<PAGE> 1
KEMPER
SMALL CAP VALUE FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1997
SEEKING LONG-TERM
CAPITAL APPRECIATION
" . . . Our goal is to pick the best
stocks in the small company universe;
if we do this consistently we should
outperform the benchmarks over the
long term . . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Terms to Know
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
14
Financial Statements
16
Notes to Financial Statements
20
Financial Highlights
ABOUT YOUR FUND
- --------------------------------------------------------------------------------
FUND CHANGES NAME
- --------------------------------------------------------------------------------
On July 23, 1997, the name of your fund changed from Kemper-Dreman Small Cap
Value Fund to Kemper Small Cap Value Fund. This name change does not affect your
investment. Your fund will continue to be managed by the same management team.
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
For the six-month period ended June 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 12.47%
CLASS B 11.91%
CLASS C 11.94%
LIPPER SMALL COMPANY
GROWTH FUNDS
CATEGORY AVERAGE* 9.00%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future results. Returns
and net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges. If they had, results may have been less favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
6/30/97 12/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAP VALUE FUND
CLASS A $20.56 $18.28
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
CLASS B $20.30 $18.14
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
CLASS C $20.34 $18.17
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</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
LIPPER RANKINGS*
- --------------------------------------------------------------------------------
Compared to all other funds in the Lipper Small Company Growth Funds Category
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #114 OF #122 OF #120 OF
405 FUNDS 405 FUNDS 405 FUNDS
- --------------------------------------------------------------------------------
3-YEAR #33 OF N/A N/A
244 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #31 OF N/A N/A
113 FUNDS
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</TABLE>
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
A self-regulating economy, a balanced budget agreement and a positive stock
market all have contributed to another excellent year for investors. Given the
extended length of today's bull market (which celebrated its 15th anniversary on
August 12), it is prudent to wonder whether the end is near. Our position is
that while there is a certain precariousness to today's environment, which we
will elaborate on below, we see little to suggest that there will be more than
occasional market corrections.
Bipartisan agreement to balance the federal budget by the year 2002 represents
significant progress that should benefit investors over the long term. By
reducing the burden of capital gains and eliminating certain tax loopholes, the
Taxpayer Relief Act of 1997 and the Balanced Budget Act of 1997 have the
potential to meaningfully affect behavior. Now that the ceiling has been raised
on capital gains from the sale of a home, empty nesters will be more inclined to
move out of homes and into smaller condominiums. Added investment and savings
options should help boost the country's sagging savings rate. From a social
perspective, government's action to widen the difference between the taxation
rate on capital gains and on income reflects a conscious effort to encourage
capital investment. The more people and businesses can do for themselves, the
less likely they are to rely on the government, which should help restrain
federal spending.
The maximum tax on long-term capital gains is now 20 percent versus a maximum
of approximately 40 percent on ordinary income earned by Americans in the
highest income tax brackets. This dramatic difference could have some influence
on the management of mutual funds in the future. Although few investment
decisions are based on their tax consequences, the legislation supports a "buy
and hold" approach to investing, by which a mutual fund generates investment
returns through gains on investments held 18 months or longer. Such gains are
taxed at the reduced capital gains rate. On the margin, portfolio managers
should focus on long-term investing -- the strategy that we have always
supported.
In addition, mutual funds will gain investment flexibility with the new law's
repeal of what has been called the "short/short rule." Previously, investment
companies had been subject to a 30 percent limitation on total income arising
from the sale of securities held less than three months -- or face severe tax
consequences. The lifting of this limitation provides newer funds, in
particular, with much needed maneuvering ability.
You can expect to hear more from Kemper about the implications of the new
legislation, and specifically about the tax reporting changes, over the next
several weeks and months. Overall, we believe that this legislation is something
the country can be proud of. It represents years of a commitment on the part of
the federal government to hold spending in check and refrain from creating new
programs. Expanding corporate revenues and profits in an extended period of low
inflation also contributed to making this investor-friendly environment
possible.
As we look toward the end of the year, we see little to trouble us. The
economy appears to be in excellent condition. Continuing the alternatingly
fast/slow pace that we have experienced for several months, the fast-growing
first quarter was followed by a slower second quarter. Such self-regulation has
minimized any need for the Federal Reserve Board to raise interest rates again.
We don't rule out the possibility of another hike in the fourth quarter,
however.
Inflation is very low. In spite of unemployment being the lowest we have seen
in decades, wage pressures are still manageable. For example, the United Parcel
Service strike and the earlier steel and airlines work actions represent the
most union activity we have seen in 10 years. Encouraged by the low unemployment
(and therefore high demand for workers), the unions are becoming bolder but in
the end seem ready to resolve disputes sensibly. As a consequence, wage
increases remain moderate.
