<PAGE> 1
KEMPER-DREMAN
HIGH RETURN EQUITY FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED JUNE 30, 1997
Seeks to achieve a high rate of total return
" . . . We remained true to our philosophy, selected
fundamentally sound stocks and . . . continued to
outperform the S&P 500 for the one-, three-, and five-year
periods ended June 30, 1997. . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
12
Financial Statements
14
Notes to Financial Statements
18
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 16.27%
CLASS B 15.69%
CLASS C 15.72%
LIPPER EQUITY INCOME FUNDS CATEGORY AVERAGE* 14.75%
- --------------------------------------------------------------------------------
</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-DREMAN HIGH RETURN
EQUITY FUND CLASS A $30.57 $26.52
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS B $30.47 $26.44
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS C $30.49 $26.45
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND LIPPER RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EQUITY INCOME FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #2 OF 171 #9 OF 171 #8 OF 171
FUNDS FUNDS FUNDS
- --------------------------------------------------------------------------------
3-YEAR #1 OF 96 N/A N/A
FUNDS
- --------------------------------------------------------------------------------
5-YEAR #1 OF 59 N/A N/A
FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE PERIOD, KEMPER-DREMAN HIGH RETURN EQUITY FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.20 $0.0597 $0.0586
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.03 $0.03 $0.03
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.03 $0.03 $0.03
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
Style Source: Morningstar, Inc., Chicago, IL
Value Blend Growth (312) 696-6000. (Morningstar Style Box
is based on a portfolio date as of June
/X/ / / / / Large Size 30, 1997.) The Equity Funds Style Box
placement is based on a fund's
/ / / / / / Medium price-to-earnings and price-to-book
ratios relative to the S&P 500, as well
/ / / / / / Small as the size of the companies in which
it invests, or median market
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.
PRICE/EARNINGS MULTIPLE A company's stock price divided by its earnings for the
past four quarters. Kemper-Dreman High Return Equity Fund's management believes
that the risk in owning stocks can be reduced by investing in quality companies
whose prices are low relative to their earnings -- commonly known as low P/E
stocks.
TOTAL RETURN A fund's total return measures both the net investment income and
any realized and unrealized appreciation or depreciation of the underlying
investments in its portfolio for the period. Total return calculations assume
that dividends are reinvested. Total return represents the aggregate percentage
or dollar value change over the period.
SECTORS An aggregate of several industries. The Standard & Poor's 500 Stock
Index, for example has 117 industries categorized in 11 sectors.
<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
[DREMAN PHOTO]
DAVID N. DREMAN IS CHAIRMAN OF DREMAN VALUE MANAGEMENT, L.L.C. (DVM), AND
PORTFOLIO MANAGER OF KEMPER-DREMAN HIGH RETURN EQUITY FUND. HE HAS MORE THAN 30
YEARS OF EXPERIENCE AS AN INVESTMENT ANALYST, ADVISOR AND MANAGER. DREMAN HOLDS
A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA, WINNIPEG,
MANITOBA, CANADA. DREMAN IS ALSO THE AUTHOR OF TWO BOOKS ON CONTRARIAN INVESTING
AND IS A REGULAR COLUMNIST IN FORBES.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
WITH THE DOMESTIC STOCK MARKET CONTINUALLY RISING TO NEW HIGHS, PORTFOLIO
MANAGER DAVID DREMAN CONTINUED TO PURCHASE FUNDAMENTALLY SOUND STOCKS AT
PRICE-TO-EARNINGS RATIOS BELOW THE MARKET AVERAGE. KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS A WAS THE TOP-PERFORMING FUND IN ITS LIPPER CATEGORY FOR THE
THREE- AND FIVE-YEAR PERIODS ENDED JUNE 30, 1997, AND THE #2 FUND FOR THE
ONE-YEAR PERIOD. (SEE PAGE 2 FOR RANKINGS.)
Q THE FUND IS COMPETING STRONGLY AGAINST ITS PEERS BUT IT LAGGED THE
STANDARD & POOR'S 500 STOCK INDEX (S&P 500) FOR THE SIX-MONTHS ENDED JUNE 30,
1997. WHAT IS THE PRIMARY REASON FOR ITS UNDERPERFORMANCE?
A The stocks that are currently driving the market have high
price-to-earnings ratios (P/Es). Our value style of investing does not allow us
to invest in most of these companies. We remained true to our philosophy,
selected fundamentally sound stocks and, even without owning these high P/E
stocks, continued to outperform the S&P 500 for the one-, three-, and five-year
periods ended June 30, 1997. Although the fund didn't beat the S&P 500 for the
six-months ended June 30, 1997, it performed favorably against its peers.
