IN THE SMALL-CAP
VALUE CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR
A DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
NARROW MARKET A narrow market is a securities market in which most of the gains
are earned by only a small group of companies. In 1998 and most of 1999, a
narrow market existed in which only the largest growth-style stocks enjoyed
robust gains.
PRICE/EARNINGS RATIO A price/earnings ratio (P/E) is 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 STOCK A sector comprises stocks usually found in related industries.
Financial, economic, business and other developments may affect stocks within a
market sector similarly.
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.
<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
[EYSENBACH PHOTO]
JAMES (MAC) EYSENBACH IS THE LEAD PORTFOLIO MANAGER FOR KEMPER SMALL CAP VALUE
FUND. EYSENBACH JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1991. HE IS A
CHARTERED FINANCIAL ANALYST. HE HOLDS AN M.B.A. DEGREE IN FINANCE FROM THE
ANDERSON SCHOOL AT UCLA.
PORTFOLIO MANAGER CALVIN YOUNG ALSO CONTRIBUTES HIS INVESTMENT MANAGEMENT
EXPERIENCE TO THE FUND. HE JOINED THE ORGANIZATION IN 1990. YOUNG EARNED AN
M.B.A. FROM GOLDEN GATE UNIVERSITY, IN SAN FRANCISCO, CALIFORNIA.
THE TEAM IS SUPPORTED BY INVESTMENT PROFESSIONALS INCLUDING ECONOMISTS, RESEARCH
ANALYSTS, TRADERS AND OTHER INVESTMENT SPECIALISTS THROUGHOUT THE UNITED STATES
AND ABROAD.
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.
DURING THE FISCAL-YEAR PERIOD -- DECEMBER 1, 1998, THROUGH NOVEMBER 30, 1999 --
VOLATILITY CONTINUED TO BE PAR FOR THE COURSE FOR STOCK INVESTORS. IN A MARKET
DOMINATED PRIMARILY BY LARGE-CAP GROWTH STOCKS, SMALLER, VALUE-ORIENTED STOCKS
FACED ADDED CHALLENGES. JAMES (MAC) EYSENBACH, LEAD PORTFOLIO MANAGER OF THE
FUND SINCE AUGUST 1999, EXPLAINS HOW THE FUND FARED. HE ALSO DISCUSSES HIS
INVESTMENT PHILOSOPHY AND HOW THE FUND IS POSITIONED.
Q HOW DID THE FUND PERFORM?
A The fiscal year was a difficult period for small-cap value stocks. The
fund declined 0.28 percent (Class A shares, unadjusted for any sales charge) for
the year ended November 30, 1999. The fund held up slightly better than its
benchmark, the Russell 2000 Value index. This index, an unmanaged pool of
small-cap value stocks, declined 1.43 percent.
Q YOU MENTIONED THAT SMALL-CAP VALUE STOCKS HAVE STRUGGLED. COULD YOU PUT
THEIR PERFORMANCE INTO CONTEXT FOR US?
A The 12-month period was clearly led by growth-style stocks, both large
and small. As you can see, the segments of the markets in which the fund does
not invest -- large- and small-cap growth stocks in particular -- dominated
the market during this period.
The disparity between value and growth has been striking. There appeared to be
a change in direction in the second quarter of 1999 as value stocks rallied, but
the performance was not sustained. We are heartened, though, that we've seen
some gains made by small-cap stocks during the year. We do believe that in time
the market can broaden its leadership and that small-cap value stocks can gain
momentum.
- -------------------------------------------------------------------------------
GROWTH STOCKS DOMINATED THE MARKET
- -------------------------------------------------------------------------------
BENCHMARK RETURNS FOR THE 12-MONTH PERIOD ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
12-MONTH TOTAL RETURN
INDEX* REPRESENTATIVE OF: 12/1/98 - 11/30/99
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RUSSELL 2000 GROWTH Small-Cap Growth 32.66%
.................................................................................................................
RUSSELL 1000 GROWTH Large-Cap Growth 31.49%
.................................................................................................................
RUSSELL 1000 Large-Cap Blend 21.30%
.................................................................................................................
RUSSELL 2000 Small-Cap Blend 15.67%
.................................................................................................................
RUSSELL 1000 VALUE Large-Cap Value 10.47%
.................................................................................................................
RUSSELL 2000 VALUE Small-Cap Value -1.43%
.................................................................................................................
</TABLE>
* THE RUSSELL 2000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000
COMPANIES WITH HIGHER PRICE TO BOOK GROWTH VALUES. THE RUSSELL 1000 GROWTH
INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH HIGHER
FORECASTED GROWTH VALUES. THE RUSSELL 1000 MEASURES THE PERFORMANCE OF THE
1,000 LARGEST COMPANIES IN THE RUSSELL 3000 WHICH REPRESENTS APPROXIMATELY 92%
OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000. THE RUSSELL 1000 VALUE
INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH LOWER
PRICE TO BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2000
VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000 COMPANIES WITH
LOWER PRICE TO BOOK RATIOS AND LOWER FORECASTED GROWTH STOCKS. SOURCE IS
WIESENBERGER. INVESTORS CANNOT INVEST IN THE INDICES.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT CAUSED THE DISPARITY BETWEEN GROWTH STOCKS AND THE REST OF THE
MARKET?
A When the fiscal year began in December 1998, the global markets were
recovering from a severe downturn. After Russia defaulted on its debt in August
1998, global equity markets slid sharply. Although investors returned to the
market with enthusiasm a few months later, they shied away from most small-cap
stocks and value stocks, perceiving them to be riskier. Investors instead
favored large-company growth-oriented stocks, perceiving them to be "safe
havens." Internet stocks also began to capture investors' attention. The market
shunned most other stocks.
In April 1999, it looked as if the tide were turning. Fears of a global
economic crisis had abated, and investor confidence returned. Market leadership
began to broaden, and value stocks and small stocks rallied. Unfortunately, this
recovery was short-lived. Amid rising interest rates in the third calendar
quarter of 1999, stock prices fell. Only technology stocks gained, as investors
shifted their focus back toward this market segment, despite the stocks' high
valuations. Momentum took hold and pushed these stocks to increasingly high
levels throughout the remainder of the period.
