<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
[LOGO]
Seeks long-term capital appreciation
KEMPER
SMALL CAP VALUE FUND
"...Small cap stocks are always volatile, but were more
so than normal this last period, and I would say that
was largely due to Asia. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
INDUSTRY SECTORS
9
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
16
NOTES TO FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
22
SHAREHOLDERS' MEETING
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 4.86%
CLASS B 4.42%
CLASS C 4.50%
LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY AVERAGE* 6.37%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
5/31/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAP VALUE FUND
CLASS A $22.14 $21.83
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
CLASS B $21.66 $21.46
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
CLASS C $21.73 $21.51
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
RANKINGS AS OF 5/31/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #386 of 515 funds #414 of 515 funds #407 of 515 funds
- --------------------------------------------------------------------------------
3-YEAR #91 of 303 funds N/A N/A
- --------------------------------------------------------------------------------
5-YEAR #48 of 163 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED MAY 31, 1998, THE KEMPER SMALL CAP VALUE FUND
MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN $0.27 $0.27 $0.27
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.43 $0.43 $0.43
- --------------------------------------------------------------------------------
</TABLE>
INVESTMENT BY THE FUND IN SMALLER COMPANIES PRESENTS GREATER RISK THAN
INVESTMENT IN LARGER, MORE ESTABLISHED COMPANIES.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[STYLE/SIZE DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar's Style
Box is based on a portfolio date as of May 31, 1998.) The Equity Style Box
placement is based on a fund's price-to-earnings and price-to-book ratios
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.
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 assumes the
reinvestment of all dividends and it represents the aggregate percentage or
dollar value change over the period.
VALUE INVESTING An investment strategy that seeks to identify strongly
financed, growing companies whose stocks sell at low price/earning multiples
(P/Es). This strategy is also described as contrarian because such stocks are
typically temporarily out of favor.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 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 COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</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 May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[FORESTER PHOTO]
TOM FORESTER IS THE CO-LEAD PORTFOLIO MANAGER OF KEMPER SMALL CAP VALUE FUND.
FORESTER IS A PHI BETA KAPPA GRADUATE OF THE UNIVERSITY OF COLORADO AND HOLDS A
MASTER'S DEGREE IN MANAGEMENT FROM NORTHWESTERN UNIVERSITY'S J.L. KELLOGG
GRADUATE SCHOOL OF MANAGEMENT. HE IS ALSO A CHARTERED FINANCIAL ANALYST.
[STOKES PHOTO]
STEVE STOKES IS THE CO-LEAD PORTFOLIO MANAGER OF KEMPER SMALL CAP VALUE FUND.
STOKES RECEIVED HIS BACHELOR OF SCIENCE DEGREE IN FINANCE IN 1985 FROM STATE
UNIVERSITY OF NEW YORK AT NEW PALTZ. A CHARTERED FINANCIAL ANALYST, HE IS A
MEMBER OF THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH, FINANCIAL
ANALYST FEDERATION AND NYSSA.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
ALTHOUGH THE SMALL CAPITALIZATION MARKET WAS UP ABOUT 6.5 PERCENT OVERALL FROM
DECEMBER 1, 1997 THROUGH MAY 31, 1998, SMALL CAP STOCKS RECEIVED A PUMMELING
FROM TIME TO TIME FROM SKITTISH INVESTORS. PORTFOLIO MANAGER TOM FORESTER
DISCUSSES WHY INVESTORS REACTED AS THEY DID AND HOW HE MANAGED THE FUND DURING
THIS VOLATILE PERIOD.
Q DURING THE PAST SIX MONTHS, WE SAW THE MARKET REBOUND FROM THE ASIAN
CONTAGION THAT SURFACED IN THE FOURTH QUARTER OF LAST YEAR. HOW DID THAT AFFECT
SMALL CAP STOCKS?
A Small cap stocks are always volatile, but were more so than normal this
last period and I would say that was largely due to Asia. Certainly last year's
fourth quarter implosion and the subsequent rebound in this year's first quarter
were Asia related.
In the fourth quarter, market fears prompted investors to favor liquid
stocks -- that is, stocks that can be easily bought and sold. Small cap stocks
are more difficult to move in volume, so people tended to move to large cap
stocks from small cap. The small cap market recovered from that early on this
year, but started reverting back in the second quarter. I think people saw the
economic strength in the first quarter and thought that the Asian crisis wasn't
having any effect. When second quarter figures began coming in a little bit
lighter and the Asian markets fell back to their December lows, that caused
a second liquidity rush to large caps.
Another issue causing the disparity between small and large cap
performance is the profusion of small technology companies. Most small firms
either competed against Asian firms or saw a slowdown in their orders from
bigger technology companies. So even the smaller companies that didn't have
direct exposure to Asia suffered. Nervous investors tended to jump out of those
small technology firms and into larger tech companies.
The European market was up dramatically because of very strong economic
growth there. I think that gave strength to the large caps in the U.S. market.
