<PAGE> 1
[KEMPER FRONT COVER]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
13
REPORT OF INDEPENDENT AUDITORS
14
FINANCIAL STATEMENTS
16
NOTES TO FINANCIAL STATEMENTS
20
FINANCIAL HIGHLIGHTS
AT A GLANCE
ABOUT YOUR REPORT
YOUR FUND'S FISCAL YEAR END CHANGED IN 1997 FROM DECEMBER 31 TO NOVEMBER 30. THE
FINANCIAL STATEMENTS INCLUDED HEREIN ARE FOR THE PERIOD JANUARY 1, 1997, THROUGH
NOVEMBER 30, 1997. CERTAIN OTHER INFORMATION CONTAINED IN THIS REPORT COVERS THE
12 MONTHS ENDED NOVEMBER 30, 1997. THIS CHANGE DOES NOT AFFECT YOUR INVESTMENT.
KEMPER-DREMAN HIGH RETURN EQUITY
FUND TOTAL RETURNS
FOR THE 12 MONTHS ENDED NOVEMBER 30, 1997 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/97 11/30/96
- -------------------------------------------------------
<S> <C> <C>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS A $33.52 $27.87
- -------------------------------------------------------
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS B $33.37 $27.77
- -------------------------------------------------------
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS C $33.38 $27.78
- -------------------------------------------------------
</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 #45 of 178 funds #69 of 178 funds #70 of 178 funds
- ----------------------------------------------------------------------
3-YEAR #1 of 116 funds N/A N/A
- ----------------------------------------------------------------------
5-YEAR #1 of 60 funds N/A N/A
- ----------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
DURING THE FISCAL YEAR, 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 $0.3700 $ 0.03 $ 0.03
- ----------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $0.1632 $ 0.03 $ 0.03
- ----------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $0.1647 $ 0.03 $ 0.03
- ----------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
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.
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc., Chicago, IL (312)
BOX] 696-6000. (Morningstar Style Box is based on a
portfolio date as of November 30, 1997.) The
Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well 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.
</TABLE>
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters.
GRAY MONDAY The name used to identify Monday, October 27, 1997. On that day the
Dow Jones Industrial Average lost 554 points or 7 percent of its total value.
Gray Monday is a comparison to Black Monday, October 19, 1987, when the market
lost almost 23 percent of its total value.
<PAGE> 3
ECONOMIC Overview
[ALLYN PHOTO]
MAUREEN F. ALLYN, A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.,
SERVES AS THE FIRM'S CHIEF ECONOMIST. ALLYN GRADUATED SUMMA CUM LAUDE FROM
OAKLAND UNIVERSITY NEAR DETROIT, WITH A BACHELOR'S DEGREE IN PSYCHOLOGY. SHE
RECEIVED HER MASTER'S IN ECONOMICS, WITH A SPECIALIZATION IN INTERNATIONAL TRADE
AND FINANCE, FROM THE NEW SCHOOL FOR SOCIAL RESEARCH IN NEW YORK.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT ADVISOR FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPANIES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
We start 1998 optimistic about the long-term prospects of the U.S. economy and
financial markets but cautious about the next several months. The Asian
financial crisis that dominated the global investment environment in the second
half of 1997 promises to continue, posing significant risks to the economy and
investors. We look for the strength of the American consumer -- currently
enjoying rising real incomes, better employment opportunities, lower mortgage
rates and easy access to credit -- and the secular strength of the trend toward
capital spending on high technology to be sufficient to override the influence
of Asia on the U.S. In short, our best case scenario calls for the U.S. to
muddle through an unsettling period. As it has for several years, the country
should continue to enjoy relatively low interest rates and low inflation. But
the new year will be different in at least two ways, both of which can be
expected to have direct bearing on investment opportunities.
First, the economy should grow at a much slower pace. A slowdown in Asia will
depress capital goods spending and heighten import pricing pressure, putting a
damper on American corporations' pricing and profit growth at least through
1999. While the U.S. economy grew at an almost 4 percent rate in 1997, we look
for no better than 2 percent growth for the next two years -- with more than
half of the change attributable to the effect of the Asian fallout.
Disappointing corporate profits is another given for 1998. Profits had begun
to slow last year even before the height of the Asian crisis. High current
valuations, however, seem to suggest that Wall Street has yet to recognize this.
The clash between Wall Street profit expectations and actual reported earnings
is part of the risk likely to be associated with equity investing in 1998.
Volatility, such as we experienced in 1997, should continue. In fact, the
overall market volatility is not likely to reflect the turmoil that individual
equities may experience. There will be a narrowing of the number of companies
able to meet analysts' expectations and this market will be absolutely
unforgiving to those companies that fall far short.
Having stated this, however, we look for the Standard & Poor's 500 to return
about 9.5 percent, including the effect of reinvested dividends. This would be
an average return and in line with the historical long-term 10 percent return of
the stock market. On the heels of the last three 20 percent-plus return years,
an investor in 1998 may weigh the 10 percent prospect against a projected 7
percent total return on bonds and consider the difference insufficient
compensation for the inherent added risk. Adopting a more conservative posture
for the new year may be an appropriate step that you'll want to discuss with
your financial representative in the context of your long-term investing
objectives.