3
<PAGE> 4
ECONOMIC OVERVIEW
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ECONOMIC GUIDPOSTS
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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 (07/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.22 6.42 6.64 6.49
PRIME RATE(2) 8.5 8.25 8.25 8.75
INFLATION RATE(3) 2.23 3.03 2.88 2.62
THE U.S. DOLLAR(4) 7.32 7.67 4.26 -4.11
CAPITAL GOODS ORDERS(5)* 7.11 3.61 16.26 1.75
INDUSTRIAL PRODUCTION(5)* 3.84 4.84 3.38 2.36
EMPLOYMENT GROWTH(6) 2.24 2.2 2.14 2.42
</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%. 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 June 30, 1997.
Our primary concern is the very high valuations of the stock market. All
things considered, it is difficult to see where we can go from here. With prices
at such heady levels, the market can be expected to react negatively to even
minor earnings disappointments, as we have seen in August. Kemper's response to
this market is to remain fully invested and to reduce exposure by diversifying
across a wider group of investment opportunities. Research, the first step in
stock selection, is key in this kind of a market.
Bond markets are obviously cheered by recent events, and prospects for income
investors continue to be positive. Interest rates are stable and credit quality
has not been an issue. A dwindling supply of municipal bonds has enabled
municipal investments to outperform U.S. Treasuries.
In such a fully valued domestic market, it can make sense to look to
international markets for their growth potential. The strength of the dollar
thus far this year has diminished returns but international opportunities look
bright.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
August 14, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[FORESTER PHOTO]
TOM FORESTER IS THE PORTFOLIO LEAD-MANAGER OF KEMPER SMALL CAP VALUE FUND.
FORESTER IS A PHI BETA KAPPA GRADUATE OF THE UNIVERSITY OF COLORADO AND HOLDS A
MASTER'S DEGREE IN MANAGEMENT FROM NORTHWESTERN UNIVERSITY'S J.L. KELLOGG
GRADUATE SCHOOL OF MANAGEMENT. HE IS ALSO A CHARTERED FINANCIAL ANALYST.
[STOKES PHOTO]
STEVE STOKES IS THE PORTFOLIO CO-MANAGER OF KEMPER SMALL CAP VALUE FUND. STOKES
RECEIVED HIS BACHELOR OF SCIENCE DEGREE IN FINANCE IN 1985 FROM STATE UNIVERSITY
OF NEW YORK AT NEW PALTZ. HE IS A CHARTERED FINANCIAL ANALYST, AND HE IS A
MEMBER OF THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH, FINANCIAL
ANALYST FEDERATION AND NYSSA.
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.
KEMPER SMALL CAP VALUE FUND OUTPERFORMED THE RUSSELL 2000 INDEX* FOR THE
YEAR-TO-DATE, AND ONE-, THREE- AND FIVE-YEAR PERIODS ENDED JUNE 30, 1997.
PORTFOLIO CO-MANAGERS TOM FORESTER AND STEVE STOKES DISCUSS HOW, THROUGH SOLID
STOCK SELECTION AND STRICT ADHERENCE TO THE VALUE STYLE OF EQUITY MANAGEMENT,
THEY ACHIEVED THIS STELLAR PERFORMANCE.
Q IN THE LAST FEW MONTHS, SMALL COMPANY STOCKS HAVE BEGUN TO GAIN MOMENTUM.
DO YOU BELIEVE THIS MOMENTUM IS SUSTAINABLE?
A The momentum does appear to be sustainable; here's why. The valuations on
small caps are more compelling than on large caps which makes them attractive.
We believe that foreign currency exposure should hurt large cap stocks for the
remainder of 1997. As the dollar increases against foreign currencies like the
deutsche mark and French franc, foreign earnings will be worth less in dollar
terms. Large cap stocks with foreign exposure will begin to feel pressure on
their earnings. Since small companies usually don't have much foreign exposure,
their earnings should strengthen relative to large caps.
Q ALTHOUGH SMALL CAPS HAVE BEEN GAINING MOMENTUM, THEY CONTINUE TO
UNDERPERFORM THE LARGE CAP MARKET (STANDARD & POOR'S 500 STOCK INDEX). WHAT IS
THE MAIN REASON FOR THIS?
A This has really been a "nifty fifty" market where a relatively small number
of well-known stocks push the indexes higher since the market continues to be
driven by liquidity. Large cap stocks are generally easier to buy and sell than
small company stocks. Therefore, large cap
prices continue to increase. The current level of the market tends to make
investors a bit nervous, which causes them to invest in familiar companies, like
GE and Coca Cola. However, the fundamentals of the small company stocks remain
strong. Due to low interest rates, low inflation and growing earnings, now is
simply a good environment for investing in stocks.
Q THERE HAVE BEEN SOME CHANGES AMONG THE FUND'S SECTOR WEIGHTINGS. (SEE PAGE
8). CAN YOU DISCUSS THE MOST SIGNIFICANT CHANGES?