Toward the end of the period, we began to see more capital appreciation for
small-cap stocks, but these gains were concentrated in the growth-style
small-cap stocks.
Q YOU TOOK THE HELM OF THE FUND IN AUGUST 1999. PLEASE DESCRIBE THE PROCESS
THAT YOUR TEAM USES TO SELECT STOCKS.
A Our goal is to create a well-diversified, risk-managed portfolio. To do
this, we use a relative-value strategy and select investments from each major
sector of the small-cap market. Here's how it works:
RELATIVE VALUE: We seek attractively priced stocks in each sector based on
sales, earnings, book values and other measures of firm value, measured in
relation to companies within the same economic sector. Using this approach, we
choose only those stocks that we believe represent the best values within each
sector.
SECTOR NEUTRAL: We don't attempt to forecast which sectors are going to
perform best or forecast the direction of the overall market. Instead, we
maintain sector weightings in line with the overall small-cap market as measured
by the Russell 2000 index (excluding real estate investment trusts). By using
this index as a guide, we believe we achieve thorough diversification across the
small-cap universe and avoid the sector biases of traditional value managers.
Quantitative research drives our highly disciplined stock-selection process.
We use rigorous, proprietary computer modeling techniques that leverage more
than a decade of testing, research and real-time implementation by Scudder
Kemper Investments, Inc. Our quantitative model allows us to distill and
evaluate data on the thousands of stocks that make up the small-cap market.
Q HOW DOES A RELATIVE-VALUE APPROACH DIFFER FROM AN ABSOLUTE-VALUE STRATEGY?
A In an absolute-value investment approach, you'd expect to see significant
underweightings in the higher-priced sectors. For instance, even if a technology
stock were attractively valued compared with the technology-stock universe, it
could still carry a price tag that is too high compared with the broader
universe and beyond the parameters of an absolute-value approach. In contrast, a
relative-value approach provides a greater degree of flexibility to participate
in all market sectors, and arguably more consistent comparisons, since stocks
are evaluated against their sector peers. As a result of this transition, the
fund now includes considerably more exposure to technology and health care
companies. Meanwhile, compared with a year ago, the fund holds fewer capital
goods, energy and financial services stocks.
Q WHAT FACTORS HINDERED PERFORMANCE?
A As we noted, small-cap value stocks faced significant challenges
throughout most of the fiscal-year period.
Even though we had strong gains in some sectors, such as technology and
telecommunications, the fund's holdings underperformed the gains made in those
sectors of the Russell 2000. That's because our valuation discipline kept us
from participating in the spectacular gains among some technology and Internet
stocks that drove the index returns. From both an absolute-and a relative-value
perspective, the Internet stocks did not meet our criteria.
The fund's financial services stocks struggled during the period. While some
of the underperformance was due to company-specific fundamentals, the sector as
a whole faced added challenges in a rising-rate environment.
Q WHERE ARE YOU FINDING THE BEST VALUE?
A Because we follow a sector-neutral approach, we don't overweight or
underweight
6
<PAGE> 7
PERFORMANCE UPDATE
particular sectors. Instead we focus on finding companies with attractive
valuations within each sector. Despite the significant gains made this year in
the technology and telecommunications sectors, we continue to find promising
stocks that have not fully participated in the market's rise. And beyond these
two sectors, the rest of the small-cap universe is ripe with undervalued stocks.
Across the market, the majority of stocks are actually down -- and in most
cases, down fairly significantly from earlier highs. That provides fertile
ground for value managers to find undervalued stocks across all sectors.
This is reflected in more than just sectors and industries. It is reflected in
the characteristics of the stocks we're buying today in the fund. Our typical
holding is selling at a price of only 14 times earnings, which is 30 percent
lower than the Russell 2000, where the median P/E ratio (see Terms To Know) is
about 20 times earnings, and the S&P, which is at 23 times earnings. We clearly
have a portfolio of stocks that are cheap. More important, we believe it is a
portfolio of stocks positioned well as the market broadens out.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET?
A Our outlook for small-cap stocks is promising. It appears there has been
somewhat of a shift toward smaller-cap stocks, but it has yet to rotate over to
the value side of the equation. The disparity between the performance of growth
stocks and value stocks is at an extreme level. We're confident that market
sentiment will eventually shift, as investors gain a greater recognition of the
existing disparity. Kemper Small Cap Value Fund is well positioned to benefit
from such a shift. We also continue to believe that the small-cap value asset
class is an important component of a well-balanced, long-term investment
portfolio.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1999 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER SMALL CAP VALUE FUND CLASS A -6.03% 11.79% 10.79% (since 5/22/92)
...................................................................................................
KEMPER SMALL CAP VALUE FUND CLASS B -4.01 n/a 4.53 (since 9/11/95)
...................................................................................................
KEMPER SMALL CAP VALUE FUND CLASS C -0.86 n/a 5.07 (since 9/11/95)
...................................................................................................
</TABLE>
KEMPER SMALL CAP VALUE FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 5/31/92 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP RUSSELL 2000 VALUE CONSUMER PRICE
VALUE FUND CLASS A(1) RUSSELL 2000 INDEX+ INDEX++ INDEX - US+++
------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
5/31/92 9425.00 10000.00 10000.00 10000.00
11297.00 11266.00 11352.00 10157.00
12/31/93 11584.00 13396.00 14059.00 10437.00
11601.00 13152.00 13841.00 10716.00
16623.00 16892.00 17405.00 10988.00
12/31/96 21544.00 19678.00 21124.00 11353.00
25858.00 24078.00 27818.00 11546.00
22543.00 23465.00 26024.00 11732.00
11/30/99 21630.00 25527.00 24872.00 12047.00
</TABLE>
KEMPER SMALL CAP VALUE 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 SMALL CAP RUSSELL 2000 VALUE CONSUMER PRICE
VALUE FUND CLASS B(1) RUSSELL 2000 INDEX+ INDEX+ INDEX - US++
------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
9/30/95 10000.00 10000.00 10000.00 10000.00
9970.00 10217.00 10291.00 10020.00
12/31/96 12818.00 11902.00 12490.00 10352.00
12/31/97 15234.00 14563.00 16448.00 10529.00
13158.00 14192.00 15387.00 10698.00
11/30/99 12341.00 15440.00 14706.00 10986.00
</TABLE>
KEMPER SMALL CAP VALUE 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 SMALL CAP RUSSELL 2000 VALUE CONSUMER PRICE
VALUE FUND CLASS C(1) RUSSELL 2000 INDEX+ INDEX++ INDEX - US+++
------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
9/30/95 10000.00 10000.00 10000.00 10000.00
9970.00 10217.00 10291.00 10020.00
12/31/96 12839.00 11902.00 12490.00 10352.00
12/31/97 15269.00 14563.00 16448.00 10529.00
13193.00 14192.00 15387.00 10698.00
11/30/99 12601.00 15440.00 14706.00 10986.00
</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 CONTINGENT
DEFERRED SALES CHARGE IN EFFECT AT
THE END OF THE PERIOD FOR B
SHARES. IN COMPARING KEMPER SMALL
CAP VALUE FUND TO THE RUSSELL 2000
INDEX+, RUSSELL 2000 VALUE INDEX
AND THE CONSUMER PRICE INDEX++,
YOU SHOULD NOTE THAT THE FUND'S
PERFORMANCE REFLECTS THE DEDUCTION
OF THE MAXIMUM SALES CHARGE, WHILE
NO SUCH CHARGES ARE REFLECTED IN
THE PERFORMANCE OF THE INDICES.