To achieve a 9.5 percent return in 1998, the market's already high valuations
need to move even higher. We expect this to occur for a few reasons: the market
has so far demonstrated a certain complacency about the valuation levels;
American investors don't perceive there's anywhere better to go than the U.S.
equity market; and foreigners think of the U.S. market as a safe haven. All
should help support the market.
Where, then, are the opportunities likely to be in 1998? Expect to see
disparate performance within industry sectors. For example, while the financial
services sector in 1997 tended to provide across-the-board strong performance,
in 1998 we expect the sector to include its share of winners and losers. Stock
selection will be key, too, to benefiting from the technology sector. Over the
long term, we are optimistic about technology and corporate America's continuing
commitment to it. It will be difficult to participate in a market return in 1998
without having some exposure to technology-based companies. One caution: Not all
technology companies will survive the year, which raises the risk of investing
in the sector.
Conventional wisdom might argue in favor of remaining in the U.S. with your
investment dollars in 1998 and, more specifically, invested in small
capitalization companies with domestic lines of business. We'd challenge such
thinking as slower growth, slower inflation and even
<PAGE> 4
ECONOMIC OVERVIEW
[BAR GRAPH]
Economic Guideposts
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
<TABLE>
<CAPTION>
NOW (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.81 6.22 6.58 5.65
PRIME RATE(2) 8.5 8.5 8.25 8.5
INFLATION RATE(3) 1.7 2.23 3.04 2.72
THE U.S. DOLLAR(4) 10.43 7.32 4.59 -0.57
CAPITAL GOODS ORDERS(5)* 11.61 8.58 2.23 9.56
INDUSTRIAL PRODUCTION(5)* 5.59 3.91 4.7 2.34
EMPLOYMENT GROWTH(6) 2.66 2.3 2.41 1.57
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1997.
Source: Economics Department, Scudder Kemper Investment, Inc.
deflation and pricing pressures change the U.S. economic climate. The only real
antidote is growth, and from now on growth is more likely to be found outside
the United States. Today to participate in the growth from global business you'd
need to be exposed to large capitalization companies.
International investing is a promising proposition in 1998, the Asian fallout
notwithstanding. In established markets, there are attractive opportunities to
be found in Europe and in Japan. Several Japanese companies have real cash flows
and even relatively attractive valuations. In addition, the effect of the Asian
problems has not been to discourage all investment into emerging markets; rather
investors have tended to divert investment dollars and business to other
increasingly attractive emerging markets in eastern Europe, the Middle East,
Africa and Latin America.
With that 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/ Maureen Allyn
MAUREEN ALLYN
Chief Economist, Scudder Kemper Investments, Inc.
January 9, 1998
4
<PAGE> 5
PERFORMANCE Update
[DREMAN PHOTO]
DAVID N. DREMAN IS 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. DAVID DREMAN IS CONSIDERED TO BE A PIONEER
OF THE VALUE STYLE OF INVESTING AND IS A REGULAR COLUMNIST IN FORBES AND THE
AUTHOR OF SEVERAL BOOKS ON CONTRARIAN INVESTING.
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.
KEMPER-DREMAN HIGH RETURN EQUITY FUND CONTINUED ITS EXCELLENT PERFORMANCE IN
THE 12 MONTHS ENDED NOVEMBER 30, 1997, EARNING THE HIGHEST OVERALL RATING GIVEN
BY MORNINGSTAR, INC. -- FIVE STARS. THE FUND ALSO RECEIVED FIVE STARS AMONG
2,242 AND 1,248 DOMESTIC EQUITY FUNDS FOR EACH OF THE THREE- AND FIVE-YEAR
PERIODS ENDED NOVEMBER 30, 1997, RESPECTIVELY.* PORTFOLIO MANAGER DAVID DREMAN
MAINTAINS THAT PATIENCE, EXPERIENCE AND SOUND STOCK PICKING BENEFITED THE FUND
AND WORKED TO SUSTAIN THE FUND'S OUTSTANDING PERFORMANCE IN THE YEAR'S VOLATILE
MARKET. HERE HE DISCUSSES HIS STRATEGY.
Q KEMPER-DREMAN HIGH RETURN EQUITY FUND RETURNED 25.98 PERCENT (CLASS A
SHARES, UNADJUSTED FOR ANY SALES CHARGE) FOR THE 12 MONTHS ENDED NOVEMBER 30,
1997, OUTPERFORMING THE LIPPER EQUITY INCOME FUND CATEGORY AVERAGE OF 23.99
PERCENT. HOW DID YOU POSITION THE FUND DURING THE YEAR TO PERFORM AS WELL AS IT
DID IN THE 'UP AND DOWN' MARKET WE EXPERIENCED IN 1997 -- FROM THE DOW JONES
BREAKING THE 8,000 MARK TO GRAY MONDAY?
A Coming into the year we wanted to be more conservative. This is one of
the most powerful bull markets of the century, and our first priority was to
preserve our fundholders' gains. We got out of technology and other exposed
parts of the market early. We kept our banks and financial stocks, which have
been excellent performers. We've been patiently waiting for the market to come
in a little, or decline, which it has yet to do.