Although the U.S. economy is doing fine, the large, multi-national companies
were able to shift resources over to Europe to gain even more.
May was an especially difficult month for the small cap market. The R
ussell 2000 Index lost 5.39 percent and Kemper Small Cap Value Fund dropped
5.14 percent (Class A shares, unadjusted for any sales charge) that month.
Currently, there is a 9 percent difference between the S&P 500 and the Russell
2000 year-to-date performance, and about half of that occurred in May.
Q SO THIS WAS A DIFFICULT ENVIRONMENT FOR SMALL STOCKS. HOW DID THE FUND
FARE?
A The Kemper Small Cap Value Fund returned 4.86 percent (Class A shares
unadjusted for any sales charge) for the six-month period ending May 31, 1998,
below the Russell 2000 Index, which returned 6.54 percent for the same period.
One reason for the fund's underperformance was our style of investing in value
stocks, which lagged growth stocks for the first part of the year. Growth stocks
were hit very hard in the fourth quarter of last year, and came back
5
<PAGE> 6
PERFORMANCE UPDATE
with a vengeance in the first quarter of 1998. That trend reversed itself
in May and we expect value stocks will once again outperform their
higher-priced growth stock counterparts.
Q WHICH SECTORS HAVE DONE WELL THIS PERIOD AND WHICH HAVE STRUGGLED?
A Companies that benefit when consumers have more discretionary income did
well -- retail, gaming, etc. They're up about 15 percent this year. I think the
year-to-year sales pattern comparisons for consumer discretionaries have been
quite positive. Last year, sales were not that strong because we endured a very
hard winter. This year's mild winter sent more people out shopping. Of course,
that isn't likely to recur next year and we may get the reverse effect.
Consumers stocked up on their durables this winter.
The transportation sector is up about 20 percent. A lot of this
performance was due to lower oil prices and a strong economy. Lower fuel
costs benefited the airlines, and the strong economy meant more people were
flying and the airlines could charge them higher prices for their tickets.
Trucking did well while we were invested there.
As far as areas where the fund lagged, its light weighting in health
care stocks impeded performance simply because the stocks performed well
and we didn't own too many of them. They've been too rich for our taste, but
the market has continued to bid them up anyway.
Q YOU WERE BULLISH ON FINANCIALS LAST NOVEMBER AND CONTINUE TO HOLD A LARGE
POSITION IN THAT SECTOR. DO YOU EXPECT THE STRONG PERFORMANCE IN THIS AREA
TO CONTINUE?
A Actually, although we began the period with a 25 percent position in
financials, we brought that down to 20 percent in March and built it back up to
25 percent recently by adding real estate investment trusts (REITs). We don't
expect the steady merger activity in the banking sector to continue at its
recent torrid pace because banks need to focus on bringing their computer
systems into Year 2000 compliance by the end of 1998. It would be difficult to
execute a buyout and manage a major systems conversion at the same time. I
expect any new deals to be sporadic and I expect them to be larger. If a bank
is going to go through the difficult exercise, it had better be worth the
effort.
I also think banks are rather overpriced right now. Today's high
valuations appear to be supported by heavy merger activity, so if the deals
slow, the valuation support may disappear. When you consider the risk and
reward, there is not much upside but a lot of downside to many bank stocks
today. We see much more potential in REITs at the moment. REITs haven't done
very well until now, and today they're very inexpensive. They've tended to grow
as fast as banks, pay a much higher dividend and have much lower valuations. On
a risk-reward scale, we believe they have limited downside and more upside. So
we made the switch and so far that's proving to be a good move.
Q WHAT OTHER SECTORS APPEAL TO YOU NOW, AND HOW HAVE YOU ADJUSTED THE FUND'S
WEIGHTINGS?
A The technology sector did well in the first quarter but was down about 10
percent in May. We had anticipated that drop and had been lightening up on
technology holdings for the last few months, ending May with a 7.4 percent
weighting. I think the market was showing concern over high valuations. We had
this Asian contagion the fourth quarter and everyone said it wouldn't have an
impact. Now some people are saying it does have an impact, so a lot of these
stocks are getting hit. In addition, the second quarter historically tends to
be a weak quarter for technology stocks.
Another adjustment we made during the period was to raise cash to 15
percent in mid-April, just before the market fell 10 percent. Now we're buying
back into stocks, trying to get back to being fully invested. Today the fund is
holding about 8 percent cash.
The drop in oil prices, which was driven in large part by a glut in
supply, has hurt energy stocks. Our energy stocks actually did fairly well
compared to the sector as a whole. I think we could see a rebound in the energy
sector over the rest of the year, because oil prices have come down to what we
think is an unsustainable low level.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHAT ABOUT SOME SPECIFIC STOCK PLAYS. WHERE HAVE YOU SCORED AND ARE THERE
ANY DECISIONS THAT YOU REGRET?