A We increased our holdings in financial and consumer discretionary stocks.
Financial stocks continue to perform strongly and their valuations remain
attractive. Within the financial sector we have picked up several sub-prime
mortgage companies. These are companies that provide mortgages to people with
less than perfect credit ratings. In our consumer discretionary holdings we have
been adding companies such as Nine West and Friedman's. We like these companies
because they have solid fundamentals, good growth potential and attractive
valuations. On the other side of the coin, our weighting in energy stocks has
decreased because they have not performed as strongly.
* The Russell 2000 Index is an unmanaged capitalization weighted price only
index which is comprised of 2000 of the smallest stocks (on the basis of
capitalization) in the Russell 3000 Index.
5
<PAGE> 6
PERFORMANCE UPDATE
Q KEMPER SMALL CAP VALUE FUND HAS CONSISTENTLY OUTPERFORMED THE RUSSELL 2000
(FOR THE ONE-, THREE- AND FIVE YEAR PERIODS ENDED JUNE 30, 1997) AND THE AVERAGE
SMALL COMPANY MUTUAL FUND (SEE RANKINGS ON PAGE 2). WHAT ARE THE MAIN
CONTRIBUTORS TO THIS STRONG PERFORMANCE?
A Our goal is to pick the best stocks in the small company universe; if we do
this consistently, we should outperform the benchmarks over the long term.
During the first part of the year, much of the fund's outperformance was due to
our underweighting in technology stocks which declined quite a bit. Since
technology stocks have rebounded, our stock selection has been the driving
force. The sub-prime mortgage companies mentioned earlier were a positive
factor. Our energy stocks did not do well early but have improved in the last
few months. An issue that has done well for us is Asyst (a company that makes
clean rooms in which semi-conductors are produced). Scientific-Atlanta and Jones
Intercable, two companies involved in cable television, have shown strong
performance this year. Compass Bancshares has worked well in the consumer
finance area. Airborne Freight, an overnight delivery company, has also done
well this year. Also contributing to the strong performance is the fact that we
have not had many stocks surprise us on the down side.
Q YOUR TOP 10 HOLDINGS HAVE CHANGED DRAMATICALLY SINCE THE END OF THE YEAR.
PLEASE EXPLAIN.
A In the current portfolio very few of the top 10 holdings match those held
at the end of the prior year. Many of the fund's largest holdings moved into the
top 10 because of appreciation. As their P/Es reach the market average, we will
sell all or a portion of the stock and take profits. The holding may fall out of
the top 10, however it doesn't always mean we've lost faith in the company. It
may just be that we feel the company has had its run and it's time to move on.
Q AT THE END OF 1996, THE PORTFOLIO HELD ROUGHLY 70 STOCKS. AS OF JUNE 30,
1997, THERE WERE OVER 100 STOCKS IN THE PORTFOLIO. CAN YOU EXPLAIN THE INCREASE
IN THE NUMBER OF STOCKS IN THE PORTFOLIO?
A The increase in the number of stocks in the portfolio is a function of the
size of the portfolio. As the portfolio grows, we want to hold more stocks so we
do not own significant percentages of individual companies. It also helps us
maintain a fairly liquid portfolio. In addition, maintaining a large number of
stocks makes the portfolio more diversified.
Q THE MARKETS HAVE BEEN ALL OVER THE BOARD DURING THE FIRST SIX MONTHS OF
1997. HOW DO YOU PLAN TO POSITION THE FUND GOING FORWARD?
A We believe small company stocks should perform well. One of two things will
most likely happen to small company stocks. The market will continue to go up
and small cap stocks will continue to make up ground; or large company stocks
will begin to decline and small company stocks will decline less. Either way,
small cap stocks should perform well relative to large caps. Of course, future
market conditions cannot be predicted with certainty. Because we do not time the
market, we position the portfolio to perform well in either an up or down
market. Value stocks have generally provided strong upside potential and less
downside risk. We will continue to maintain a diversified portfolio and focus on
finding stocks that meet our strict value criteria.
6
<PAGE> 7
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL
Style Blend Growth (312) 696-6000. (Morningstar Style Box is
Value based on a portfolio date as of June 30,
1997.) The Equity Style Box placement is
/ / / / / / Large Size based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P
/ / / / / / Medium 500, as well as the size of the companies in
which it invests, or median market
/X/ / / / / Small capitalization.
Please note that style boxes do not
represent an exact assessment of risk and
do not represent future performance. Please
consult the prospectus for a description of
investment policies.
INITIAL PUBLIC OFFERING (IPO) A corporation's first offering of stock to the
public.
LIQUIDITY A characteristic of a security with enough shares outstanding to allow
large transactions without a substantial drop in price. A stock that has a great
number of shares outstanding therefore has liquidity.