+THE RUSSELL 2000 INDEX IS AN
UNMANAGED, CAPITALIZATION-WEIGHTED
PRICE-ONLY INDEX THAT COMPRISES 2,000
OF THE SMALLEST STOCKS (ON THE BASIS
OF CAPITALIZATION) IN THE RUSSELL
3000 INDEX. SOURCE IS WIESENBERGER.
++THE RUSSELL 2000 VALUE INDEX MEASURES
THE PERFORMANCE OF THOSE RUSSELL 2000
COMPANIES WITH LOWER PRICE TO BOTH
RATIOS AND LOWER FORECASTED GROWTH
STOCKS. SOURCE IS WIESENBERGER.
+++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.
8
<PAGE> 9
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOW 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 SMALL CAP VALUE FUND KEMPER SMALL CAP VALUE FUND
ON 11/30/99 ON 11/30/98
--------------------------- ---------------------------
<S> <C> <C>
CONSUMER NONDURABLES 18.1 18
TECHNOLOGY 16.8 7.2
FINANCE 16.6 24.6
CAPITAL GOODS 14.9 22.3
BASIC INDUSTRIES 8.8 5
HEALTH CARE 8.1 2.2
TRANSPORTATION 4.8 8.4
COMMUNICATION SERVICES 4.5 0
UTILITIES 3.9 4.1
ENERGY 3.5 5.7
OTHER 0 2.5
</TABLE>
PORTFOLIO COMPOSITION IS AS OF NOVEMBER 30, 1999, AND IS SUBJECT TO CHANGE.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 19.2 percent of the fund's total net assets on November 30, 1999.
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1. ELCOR One of the leading manufacturers 2.4%
of residential premium laminated
fiberglass asphalt roofing
shingles and proprietary
finishes for original equipment
and recycled diesel engine
cylinder liners for the
railroad, marine and stationary
power industries.
- ---------------------------------------------------------------------------------------
2. AMCOL INTERNATIONAL Operates specialty chemical, 2.3%
minerals, and transportation
businesses.
- ---------------------------------------------------------------------------------------
3. DOLLAR THRIFTY Operates car rental companies 2.0%
AUTOMOTIVE GROUP Dollar Rent A Car Systems and
Thrifty Rent-A-Car System.
- ---------------------------------------------------------------------------------------
4. FORTRESS INVESTMENT Invests in undervalued 2.0%
real-estate related assets, both
domestic and international.
- ---------------------------------------------------------------------------------------
5. CONMED Develops, manufactures and 1.8%
markets disposable
electrosurgical instruments and
accessories, electrosurgical
generators and disposable
medical devices for monitoring.
- ---------------------------------------------------------------------------------------
6. VALASSIS A leading sales promotion 1.8%
COMMUNICATIONS company, offering a broad array
of consumer promotion
techniques.
- ---------------------------------------------------------------------------------------
7. AMERICA WEST Full-service passenger airline, 1.8%
HOLDINGS serving more than 100
destinations in the continental
United States, Canada and
Mexico. It also operates a
tour-packaging division, America
West Vacations, and a travel
tour package subsidiary, America
West's Leisure Company.
- ---------------------------------------------------------------------------------------
8. TNP ENTERPRISES Electrical utility providing 1.8%
power to customers in Texas and
New Mexico.
- ---------------------------------------------------------------------------------------
9. BURR-BROWN Designs component-based 1.7%
technology. Products include
standard analog and mixed-signal
integrated circuits, operational
amplifiers, and a variety of
converters.
- ---------------------------------------------------------------------------------------
10. PRENTISS A self-administered and -managed 1.6%
PROPERTIES TRUST real estate investment trust
that invests primarily in office
and industrial buildings.