Because we are not investing with the momentum of the market, we do not always
see immediate results. At times, we need to be patient with our holdings before
we begin realizing gains.
Q FOR THE PAST SIX MONTHS, THE MARKET HAS CONTINUED TO CLIMB TO NEW HIGHS.
HOWEVER, THERE HAVE ALSO BEEN DAYS WHEN THE MARKET DROPPED BY A CONSIDERABLE
AMOUNT. IN LIGHT OF THIS VOLATILITY, HAS THE FUND PERFORMED THE WAY YOU
EXPECTED?
A Much of the volatility in the market this year stemmed from technology
stocks. Due to their high valuations, we own very few stocks in this sector.
Because we own few technology stocks, on days when the market is driven by
technology we may lag; but on days when they fall, we generally pick up some
relative performance. So in that regard, yes, the fund has performed as we
expected and has been less volatile than the market.
Q OVERALL, THERE HAVE BEEN FEW CHANGES MADE TO THE PORTFOLIO SINCE DECEMBER
31, 1996. CAN YOU EXPLAIN THIS STRATEGY?
A We have not added many new names to the portfolio because we feel
comfortable with the existing structure. However, we did add significantly to
our positions in Philip Morris and UST, Inc. As we added to these stocks, we
slightly diluted our exposure to financial stocks because we felt Philip Morris
and UST, Inc. offered better potential at this time. Finally, we added to our
S&P 500 futures positions. As conditions in the market change, we will adjust
allocations to seek to achieve maximum return without undue risk.
5
<PAGE> 6
PERFORMANCE UPDATE
Q YOU MENTIONED THAT YOU ADDED S&P 500 FUTURES CONTRACTS. COULD YOU EXPLAIN
THEIR ROLE IN THE PORTFOLIO?
A S&P 500 futures contracts serve two purposes for the fund. First, the
assets invested in the futures earn the return of the S&P 500. Given the gains
the index has posted, that's been positive for the fund. Second, futures
contracts allow the fund to remain liquid. As new money comes into the fund, we
want to invest it as soon as possible. But we are not market timers. We want to
keep the fund fully invested in the stock market at all times. Because the
market continues to climb at an amazing rate, there are not many value stocks
available. Futures are an excellent alternative. And, because futures contracts
are liquid, we can easily purchase and sell them. This liquidity is important
because, as value stock opportunities become available, we can sell the futures
and immediately purchase those stocks.
Q SINCE THE END OF 1996, THE WEIGHTING OF UST, INC. AND PHILIP MORRIS HAS
ALMOST DOUBLED. THE TWO STOCKS NOW MAKE UP ROUGHLY 12 PERCENT OF THE PORTFOLIO.
WHY THE DRAMATIC CHANGE IN WEIGHTING?
A These companies are very attractive because they have very depressed
values. Yet their fundamentals remain extremely attractive. If you compare
Philip Morris to Coca-Cola, they both have worldwide brand recognition. However,
Philip Morris is trading at roughly 14 times current earnings, making it far
more attractive than Coca-Cola which is trading at about 45 times. We believe
the litigation against Philip Morris will not have a dramatic, long-term impact
on its earnings. We believe Philip Morris can price their product to cover any
settlement; their bottom line won't be impacted and revenues will go up. Philip
Morris also receives a considerable portion of its revenue and earnings from
overseas. That revenue continues to increase and probably will not be impacted
by events in the U.S. The price of UST, Inc. is depressed as a result of the
litigation against Philip Morris and other tobacco companies. In addition, UST,
Inc. has experienced some loss in market share due to competition from new
entries in the smokeless tobacco market. We feel that management will address
these competitive pressures and UST, Inc. will continue to be a dominant force
in smokeless tobacco. Currently, there is no threat of litigation against UST,
Inc.
Both of these companies have solid earnings and pay strong dividends.
They are good companies that, if the litigation were settled, would likely be
trading at much higher P/Es. We anticipate a change in the market's perception
of these companies. The reality is, in the long run, we feel the litigation will
not have a dramatic impact on the earnings of Philip Morris or UST, Inc. Once
this is realized these stocks are poised to perform strongly.