"NIFTY FIFTY" 50 stocks most favored by institutions. The membership of this
group is constantly changing although companies that continue to produce
consistent earnings growth over a long period of time tend to remain
institutional favorites. The stocks in the "Nifty Fifty" tend to have higher
than average price-to-earnings ratios.
VALUE STOCK A company's stock that is out of favor with investors because the
market underestimates its value or overlooks its potential. Stocks can become
undervalued as a result of overreaction by investors to unfavorable news about a
company, industry or the stock market in general. Or they can become undervalued
as a result of a market decline, poor economic conditions, tax-loss selling or
actual or anticipated unfavorable developments affecting the company.
VALUE INVESTING An investment strategy that seeks to identify strongly financed,
growing companies whose stocks sell at low multiples of earnings. This strategy
is also described as contrarian because such stocks are typically temporarily
out of favor.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on June 30, 1997, and on December 31, 1996.
[SIX-MONTH COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND KEMPER SMALL CAP VALUE FUND
ON 6/30/97 ON 12/31/96
<S> <C> <C>
FINANCE 25.7% 21.9%
CAPITAL GOODS 23.7% 28.8%
CONSUMER NONDURABLES 17.3% 13.9%
TECHNOLOGY 8.6% 9.5%
ENERGY 7.8% 11.3%
TRANSPORTATION 6.8% 8.4%
OTHER 4.7% 0.9%
UTILITIES 3.0% 2.8%
HEALTH CARE 2.4% 0.6%
BASIC INDUSTRIES 0.0% 1.9%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of Kemper Small Cap Value Fund represented on June 30, 1997, compared to the
industry sectors that make up the fund's benchmark, the Russell 2000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND RUSSELL 2000 INDEX
ON 6/30/97 ON 6/30/97
<S> <C> <C>
FINANCE 25.7% 24.9%
CAPITAL GOODS 23.7% 10.3%
CONSUMER NONDURABLES 17.3% 20.3%
TECHNOLOGY 8.6% 14.0%
ENERGY 7.8% 5.5%
TRANSPORTATION 6.8% 1.9%
OTHER 4.7% 3.5%
UTILITIES 3.0% 3.8%
HEALTH CARE 2.4% 9.4%
BASIC INDUSTRIES 0.0% 6.4%
CONSUMER DURABLES 0.0% 3.3%
</TABLE>
* The Russell 2000 Index is an unmanaged capitalization weighted price only
index which is comprised of 2000 of the smallest stocks (on the basis of
capitalization) in the Russell 3000 Index.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 14% OF THE FUND'S TOTAL NET ASSETS ON JUNE 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
HOLDINGS PERCENTAGE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. SCIENTIFIC-ATLANTA Leading supplier of broad band communication 1.75%
systems, satellite-based video, voice and data
communication networks.
- ------------------------------------------------------------------------------------------------------
2. AK STEEL HOLDING CORP. Manufactures high strength, low carbon flat rolled 1.61%
steel, the largest segment of the domestic steel
markets.
- ------------------------------------------------------------------------------------------------------
3. YOUNG BROADCASTING Owns 11 network-affiliated stations and one 1.47%
CORP. independent TV station.
- ------------------------------------------------------------------------------------------------------
4. SPRINGS INDUSTRIES INC. Engages in specialty fabrics and home furnishings. 1.34%
- ------------------------------------------------------------------------------------------------------
5. BALL CORP. Manufactures and markets packaging, industrial and 1.33%
consumer products and provides aerospace systems and
professional services to the federal sector.
- ------------------------------------------------------------------------------------------------------
6. RESOURCE BANCSHARES MORTGAGE A mortgage banking company which provides services 1.31%
GROUP for the purchase, sale and servicing of residential
single-family first mortgage loans.
- ------------------------------------------------------------------------------------------------------
7. NUEVO ENERGY CO. An independent energy company primarily engaged in 1.31%
the acquisition, development, production and
exploration of oil and gas properties.
- ------------------------------------------------------------------------------------------------------
8. CARPENTER TECHNOLOGY CORP. Manufactures, fabricates and markets specialty 1.30%
metals.
- ------------------------------------------------------------------------------------------------------
9. AIRBORNE FREIGHT CORP. An integrated air express transportation company 1.28%
providing next morning delivery of small packages
and documents throughout the United States and most
foreign countries.