Our conservative stance has enabled us primarily to help protect the fund from
violent swings on the downside. By not taking great risks, we've been able to
cushion the fund during some of the market plunges, and, because we own some
excellent companies, we've been keeping close to the market without much risks
when it climbs.
Q THE VOLATILITY IN THE MARKET SEEMS TO HAVE WORKED IN THE FUND'S FAVOR.
HOW IS THAT?
A First let me say that because of the fund's conservative posture, we have
been performing better than the market on down days.
We've seen the market up or down more than 100 points in a single day many
times this year. This is a good market environment for us to operate in. In the
past, volatility has given us major opportunities and that was true again this
year. What I mean by opportunities is that good companies' stock prices
typically fall to a point where we can take advantage of them because they are
cheap based on fundamentals, meaning they have got what we value managers look
for -- low price to earnings ratios. Compared to their earnings, these
companies' stocks are priced inexpensively.
* Morningstar proprietary ratings reflect risk-adjusted performance. The
ratings are subject to change every month. Past performance is no guarantee of
future results. Morningstar ratings are calculated from the fund's three- and
five-year returns (with fee adjustment) in excess of 90-day Treasury bill
returns, and a risk factor that reflects fund performance below 90-day Treasury
bill returns. The percentage of funds receiving a particular rating is as
follows: five stars 10 percent; four stars 22.5 percent; three stars 35
percent; two stars 22.5 percent; and one star 10 percent.
5
<PAGE> 6
PERFORMANCE UPDATE
This market defies all the rules I've ever seen. There is no market in this
century that has the momentum of the current one, and as you mentioned, there is
enormous volatility. I think we could see a 20 percent correction. But for a
fund like ours, that is an outstanding opportunity because high volatility
usually means a great degree of uncertainty. If there's that type of
uncertainty, any temporary negative event could knock stocks down in price. Some
of these then undervalued stocks become excellent opportunities for us. That's
the kind of market in which Kemper-Dreman High Return Equity Fund has
traditionally done extremely well.
Q LOOKING LONGER TERM, KEMPER-DREMAN HIGH RETURN EQUITY FUND'S PERFORMANCE
IS NOTEWORTHY. THE FUND WAS RANKED BY LIPPER IN THE EQUITY INCOME CATEGORY AS
#45 OF 178 FUNDS FOR THE ONE-YEAR PERFORMANCE, AND #1 OF 116 AND #1 OF 60 FOR
THE THREE- AND FIVE-YEAR PERIODS, RESPECTIVELY. THE FUND RETURNED 33.93 PERCENT
AND 21.91 PERCENT (CLASS A SHARES UNADJUSTED FOR SALES CHARGE) FOR THE THREE-
AND FIVE-YEAR PERIODS COMPARED WITH ITS LIPPER FUND GROUP AVERAGE OF 24.81
PERCENT AND 16.84 PERCENT FOR THE SAME PERIODS. HOW DO YOU EXPLAIN THE LARGER
GAP BETWEEN THE FUND AND ITS GROUP AVERAGE LONGER TERM?
A Investing in a fund like Kemper-Dreman High Return Equity Fund is a
long-term proposition. Kemper stresses investing for the long term rather than
jumping in and out of investments for the quick buck. Sure, people have made
money that way, but historically investors have made much more from their
investments by sticking with a program for the long haul. Because of the
volatility of the market, all investment vehicles have some better periods than
others. The key to a solid investment, one that will give you a good return but
also be relatively safe, is the long-term record, and this fund has that.
Q A YEAR AGO, YOU CALLED TECHNOLOGY STOCKS 'SPECULATIVE.' WHAT'S YOUR
FEELING ABOUT THEM NOW?
A A couple of years ago, the fund had about 15 percent in tech stocks and
now that's down to almost zero. We sold our technology earlier in the year, and
it hurt us at first. But much like we tell investors, we anticipated selling
would turn out well for the fund in the longer term, which it has. The sector
has been hit hard in the past couple of months. I anticipate there will be
opportunities for us in the coming year to purchase some technology at low
price-to-earnings ratios (P/Es). Technology is an area we would love to buy
because there are good stocks out there that are becoming undervalued, and
therefore, good buys.
The whole idea behind my value investing style is to buy good conservative
companies when others don't want them. That's how we have been able to pick up
potential winners like Philip Morris, AT&T and Bank of Boston. By buying them
when they are unpopular and undervalued, we should be able to capitalize as
their earnings continue to be strong and they become once again popular in the
market and brought back to an appropriate price.
Q IS THERE A SECTOR OR PARTICULAR STOCKS IN THE PORTFOLIO THAT
DISAPPOINTED YOU DURING THE YEAR?
A Well, at first we were disappointed with technology stocks. However,
their time will come. Likewise, oil stocks are out of favor right now. We think
they're defensive stocks. When their prices come down, we should do well with
those as we believe they'll outperform the market.
Q THE FUND'S TWO LARGEST HOLDINGS ARE TOBACCO STOCKS, PHILIP MORRIS AND
U.S. TOBACCO. PLEASE EXPLAIN YOUR RATIONALE FOR CHOOSING TO INVEST IN THE
TOBACCO SECTOR AS WELL AS OTHER SECTORS.