Q FINANCIAL STOCKS CONTINUE TO REPRESENT THE LARGEST PART OF THE PORTFOLIO
AND HAVE BEEN A STRONG PERFORMING STAPLE FOR THE FUND FOR SOME TIME. WITH SUCH
SUSTAINED STRENGTH, ARE FINANCIAL STOCKS STILL ATTRACTIVE?
A Yes, they are still attractive. The fund has owned stocks such as Fannie
Mae and Freddie Mac for a number of years, and they continue to provide
significant contributions to the fund's return. Financial stocks have had
tremendous performance over the past five years but the run within these stocks
is a bit more rational than the one in technology stocks. Relative to the
market, the characteristics of financial stocks are still very attractive -- low
P/Es, and strong dividend and earnings growth. Although we have scaled back our
overall weighting in this sector, we have not lost faith in them. Their main
vulnerability is interest rates. If interest rates spike up, financial stocks
would probably experience a temporary decline -- a buying opportunity for us --
and then bounce back.
Q IN THE ANNUAL REPORT FOR DECEMBER 1996, YOU SAID YOU WOULD LIKE TO
RE-ESTABLISH TECHNOLOGY POSITIONS IF THEY CORRECTED. THERE WERE CORRECTIONS IN
THE TECHNOLOGY SECTOR OVER THE PAST SIX MONTHS BUT YOU MAINTAINED A MINIMAL
WEIGHTING. WHY?
A Technology stocks are still priced very high; when they corrected, the
drop was never sustained. Right now, most technology stocks do not fit our
definition of a value stock. They have very high P/E's relative to the market.
So high in fact, that technology stocks have become almost speculative.
Emotions, not
6
<PAGE> 7
PERFORMANCE UPDATE
fundamentals, are driving them; and when the market moves away from fundamentals
you have to be a bit more cautious.
Q THE MARKET HAS BEEN CLIMBING FOR TWO AND A HALF YEARS NOW. VALUATIONS ARE
HIGH AND CONTINUE TO RISE. WHAT IS YOUR OUTLOOK FOR THE BALANCE OF 1997?
A I was surprised by the market's performance in 1996 and continue to be
surprised in 1997. However, my surprise is tempered by caution. The market, at
its current pace, is rising faster and with more enthusiasm than any market this
century. Many parts of the market are becoming more speculative; they aren't
increasing because of fundamentals. This leads me to believe that some parts of
the market, particularly stocks with very high P/Es, may correct. The high P/E
stocks have driven the market up, and if they decline they may also bring the
market with them. With value stocks there may be less to worry about in this
environment. If the high P/E stocks decline, they may bring the value stocks
with them, but we believe the value stocks will fall by less. As an investor, I
can't be afraid of the market going down. I can try to position the portfolio to
soften the blow and take advantage of opportunities a decline may present.
7
<PAGE> 8
INDUSTRY SECTORS
Data show the percentage of the common stocks in the portfolio that each sector
represented on June 30, 1997, and on December 31, 1996.
[A SIX-MONTH COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND ON 6/30/97 EQUITY FUND ON 12/31/96
<S> <C> <C>
FINANCE 26.2% 29.9%
CONSUMER STAPLES 19.6% 13.6%
ENERGY 14.0% 13.0%
HEALTH CARE 8.3% 9.3%
TECHNOLOGY 7.1% 7.8%
CAPITAL GOODS 6.9% 9.1%
UTILITIES 5.3% 3.8%
CONSUMER CYLICALS 5.2% 6.6%
COMMUNICATIONS SERVICES 4.5% 2.9%
BASIC MATERIALS 2.8% 3.5%
TRANSPORTATION 0.1% 0.5%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX+
Data show the percentage of the common stocks in the portfolio that each sector
of the Kemper-Dreman High Return Equity Fund represented on June 30, 1997,
compared to the industry sectors that make up the fund's benchmark, the Standard
& Poor's 500 Stock Index.