A Tommy Hilfiger shot the lights out this year. When we bought that stock in
late November it had strong fundamentals, had met all of its earnings estimates
and was growing at a strong clip, but people were concerned that its inventory
was too high. The market was jittery back then and people just started dumping
everything. It came through the holiday season with great sales and brought
inventory down. It went on to buy one of its suppliers, a jeans manufacturing
company. When we sold the stock recently it was up about 90 percent.
Finish Line, a mall-based athletic shoe and clothing retailer, also did
quite well, jumping 80 percent this year. This is a case of a consumer
discretionary stock that benefited from the warm, el Nino winter. Consumers
shopped more and bought more, so the stores had positive comparisons to last
year. When we bought the stock it sold at 12 times earnings and we sold it
recently at 25 times earnings, a classic example of successful value investing.
Another stock that's done well and that we still own is Learning
Company, an educational software company. It's up about 80 percent this year.
We bought the stock at $8, and now it is selling for $28 a share. America
West Airlines was also a top performer. The airline company has had strong
bookings and has lowered its cost structure. It was a very low valuation stock
and I think people have finally realized that the company can make money.
We didn't do as well as we would have hoped in materials and processing.
Our holdings overall were flat, while that sector of the index is up 10
percent, so that's been a negative weight on us.
Q LOOKING AHEAD, WHAT DO YOU EXPECT FROM THE SMALL CAP MARKET?
A I think stocks will do okay, and I think our value stocks will do better
than growth stocks. The market may be in for a challenge however. We're seeing
slower earnings growth and higher valuations, especially in large caps.
Interestingly, the Russell 2000 doesn't have nearly the valuations that the S&P
500 does right now, so from a valuation perspective it isn't going to be as
difficult to find values in the small cap arena as in the large cap. However,
from a liquidity perspective, small caps might face trouble. You've already
seen people get skittish over the Asian crisis and move toward the larger cap
stocks. They feel safer there.
Also, when investors look at raw data, they see very positive numbers in
the first quarter. We had one of the worst winters ever in the first quarter of
1997 and one of the easiest winters ever in the first quarter of 1998, so we
saw much better earnings in comparison. Year-over-year comparisons may not look
as attractive in the third or fourth quarter. I think numbers will either
flatten out or turn negative toward the end of this year as far as earnings go.
Because of this, we may see a lot of restructuring. Some companies may get in
trouble this quarter, and by the end of the year we could see a rougher market.
Q HOW WILL YOU ADJUST FOR THIS?
A The beauty of our value strategy is that it tends to work fairly well when
the market is going up, and work EXTREMELY well in comparison to "growthier"
approaches when the market is going down. So if the market declines, we should
be down less than the overall market. And a correction should give us
additional opportunities to find bargains.
In the meantime, I'm attempting to add stability through investing in
the REITs I mentioned earlier. They tend to be high-yielding, defensive
positions and they seem to be working out well so far. In fact, we didn't fall
as much as the overall market during May. We'll also make a point of getting
out of some high-flying stocks and concentrate on buying the cheapest stocks in
each sector, so we remain fairly broadly diversified.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON MAY 31, 1998, AND ON NOVEMBER 30, 1997.
[EQUITY PORTION BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND KEMPER SMALL CAP VALUE FUND
ON 5/31/98 ON 11/30/97
<S> <C> <C>
FINANCE 25.2% 25.5%
CAPITAL GOODS 23.7% 22.8%
CONSUMER NONDURABLES 18.1% 18.1%
ENERGY 9.4% 8.9%
TECHNOLOGY 7.4% 9.8%
TRANSPORTATION 6.2% 4.9%
HEALTH CARE 4.4% 4.2%
OTHER 2.9% 5.1%
UTILITIES 1.7% 0.7%
BASIC INDUSTRIES 1.0% 0%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER SMALL CAP VALUE FUND REPRESENTED ON MAY 31, 1998, COMPARED TO THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 2000 INDEX.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND KEMPER SMALL CAP VALUE FUND
ON 5/31/98 ON 5/31/98
<S> <C> <C>
FINANCE 25.2% 24.3%
CAPITAL GOODS 23.7% 9.6%
CONSUMER NONDURABLES 18.1% 20.7%
ENERGY 9.4% 4.4%
TECHNOLOGY 7.4% 15.3%
TRANSPORTATION 6.2% 2.4%
HEALTH CARE 4.4% 9.3%
OTHER 2.9% 0.0%
UTILITIES 1.7% 5.1%
BASIC INDUSTRIES 1.0% 5.7%
CONSUMER DURABLES 0.0% 3.2%
</TABLE>
* The Russell 2000 Index is an unmanaged capitalization weighted price only
index which is comprised of 2000 of the smallest stocks (on the basis of
capitalization) in the Russell 3000 Index.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 12.2 PERCENT OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. YOUNG BROADCASTING Owns 11 network-affiliates stations and one 1.6%
independent TV station.
2. AMERICA WEST AIRLINES Provides passenger air travel services primarily to 1.3%
business travelers as well as to discretionary
travelers.