- ---------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAP VALUE FUND
Portfolio of Investments at November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM NOTES 2.6% AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Bank, 5.570%**,
12/01/99
(Cost $16,567) 16,567 $ 16,567
--------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 97.4% NUMBER OF SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--6.1%
APPAREL & SHOES--1.8%
Deb Shops, Inc. 102,400 2,016
Genesco Inc.* 146,500 2,051
K-Swiss Inc."A" 33,900 483
Movado Group, Inc. 16,600 394
Tarrant Apparel Group* 67,200 756
The Buckle, Inc.* 14,500 225
Wolverine World Wide, Inc. 496,000 5,425
--------------------------------------------------------------------------
11,350
DEPARTMENT &
CHAIN STORES--0.7%
Dress Barn Inc.* 51,500 879
Goody's Family Clothing, Inc.* 92,800 615
Pacific Sunwear of California Inc.* 66,050 2,039
Shopko Stores, Inc.* 38,300 869
--------------------------------------------------------------------------
4,402
HOME FURNISHINGS--0.2%
American Woodmark Corp. 54,100 1,082
--------------------------------------------------------------------------
HOTELS & CASINOS--0.5%
Anchor Gaming* 39,100 2,153
Hollywood Park, Inc.* 59,100 1,193
--------------------------------------------------------------------------
3,346
RECREATIONAL PRODUCTS--1.0%
Fairfield Communities, Inc.* 46,300 552
THQ, Inc.* 109,200 5,870
--------------------------------------------------------------------------
6,422
RESTAURANTS--1.6%
Applebee's International Inc. 21,100 635
CEC Entertainment Inc.* 92,700 2,781
Lone Star Steakhouse & Saloon, Inc.* 166,400 1,256
NPC International, Inc.* 188,200 2,376
O'Charley's Inc.* 93,100 1,222
Ruby Tuesday, Inc. 87,300 1,757
--------------------------------------------------------------------------
10,027
SPECIALTY RETAIL--0.3%
Cellstar Corp.* 77,500 746
Trans World Entertainment Corp.* 107,400 1,181
--------------------------------------------------------------------------
1,927
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--5.7%
ALCOHOL & TOBACCO--0.1%
Schweitzer-Mauduit International, Inc. 66,600 882
--------------------------------------------------------------------------
CONSUMER ELECTRONIC &
PHOTOGRAPHIC--0.3%
Salton, Inc.* 66,800 1,649
--------------------------------------------------------------------------
CONSUMER SPECIALTIES--0.6%
Russ Berrie & Co., Inc. 10,300 262
Sola International, Inc.* 252,600 3,600
--------------------------------------------------------------------------
3,862
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD & BEVERAGE--2.7%
Earthgrains Co. 51,900 $ 941
Fresh Del Monte Produce Inc.* 456,100 3,734
Imperial Sugar Co. 149,200 597
J & J Snack Foods Corp.* 82,400 1,545
Jack in the Box Inc.* 52,300 1,102
Michael Foods, Inc. 34,200 857
Performance Food Group Co.* 301,800 7,545
The Grand Union Co.* 80,300 853
--------------------------------------------------------------------------
17,174
PACKAGE GOODS/
COSMETICS--0.1%
Chattem, Inc.* 59,600 1,151
--------------------------------------------------------------------------
TEXTILES--1.9%
Nautica Enterprises, Inc.* 331,700 4,353
Polymer Group, Inc. 57,400 1,080
Springs Industries, Inc. "A" 161,100 6,444
--------------------------------------------------------------------------
11,877
- -------------------------------------------------------------------------------------------------------------------------
HEALTH--8.0%
BIOTECHNOLOGY--0.3%
Bio-Rad Laboratories, Inc. "A"* 46,900 1,158
Catalytica, Inc.* 41,400 437
--------------------------------------------------------------------------
1,595
HEALTH INDUSTRY
SERVICES--1.9%
AmeriPath, Inc.* 239,500 1,961
Covance, Inc.* 32,000 348
Hanger Orthopedic Group, Inc.* 149,000 1,527
Hooper Holmes 42,100 995
Magellan Health Services, Inc.* 200,700 1,254
PAREXEL International Corporation* 95,900 1,151
Quest Diagnostics Inc.* 12,300 374
Res-Care, Inc.* 33,400 395
Superior Consultant Holdings Corp.* 64,400 942
Syncor International Corp.* 75,100 2,107
US Oncology, Inc.* 147,500 696
--------------------------------------------------------------------------
11,750
HOSPITAL MANAGEMENT--1.6%
Coventry Health Care, Inc.* 183,300 1,054
Province Healthcare Co.* 124,200 2,554
Quorom Health Group, Inc.* 700,500 6,261
--------------------------------------------------------------------------
9,869
MEDICAL SUPPLY &
SPECIALTY--3.4%
Acuson Corporation* 118,900 1,375
Bacou USA, Inc.* 132,800 2,125
Conmed Corp.* 456,800 11,534
Cooper Cos. 75,600 1,909
Twinlab Corp.* 207,500 2,023
Vital Signs Inc. 76,600 1,781
Wesley Jessen VisionCare, Inc.* 16,600 474
--------------------------------------------------------------------------
21,221
PHARMACEUTICALS--0.8%
Advance Paradigm, Inc.* 28,900 1,148
Alpharma Inc. "A" 25,300 810
Bio-Technology General Corp.* 8,800 106
Medco Research Inc.* 76,300 2,031
Rexall Sundown, Inc.* 78,200 802
--------------------------------------------------------------------------
4,897
</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 VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--2.1%
TELEPHONE/ COMMUNICATIONS--2.1%
AVT Corp.* 51,200 $ 2,058
CT Communications, Inc. 15,500 734
CapRock Communications Corp.* 23,500 573
Commonwealth Telephone Enterprises,
Inc.* 18,300 1,081
General Communication, Inc. "A"* 66,300 273
North Pittsburgh Systems, Inc. 81,600 1,326
Pacific Gateway Exchange, Inc.* 116,800 2,132
Plantronics, Inc.* 1,200 76
US LEC Corp. "A"* 33,900 898
Xircom, Inc.* 70,800 3,717
--------------------------------------------------------------------------
12,868
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL--16.2%
BANKS--6.1%
BSB Bancorp, Inc. 27,300 568
Commercial Federal Corp. 328,950 5,983
Cullen Frost Bankers, Inc. 146,000 4,161
Dime Community Bancshares 47,600 943
Downey Financial Corp. 20,000 403
First Federal Financial Corp.* 88,800 1,371
First Republic Bank* 40,800 961
First Washington Bancorp, Inc. 78,500 1,295
GBC Bancorp 64,500 1,363
Imperial Bancorp* 318,300 7,639
MAF Bancorp, Inc. 31,500 699
PFF Bancorp, Inc. 103,000 2,266
St. Francis Capital Corp. 92,200 1,850
Webster Financial Corp. 326,100 8,682
--------------------------------------------------------------------------