[STANDARD & POOR'S STOCK INDEX COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN STANDARD & POOR'S
EQUITY FUND ON 6/30/97 500 STOCK INDEX ON 6/30/97
<S> <C> <C>
FINANCE 26.2% 15.3%
CONSUMER STAPLES 19.6% 15.3%
ENERGY 14.0% 8.9%
HEALTH CARE 8.3% 11.4%
TECHNOLOGY 7.1% 14.3%
CAPITAL GOODS 6.9% 10.0%
UTILITIES 5.3% 3.2%
CONSUMER CYLICALS 5.2% 8.8%
COMMUNICATIONS SERVICES 4.5% 6.0%
BASIC MATERIALS 2.8% 5.5%
TRANSPORTATION 0.1% 1.3%
</TABLE>
+The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
REPRESENTING 35% OF THE FUND'S TOTAL NET ASSETS ON JUNE 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Holdings Percent
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS COS. Produces branded food through its Kraft and General 6.7%
Foods subsidiaries. It is also the country's second
largest brewer.
- -------------------------------------------------------------------------------------------------------
2. UST, INC. Manufactures and sells moist snuff, wine and other 5.2%
products.
- -------------------------------------------------------------------------------------------------------
3. ATLANTIC RICHFIELD CO. Engaged in exploring, developing and producing 5.0%
petroleum, which includes petroleum liquids and
natural gas, purchasing and selling of petroleum, and
the mining and sale of coal.
- -------------------------------------------------------------------------------------------------------
4. AMOCO CORP. Engaged in exploration, development and production of 4.8%
crude oil and natural gas, refining and marketing of
petroleum products and petrochemicals.
- -------------------------------------------------------------------------------------------------------
5. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie Mac", this corporation 2.5%
CORP. provides for the transfer of capital between mortgage
lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
- -------------------------------------------------------------------------------------------------------
6. FEDERAL NATIONAL MORTGAGE Provides financial products and services that increase 2.4%
ASSOCIATION the availability and affordability of housing for
low-, moderate-and middle-income Americans.
- -------------------------------------------------------------------------------------------------------
7. COLUMBIA GAS SYSTEM Engaged in transmitting, distributing, producing, 2.4%
purchasing and storing natural gas and oil.
- -------------------------------------------------------------------------------------------------------
8. FIRST CHICAGO NBD CORP. A multi-bank holding company with subsidiaries engaged 2.2%
in consumer banking, commercial banking, trust and
investment services, investment management, real
estate operations, lease financing and international
banking.
- -------------------------------------------------------------------------------------------------------
9. AT&T Provides products, services and systems for the 2.2%
movement and management of information. AT&T markets
selected AT&T products, systems and services in the
United States and abroad.
- -------------------------------------------------------------------------------------------------------
10. HUMANA, INC. Provides managed care health plan services to more 1.6%
than 2.3 million members through the operation of
health maintenance organizations and preferred
provider organizations.
- -------------------------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
PORTFOLIO OF INVESTMENTS AT JUNE 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--14.3%
Banc One Corp. 584,000 $ 28,288
Bank of New York Co. 301,900 13,133
BankAmerica Corp. 276,664 17,862
Bankers Trust New York Corp. 63,900 5,559
Barnett Banks 316,800 16,632
Capital One Financial Corp. 566,700 21,393
Crestar Financial Corp. 423,800 16,475
First Chicago NBD Corp. 705,832 42,703
First Union Corp. 176,755 16,350
Fleet Financial Group, Inc. 79,600 5,035
KeyCorp 240,600 13,444
J.P. Morgan & Co. 152,200 15,886
NationsBank 452,980 29,217
Norwest Corp. 87,500 4,922
PNC Bank Corp., N.A. 374,035 15,569
Signet Banking Corp. 355,100 12,784
Wells Fargo & Co. 6,000 1,617
----------------------------------------------------------------------------
276,869
- ---------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--1.5%
Hanson PLC, ADR 710,925 17,773
Louisiana-Pacific Corp. 492,000 10,393
----------------------------------------------------------------------------
28,166
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--2.2%
General Electric Co. 275,100 17,985
Xerox Corp. 316,800 24,988
----------------------------------------------------------------------------
42,973
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--3.5%
Liz Claiborne 76,100 3,548
Dayton Hudson Corp. 104,300 5,547
Dillard Department Stores 75,300 2,607
Ford Motor Co. 141,400 5,338
(a)Fruit of The Loom 151,600 4,700
Philips Electronics N.V., ADR 361,100 25,954
TJX Cos., Inc. 289,600 7,638
(a)Toys R Us 91,300 3,195
V.F. Corp. 59,500 5,065
Wal-Mart Stores 148,200 5,011
----------------------------------------------------------------------------
68,603
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--13.2%
(a)Imperial Tobacco Group, ADR 973,850 12,417
Philip Morris Cos. 2,920,500 129,597
Quaker Oats Co. 178,400 8,006
UST, Inc. 3,666,600 101,748
Universal Corp. 151,800 4,820
----------------------------------------------------------------------------
256,588
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--13.6%
AMOCO Corp. 1,080,400 93,927
Atlantic Richfield Co. 1,386,500 97,748
Columbia Gas System 699,200 45,623
(a)Energy Group PLC, ADS 670,625 28,418
----------------------------------------------------------------------------
265,716
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--5.8%
American General Corp. 72,400 3,457
American International Group, Inc. 93,700 13,996
Federal Home Loan Mortgage Corp. 1,422,300 48,891
Federal National Mortgage Association 1,069,300 46,648