A We believe Congress is likely to pass litigation protection for tobacco
companies next year. Even the staunchest opponents of tobacco are sitting down
at the negotiating table. We think tobacco is therefore an excellent value right
now. We've invested more than 15 percent of the fund in tobacco and food
companies -- as you said, mainly Philip Morris, RJR Nabisco and UST -- almost
four times what we had the same time last year.
These companies are good, solid companies with excellent earnings. The growth
record of Philip Morris is close to that of Coca-Cola. Almost as many people
have heard of Philip Morris as have heard of Coke worldwide. It has enormous
international sales and is priced well below the market. I expect it to be a
major winner for us next year.
Besides tobacco, we've really increased our stakes in energy. It's now about
12 percent of the portfolio whereas the fund didn't own a single oil stock two
years ago. That shows just how much more defensive we have become. Recently, we
added Texaco and have increased the fund's holdings in Amoco and Atlantic
Richfield.
6
<PAGE> 7
PERFORMANCE UPDATE
SPECIAL SHAREHOLDERS' MEETING
Q WHAT TYPE OF EFFECT DID THE JAPANESE AND FAR EAST MARKETS' PROBLEMS HAVE
ON THE FUND?
A The fund doesn't own stocks that have major exposure in Southeast Asia,
so I do not expect it will get hurt there. The only way the fund could get hurt
is if a major financial crisis takes place and it looks like that's been
averted. On the other hand, U.S. computer companies may get hit hard, which
could be an opportunity for us. The computer industry could be hit because
overseas customers who have placed large orders for computers may not be able
to take delivery of them now because they do not have the money to pay for
them. That's how the computer industry in the U.S. could be affected, resulting
in less-than-expected earnings. This would then lead to their stock prices
dropping, creating opportunities for the fund to buy good companies at low
prices.
It also may be that the overall effect of the crisis in Southeast Asia is that
the U.S. stock market comes down a bit. Corporate earnings estimates may seem
too high right now. It's an earnings-driven market and if earnings do not
continue at the rapid pace of the last few years, stocks will drop.
Q CONSIDERING PHILIP MORRIS' INTERNATIONAL GROWTH, IS IT AT INCREASED
EXPOSURE TO TROUBLES IN ASIA?
A Actually, no, for two good reasons. First, much of its growth is in
Western Europe, although Eastern Europe is becoming a factor. Asia doesn't play
a large role in its earnings yet. And secondly, the selling price of a Philip
Morris product, be it a pack of cigarettes for a couple of dollars or one of its
food companies' products, is peanuts compared to the selling price of a
computer. Tobacco companies are just not as dependent for their growth on Asia
as I expect the computer companies.
Q WHAT DO YOU EXPECT FROM THE MARKETS IN 1998, AND HOW WILL YOU POSITION
THE FUND?
A I expect the volatility to continue, so we'll continue to be very
conservative, just like we've been in 1997. What we want to do with the fund is
have less volatility and, hopefully, reasonable return. We will continue our
conservative stance, but if volatility knocks down areas that we like -- such as
technology, then we'll become more aggressive.
SPECIAL SHAREHOLDERS' MEETING
On July 29, 1997, a special shareholders' meeting was held. Kemper-Dreman High
Return Equity Fund shareholders were asked to vote on the approval of a
Sub-Advisory Agreement with Dreman Value Management, L.L.C. We are pleased to
report that the sub-advisory agreement was approved. Following is the result of
the voting on the issue:
<TABLE>
<CAPTION>
Vote Number Percentage of Shares Voted
<S> <C> <C>
FOR 31,399,085 95.40%
AGAINST 510,841 1.55%
ABSTAIN 1,003,240 3.05%
</TABLE>
7
<PAGE> 8
PERFORMANCE UPDATE
KEMPER-DREMAN HIGH RETURN EQUITY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED NOVEMBER 30, 1997 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS A 18.73% 20.47% 18.85% (since 3/18/88)
- --------------------------------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS B 21.80 N/A 30.30 (since 9/11/95)
- --------------------------------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS C 24.79 N/A 31.32 (since 9/11/95)
- --------------------------------------------------------------------------------------------------------
</TABLE>
LINE GRAPHS
- -------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund Class A
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3/18/88 12/31/91 12/31/95 11/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman High Return Equity Fund A1 $ 10,000 17,016 32,376 53,435
Standard & Poor's 500 Stock Index+ $ 10,000 17,641 29,100 46,750
Consumer Price Index++ $ 10,000 11,837 13,176 13,871
</TABLE>
LINE GRAPHS
- -------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund Class B
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/11/95 12/31/95 12/31/96 11/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman High Return Equity Fund B1 $ 10,000 11,288 14,407 18,011
Standard & Poor's 500 Stock Index+ $ 10,000 10,859 13,345 17,445
Consumer Price Index++ $ 10,000 10,039 10,373 10,569
</TABLE>
LINE GRAPHS
- -------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund Class C
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/11/95 12/31/95 12/31/96 11/30/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman High Return Equity Fund C1 $ 10,000 11,294 14,419 18,326
Standard & Poor's 500 Stock Index+ $ 10,000 10,859 13,345 17,445
Consumer Price Index++ $ 10,000 10,039 10,373 10,569
</TABLE>
Returns are historical and do not represent future performance. Returns and
net asset value fluctuate. Shares are redeemable at current net asset value
which may be more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends
and for Class A shares adjustment for the maximum sales charge of 5.75
percent, for Class B shares adjustment for the applicable contingent deferred
sales charge (CDSC) as follows: 1 year, 3 percent; 5 year, 1 percent; since
inception, 0 percent. For Class C shares there is no adjustment for sales
charge. The maximum CDSC for Class B shares is 4 percent. For Class C shares,
there is a 1 percent CDSC on certain redemptions within the first year of
purchase. During the periods noted, securities prices fluctuated. For
additional information, see the Prospectus and Statement of Additional
Information and the Financial Highlights at the end of this report.