- ------------------------------------------------------------------------------------------------------
10. BWIP, INC. Manufactures disk drives. 1.27%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAP VALUE FUND
Portfolio of Investments at June 30, 1997 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT PRINCIPAL
OBLIDATIONS AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTE--4.9%
5.875%, 1999
(Cost: $39,874) $ 40,000 $ 39,925
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
<S> <C> <C> <C>
CONSUMER J. Baker, Inc. 188,500 1,484
DISCRETIONARY--14.1%
(a)Boston Chicken 314,500 4,403
Brown Group, Inc. 528,900 9,884
Bush Industries 153,300 3,641
(a)Designer Holdings Ltd. 330,000 3,362
Fedders Corp. 163,900 932
Finish Line 640,500 9,367
(a)Friedman's Inc. 379,500 8,681
Haggar Apparel Co. 204,500 2,607
Harman International Industries 171,700 7,233
Heilig - Meyers 271,000 5,318
Herbalife International, Inc. 333,500 5,419
(a)Insurance Auto Auctions 210,500 2,000
(a)Lone Star Steakhouse & Saloon 381,200 9,911
(a)Nine West Group 205,700 7,855
Reynolds & Reynolds Co. 190,000 2,993
Springs Industries Inc. 208,300 10,988
(a)Waban Inc. 240,000 7,725
(a)Young Broadcasting Corp. 370,200 12,032
-----------------------------------------------------------------------------
115,835
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.7% (a)Performance Food Group 292,500 6,143
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--6.8% (a)Belden & Blake Corp. 254,000 6,810
(a)Chieftain International Inc. 371,000 8,139
Giant Industries 183,600 2,903
KCS Energy 450,600 9,181
(a)Nuevo Energy Co. 261,700 10,730
(a)Seitel, Inc. 247,400 9,401
(a)Tesoro Petroleum Corp. 550,500 8,154
-----------------------------------------------------------------------------
55,318
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES--22.2% ADVANTA Corp. 79,400 $ 2,834
Aames Financial Corp. 128,600 2,379
(a)Acceptance Insurance Cos. 322,600 7,339
Astoria Financial Corp. 142,000 6,745
Banc One Corp. 46,647 2,259
Commercial Federal Corp. 254,500 9,448
Compass Bancshares 181,500 6,103
Consumer Portfolio Services 325,500 3,947
Cullen Frost Bankers 240,000 10,170
Excel Realty Trust, Inc. 105,000 2,769
First Commerce Corp. 168,000 7,392
First Financial Caribbean Corp. 168,000 5,481
First Financial Corp. 261,575 7,684
Fremont General Corp. 199,500 8,030
HUBCO, Inc. 214,500 6,220
Imperial Credit Industries 283,720 5,834
Integon Corp. 259,000 6,475
Lawyers Title Insurance Corp. 95,000 1,793
Long Island Bancorp 234,000 8,497
New Century Financial Co. 120,000 1,740
North Fork Bancorp 359,384 7,682
PennCorp Financial Group 262,500 10,106
Reliance Group Holdings, Inc. 143,800 1,708
Resource Bancshares Mortgage Group 544,500 10,754
Roosevelt Financial Group 105,500 2,321
(a)Southern Pacific Funding Corp. 535,000 8,894
T.R. Financial Corp. 314,600 7,924
United Companies Financial Corp. 314,000 8,871
Webster Financial Corp. 193,000 8,782
Winston Hotels 80,000 1,205
-----------------------------------------------------------------------------
181,386
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--2.0% (a)Apria Healthcare Group 502,500 8,919
(a)CONMED Corp. 462,700 7,866
-----------------------------------------------------------------------------
16,785
- ----------------------------------------------------------------------------------------------------------------------
MATERIALS & PROCESSING--14.0% AK Steel Holding Corp. 298,500 13,171
AMCOL International 352,500 6,389
Ball Corp. 363,000 10,913
Carpenter Technology Corp. 233,000 10,660
Elcor Corp. 241,500 6,732
Furon Co. 325,000 10,197
Intermet Corp. 633,500 10,176
(a)Lydall, Inc. 351,000 7,415
(a)Mueller Industries, Inc. 84,000 3,675
Oregon Metallurgical Corp. 325,700 9,160
Quanex Corp. 281,000 8,623
Rexene Corp. 179,000 2,786
Trinity Industries 215,000 6,826
Del Webb Corp. 277,500 4,509
(a)Wyman-Gordon Co. 109,200 2,948
-----------------------------------------------------------------------------
114,180
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRODUCER DURABLES--6.5% BWIP, Inc. 511,500 $ 10,390
Blount, Inc. 188,050 8,004
Briggs & Stratton Corp. 104,200 5,210
(a)Electroglas 103,000 2,594
General Cable Corp. 306,600 7,857
Pacific Scientific Co. 207,000 2,743
Stewart & Stevenson Services 356,000 9,256
Watts Industries, Inc. 306,800 7,363
-----------------------------------------------------------------------------
53,417
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--7.4% (a)Asyst Technologies 71,000 3,124
(a)Benchmark Electronics 137,500 5,569
(a)Burr Brown Corp. 202,500 6,986
(a)Diamond Multimedia Systems, Inc. 58,000 417
(a)ESS Technology, Inc. 237,000 3,185
(a)EXAR Corp. 146,500 3,150
(a)Hutchinson Technology 142,000 3,461
(a)Komag, Inc. 264,100 4,325
(a)Learning Co. 447,500 4,195
(a)Proxima Corp. 32,300 161
(a)Read-Rite Corp. 225,000 4,697
Scientific-Atlanta 655,000 14,328
(a)Tech-Sym Corp. 154,500 5,156
(a)Vanstar Corp. 128,000 1,808
-----------------------------------------------------------------------------
60,562
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--5.9% Airborne Freight Corp. 250,400 10,486
(a)America West Airlines 518,000 7,511
Borg-Warner Automotive, Inc. 186,200 10,066
Fleetwood Enterprises 291,900 8,702
Myers Industries 344,900 5,820
Simpson Industries 129,500 1,376
Walbro Corp. 195,700 3,963
-----------------------------------------------------------------------------
47,924
- ----------------------------------------------------------------------------------------------------------------------
UTILITIES--2.6% (a)Atlantic Tele-Network 103,200 1,290
Atmos Energy Corp. 113,900 2,734
Enron Global Power & Pipelines L.L.C. 138,400 4,610
(a)Jones Intercable Inc. 470,400 5,998
United Cities Gas Co. 269,000 6,321
-----------------------------------------------------------------------------
20,953
- ----------------------------------------------------------------------------------------------------------------------
OTHER--4.0% (a)Global Industrial Technologies, Inc. 457,000 9,369
Mercer International, Inc. 82,700 786
Standard & Poor's Depository Receipts 258,500 22,821
-----------------------------------------------------------------------------
32,976
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--86.2%
(Cost: $611,852) 705,479
-----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(B)MONEY MARKET
INSTRUMENTS--8.8% Yield--5.50% to 5.72%
Due--July and August 1997
CSW Credit Inc. $ 11,200 $ 11,150
ConAgra Inc. 11,000 10,935
Sheffield Receivables 13,000 12,971
Other 36,945 36,860