38,184
INSURANCE--4.4%
AmerUS Life Holdings, Inc. 32,100 757
Delphi Financial Group, Inc. "A" 25,704 798
Farm Family Holdings, Inc.* 70,200 2,861
First American Financial Co. 70,000 901
Foremost Corporation of America 78,700 2,223
Fremont General Corp. 513,000 2,597
Guarantee Life Companies, Inc. 47,100 1,484
LandAmerica Financial Group, Inc. 115,000 2,235
PICO Holdings, Inc.* 23,900 360
PMA Capital Corp. 77,900 1,543
Philadelphia Consolidated Holding Corp.* 129,800 1,898
RLI Corp. 48,100 1,635
SCPIE Holdings Inc. 49,000 1,706
Selective Insurance Group, Inc. 55,700 975
Stewart Information Services Corp. 57,200 772
The Midland Company 3,500 81
Trenwick Group, Inc. 108,312 2,200
White Mountain Insurance Group Inc. 5,100 602
Zenith National Insurance Corp. 89,600 1,859
--------------------------------------------------------------------------
27,487
CONSUMER FINANCE--0.2%
New Century Financial Corp.* 95,100 1,498
--------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER FINANCIAL
COMPANIES--1.3%
Advanta Corp. "A" 46,900 $ 817
Bay View Capital Corp. 77,300 1,295
CNA Surety Corp. 100,100 1,114
Phoenix Investment Partners, Ltd. 194,700 1,521
Resource America, Inc. "A" 138,100 1,174
Resource Bancshares Mortgage Group, Inc. 226,900 1,135
Walter Industries, Inc. 101,400 1,077
--------------------------------------------------------------------------
8,133
REAL ESTATE--4.2%
Castle & Cooke, Inc.* 55,600 703
Fortress Investment Corp.(b) 750,000 12,656
Prentiss Properties Trust (REIT) 492,800 9,979
Redwood Trust, Inc. 255,600 2,971
--------------------------------------------------------------------------
26,309
- -------------------------------------------------------------------------------------------------------------------------
MEDIA--2.3%
BROADCASTING & ENTERTAINMENT--0.5%
AMC Entertainment, Inc.* 310,600 3,145
--------------------------------------------------------------------------
PRINT MEDIA--1.8%
Valassis Communications, Inc.* 290,900 11,454
--------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--5.7%
EDP SERVICES--0.8%
Analysts International Corp. 36,900 440
Keane, Inc.* 96,500 2,606
QRS Corp.* 19,900 1,157
Systems & Computer Technology Corp.* 44,600 638
--------------------------------------------------------------------------
4,841
ENVIRONMENTAL SERVICES--0.4%
URS Corp.* 116,700 2,276
--------------------------------------------------------------------------
INVESTMENT--0.4%
Raymond James Financial, Inc. 34,900 656
Southwest Securities Group, Inc. 58,100 1,649
--------------------------------------------------------------------------
2,305
MISCELLANEOUS
COMMERCIAL--2.7%
Bell & Howell Holdings Co.* 113,200 3,509
Century Business Services, Inc.* 140,900 1,304
Computer Task Group Inc. 184,100 2,728
First Consulting Group, Inc.* 9,200 87
IT Group, Inc.* 94,200 983
Kelly Services, Inc. "A" 60,300 1,581
Lason, Inc.* 46,500 1,133
Mastech Corp.* 4,200 79
Morrison Knudsen Corp.* 46,400 403
Personnel Group of America, Inc.* 128,000 1,000
Source Information Management Co.* 13,500 206
Syntel, Inc.* 120,400 1,505
Technology Solutions Co.* 41,500 1,136
Volt Information Sciences, Inc.* 51,600 1,151
--------------------------------------------------------------------------
16,805
MISCELLANEOUS CONSUMER--1.3%
CDI Corp.* 57,500 1,394
Complete Business Solutions, Inc.* 220,500 4,176
Group Maintenance America Corp.* 299,700 2,735
--------------------------------------------------------------------------
8,305
PRINTING/PUBLISHING--0.1%
Mail-Well, Inc.* 51,800 618
--------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DURABLES--4.9%
AEROSPACE--1.3%
Aeroflex, Inc.* 153,500 $ 1,267
Alliant Techsystems, Inc.* 109,400 6,010
Primex Technologies, Inc. 39,600 809
--------------------------------------------------------------------------
8,086
AUTOMOBILES--1.3%
Borg-Warner Automotive Inc. 192,800 7,808
Oshkosh Truck Corp. "B" 15,200 420
--------------------------------------------------------------------------
8,228
CONSTRUCTION/
AGRICULTURAL--0.1%
Terex Corp.* 24,000 672
--------------------------------------------------------------------------
LEASING COMPANIES--2.0%
Dollar Thrifty Automotive Group, Inc.* 649,200 12,822
--------------------------------------------------------------------------
TELECOMMUNICATIONS
EQUIPMENT--0.2%
Inter-Tel, Inc. 74,500 1,485
--------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--9.7%
CONTAINERS & PAPER--0.1%
P.H. Glatfelter Company 37,200 479
--------------------------------------------------------------------------
DIVERSIFIED
MANUFACTURING--2.1%
Briggs & Stratton Corp. 105,000 5,611
Myers Industries, Inc. 431,079 6,466
ThermoQuest Corp.* 76,400 788
--------------------------------------------------------------------------
12,865
ELECTRICAL PRODUCTS--0.5%
Methode Electronics "A" 76,500 2,065
Windmere-Durable Holdings, Inc.* 73,900 1,058
--------------------------------------------------------------------------
3,123
INDUSTRIAL SPECIALTY--2.1%
Fleetwood Enterprises 316,900 6,656
Gardner Denver Inc.* 17,900 293
General Cable Corp. 178,300 1,382
Lydall, Inc.* 124,000 1,108
Thermo BioAnalysis Corp.* 69,500 1,225
UNOVA, Inc.* 177,100 2,324
--------------------------------------------------------------------------
12,988
MACHINERY/COMPONENTS/
CONTROLS--3.4%
CIRCOR International, Inc.* 166,900 1,815
Intermet Corp. 421,200 4,265
RadiSys Corp.* 23,250 1,043
Shaw Group, Inc.* 415,100 8,665
Thermo Optek Corp.* 56,000 564
Watts Industries, Inc. "A" 333,800 4,652
Woodward Governor Co. 1,700 46
--------------------------------------------------------------------------
21,050
MISCELLANEOUS--1.5%
American Axle & Manufacturing Holdings,
Inc.* 503,400 6,482
Buckeye Technologies, Inc.* 177,100 2,811
--------------------------------------------------------------------------
9,293
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--16.3%
COMPUTER SOFTWARE--5.6%
3Dfx Interactive, Inc.* 102,900 $ 912
Activision, Inc.* 106,400 1,598
Advanced Digital Information Corp.* 39,400 1,771
Advent Software, Inc.* 15,700 879
Best Software, Inc.* 500 13
Cybex Computer Products Corp.* 12,300 530
Epicor Software Corp.* 265,000 1,549
Factset Research Systems Inc.* 44,600 2,765