(1)Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the CDSC in effect at the end of
the period for Class B shares. In comparing Kemper-Dreman High Return Equity
Fund to the Standard & Poor's 500 Stock Index+ and the Consumer Price
Index++, you should note that the fund's performance reflects the applicable
sales charge, while no such charges are reflected in the performance of the
indices.
+ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
8
<PAGE> 9
INDUSTRY SECTORS
A FISCAL YEAR-END COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on December 31, 1996, and on November 30, 1997.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND AS OF 11/30/97 EQUITY FUND OF 12/31/96
<S> <C> <C>
FINANCE 31.0% 29.9%
CONSUMER STAPLES 26.4% 13.6%
ENERGY 24.1% 13.0%
HEALTH CARE 6.9% 9.3%
TECHNOLOGY 3.9% 7.8%
CAPITAL GOODS 2.6% 9.1%
UTILITIES 0.0% 3.8%
CONSUMER CYCLICALS 3.5% 6.6%
COMMUNICATIONS SERVICES 0.0% 2.9%
BASIC MATERIALS 1.6% 3.5%
TRANSPORTATION 0.0% 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 November 30, 1997,
compared to the industry sectors that make up the fund's benchmark, the Standard
& Poor's 500 Stock Index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND AS OF 11/30/97 EQUITY FUND OF 12/31/96
<S> <C> <C>
FINANCE 31.0% 16.3%
CONSUMER STAPLES 26.4% 15.1%
ENERGY 24.1% 8.6%
HEALTH CARE 6.9% 10.9%
TECHNOLOGY 3.9% 14.3%
CAPITAL GOODS 2.6% 9.5%
UTILITIES 0.0% 3.2%
CONSUMER CYCLICALS 3.5% 9.2%
COMMUNICATIONS SERVICES 0.0% 6.9%
BASIC MATERIALS 1.6% 4.7%
TRANSPORTATION 0.0% 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.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
Representing 37.2 percent of the fund's total net assets on November 30, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the U.S. Through its 7.1%
Miller Brewing subsidiary, it is also the country's
second-largest brewer. This company is also a major
branded food producer through its Kraft Foods
subsidiaries.
2. UST Manufactures and sells smokeless tobacco. 4.8%
3. AMOCO CORP. Engaged in the exploration, development and production 4.8%
of crude oil and natural gas, and in the refining and
marketing of petroleum products and petrochemicals.
4. ATLANTIC RICHFIELD Engaged in exploring, developing and producing 4.6%
petroleum which includes petroleum liquids and natural
gas.
5. RJR NABISCO The second largest producer of primarily branded 3.3%
cigarettes sold domestically and internationally.
Through its 81 percent-owned subsidiary, it is the
leading producer of crackers and cookies in the U.S.
market with significant products in various other food
categories both domestically and internationally.
6. FEDERAL Often referred to as "Freddie Mac", this corporation 2.7%
HOME LOAN provides for the transfer of capital between mortgage
MORTGAGE CORP. lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
7. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae", this is a private 2.7%
ASSOCIATION corporation federally chartered to provide financial
products and services that increase the availability
and affordability of housing to low, moderate and
middle-income Americans.
8. TEXACO Engaged in the worldwide exploration for and 2.6%
production, transportation, refining and marketing of
crude oil, natural gas and petroleum products.
9. AT&T Provides products, services and systems for the 2.4%
movement and management of information. AT&T markets
selected AT&T products, systems and services in the
United States and abroad.
10. COLUMBIA/ Health care services company which owns and manages 2.2%
HCA HEALTHCARE general acute care and specialty hospitals and related
businesses.