----------------------------------------------------------------------------
112,992
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--4.0%
Columbia/HCA Healthcare Corp. 478,300 $ 18,803
(a)Humana, Inc. 1,312,300 30,347
(a)Tenet Healthcare Corp. 932,700 27,573
-------------------------------------------------------------------------
76,723
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.9%
AT&T 1,205,100 42,254
Texas Instruments 169,300 14,232
----------------------------------------------------------------------------
56,486
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--61.0%
(Cost: $999,166) 1,185,116
----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------
(B)MONEY MARKET Yield--4.82% to 5.75%
INSTRUMENTS--38.9%
Due--July through September 1997
Columbia/HCA Healthcare Corp. $40,000 39,644
ConAgra Inc. 60,800 60,511
Countrywide Home Loans 30,000 29,901
Dynamic Funding Corp. 92,824 92,656
Enserch Corp. 36,000 35,939
FINOVA Capital Corp. 27,000 26,911
Ford Motor Credit Co. 67,000 66,804
General Motors Acceptance Corp. 47,982 47,842
Goldman Sachs Group, L.P. 35,000 34,738
IBM Credit Corp. 46,600 46,425
Madison Funding Corp. 36,000 35,950
Philip Morris Cos. Inc. 39,000 38,914
Sanwa Business Credit Corp. 88,000 87,357
Strategic Asset Funding Corp. 38,000 37,624
Other 73,800 73,495
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--38.9%
(Cost: $754,739) 754,711
----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.9%
(Cost: $1,753,905) 1,939,827
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--.1% 1,469
----------------------------------------------------------------------------
NET ASSETS--100% $1,941,296
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) The Fund has entered into exchange traded S&P 500 Index futures contracts in
order to take advantage of anticipated market conditions and effectively
invest in equities approximately $610,000,000 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 $1,753,905,000 for federal income tax
purposes at June 30, 1997, the gross unrealized appreciation was $196,260,000,
the gross unrealized depreciation was $10,338,000 and the net unrealized
appreciation on investments was $185,922,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $1,753,905) $1,939,827
- --------------------------------------------------------------------------
Cash 5,816
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 17,161
- --------------------------------------------------------------------------
Dividends 2,991
- --------------------------------------------------------------------------
TOTAL ASSETS 1,965,795
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 20,460
- --------------------------------------------------------------------------
Fund shares redeemed 697
- --------------------------------------------------------------------------
Management fee 1,113
- --------------------------------------------------------------------------
Distribution services fee 581
- --------------------------------------------------------------------------
Administrative services fee 351
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,297
- --------------------------------------------------------------------------
Total liabilities 24,499
- --------------------------------------------------------------------------
NET ASSETS $1,941,296
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $1,672,341
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 75,466
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 185,922
- --------------------------------------------------------------------------
Undistributed net investment income 7,567
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,941,296
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($940,119 / 30,756 shares outstanding) $30.57
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $32.43
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($838,031 / 27,501 shares outstanding) $30.47
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($137,786 / 4,520 shares outstanding) $30.49
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($25,360 / 830 shares outstanding) $30.55
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------
Interest $ 14,089
- --------------------------------------------------------------------------
Dividends 11,253
- --------------------------------------------------------------------------
Total investment income 25,342
- --------------------------------------------------------------------------
Expenses:
Management fee 4,715
- --------------------------------------------------------------------------
Distribution services fee 2,372
- --------------------------------------------------------------------------
Administrative services fee 1,434
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,448
- --------------------------------------------------------------------------
Professional fees 44
- --------------------------------------------------------------------------
Reports to shareholders 43
- --------------------------------------------------------------------------
Directors' fees and other 52
- --------------------------------------------------------------------------
Total expenses 11,108
- --------------------------------------------------------------------------
NET INVESTMENT INCOME 14,234
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- --------------------------------------------------------------------------
Net realized gain on sales of investments 5,531
- --------------------------------------------------------------------------
Net realized gain from futures transactions 70,619
- --------------------------------------------------------------------------
Net realized gain 76,150
- --------------------------------------------------------------------------
Change in net unrealized appreciation on investments 104,135
- --------------------------------------------------------------------------
Net gain on investments 180,285