3. SCIENTIFIC-ATLANTA A leading supplier of broadband communication 1.3%
systems, satellite-based video, voice and data
communications networks and worldwide customer
service and support.
4. IMPERIAL CREDIT MORTGAGE Is a mortgage REIT which operates three businesses 1.2%
HOLDINGS 1) the Long Term Business Operations 2) the Conduit
Operations 3) the Warehouse Lending Operations.
5. CARPENTER TECHNOLOGY Manufactures, fabricates and markets specialty 1.2%
metals.
6. BALL CORP. Manufactures and markets packaging, industrial and 1.2%
consumer products and provides aerospace systems and
professional services to the federal sector.
7. INTERMET Manufactures a wide variety of ductile and gray iron 1.1%
casting for automotive and industrial customers.
8. RESOURCE BANKSHARES MORTGAGE A mortgage banking company which provides services 1.1%
GROUP for the purchase, sale and servicing of residential
single-family first family mortgage loans.
9. INTEGRATED HEALTH SERVICE Provides a wide range of post-acute stage medical 1.1%
and rehabilitative services including sub-acute
care, home health, and rehab services.
10. JONES INTERCABLE Acquires, develops and operates cable television 1.1%
systems.
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--.9% Birmingham Steel Corp. 823,450 $ 11,528
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
CAPITAL GOODS--1.6% Albany International Corp. 180,000 5,220
Apogee Enterprises 523,900 7,302
Robbins & Myers 236,200 7,012
----------------------------------------------------------------------------
19,534
- -----------------------------------------------------------------------------------------------------------
CONSUMER Applebee's International 432,500 10,542
DISCRETIONARY--15.1% BJ Services Co. 307,500 12,146
Brown Group, Inc. 558,900 10,025
Burlington Coat Factory 95,000 1,906
Bush Industries 243,300 6,539
CDI Corp. 188,700 6,947
Carmike Cinemas 201,300 5,272
DIMON Inc. 421,500 5,690
(a)Dollar Thrifty Automotive Group 645,300 9,276
First Brands Corp. 488,200 12,144
Footstar, Inc. 129,000 5,700
(a)Friedman's Inc. 545,600 10,776
Haggar Apparel Co. 204,500 2,863
Harman International Industries 227,500 9,683
Heilig - Myers 271,000 3,252
Herbalife International,
Class "A" 154,366 3,975
Class "B" 308,733 7,217
Hollywood Entertainment Corp. 374,300 3,930
Homebase, Inc. 346,500 3,010
(a)Lone Star Steakhouse & Saloon 451,200 7,614
(a)ShopKo Stores 96,000 3,348
Springs Industries, Inc. 211,100 11,848
Talbots, Inc. 95,000 2,714
(a)Vallassis Communications 326,400 11,485
(a)Young Broadcasting Corp. 372,200 19,308
----------------------------------------------------------------------------
187,210
- -----------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.3% (a)Fresh Del Monte Produce, Inc. 180,400 3,450
(a)Performance Food Group 362,500 6,797
(a)Swisher International 570,000 5,059
----------------------------------------------------------------------------
15,306
- -----------------------------------------------------------------------------------------------------------
ENERGY--8.5% Atmos Energy Corp. 382,900 11,774
(a)Basin Exploration 368,600 5,806
(a)Belden & Blake Corp. 286,600 11,374
(a)Chieftain International, Inc. 409,200 9,258
Cross Timbers Oil 342,300 5,926
Giant Industries 214,600 4,037
KCS Energy 504,600 5,992
(a)Nuevo Energy Co. 355,700 11,560
(a)Seitel, Inc. 494,800 8,412
(a)Tesoro Petroleum Corp. 630,000 12,167
(a)Triton Energy Corp. 234,000 9,111
(a)Veritas DGC, Inc. 187,800 9,730
----------------------------------------------------------------------------
105,147
- -----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--22.6% (a)Acceptance Insurance Cos. 355,100 8,167
Apartment Investment & Mgmt. Co. 196,038 7,646
Associated Banc Corp. 152,889 7,568
BankAtlantic Bancorp 186,950 2,465
- -----------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chartwell Re Corp. 252,500 7,465
Commercial Federal Corp. 304,750 10,152
Commonwealth Bancorp, Inc. 45,500 1,075
Compass Bancshares 174,500 8,283
Cullen Frost Bankers 123,000 6,665
Doral Financial Corp. 204,000 3,404
Excel Realty Trust, Inc. 210,200 5,728
Excell Legacy Corporation 210,200 1,077
First Commerce Corp. 59,000 4,547
Freemont General Corp. 231,500 13,239
Frontier Insurance Group 140,000 3,430
HCC Insurance Holdings 282,000 6,028
HUBCO, Inc. 153,555 5,413
Headland Mortgage Co. 461,200 7,610
Impac Mortgage Holdings, Inc. 90,600 1,421
Imperial Credit Industries 500,920 10,582
Imperial Credit Mortgage Holdings 1,092,700 15,127
John Alden Financial Corp. 162,400 3,593
LandAmerica Financial Group 115,000 5,491
(a)New Century Financial Corp. 5,000 48
North Fork Bancorp 354,920 8,540
(a)Ocwen Financial Corp. 145,000 3,534
Omega Healthcare Investors 185,500 6,388
PennCorp Financial Group 273,600 6,053
Peoples Heritage Financial Group 154,000 3,465
(a)Philips International Realty 366,700 6,326
(a)Prentiss Properties Trust 278,300 7,114
Redwood Trust 301,000 7,055
Reliance Group Holdings, Inc. 617,900 11,161
RenaissanceRe Holding, Ltd. 72,000 3,366
Resource Bancshares Mortgage Group 781,200 13,622
(a)Southern Pacific Funding Corp. 683,200 10,504
Sovereign Bancorp 185,232 3,276
(a)Trans Financial, Inc. 71,200 3,800
U.S. Trust Corp. 98,700 2,745
(a)UniCapital Corp. 398,700 6,927
United Companies Financial Corp. 188,300 3,460
Vermont Financial Services Corp 146,500 4,148
W.R. Berkley Corp. 133,500 6,241
Webster Financial Corp. 339,800 11,468
Winston Hotels 400,000 4,800
----------------------------------------------------------------------------
280,217
- -----------------------------------------------------------------------------------------------------------
HEALTH CARE--4.0% (a)Apria Healthcare Group 124,000 946
