<PAGE>
ANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED NOVEMBER 30, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD-SM-
[LOGO]
Seeks long-term capital appreciation
Kemper Small
Cap Value Fund
"... The market volatility helped the fund
in the sense that it created value
buying opportunities ... Our style
has done well in falling markets. ..."
[LOGO] KEMPER FUNDS
<PAGE>
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
15
REPORT OF
INDEPENDENT AUDITORS
16
FINANCIAL STATEMENTS
18
NOTES TO
FINANCIAL STATEMENTS
22
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 SMALL CAP VALUE FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE 12 MONTHS ENDED NOVEMBER 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Class A 20.17%
Class B 18.99%
Class C 19.03%
Lipper Small Company Growth Funds Category
Average* 21.00%
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT REFLECT 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.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
11/30/97 11/30/96
<S> <C> <C>
............................................
KEMPER SMALL CAP VALUE
FUND CLASS A $21.83 $ 18.61
............................................
KEMPER SMALL CAP VALUE
FUND CLASS B $21.46 $ 18.44
............................................
KEMPER SMALL CAP VALUE
FUND CLASS C $21.51 $ 18.48
............................................
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
LIPPER RANKINGS
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
.....................................................
1-YEAR #255 of #274 of #272 of
447 funds 447 funds 447 funds
.....................................................
3-YEAR #32 of N/A N/A
273 funds
.....................................................
5-YEAR #47 of N/A N/A
134 funds
.....................................................
</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
STYLE
SIZE
VALUE BLEND GROWTH
LARGE
MEDIUM
X SMALL
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL (312) 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.
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.
PRICE/EARNINGS MULTIPLE A company's stock price divided by its earnings for the
past four quarters, also referred to as its P/E.
<PAGE>
ECONOMIC OVERVIEW
[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.
3
<PAGE>
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION, CREDIT EXPANSION OR
CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC EXPANSION 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOW (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.81 6.22 6.58 5.65
Prime rate (2) 8.50 8.50 8.25 8.50
Inflation rate (3) 1.70 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 4.70 2.34
Employment growth (6) 2.66 2.30 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) AS INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF NOVEMBER 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
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 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>
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE
KEMPER SMALL CAP VALUE FUND PORTFOLIO LEAD-MANAGER TOM FORESTER AND CO-MANAGER
STEVE STOKES TOOK ADVANTAGE OF MARKET VOLATILITY IN 1997 AND BEAT THEIR PEER
GROUP AVERAGE AS MEASURED BY THE LIPPER SMALL CAP FUND INDEX* FOR THE 12 MONTHS
ENDED NOVEMBER 30, 1997. HERE THEY DISCUSS HOW THEY USED THEIR VALUE STYLE OF
MANAGEMENT TO ACHIEVE THIS NOTEWORTHY RESULT.
[PHOTO]
TOM FORESTER IS A VICE PRESIDENT OF WHAT IS NOW SCUDDER KEMPER INVESTMENTS AND
THE PORTFOLIO LEAD-MANAGER OF KEMPER SMALL CAP VALUE FUND. FORESTER IS A PHI
BETA KAPPA GRADUATE OF THE UNIVERSITY OF COLORADO AND HOLDS A MASTER'S DEGREE IN
MANAGEMENT FROM NORTHWESTERN UNIVERSITY'S J.L. KELLOGG GRADUATE SCHOOL OF
MANAGEMENT. HE IS ALSO A CHARTERED FINANCIAL ANALYST.
[PHOTO]
STEVE STOKES IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS AND PORTFOLIO CO-
MANAGER OF KEMPER SMALL CAP VALUE FUND. STOKES RECEIVED HIS BACHELOR OF SCIENCE
DEGREE IN FINANCE IN 1985 FROM STATE UNIVERSITY OF NEW YORK AT NEW PALTZ. HE IS
A CHARTERED FINANCIAL ANALYST AND A MEMBER OF THE ASSOCIATION OF INVESTMENT
MANAGEMENT AND RESEARCH, FINANCIAL ANALYST FEDERATION AND NYSSA.
THE VIEWS EXPRESSED IN THIS
REPORT REFLECT THOSE OFTHE PORTFOLIO MANAGERSONLY THROUGH THE END OFTHE PERIOD
OF THE REPORT,AS STATED ON THE COVER.THE MANAGERS' VIEWS ARESUBJECT TO CHANGE AT
ANYTIME, BASED ON MARKETAND OTHER CONDITIONS.
Q IN A YEAR THAT SAW THE DOW
JONES BREAK 8000 BUT ALSO EXPERIENCED ON GRAY MONDAY ONE OF THE LARGEST
DROPS SINCE OCTOBER 1987, KEMPER SMALL CAP VALUE FUND MANAGED TO EARN 20.17
PERCENT (CLASS A SHARES UNADJUSTED FOR ANY SALES CHARGE) FOR THE TWELVE MONTHS
ENDED NOVEMBER 30, 1997. HOW DID THE MARKET VOLATILITY AFFECT THIS FUND?
A The market volatility helped
the fund in the sense that it created value buying opportunities. A value
stock is one that is out of favor with investors because the market
underestimates its value or overlooks its potential. Sometimes a stock becomes
undervalued as a reaction to unfavorable news. Consequently, stocks may become
mispriced. More undervalued stocks are then available for us to choose from for
the fund's portfolio.