Great Plains Software, Inc.* 20,600 1,101
Hyperion Solutions Corp.* 15,000 411
IMRglobal Corp.* 126,000 1,441
ISS Group, Inc.* 28,600 1,380
InfoCure Corporation* 67,200 1,079
JDA Software Group, Inc.* 153,800 2,153
MICROS Systems, Inc.* 41,400 2,093
MTI Technology Corp.* 121,600 3,405
MTS Systems Corp. 140,000 1,383
Metro Information Services Inc.* 111,400 1,657
Remedy Corp.* 70,700 2,466
Santa Cruz Operations Inc.* 232,400 3,471
Structural Dynamics Research Corp.* 178,500 1,902
Unigraphics Solutions Inc. 2,200 49
Verity, Inc.* 12,300 1,273
--------------------------------------------------------------------------
35,281
DIVERSE ELECTRONIC
PRODUCTS--0.3%
Cable Design Technologies Corp.* 47,000 1,125
DSP Group, Inc.* 13,300 925
--------------------------------------------------------------------------
2,050
EDP PERIPHERALS--0.5%
Gerber Scientific, Inc. 80,500 1,550
In Focus Systems, Inc.* 11,800 246
NeoMagic Corp.* 111,600 1,011
--------------------------------------------------------------------------
2,807
ELECTRONIC COMPONENTS/
DISTRIBUTORS--2.9%
Apex Inc.* 15,500 364
Belden, Inc. 176,800 3,536
Benchmark Electronics, Inc.* 163,900 3,647
ITI Technologies, Inc.* 46,800 1,398
Pioneer-Standard Electronics, Inc. 88,200 1,180
Smart Modular Technologies* 13,500 567
Technitrol, Inc. 178,800 7,666
--------------------------------------------------------------------------
18,358
ELECTRONIC DATA
PROCESSING--1.7%
Computer Network Technology, Corp.* 196,400 3,977
Information Resources, Inc.* 98,300 983
SAGA Systems, Inc.* 174,100 3,711
Sunquest Information Systems, Inc.* 142,200 1,937
--------------------------------------------------------------------------
10,608
MILITARY ELECTRONICS--0.7%
Tech-Sym Corp.* 142,700 2,693
Titan Corp.* 61,300 1,659
--------------------------------------------------------------------------
4,352
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OFFICE/PLANT
AUTOMATION--1.0%
CACI International, Inc. "A"* 151,500 $ 3,333
Kronos, Inc.* 17,000 882
Mercury Computer Systems, Inc.* 27,800 1,586
Pinnacle Systems, Inc.* 2,300 76
Radiant Systems Inc.* 21,000 520
--------------------------------------------------------------------------
PRECISION INSTRUMENTS--0.3% 6,397
Analogic Corp. 29,800 889
Molecular Devices Corp.* 12,300 373
Moog Inc. "A"* 12,400 326
--------------------------------------------------------------------------
SEMICONDUCTORS--3.2% 1,588
Alliance Semiconductor Corp.* 105,000 1,509
Alpha Industries* 37,200 2,251
Burr-Brown Corp.* 240,750 10,668
Cree Research, Inc.* 52,500 2,999
Etec Systems, Inc.* 26,500 1,140
Exar Corp.* 34,700 1,687
--------------------------------------------------------------------------
MISCELLANEOUS--0.1% 20,254
IDT Corp.* 5,100 116
Maxwell Technologies, Inc.* 44,000 473
--------------------------------------------------------------------------
589
- -------------------------------------------------------------------------------------------------------------------------
ENERGY--3.4%
OIL & GAS PRODUCTION--2.5%
Basin Exploration, Inc.* 15,800 279
Chieftain International, Inc.* 441,700 7,123
Cross Timbers Oil Company 75,700 771
Tesoro Petroleum Corp.* 630,000 7,560
--------------------------------------------------------------------------
OIL COMPANIES--0.3% 15,733
Giant Industries, Inc.* 214,600 1,864
--------------------------------------------------------------------------
OILFIELD SERVICES/
EQUIPMENT--0.6%
Oceaneering International, Inc.* 65,900 857
Seitel, Inc. 375,500 2,535
Varco International, Inc.* 25,000 267
--------------------------------------------------------------------------
3,659
- -------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--3.6%
STEEL & METALS--3.6%
AK Steel Holding Corp. 178,700 2,960
AMCOL International Corp. 800,000 14,200
Gibraltar Steel Corporation 8,100 190
IMCO Recycling Inc. 50,000 644
Quanex Corp. 225,200 4,771
--------------------------------------------------------------------------
22,765
- -------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--5.0%
BUILDING MATERIALS--3.3%
Elcor Corp. 464,725 15,045
Florida Rock Industries, Inc. 32,400 1,013
Southdown, Inc. 88,200 4,074
Universal Forest Products, Inc. 36,300 558
--------------------------------------------------------------------------
BUILDING PRODUCTS--0.4% 20,690
Emcor Group, Inc.* 59,500 1,041
Genlyte Group, Inc.* 30,200 729
Nortek, Inc.* 21,100 543
--------------------------------------------------------------------------
2,313
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HOMEBUILDING--1.3%
Del Webb Corp.* 277,500 $ 6,348
MDC Holdings, Inc. 22,200 332
NVR Inc.* 23,200 1,128
Standard Pacific Corp. 39,300 432
--------------------------------------------------------------------------
8,240
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--4.6%
AIR FREIGHT--0.7%
Airborne Freight Corp. 198,600 4,605
--------------------------------------------------------------------------
AIRLINES--1.8%
America West Holdings Corp. "B"* 564,000 11,386
--------------------------------------------------------------------------
RAILROADS--1.7%
Trinity Industries, Inc. 280,500 8,205
Wisconsin Central Transportation Co.* 173,600 2,435
--------------------------------------------------------------------------
TRUCKING--0.4% 10,640
M.S. Carriers Inc.* 40,600 1,066
Roadway Express, Inc. 64,600 1,284
Yellow Corp.* 24,500 412
--------------------------------------------------------------------------
2,762
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES--3.8%
ELECTRIC UTILITIES--3.1%
Anixter International Inc.* 61,500 1,254
El Paso Electric Co.* 616,100 5,545
Public Service Co. of New Mexico* 102,100 1,697
TNP Enterprises, Inc. 270,100 11,023
--------------------------------------------------------------------------
NATURAL GAS DISTRIBUTION--0.7% 19,519
Energen Corp. 88,200 1,698
NUI Corp. 82,400 2,075
South Jersey Industries, Inc. 20,900 613
--------------------------------------------------------------------------
4,386
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $600,439) 610,648
--------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $617,006)(a) $627,215
--------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase, not a coupon rate.