(a)CONMED Corp. 509,700 10,767
(a)Genesis Health Ventures 330,000 8,353
Health Care Property Investors, Inc. 86,100 3,030
(a)Hologic, Inc. 277,000 5,817
Integrated Health Services 364,430 13,552
Nationwide Health Properties 278,300 6,679
----------------------------------------------------------------------------
49,144
- -----------------------------------------------------------------------------------------------------------
MATERIALS AK Steel Holding Corp. 304,000 5,662
AND PROCESSING--15.0% AMCOL International 699,000 9,611
Ball Corp. 363,000 14,316
(a)Buckeye Cellulose 441,000 9,950
Carpenter Technology Corp. 276,900 14,676
Del Webb Corp. 277,500 6,729
Elcor Corp. 384,450 10,188
Flowserv Corp. 463,513 13,442
Furon Co. 650,000 10,359
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermet Corp. 711,500 $ 13,874
(a)Lone Star Technologies 480,500 9,130
(a)Lydall, Inc. 452,700 7,922
Mississippi Chemical Corp. 373,600 6,258
(a)Mueller Industries, Inc. 173,000 5,363
Quanex Corp. 366,000 11,369
(a)The Shaw Group 415,100 10,170
Trinity Industries 280,500 13,394
(a)Wyman-Gordon Co. 632,000 12,561
----------------------------------------------------------------------------
184,974
- -----------------------------------------------------------------------------------------------------------
PRODUCER DURABLES--4.9% Blount, Inc. 400,100 11,278
Briggs & Stratton Corp. 241,400 10,954
(a)Electroglas 121,500 1,655
General Cable Corp. 459,900 12,187
Stewart & Stevenson Services 592,500 12,294
Watts Industries, Inc. 498,000 11,610
----------------------------------------------------------------------------
59,978
- -----------------------------------------------------------------------------------------------------------
TECHNOLOGY--6.6% (a)Altron, Inc. 188,300 2,083
(a)Benchmark Electronics 339,800 6,860
Breed Technologies, Inc. 305,000 5,814
(a)Burr Brown Corp. 315,750 8,101
(a)EXAR Corp. 156,500 3,600
(a)HMT Technology Corp. 770,500 8,957
(a)Hutchinson Technology 352,500 8,813
(a)Learning Co. 305,900 8,718
(a)MasTec, Inc. 302,000 6,229
(a)Read-Rite Corp. 231,200 2,038
Scientific-Atlanta 702,500 15,499
(a)Tech-Sym Corp. 154,500 4,471
(a)Vanstar Corp. 64,000 932
----------------------------------------------------------------------------
82,115
- -----------------------------------------------------------------------------------------------------------
TRANSPORTATION--5.6% Airborne Freight Corp. 198,400 7,390
(a)America West Airlines 564,000 15,968
Borg-Warner Automotive, Inc. 192,800 10,990
Fleetwood Enterprises 316,900 12,676
Myers Industries 391,890 8,279
Royal Nedlloyd Group, ADR 503,000 5,533
(a)Wisconsin Central Transportation Corp. 373,500 8,754
----------------------------------------------------------------------------
69,590
- -----------------------------------------------------------------------------------------------------------
UTILITIES--1.5% (a)Jones Intercable, Inc. 627,200 13,485
TNP Enterprises 162,200 5,282
----------------------------------------------------------------------------
18,767
- -----------------------------------------------------------------------------------------------------------
OTHER--2.6% (a)Global Industrial Technologies, Inc. 490,200 8,303
Standard & Poor's Midcap 400
Depositary Receipts 350,200 24,076
----------------------------------------------------------------------------
32,379
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--90.2%
(Cost: $987,575) 1,115,889
----------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MONEY MARKET PRINCIPAL
INSTRUMENTS--10.4% AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield--5.47% to 5.63%
Due--June 1998
Baxter International $13,000 12,980
Bell Atlantic Network Funding Corp. 20,000 19,966
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CIESCO, L.P. 18,000 17,986
Merrill Lynch & Co. 3,000 2,988
Sara Lee Corp. 4,200 4,196
Transamerica Finance Corp. 2,950 2,940
Xerox Credit Corp. 7,000 6,979
Other 61,350 61,226
------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--10.4%
(Cost: $129,262) 129,261
------------------------------------------------------------------------
TOTAL INVESTMENTS--100.6%
(Cost: $1,116,837) 1,245,150
------------------------------------------------------------------------
LIABILITIES LESS, CASH AND OTHER ASSETS--(.6)% (7,958)
------------------------------------------------------------------------
NET ASSETS--100% $1,237,192
------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
Based on the cost of investments of $1,116,837,000 for federal income tax
purposes at May 31, 1998, the gross unrealized appreciation was $189,920,000,
the gross unrealized depreciation was $61,607,000 and the net unrealized
appreciation on investments was $128,313,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------
Investments, at value
(Cost: $1,116,837) $1,245,150
- ----------------------------------------------------------------------------------------
Cash 8,395
- ----------------------------------------------------------------------------------------
Receivable for:
Investments sold 698
- ----------------------------------------------------------------------------------------
Fund shares sold 2,382
- ----------------------------------------------------------------------------------------
Dividends 756
- ----------------------------------------------------------------------------------------
TOTAL ASSETS 1,257,381
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------------------------------------
Payable for:
Investments purchased 16,838
- ----------------------------------------------------------------------------------------
Fund shares redeemed 1,110