</TABLE>
*The fund's holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Portfolio of Investments at November 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--13.1% Banc One Corp. 603,300 $ 30,995
Bank of New York Co. 311,100 16,722
BankAmerica Corp. 285,864 20,868
BankBoston 333,600 29,732
Bankers Trust New York Corp. 66,000 7,825
Barnett Banks 327,300 23,034
Capital One Financial Corp. 566,700 25,679
Crestar Financial Corp. 437,800 22,492
First Chicago NBD Corp. 729,232 57,062
First Union Corp. 395,710 19,291
Fleet Financial Group, Inc. 82,200 5,430
KeyCorp 240,600 16,225
J.P. Morgan & Co. 157,200 17,950
NationsBank 667,980 40,121
Norwest Corp. 180,800 6,769
PNC Bank Corp., N.A. 424,035 22,818
Signet Banking Corp. 355,100 19,153
Wells Fargo & Co. 6,000 1,844
----------------------------------------------------------------------------
384,010
- ---------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--1.0% Hanson PLC, ADR 710,925 18,484
Louisiana-Pacific Corp. 508,300 10,261
----------------------------------------------------------------------------
28,745
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--1.6% General Electric Co. 284,200 20,960
Xerox Corp. 327,300 25,427
----------------------------------------------------------------------------
46,387
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--2.1% Liz Claiborne 78,600 3,950
Dayton Hudson Corp. 107,800 7,162
Dillard Department Stores 77,800 2,844
Ford Motor Co. 146,100 6,282
(a)Fruit of The Loom 156,600 3,651
Philips Electronics N.V., ADR 361,100 24,194
(a)Toys R Us 94,300 3,218
V.F. Corp. 123,000 5,681
Wal-Mart Stores 153,100 6,114
----------------------------------------------------------------------------
63,096
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--16.2% Imperial Tobacco Group, ADR 1,006,150 13,080
Philip Morris Cos. 4,800,400 208,817
Quaker Oats Co. 178,900 9,482
RJR Nabisco Holdings Corp. 2,635,400 96,027
UST, Inc. 4,558,400 140,741
Universal Corp. 190,600 7,541
----------------------------------------------------------------------------
475,688
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--14.8% AMOCO Corp. 1,557,800 140,202
Atlantic Richfield Co. 1,672,200 136,284
Columbia Gas System 723,900 52,664
Energy Group PLC, ADS 685,825 29,319
Texaco 1,362,300 76,970
----------------------------------------------------------------------------
435,439
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--6.0% American General Corp. 74,800 4,030
American International Group, Inc. 145,200 14,638
Federal Home Loan Mortgage Corp. 1,911,100 78,833
Federal National Mortgage Association 1,475,400 77,919
----------------------------------------------------------------------------
175,420
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--4.3% Columbia/HCA Healthcare Corp. 2,208,800 65,160
(a)Humana, Inc. 1,312,300 29,117
(a)Tenet Healthcare Corp. 963,600 30,534
----------------------------------------------------------------------------
124,811
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
TECHNOLOGY--2.4% AT&T 1,245,000 $ 69,564
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--61.5%
(Cost: $1,472,277) 1,803,160
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
(B)MONEY MARKET Yield--4.67% to 6.05%
INSTRUMENTS--36.9%
Due--December 1997 and January 1998
AMOCO Corp. $ 30,000 29,991
AT&T 30,000 29,863
Bank of New York Co. Inc. 25,000 24,766
Banner Receivables Corp. 23,687 23,505
Bayerische Landesbank Girozentrale 34,000 33,881
Campbell Soup Co. 50,000 49,717
Coca Cola Enterprises, Inc. 72,000 71,789
Corporation Asset Funding Co. Inc. 44,000 43,692
Walt Disney Co. 40,000 39,781
Dow Chemical Co. 54,000 53,848
E.I. DuPont de Nemours and Co. 57,000 56,743
Eureka Securities 62,000 61,939
FP Funding Corp. 25,000 24,922
Metlife Funding, Inc. 26,000 25,988
Morgan Stanley, Dean Witter, Discover &
Co. 75,000 74,502
National Australia 30,000 29,973
Nestle Capital Corp. 25,000 24,952
Sheffield Receivables Corp. 27,050 26,926
Southern Co. 35,000 34,941
U.S. Treasury bills 45,000 44,801
Warner-Lambert Co. 35,200 35,031
Windmill Funding Corp. 75,774 75,446
Xerox Credit Corp. 26,100 25,941
Other 138,384 137,717
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--36.9%
(Cost: $1,080,655) 1,080,655
----------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $2,552,932) 2,883,815
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.6% 47,906
----------------------------------------------------------------------------
NET ASSETS--100% $2,931,721
----------------------------------------------------------------------------
</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 $949,000,000 of money market instruments.