(a) The cost for federal income tax purposes was $616,963. At November 30, 1999,
net unrealized appreciation for all securities based on tax cost was
$96,767. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$86,515 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $10,252.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $12,656 (2.02% of net assets). Their
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of these
securities at November 30, 1999 aggregated $15,000. These securities may
also have certain restrictions as to resale.
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments in securities, at value (Cost $617,006) $627,215
- ------------------------------------------------------------------------
Cash 4
- ------------------------------------------------------------------------
Dividends receivable 389
- ------------------------------------------------------------------------
Receivable for Fund shares sold 2,324
- ------------------------------------------------------------------------
TOTAL ASSETS 629,932
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Payable for investments purchased 382
- ------------------------------------------------------------------------
Payable for Fund shares redeemed 6,558
- ------------------------------------------------------------------------
Accrued management fee 394
- ------------------------------------------------------------------------
Other accrued expenses and payables 793
- ------------------------------------------------------------------------
Total liabilities 8,127
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $621,805
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investment
securities $ 10,209
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) (90,399)
- ------------------------------------------------------------------------
Paid-in capital 701,995
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $621,805
- ------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($296,864/16,724 shares of capital stock outstanding, $.01
par value, 320,000 shares authorized) $17.75
- ------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $17.75) $18.83
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($261,953/15,272 shares of capital stock outstanding, $.01
par value, 320,000 shares authorized) $17.15
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($57,420/3,332
shares of capital stock outstanding, $.01 par value,
80,000 shares authorized) $17.24
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price per share
($5,568/306 shares of capital stock outstanding, $.01 par
value, 80,000 shares authorized) $18.19
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 12,795
- ------------------------------------------------------------------------
Interest 974
- ------------------------------------------------------------------------
Total Income 13,769
- ------------------------------------------------------------------------
Expenses:
Management fee 5,893
- ------------------------------------------------------------------------
Services to shareholders 3,790
- ------------------------------------------------------------------------
Custodian fees 54
- ------------------------------------------------------------------------
Distribution services fees 2,951
- ------------------------------------------------------------------------
Administrative services fees 1,924
- ------------------------------------------------------------------------
Auditing 92
- ------------------------------------------------------------------------
Legal 16
- ------------------------------------------------------------------------
Trustees' fees and expenses 47
- ------------------------------------------------------------------------
Reports to shareholders 504
- ------------------------------------------------------------------------
Other 18
- ------------------------------------------------------------------------
Total expenses, before expense reductions 15,289
- ------------------------------------------------------------------------
Expense reductions (11)
- ------------------------------------------------------------------------
Total expenses, after expense reductions 15,278
- ------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,509)
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ------------------------------------------------------------------------
Net realized gain (loss) from investments (72,561)
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 71,233
- ------------------------------------------------------------------------
Net gain (loss) on investment transactions (1,328)
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (2,837)
- ------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
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) $ (1,509) (2,016)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) (72,561) (16,112)
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 71,233 (175,453)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,837) (193,581)
- ------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net realized gains
Class A -- (20,159)
- ------------------------------------------------------------------------------------------------
Class B -- (13,801)
- ------------------------------------------------------------------------------------------------
Class C -- (3,288)
- ------------------------------------------------------------------------------------------------
Class I -- (476)
- ------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 657,178 661,790
- ------------------------------------------------------------------------------------------------
Reinvestment of distributions -- 33,470
- ------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,012,947) (746,688)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (355,769) (51,428)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (358,606) (282,733)
- ------------------------------------------------------------------------------------------------
Net assets at beginning of period 980,411 1,263,144
- ------------------------------------------------------------------------------------------------
Net assets at end of period (including undistributed net
investment income (loss) of $(2,016) at November 30, 1998) $ 621,805 980,411
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FOR THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
ELEVEN MONTHS
YEAR ENDED ENDED
NOVEMBER 30, NOVEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------- -------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.80 21.83 18.28 14.50 10.85 11.23
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .04(a) .06 .05 .14(a) (.02) --
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.09) (3.39) 3.50 4.14 4.64 .02
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (.05) (3.33) 3.55 4.28 4.62 .02
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.07) -- --
- ---------------------------------------------------------------------------------------------------------
Net realized gain on investment
transactions -- (.70) -- (.43) (.97) (.40)
- ---------------------------------------------------------------------------------------------------------
Total distributions -- (.70) -- (.50) (.97) (.40)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.75 17.80 21.83 18.28 14.50 10.85
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN % (C) (.28) (15.69) 19.42** 29.60(B) 43.29(B) .15(B)
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in
thousands) 296,864 489,734 736,412 144,812 20,684 6,931
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 1.52 1.42 1.32* 1.47 1.83 1.82
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 1.52 1.42 1.32* 1.31 1.25 1.25
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .21 .25 .51* .87 (.16) (.03)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86 140
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS B
-----------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 11
ELEVEN MONTHS YEAR (COMMENCEMENT
YEAR ENDED ENDED ENDED OF OPERATIONS)
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, TO DECEMBER 31,
------------------ ------------- ------------ ---------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.33 21.46 18.14 14.48 15.75
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.11)(a) (.12) (.04) .01(a) (.02)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.07) (3.31) 3.36 4.11 (.41)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations (.18) (3.43) 3.32 4.12 (.43)
- ------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------
Net realized gain on investment
transactions -- (.70) -- (.43) (.84)
- ------------------------------------------------------------------------------------------------------------------
Total distributions -- (.70) -- (.46) (.84)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.15 17.33 21.46 18.14 14.48
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (C) (1.04) (16.45) 18.30** 28.54(B) (2.52)**(B)
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in
thousands) 261,953 390,043 412,479 99,355 8,072
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 2.36 2.34 2.34* 2.49 2.39*
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 2.36 2.34 2.34* 2.12 2.00*