-----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS
(Cost: $71,917) 71,916
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.9%
(Cost: $723,643) 817,320
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.1% 910
-----------------------------------------------------------------------------
NET ASSETS--100% $818,230
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The Fund has entered into exchange traded Russell 2000 Index futures
contracts in order to take advantage of anticipated market conditions and
effectively invest in equities approximately $51,000,000 of money market
instruments. As a result, approximately 92% of the Fund's net assets are
effectively invested in equities. (See Note 6 of the Notes to Financial
Statements.)
Based on the cost of investments of $723,643,000 for federal income tax purposes
at June 30, 1997, the gross unrealized appreciation was $105,004,000, the gross
unrealized depreciation was $11,327,000 and the net unrealized appreciation on
investments was $93,677,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $723,643) $817,320
- ------------------------------------------------------------------------
Cash 6,006
- ------------------------------------------------------------------------
Receivable for:
Investments sold 4,559
- ------------------------------------------------------------------------
Fund shares sold 7,883
- ------------------------------------------------------------------------
Dividends 1,699
- ------------------------------------------------------------------------
TOTAL ASSETS 837,467
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 17,571
- ------------------------------------------------------------------------
Fund shares redeemed 258
- ------------------------------------------------------------------------
Management fee 465
- ------------------------------------------------------------------------
Distribution services fee 182
- ------------------------------------------------------------------------
Administrative services fee 146
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 615
- ------------------------------------------------------------------------
Total liabilities 19,237
- ------------------------------------------------------------------------
NET ASSETS $818,230
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $716,271
- ------------------------------------------------------------------------
Accumulated net realized gain on investments 7,431
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 93,677
- ------------------------------------------------------------------------
Undistributed net investment income 851
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $818,230
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($491,731 divided 23,920 shares outstanding) $20.56
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $21.81
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($255,028 divided 12,566 shares outstanding) $20.30
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($58,538 divided 2,879 shares outstanding) $20.34
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($12,933 divided 623 shares outstanding) $20.76
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
<S> <C>
Dividends $ 3,464
- -------------------------------------------------------------------------------------------------------
Interest 1,787
- -------------------------------------------------------------------------------------------------------
Total investment income 5,251
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,831
- -------------------------------------------------------------------------------------------------------
Distribution services fee 756
- -------------------------------------------------------------------------------------------------------
Administrative services fee 545
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,246
- -------------------------------------------------------------------------------------------------------
Registration fees 68
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 10
- -------------------------------------------------------------------------------------------------------
Professional fees 7
- -------------------------------------------------------------------------------------------------------
Directors' fees and other 6
- -------------------------------------------------------------------------------------------------------
Total expenses 4,469
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 782
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 6,281
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 2,845
- -------------------------------------------------------------------------------------------------------
Net realized gain 9,126
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 71,855
- -------------------------------------------------------------------------------------------------------
Net gain on investments 80,981
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $81,763
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
- ----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 782 726
- ----------------------------------------------------------------------------------------------------------
Net realized gain 9,126 3,470
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 71,855 20,292
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 81,763 24,488
- ----------------------------------------------------------------------------------------------------------
Distribution from net investment income -- (658)
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (5,471)
- ----------------------------------------------------------------------------------------------------------
Total dividends to shareholders -- (6,129)
- ----------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 463,245 223,257
- ----------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 545,008 241,616
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Beginning of period 273,222 31,606
- ----------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $851 and $69, respectively) $818,230 273,222
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Small Cap Value Fund (the Fund) (formerly
known as Kemper-Dreman Small Cap Value Fund) is a
separate series of Kemper Value Fund, Inc. (KVF)
(formerly known as Kemper-Dreman Fund, Inc.), an
open-end management investment company organized as
a corporation in the state of Maryland. KVF is
authorized to issue 3 billion shares of $.01 par
value common stock.