As a result, approximately 94% 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 $2,552,932,000 for federal income tax
purposes at November 30, 1997, the gross unrealized appreciation was
$337,988,000, the gross unrealized depreciation was $7,105,000 and the net
unrealized appreciation on investments was $330,883,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman High Return Equity Fund
as of November 30, 1997, and the related statements of operations for the eleven
months then ended and changes in net assets for the eleven months then ended and
year ended December 31, 1996, and the financial highlights for each of the
fiscal periods since 1995. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for each of the two years in the period
ended December 31, 1994 were audited by other auditors whose report dated
January 19, 1995 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper-Dreman High Return Equity Fund at November 30, 1997, the results of its
operations for the eleven months then ended, the changes in its net assets for
the eleven months then ended and year ended December 31, 1996, and the financial
highlights for each of the fiscal periods since 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,552,932) $2,883,815
- --------------------------------------------------------------------------
Cash 52,929
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 16,531
- --------------------------------------------------------------------------
Dividends 3,056
- --------------------------------------------------------------------------
TOTAL ASSETS 2,956,331
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Investments purchased 19,023
- --------------------------------------------------------------------------
Fund shares redeemed 1,465
- --------------------------------------------------------------------------
Management fee 1,607
- --------------------------------------------------------------------------
Distribution services fee 882
- --------------------------------------------------------------------------
Administrative services fee 500
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,125
- --------------------------------------------------------------------------
Directors' fees 8
- --------------------------------------------------------------------------
Total liabilities 24,610
- --------------------------------------------------------------------------
NET ASSETS $2,931,721
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $2,451,365
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 134,180
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 330,883
- --------------------------------------------------------------------------
Undistributed net investment income 15,293
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,931,721
- --------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($1,383,012 / 41,258 shares outstanding) $33.52
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $35.56
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,300,158 / 38,968 shares outstanding) $33.37
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($220,621 / 6,609 shares outstanding) $33.38
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($27,930 / 834 shares outstanding) $33.51
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Eleven months ended November 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest $ 36,552
- ------------------------------------------------------------------------
Dividends 24,258
- ------------------------------------------------------------------------
Total investment income 60,810
- ------------------------------------------------------------------------
Expenses:
Management fee 12,084
- ------------------------------------------------------------------------
Distribution services fee 6,378
- ------------------------------------------------------------------------
Administrative services fee 3,849
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 5,374
- ------------------------------------------------------------------------
Professional fees 75
- ------------------------------------------------------------------------
Reports to shareholders 252
- ------------------------------------------------------------------------
Directors' fees and other 82
- ------------------------------------------------------------------------
Total expenses 28,094
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 32,716
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on sales of investments 21,339
- ------------------------------------------------------------------------
Net realized gain from futures transactions 113,531
- ------------------------------------------------------------------------
Net realized gain 134,870
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 249,096
- ------------------------------------------------------------------------
Net gain on investments 383,966
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $416,682
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 32,716 5,651
- -----------------------------------------------------------------------------------------------------
Net realized gain 134,870 21,480
- -----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 249,096 61,834
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 416,682 88,965
- -----------------------------------------------------------------------------------------------------
Distribution from net investment income (17,802) (5,373)
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain (3,648) (18,442)
- -----------------------------------------------------------------------------------------------------
Total dividends to shareholders (21,450) (23,815)
- -----------------------------------------------------------------------------------------------------
Net increase from capital share transactions 1,798,655 574,488
- -----------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 2,193,887 639,638
- -----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 737,834 98,196
- -----------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$15,293 and $373, respectively) $2,931,721 737,834
- -----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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),
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.
In 1997, the Fund changed its fiscal year end for
financial reporting and federal income tax purposes
to November 30 from December 31.
- --------------------------------------------------------------------------------
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 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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 and therefore no
federal income tax provision is required.
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 INVESTMENT MANAGER COMBINATION. Zurich Insurance
Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the
names of the Fund's principal underwriter and
shareholder service agent were changed to Kemper
Distributors, Inc. (KDI) and Kemper Service Company
(KSvC), respectively.
MANAGEMENT AGREEMENT. KVF has a management
agreement with Scudder Kemper. 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 $12,084,000 for the eleven months
ended November 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 Scudder Kemper for its services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
KVF has an underwriting and distribution services
agreement with KDI. Underwriting commissions paid
in connection with the distribution of Class A
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Eleven months ended
November 30, 1997 $ 3,113,000 13,161,000 221,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
AND CDSC PAID BY KDI
RECEIVED BY KDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Eleven months ended
November 30, 1997 $ 7,226,000 31,289,000
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. KVF has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid by
the Fund are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Eleven months ended
November 30, 1997 $3,849,000 4,879,000 15,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KVF's transfer agent, KSvC
is the shareholder service agent of the Fund. Under
this agreement, KSvC received shareholder services
fees of $4,150,000 for the eleven months ended
November 30, 1997.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of Scudder Kemper. During the eleven
months ended November 30, 1997, the Fund made no
payments to its officers and incurred directors'
fees of $39,000 to independent directors.
- --------------------------------------------------------------------------------
4 TRANSACTIONS
INVESTMENT For the eleven months ended November 30, 1997,
investment transactions (excluding short-term
instruments) are as follows (in thousands):
Purchases $1,168,965
Proceeds from sales 86,880
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED YEAR ENDED
NOVEMBER-30,-1997 DECEMBER-31,-1996
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 32,374 $ 979,187 11,969 $294,186