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.63) (.67) (.51)* .06 (.99)*
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86*
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 11
YEAR ENDED ELEVEN MONTHS YEAR (COMMENCEMENT
NOVEMBER 30, ENDED ENDED OF OPERATIONS)
----------------- NOVEMBER 30, DECEMBER 31, TO DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.39 21.51 18.17 14.48 15.75
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.09)(a) (.12) (.03) .01(a) (.02)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions (.06) (3.30) 3.37 4.14 (.41)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (.15) (3.42) 3.34 4.15 (.43)
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------
Net realized gain on investment
transactions -- (.70) -- (.43) (.84)
- ------------------------------------------------------------------------------------------------------------
Total distributions -- (.70) -- (.46) (.84)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.24 17.39 21.51 18.17 14.48
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN %(C) (.86) (16.37) 18.38** 28.77(B) (2.51)**(B)
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in
thousands) 57,420 91,473 99,526 20,054 985
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 2.25 2.28 2.24* 2.19 2.35*
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 2.25 2.28 2.24* 2.06 1.95*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.52) (.61) (.41)* .12 (.94)*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86*
- ------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------
FOR THE PERIOD
NOVEMBER 1
YEAR ENDED ELEVEN MONTHS YEAR (COMMENCEMENT
NOVEMBER 30, ENDED ENDED OF OPERATIONS)
---------------- NOVEMBER 30, DECEMBER 31, TO DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.13 22.08 18.40 14.52 14.25
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .15(a) .28 .13 .25(a) --
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.09) (3.53) 3.55 4.13 1.11
- ------------------------------------------------------------------------------------------------------------
Total from investment operations .06 (3.25) 3.68 4.38 1.11
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- -- (.07) --
- ------------------------------------------------------------------------------------------------------------
Net realized gain -- (.70) -- (.43) (.84)
- ------------------------------------------------------------------------------------------------------------
Total dividends -- (.70) -- (.50) (.84)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.19 18.13 22.08 18.40 14.52
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) .33 (15.14) 20.00** 30.28(B) 8.03**(B)
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 5,568 9,161 14,727 9,001 1,865
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) .92 .86 .89* .84 .90*
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .92 .86 .89* .84 .47*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .81 .81 .94* 1.34 .28*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 50 83* 23 86*
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
* Annualized
** Not Annualized
(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.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Small Cap Value Fund (the "Fund") is a
diversified series of Kemper Value Series, Inc.
(the "Corporation") which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open 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 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 bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, 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 bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Corporation, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
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 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.
In addition, from November 1, 1999 through November
30, 1999 the Fund incurred approximately
$19,901,000 of net realized capital losses. As
permitted by tax regulations, the Fund intends to
elect to defer these losses and treat them as
arising in the fiscal year ended November 1, 2000.
At November 30, 1999, the Fund had a tax basis net
capital loss carryforward of approximately
$70,541,000, which may be applied against any
realized net taxable gains of each succeeding year
until fully utilized or until November 30, 2006
($6,815,000) and November 30, 2007 ($63,726,000),
the respective expiration dates.
DISTRIBUTIONS OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
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.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
Trust expenses are allocated between the Funds in
proportion to their relative net assets.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2
PURCHASE & SALES
OF SECURITIES For the year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $370,789
Proceeds from sales 686,024
- --------------------------------------------------------------------------------
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 $5,893,000 for the
year ended November 30, 1999.
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 year ended November 30,
1999 are $60,000.
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sale 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
$4,556,000.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees paid by the
Fund to KDI for the year ended November 30, 1999
are $1,924,000, of which $104,000 was unpaid at
November 30, 1999. In addition $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 fees of
$2,711,000 for the year ended November 30, 1999, of
which $375,000 was unpaid at November 30, 1999.
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 $47,000 to
independent directors.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
SHARES SOLD
--------------------------------------------------------------------------------
Class A 31,426 $ 562,253 20,519 $ 411,778
--------------------------------------------------------------------------------
Class B 3,877 68,167 8,848 179,219
--------------------------------------------------------------------------------
Class C 1,137 20,354 2,452 50,136
--------------------------------------------------------------------------------
Class I 337 6,404 306 6,403
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
--------------------------------------------------------------------------------
Class A -- -- 902 18,655
--------------------------------------------------------------------------------
Class B -- -- 590 11,977
--------------------------------------------------------------------------------
Class C -- -- 116 2,362
--------------------------------------------------------------------------------
Class I -- -- 23 476
--------------------------------------------------------------------------------
SHARES REDEEMED
--------------------------------------------------------------------------------
Class A (42,696) (773,760) (28,336) (579,143)
--------------------------------------------------------------------------------
Class B (10,611) (175,703) (5,452) (105,691)
--------------------------------------------------------------------------------
Class C (3,066) (53,369) (1,933) (37,381)
--------------------------------------------------------------------------------
Class I (536) (10,115) (491) (10,219)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
--------------------------------------------------------------------------------
Class A 484 8,722 688 14,254
--------------------------------------------------------------------------------
Class B (499) (8,722) (703) (14,254)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(355,769) $ (51,428)
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 $11,000
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.
28
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER SMALL CAP VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Small Cap Value Fund as of
November 30, 1999, 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 1994. 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
Small Cap Value 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 ended
and the financial highlights for each of the fiscal periods since 1994 in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 2000
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
DIRECTORS&OFFICERS
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 Secretary
Vice President
JOHN G. WEITHERS
Director LOIS R. ROMAN
Vice President
...............................................................................
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
...............................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
...............................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
...............................................................................
INDEPENDENT ERNST & YOUNG LLP
AUDITORS 233 South Wacker Drive
Chicago, IL 60606
...............................................................................
PRINCIPAL KEMPER DISTRIBUTORS, INC.
UNDERWRITER 222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Fund/Value Style prospectus.
KSCVF - 2(1/28/00) 1099540