The Fund currently offers four classes of shares.
Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Fixed income securities are valued by using market
quotations, or independent pricing services that
use prices provided by market makers or estimates
of market values obtained from yield data relating
to instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Other securities
and assets are valued at fair value as determined
in good faith by the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's
16
<PAGE> 17
net assets attributable to that class by the number
of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended June 30, 1997.
DIVIDENDS TO SHAREHOLDERS. The Fund generally
declares and pays dividends of net investment
income and net realized capital gains at least
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. KVF has a management
agreement with Zurich Kemper Value Advisors, Inc.
(ZKVA) (formerly known as Dreman Value Advisors,
Inc.), a wholly owned subsidiary of Zurich Kemper
Investments, Inc. The Fund pays a management fee at
an annual rate of .75% of the first $250 million of
average daily net assets declining to .62% of
average daily net assets in excess of $12.5
billion. The Fund incurred a management fee of
$1,831,000 for the six months ended June 30, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
KVF has an underwriting and distribution services
agreement with Zurich Kemper Distributors, Inc.
(ZKDI) (formerly known as Kemper Distributors,
Inc.), an affiliate of ZKVA. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS -----------------------------
RETAINED BY ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Six months ended June 30, 1997 $298,000 2,518,000 42,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
AND CDSC PAID BY ZKDI
RECEIVED BY ZKDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Six months ended June 30, 1997 $840,000 4,547,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KVF has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these services and pays
these firms based on assets of
17
NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Fund accounts the firms service. Administrative
services fees (ASF) paid by the Fund are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY ZKDI
THE FUND TO ZKDI TO FIRMS
---------------- ----------------
<S> <C> <C>
Six months ended June 30, 1997 $545,000 763,000
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KVF's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company), an affiliate of
ZKVA, is the shareholder service agent of the Fund.
Under the agreement, ZKSvC received shareholder
services fees of $974,000 for the six months ended
June 30, 1997.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of ZKVA. During the six months ended June
30, 1997, the Fund made no payments to its officers
and incurred directors' fees of $6,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended June 30, 1997, investment
TRANSACTIONS transactions
(excluding short-term instruments) are as follows
(in thousands):
Purchases $474,506
Proceeds from sales 46,578
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 17,788 $329,687 8,060 $140,448
------------------------------------------------------------------------------
Class B 7,969 147,541 6,110 105,279
------------------------------------------------------------------------------
Class C 1,947 36,274 1,077 18,688
------------------------------------------------------------------------------
Class I 417 7,855 1,043 17,495
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A -- -- 182 3,250
------------------------------------------------------------------------------
Class B -- -- 115 2,031
------------------------------------------------------------------------------
Class C -- -- 25 434
------------------------------------------------------------------------------
Class I -- -- 13 229
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (1,883) (35,258) (1,764) (29,756)
------------------------------------------------------------------------------
Class B (786) (14,374) (1,288) (21,940)
------------------------------------------------------------------------------
Class C (172) (3,153) (66) (1,102)
------------------------------------------------------------------------------
Class I (283) (5,327) (695) (11,799)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 93 1,730 17 308
------------------------------------------------------------------------------
Class B (94) (1,730) (17) (308)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS $463,245 $223,257
------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6
FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract fluctuates. At June 30,
1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $1,498,000 for the following
financial futures contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 6/30/97
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Russell 2000 Index $50,860,000 Long Sept. '97 $2,407,000
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------
CLASS A
---------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------
1997 1996 1995 1994 1993
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.28 14.50 10.85 11.23 11.52
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .07 .14 (.02) -- .06
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.21 4.14 4.64 .02 .23
- -------------------------------------------------------------------------------------------------------
Total from investment operations 2.28 4.28 4.62 .02 .29
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .07 -- -- .06
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .43 .97 .40 .52
- -------------------------------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.56 18.28 14.50 10.85 11.23
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.47% 29.60 43.29 .15 2.54
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.40% 1.31 1.25 1.25 1.25
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) .71% .87 (.16) (.03) .53