--------------------------------------------------------------------------------
Class B 31,055 934,233 10,792 264,773
--------------------------------------------------------------------------------
Class C 5,473 164,900 1,617 40,240
--------------------------------------------------------------------------------
Class I 952 28,381 612 14,409
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 395 12,470 483 12,533
--------------------------------------------------------------------------------
Class B 193 6,172 322 8,424
--------------------------------------------------------------------------------
Class C 26 855 51 1,337
--------------------------------------------------------------------------------
Class I 14 422 21 512
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (6,529) (201,847) (1,483) (35,513)
--------------------------------------------------------------------------------
Class B (2,981) (90,730) (682) (16,613)
--------------------------------------------------------------------------------
Class C (572) (17,377) (77) (1,854)
--------------------------------------------------------------------------------
Class I (586) (18,011) (338) (7,946)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 469 14,557 37 907
--------------------------------------------------------------------------------
Class B (471) (14,557) (37) (907)
--------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $1,798,655 $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 November 30,
1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $44,795,000 for the following futures
contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 11/30/97
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $948,693,000 Long Dec. '97 $25,155,000
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------
Class A
-----------------------------------------------------
ELEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 30, -----------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <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 .54 .39 .26 .25 .21
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 6.89 5.75 6.76 (.39) 1.13
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 7.43 6.14 7.02 (.14) 1.34
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .37 .38 .24 .25 .21
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain .06 .73 .40 -- .25
- ---------------------------------------------------------------------------------------------------------
Total dividends .43 1.11 .64 .25 .46
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.52 26.52 21.49 15.11 15.50
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.15% 28.79 46.86 (.99) 9.22
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
Expenses 1.22% 1.21 1.25 1.25 1.25
- ---------------------------------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.55 1.58 1.47
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
Expenses 1.22% 1.21 1.57 1.39 1.56
- ---------------------------------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.23 1.44 1.16
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Class B
----------------------------------------
ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED TO
NOVEMBER 30, DEC. 31, DEC. 31,
1997 1996 1995
<S> <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 .31 .19 .07
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 6.84 5.72 2.41
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 7.15 5.91 2.48
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .16 .21 .06
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain .06 .73 .40
- ---------------------------------------------------------------------------------------------------------
Total dividends .22 .94 .46
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $33.37 26.44 21.47
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.10% 27.63 12.88
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
Expenses 2.12% 2.20 2.00
- ---------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.13 .61
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
Expenses 2.12% 2.31 2.35
- ---------------------------------------------------------------------------------------------------------
Net investment income 1.48% 1.02 .26
- ---------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
<CAPTION>
----------------------------------- ---------------------------------
CLASS C CLASS I
----------------------------------- ---------------------------------
ELEVEN MONTHS YEAR SEPT. 11 ELEVEN MONTHS YEAR NOV.1
ENDED ENDED TO ENDED ENDED TO
NOVEMBER 30, DEC. 31, DEC. 31, NOVEMBER 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 .32 .20 .09 .75 .54 .04
- ------------------------------------------------------------------------------------------------ ---------------------------------
Net realized and unrealized gain 6.83 5.72 2.41 6.81 5.70 2.03
- ------------------------------------------------------------------------------------------------ ---------------------------------
Total from investment operations 7.15 5.92 2.50 7.56 6.24 2.07
- ------------------------------------------------------------------------------------------------ ---------------------------------
Less dividends:
Distribution from net investment income .16 .22 .07 .48 .53 .06
- ------------------------------------------------------------------------------------------------ ---------------------------------
Distribution from net realized gain .06 .73 .40 .06 .73 .40
- ------------------------------------------------------------------------------------------------ ---------------------------------
Total dividends .22 .95 .47 .54 1.26 .46
- ------------------------------------------------------------------------------------------------ ---------------------------------
Net asset value, end of period $ 33.38 26.45 21.48 33.51 26.49 21.51
- ------------------------------------------------------------------------------------------------ ---------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.10% 27.66 12.94 28.71 29.36 10.47
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
Expenses 2.10% 2.22 1.95 .83 .88 .47
- ------------------------------------------------------------------------------------------------ ---------------------------------
Net investment income 1.50% 1.11 .66 2.77 2.45 1.99
- ------------------------------------------------------------------------------------------------ ---------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
Expenses 2.10% 2.33 2.30 .83 .88 .85
- ------------------------------------------------------------------------------------------------ ---------------------------------
Net investment income 1.50% 1.00 .31 2.77 2.45 1.61
- ------------------------------------------------------------------------------------------------ ---------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 30, -------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $ 2,931,721 737,834 98,196 35,005 28,413
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 5% 10 18 12 14
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the eleven
months ended November 30, 1997 and the year ended December 31, 1996 were $.0501
and $.0513, respectively.
- --------------------------------------------------------------------------------
NOTE: Total return does not reflect the effect of any sales charges. The
investment manager waived a portion of its management fee and absorbed certain
operating expenses of the Fund through the period ended December 31, 1996.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS & OFFICERS
DIRECTORS OFFICERS
JAMES E. AKINS DANIEL PIERCE ANN M. MCCREARY
Director Chairman of the Board Vice President
ARTHUR R. GOTTSCHALK MARK S. CASADY KATHRYN L. QUIRK
Director President Vice President
FREDERICK T. KELSEY PHILIP J. COLLORA THOMAS F. SASSI
Director Vice President, Vice President
Secretary and Treasurer
DANIEL PIERCE THOMAS H. FORESTER STEVEN T. STOKES
Director Vice President Vice President
FRED B. RENWICK FREDERICK L. GASKIN LINDA J. WONDRACK
Director Vice President Vice President
JOHN B. TINGLEFF JERARD K. HARTMAN JOHN R. HEBBLE
Director Vice President Assistant Treasurer
EDMOND D. VILLANI JONATHAN KAY MAUREEN E. KANE
Director Vice President Assistant Secretary
JOHN G. WEITHERS THOMAS W. LITTAUER CAROLINE PEARSON
Director Vice President Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ----------------------------------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ----------------------------------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- ----------------------------------------------------------------------------------------------------------
INDEPENDENT ERNST & YOUNG LLP
AUDITORS 233 South Wacker Drive
Chicago, IL 60601
- ----------------------------------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[RECYCLED LOGO]
Printed on recycled paper.
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Value Style prospectus.
KDHRF - 2(1/98) 1041990
Printed in the U.S.A. [KEMPER FUNDS LOGO]