- --------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $194,519
- --------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------
Net investment income $ 14,234 5,651
- ---------------------------------------------------------------------------------------------------
Net realized gain 76,150 21,480
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 104,135 61,834
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 194,519 88,965
- ---------------------------------------------------------------------------------------------------
Distribution from net investment income (7,040) (5,373)
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain (3,648) (18,442)
- ---------------------------------------------------------------------------------------------------
Total dividends to shareholders (10,688) (23,815)
- ---------------------------------------------------------------------------------------------------
Net increase from capital share transactions 1,019,631 574,488
- ---------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,203,462 639,638
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 737,834 98,196
- ---------------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income of $7,567 and $373, respectively) $1,941,296 737,834
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman High Return Equity Fund (the Fund) is
a separate series of Kemper Value 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 money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
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 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 declares and
pays dividends of net investment income quarterly
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
$4,715,000 for the six months ended June 30, 1997.
Effective as of July 30, 1997, Dreman Value
Management, L.L.C. serves as sub-adviser with
respect to the investment and reinvestment of
assets in the Fund, and is paid by ZKVA for its
services.
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
COMMISSIONS ALLOWED BY ZKDI
RETAINED BY ----------------------------
ZKDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended June 30, 1997 $1,045,000 8,090,000 109,000
</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 $2,656,000 15,657,000
</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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
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 Fund accounts the firms
service. Administrative services fees (ASF) paid by
the Fund are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY ----------------------------
THE FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Six months ended June 30, 1997 $1,434,000 2,126,000 6,000
</TABLE>
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 this agreement, ZKSvC received shareholder
services fees of $1,782,000 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 $21,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended June 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $680,534
Proceeds from sales 55,752
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------
SHARES SOLD
Class A 18,096 $ 516,139 11,969 $294,186
----------------------------------------------------------------------------
Class B 17,726 504,048 10,792 264,773
----------------------------------------------------------------------------
Class C 3,097 88,207 1,617 40,240
----------------------------------------------------------------------------
Class I 616 17,502 612 14,409
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARE ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 217 6,601 483 12,533
----------------------------------------------------------------------------
Class B 96 2,984 322 8,424
----------------------------------------------------------------------------
Class C 12 397 51 1,337
----------------------------------------------------------------------------
Class I 8 245 21 512
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (2,257) (64,013) (1,483) (35,513)
----------------------------------------------------------------------------
Class B (1,342) (37,750) (682) (16,613)
----------------------------------------------------------------------------
Class C (271) (7,685) (77) (1,854)
----------------------------------------------------------------------------
Class I (248) (7,044) (338) (7,946)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 151 4,327 37 907
----------------------------------------------------------------------------
Class B (151) (4,327) (37) (907)
----------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS $1,019,631 $574,488
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 $22,838,000 for the following futures
contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION LOSS AT
TYPE AMOUNT POSITION MONTH 6/30/97
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $609,821,000 Long Sept. '97 $2,622,000
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $26.52 21.49 15.11 15.50 14.62
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .39 .26 .25 .21
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.02 5.75 6.76 (.39) 1.13
- --------------------------------------------------------------------------------------------------
Total from investment operations 4.31 6.14 7.02 (.14) 1.34
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .38 .24 .25 .21
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain .06 .73 .40 -- .25
- --------------------------------------------------------------------------------------------------
Total dividends .26 1.11 .64 .25 .46
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $30.57 26.52 21.49 15.11 15.50
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 16.27% 28.79 46.86 (.99) 9.22
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.26% 1.21 1.25 1.25 1.25
- --------------------------------------------------------------------------------------------------