- ----------------------------------------------------------------------------------------
Management fee 731
- ----------------------------------------------------------------------------------------
Distribution services fee 378
- ----------------------------------------------------------------------------------------
Administrative services fee 246
- ----------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 879
- ----------------------------------------------------------------------------------------
Directors' fees and other 7
- ----------------------------------------------------------------------------------------
Total liabilities 20,189
- ----------------------------------------------------------------------------------------
NET ASSETS $1,237,192
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------------------------------------------
Paid-in capital $1,077,736
- ----------------------------------------------------------------------------------------
Undistributed net realized gain on investments 32,107
- ----------------------------------------------------------------------------------------
Net unrealized appreciation on investments 128,313
- ----------------------------------------------------------------------------------------
Accumulated net investment loss (964)
- ----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,237,192
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($606,669/27,398 shares outstanding) $22.14
- ----------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $23.49
- ----------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($493,823/22,795 shares outstanding) $21.66
- ----------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($123,246/5,673 shares outstanding) $21.73
- ----------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($13,454/599 shares outstanding) $22.48
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------
Dividends $ 6,069
- ------------------------------------------------------------------------------------
Interest 3,260
- ------------------------------------------------------------------------------------
Total investment income 9,329
- ------------------------------------------------------------------------------------
Expenses:
Management fee 4,383
- ------------------------------------------------------------------------------------
Distribution services fee 2,156
- ------------------------------------------------------------------------------------
Administrative services fee 1,481
- ------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,647
- ------------------------------------------------------------------------------------
Reports to shareholders 186
- ------------------------------------------------------------------------------------
Registration fees 262
- ------------------------------------------------------------------------------------
Professional fees 22
- ------------------------------------------------------------------------------------
Directors' fees and other 22
- ------------------------------------------------------------------------------------
Total expenses 11,159
- ------------------------------------------------------------------------------------
NET INVESTMENT LOSS (1,830)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------
Net realized gain on sales of investments 37,417
- ------------------------------------------------------------------------------------
Net realized loss from futures transactions (1,515)
- ------------------------------------------------------------------------------------
Net realized gain 35,902
- ------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 13,883
- ------------------------------------------------------------------------------------
Net gain on investments 49,785
- ------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,955
- ------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
- ------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ (1,830) 795
- ------------------------------------------------------------------------------
Net realized gain 35,902 35,631
- ------------------------------------------------------------------------------
Change in net unrealized appreciation 13,883 92,608
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 47,955 129,034
- ------------------------------------------------------------------------------
Distribution from net realized gain (37,729) --
- ------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (36,178) 860,888
- ------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (25,952) 989,922
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------
Beginning of period 1,263,144 273,222
- ------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment income
of $866 in 1997) $ 1,237,192 1,263,144
- ------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Small Cap Value Fund (the Fund) is a
separate series of Kemper Value Series (KVS)
(formerly known as Kemper Value Fund, Inc.), an
open-end management investment company organized as
a corporation in the state of Maryland. KVS 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
that Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Fixed income securities are valued by using market
quotations, or independent pricing services that
use prices provided by market makers or estimates
of market values obtained from yield data relating
to instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Other securities
and assets are valued at fair value as determined
in good faith by the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing
16
<PAGE> 17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 May 31, 1998.