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.40% 1.47 1.83 1.82 2.09
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) .71% .71 (.74) (.61) (.32)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------
CLASS B
--------------------------------
SIX MONTHS YEAR SEPT. 11
ENDED ENDED TO
JUNE 30, DEC. 31, DEC. 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.14 14.48 15.75
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) (.03) .01 (.02)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.19 4.11 (.41)
- -------------------------------------------------------------------------------------------------------
Total from investment operations 2.16 4.12 (.43)
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .03 --
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .43 .84
- -------------------------------------------------------------------------------------------------------
Total dividends -- .46 .84
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.30 18.14 14.48
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.91% 28.54 (2.52)
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 2.40% 2.12 2.00
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) (.29)% .06 (.99)
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 2.40% 2.49 2.39
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) (.29)% (.31) (1.38)
- -------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
------------------------------- --------------------------------
CLASS C CLASS I
------------------------------- --------------------------------
SIX MONTHS YEAR SEPT. 11 SIX MONTHS YEAR NOV. 1
ENDED ENDED TO ENDED ENDED TO
JUNE 30, DEC. 31, DEC. 31, JUNE 30, DEC. 31, DEC. 31,
1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------- --------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.17 14.48 15.75 18.40 14.52 14.25
- -------------------------------------------------------------------------------------- --------------------------------
Income from investment operations:
Net investment income (loss) (.03) .01 (.02) .11 .25 --
- -------------------------------------------------------------------------------------- --------------------------------
Net realized and unrealized gain (loss) 2.20 4.14 (.41) 2.25 4.13 1.11
- -------------------------------------------------------------------------------------- --------------------------------
Total from investment operations 2.17 4.15 (.43) 2.36 4.38 1.11
- -------------------------------------------------------------------------------------- --------------------------------
Less dividends:
Distribution from net investment income -- .03 -- -- .07 --
- -------------------------------------------------------------------------------------- --------------------------------
Distribution from net realized gain -- .43 .84 -- .43 .84
- -------------------------------------------------------------------------------------- --------------------------------
Total dividends -- .46 .84 -- .50 .84
- -------------------------------------------------------------------------------------- --------------------------------
Net asset value, end of period $20.34 18.17 14.48 20.76 18.40 14.52
- -------------------------------------------------------------------------------------- --------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.94% 28.77 (2.51) 12.83 30.28 8.03
- -------------------------------------------------------------------------------------- --------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------- --------------------------------
Expenses 2.40% 2.06 1.95 .95 .84 .47
- -------------------------------------------------------------------------------------- --------------------------------
Net investment income (loss) (.29)% .12 (.94) 1.16 1.34 .28
- -------------------------------------------------------------------------------------- --------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------- --------------------------------
Expenses 2.40% 2.19 2.35 .95 .84 .90
- -------------------------------------------------------------------------------------- --------------------------------
Net investment income (loss) (.29)% (.01) (1.34) 1.16 1.34 (.15)
- -------------------------------------------------------------------------------------- --------------------------------
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $818,230 273,222 31,606 6,931 4,875
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 21% 23 86 140 79
- -------------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended June 30, 1997 and
the year ended December 31, 1996 were $.0531 and $.0426, respectively.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Per share data for the six months ended June 30, 1997, and the year ended
December 31, 1996 were determined based on average shares outstanding. Data for
the six months ended June 30, 1997 is unaudited. Total return does not reflect
the effect of any sales charges.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
STEPHEN B. TIMBERS THOMAS H. FORESTER JEROME L. DUFFY
President and Director Vice President Treasurer
JAMES E. AKINS JONATHAN KAY ELIZABETH C. WERTH
Director Vice President Assistant Secretary
ARTHUR R. GOTTSCHALK CHARLES R. MANZONI, JR.
Director Vice President
FREDERICK T. KELSEY JOHN E. NEAL
Director Vice President
DOMINIQUE P. MORAX JAMES R. NEEL
Director Vice President
FRED B. RENWICK THOMAS F. SASSI
Director Vice President
JOHN B. TINGLEFF STEVEN T. STOKES
Director Vice President
JOHN G. WEITHERS PHILIP J. COLLORA
Director Vice President and
Secretary
- -----------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- -----------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- -----------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- -----------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER VALUE ADVISORS, INC.
280 Park Avenue
New York, NY 10017
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Value Fund, Inc. prospectus.
KSCVF - 3 (8/97) 1036390
Printed in the U.S.A. [KEMPER FUNDS LOGO]