Net investment income 2.63% 2.12 1.55 1.58 1.47
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.26% 1.21 1.57 1.39 1.56
- --------------------------------------------------------------------------------------------------
Net investment income 2.63% 2.12 1.23 1.44 1.16
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
CLASS B
------------------------------------
SIX MONTHS YEAR SEPT. 11
ENDED ENDED TO
JUNE 30, DEC. 31, DEC. 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $26.44 21.47 19.45
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .19 .07
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain 3.97 5.72 2.41
- ----------------------------------------------------------------------------------------
Total from investment operations 4.15 5.91 2.48
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .06 .21 .06
- ----------------------------------------------------------------------------------------
Distribution from net realized gain .06 .73 .40
- ----------------------------------------------------------------------------------------
Total dividends .12 .94 .46
- ----------------------------------------------------------------------------------------
Net asset value, end of period $30.47 26.44 21.47
- ----------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.69% 27.63 12.88
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ----------------------------------------------------------------------------------------
Expenses 2.18% 2.20 2.00
- ----------------------------------------------------------------------------------------
Net investment income 1.71% 1.13 .61
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ----------------------------------------------------------------------------------------
Expenses 2.18% 2.31 2.35
- ----------------------------------------------------------------------------------------
Net investment income 1.71% 1.02 .26
- ----------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------- -------------------------------
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
- ----------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------- --------------------------------
Net asset value, beginning of period $26.45 21.48 19.45 26.49 21.51 19.90
- ----------------------------------------------------------------------------- --------------------------------
Income from investment operations:
Net investment income .18 .20 .09 .39 .54 .04
- ----------------------------------------------------------------------------- --------------------------------
Net realized and unrealized gain 3.98 5.72 2.41 4.00 5.70 2.03
- ----------------------------------------------------------------------------- --------------------------------
Total from investment operations 4.16 5.92 2.50 4.39 6.24 2.07
- ----------------------------------------------------------------------------- --------------------------------
Less dividends:
Distribution from net investment income .06 .22 .07 .27 .53 .06
- ----------------------------------------------------------------------------- --------------------------------
Distribution from net realized gain .06 .73 .40 .06 .73 .40
- ----------------------------------------------------------------------------- --------------------------------
Total dividends .12 .95 .47 .33 1.26 .46
- ----------------------------------------------------------------------------- --------------------------------
Net asset value, end of period $30.49 26.45 21.48 30.55 26.49 21.51
- ----------------------------------------------------------------------------- --------------------------------
TOTAL RETURN (NOT ANNUALIZED) 15.72% 27.66 12.94 16.60 29.36 10.47
- ----------------------------------------------------------------------------- --------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ----------------------------------------------------------------------------- --------------------------------
Expenses 2.17% 2.22 1.95 .83 .88 .47
- ----------------------------------------------------------------------------- --------------------------------
Net investment income 1.72% 1.11 .66 3.06 2.45 1.99
- ----------------------------------------------------------------------------- --------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ----------------------------------------------------------------------------- --------------------------------
Expenses 2.17% 2.33 2.30 .83 .88 .85
- ----------------------------------------------------------------------------- --------------------------------
Net investment income 1.72% 1.00 .31 3.06 2.45 1.61
- ----------------------------------------------------------------------------- --------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------
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) $1,941,296 737,834 98,196 35,005 28,413
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5% 10 18 12 14
- ---------------------------------------------------------------------------------------------------------
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 $.0501 and $.0513, respectively.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Data for the six months ended June 30, 1997 is unaudited. Total return
does not reflect the effect of any sales charges.
19
<PAGE> 20
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
STEPHEN B. TIMBERS THOMAS H. FORESTER
President and Director Vice President
JAMES E. AKINS JONATHAN KAY
Director Vice President
ARTHUR R. GOTTSCHALK CHARLES R. MANZONI, JR.
Director Vice President
FREDERICK T. KELSEY JOHN E. NEAL
Director Vice President
FRED B. RENWICK JAMES R. NEEL
Director Vice President
JOHN B. TINGLEFF THOMAS F. SASSI
Director Vice President
JOHN G. WEITHERS STEVEN T. STOKES
Director Vice President
PHILIP J. COLLORA
Vice President and
Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant 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.
KDHRF-3 (8/97) 1036380
Printed in the U.S.A. [KEMPER FUNDS LOGO]