DIVIDENDS TO SHAREHOLDERS. The Fund generally
declares and pays dividends of net investment
income and net realized capital gains at least
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. KVS has a management
agreement with Scudder Kemper Investments, Inc.
(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
$4,383,000 for the six months ended May 31, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
KVS has an underwriting and distribution services
agreement with Kemper Distributors, Inc. (KDI).
Underwriting commissions paid in connection with
the distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS ALLOWED
COMMISSIONS BY KDI
RETAINED ---------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Six months ended May 31, 1998 $ 201,000 1,806,000 21,000
</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>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 2,537,000 3,748,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KVS 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 ASF PAID
THE FUND TO KDI BY KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Six months ended May 31, 1998 $ 1,481,000 1,434,000
</TABLE>
17
<PAGE> 18
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KVS's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$1,975,000 for the six months ended May 31, 1998.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of Scudder Kemper. During the six months
ended May 31, 1998, the Fund made no payments to
its officers and incurred directors' fees of
$14,000 to independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $250,042
Proceeds from sales 325,691
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
SIX MONTHS ENDED ENDED
MAY 31, 1998 NOVEMBER 30, 1997
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
SHARES SOLD
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 9,291 $ 204,209 31,605 $ 631,847
---------------------------------------------------------------------------------
Class B 5,225 112,767 15,839 315,709
---------------------------------------------------------------------------------
Class C 1,488 32,186 3,966 79,927
---------------------------------------------------------------------------------
Class I 185 4,104 763 15,563
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------------
Class A 902 18,655 -- --
---------------------------------------------------------------------------------
Class B 589 11,974 -- --
---------------------------------------------------------------------------------
Class C 116 2,361 -- --
---------------------------------------------------------------------------------
Class I 23 476 -- --
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------------
Class A (16,903) (364,285) (6,002) (125,310)
---------------------------------------------------------------------------------
Class B (1,863) (40,350) (1,879) (35,807)
---------------------------------------------------------------------------------
Class C (557) (12,157) (444) (9,013)
---------------------------------------------------------------------------------
Class I (276) (6,118) (585) (12,028)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------------
Class A 371 8,240 212 4,601
---------------------------------------------------------------------------------
Class B (378) (8,240) (215) (4,601)
---------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $ (36,178) $ 860,888
---------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS A
--------------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR ENDED DECEMBER
ENDED ENDED 31,
MAY 31, NOVEMBER 30, ----------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
-------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.83 18.28 14.50 10.85 11.23
-------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) .05 .14 (.02) --
-------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.04 3.50 4.14 4.64 .02
-------------------------------------------------------------------------------------------
Total from investment operations 1.01 3.55 4.28 4.62 .02
-------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .07 -- --
-------------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .97 .40
-------------------------------------------------------------------------------------------
Total dividends .70 -- .50 .97 .40
-------------------------------------------------------------------------------------------
Net asset value, end of period $ 22.14 21.83 18.28 14.50 10.85
-------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.86% 19.42 29.60 43.29 .15
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
-------------------------------------------------------------------------------------------
Expenses 1.42% 1.32 1.31 1.25 1.25
-------------------------------------------------------------------------------------------
Net investment income (loss) .10% .51 .87 (.16) (.03)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
-------------------------------------------------------------------------------------------
Expenses 1.42% 1.32 1.47 1.83 1.82
-------------------------------------------------------------------------------------------
Net investment income (loss) .10% .51 .71 (.74) (.61)
-------------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------
CLASS B
----------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, DEC. 31, DEC. 31,
1998 1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.46 18.14 14.48 15.75
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.07) (.04) .01 (.02)
---------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) .97 3.36 4.11 (.41)
---------------------------------------------------------------------------------------
Total from investment operations .90 3.32 4.12 (.43)
---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .03 --
---------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
---------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
---------------------------------------------------------------------------------------
Net asset value, end of period $ 21.66 21.46 18.14 14.48
---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.42% 18.30 28.54 (2.52)
---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
---------------------------------------------------------------------------------------
Expenses 2.27% 2.34 2.12 2.00
---------------------------------------------------------------------------------------
Net investment income (loss) (.75)% (.51) .06 (.99)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
---------------------------------------------------------------------------------------
Expenses 2.27% 2.34 2.49 2.39
---------------------------------------------------------------------------------------
Net investment loss (.75)% (.51) (.31) (1.38)
---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------
CLASS C
---------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, DEC. 31 DEC. 31,
1998 1997 1996 1995
--------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.51 18.17 14.48 15.75
--------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.06) (.03) .01 (.02)
--------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) .98 3.37 4.14 (.41)
--------------------------------------------------------------------------------------
Total from investment operations .92 3.34 4.15 (.43)
--------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .03 --
--------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
--------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
--------------------------------------------------------------------------------------
Net asset value, end of period $ 21.73 21.51 18.17 14.48
--------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.50% 18.38 28.77 (2.51)
--------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
--------------------------------------------------------------------------------------
Expenses 2.22% 2.24 2.06 1.95
--------------------------------------------------------------------------------------
Net investment income (loss) (.70)% (.41) .12 (.94)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
--------------------------------------------------------------------------------------
Expenses 2.22% 2.24 2.19 2.35
--------------------------------------------------------------------------------------
Net investment loss (.70)% (.41) (.01) (1.34)
--------------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------
CLASS I
---------------------------------------------
SIX MONTHS ELEVEN MONTHS YEAR NOV. 1
ENDED ENDED ENDED TO
MAY 31, NOVEMBER 30, DEC. 31 DEC. 31,
1998 1997 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.08 18.40 14.52 14.25
--------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .10 .13 .25 --
--------------------------------------------------------------------------------------
Net realized and unrealized gain 1.00 3.55 4.13 1.11
--------------------------------------------------------------------------------------
Total from investment operations 1.10 3.68 4.38 1.11
--------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .07 --
--------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
--------------------------------------------------------------------------------------
Total dividends .70 -- .50 .84
--------------------------------------------------------------------------------------
Net asset value, end of period $ 22.48 22.08 18.40 14.52
--------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.22% 20.00 30.28 8.03
--------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
--------------------------------------------------------------------------------------
Expenses .92% .89 .84 .47
--------------------------------------------------------------------------------------
Net investment income .60% .94 1.34 .28
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
--------------------------------------------------------------------------------------
Expenses .92% .89 .84 .90
--------------------------------------------------------------------------------------
Net investment income (loss) .60% .94 1.34 (.15)
--------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
MAY 31, NOVEMBER 30, -------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $1,237,192 1,263,144 273,222 31,606 6,931
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 45% 83 23 86 140
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTES:
Per share data for the year ended December 31, 1996 were determined based on
average shares outstanding. Total return does not reflect the effect of any
sales charges. Data for the period ended May 31, 1998 is unaudited.
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
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Shareholders of Kemper Small Cap Value Fund (KSCVF), one of three
series of Kemper Value Fund, Inc., were asked to vote on five separate issues:
election of the eight members to the Board of Directors, ratification of Ernst &
Young LLP as independent auditors, approval of a new investment management
agreement with Scudder Kemper Investments, Inc., approval of changes in the
fund's fundamental investment policies to permit a master/feeder fund structure,
and approval of a new rule 12b-1 distribution plan with Kemper Distributors,
Inc. for Class B shares and Class C shares. All three series of Kemper Value
Fund, Inc. voted in the aggregate for election of Directors and selection of
auditors and separtely for the other items, with the Class B and Class C
shareholders voting separately for the new rule 12b-1 distribution plan. The
following are the results for each issue:
1) Election of Directors (all series).
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Atkins 75,383,520 1,019,732
Arthur R. Gottschalk 75,374,970 1,028,281
Frederick T. Kelsey 75,381,005 1,022,247
Daniel Pierce 75,379,579 1,023,673
Fred B. Renwick 75,413,453 989,799
John B. Tingleff 75,398,856 1,004,396
Edmond D. Villani 75,368,163 1,035,088
John B. Weithers 75,411,770 991,482
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year (all series).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
74,654,361 520,089 1,228,802
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc. (KSCVF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
25,354,690 351,705 675,155
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure. (KSCVF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
20,256,710 950,088 1,526,869
</TABLE>
5) Approval of a new rule 12b-1 distribution plan with Kemper Distributors, Inc.
(KSCVF).
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 7,947,494 176,525 273,522 540,112
Class C 1,949,279 24,565 57,719 32,270
</TABLE>
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS & OFFICERS
DIRECTORS OFFICERS
DANIEL PIERCE MARK CASADY KATHRYN L. QUIRK
Chairman and Director President Vice President
JAMES E. AKINS PHILIP J. COLLORA THOMAS F. SASSI
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK STEVEN T. STOKES
Director JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY LINDA J. WONDRACK
Director THOMAS H. FORESTER Vice President
Vice President
FRED B. RENWICK MAUREEN E. KANE
Director FREDERICK L. GASKIN Assistant Secretary
Vice President
JOHN B. TINGLEFF CAROLINE PEARSON
Director JERARD K. HARTMAN Assistant Secretary
Vice President
EDMOND D. VILLANI ELIZABETH C. WERTH
Director THOMAS W. LITTAUER Assistant Secretary
Vice President
JOHN G. WEITHERS
Director ANN M. MCCREARY
Vice President
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Style/Value Style prospectus.
KSCVF-3 (7/98) 1050290