Because of that, our style has done well in falling markets. The fund is more
apt to fall less than the overall market. We can take advantage of good stocks
that are simply not the current market favorites.
Q THE EVOLVING BANKING
PROBLEMS OF SOUTHEAST ASIA AND JAPAN EVOLVED INTO AN OVERSEAS MARKET
CRISIS LATE IN THE YEAR. INITIALLY
THERE WAS TALK, DESPITE THE IMMEDIATE EFFECT ON THE U.S. MARKETS IN THE FORM OF
GRAY MONDAY, THAT THE PROBLEMS OVERSEAS WOULD NOT BE PROBLEMATIC IN THE U.S.
LATER, SOME MARKET WATCHERS WARNED THAT THE PROBLEMS WILL INEVITABLY AFFECT THE
U.S. WHAT DO YOU EXPECT THE EFFECT TO BE ON THIS FUND?
A If it's going to be a
problem, it's likely to hit the large cap stocks and not the small cap market.
By the nature of small cap companies, generally companies with less than $1
billion market capitalization, they have little foreign exposure. What we mean
is their financial success is not dependent on interaction with overseas clients
so a money crunch in Southeast Asia and Japan should not affect them materially.
With regard to Kemper Small Cap Value Fund specifically, there was some
immediate negative effect on its technology stocks and a few stocks with minimal
foreign exposure, but not enough to hurt the fund's long-term performance. Like
we said, because it's a small cap fund, we don't have a significant amount in
foreign-exposed or technology stocks, so the effect was minimal and short term.
*THE LIPPER SMALL CAP FUND INDEX IS AN EQUALLY
WEIGHTED PERFORMANCE INDEX, ADJUSTED FOR CAPITAL
GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, OF THE
LARGEST QUALIFYING FUNDS IN THIS INVESTMENT
OBJECTIVE.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE
Q KEMPER SMALL CAP VALUE FUND
RETURNED 20.17 PERCENT (CLASS A SHARES UNADJUSTED FOR SALES CHARGE)
BEATING THE LIPPER SMALL CAP FUND INDEX, WHICH RETURNED 14.29 PERCENT FOR THE
ONE-YEAR PERIOD ENDED NOVEMBER 30, 1997. THE FUND SLIGHTLY LAGGED THE LIPPER
SMALL CAP FUNDS CATEGORY AVERAGE (21.00 PERCENT) FOR THE PERIOD. WHAT IS THE
DIFFERENCE IN THESE MEASUREMENTS AND WHY THE DIFFERENCE IN COMPARATIVE
PERFORMANCE?
A The rationale behind
measuring ourselves against the Lipper Small Cap Fund Index (the Index) rather
than the Lipper Small Company Growth Funds Category Average (the Average) is to
gain an "apples-to-apples" comparison. The Average includes almost every small
cap fund out there, whether they've got $2 million or $2 billion to manage. The
Index only includes the largest funds, and we're included in the Index, so the
Index compares us against our real peers. Once again the fund's class A shares
(unadjusted for sales charge) beat its peer group average for the one-, three-
and five-year periods ended November 30, 1997. The Index returned 20.58 percent
for the three-year period, compared with our fund's 30.13 percent return. For
the five-year period, the Index returned 15.6 percent, compared with the fund's
18.65 percent for the same period.
Q SO SHORT- AND LONG-TERM, THE
FUND BEAT THE AVERAGE OF ITS SIMILARLY SIZED PEERS AS MEASURED BY THE
LIPPER SMALL CAP FUND INDEX. ALSO
LOOKING AT THE LONG-TERM, KEMPER SMALL CAP VALUE FUND BEAT THE ENTIRE SMALL CAP
AVERAGE, MEASURED BY THE LIPPER SMALL CAP FUNDS GROUP'S AVERAGE. WHILE THE FUND
WAS BEHIND THE AVERAGE BY JUST .83 PERCENT FOR THE ONE-YEAR PERIOD, IT BEAT IT
FOR THE THREE- AND FIVE-YEAR PERIODS ENDED NOVEMBER 30, 1997. THE CATEGORY
AVERAGE RETURNED JUST 23.38 PERCENT AND 16.97 PERCENT FOR THE THREE- AND
FIVE-YEAR PERIODS, AGAIN COMPARED WITH THE FUND'S RETURNS OF 30.13 PERCENT AND
18.65 PERCENT (CLASS A SHARES UNADJUSTED FOR ANY SALES CHARGE) FOR THE SAME
PERIODS. WHY DIDN'T THE FUND BEAT THE AVERAGE FOR THE SHORT TERM?
A We constantly emphasize
that shareholders should be in the market for the long haul, not for
short-term gains, and we manage the fund for long term capital appreciation.
Q THE FUND CONTINUED TO GROW AT
A RAPID PACE, FROM $239 MILLION AS OF NOVEMBER 30, 1996 TO $1.26 BILLION
AS OF NOVEMBER 30, 1997. HOW DID THIS GROWTH EFFECT THE FUND?
A This is the second
consecutive year the fund has experienced substantial growth -- it grew from $18
million in assets in late 1995 to the $239 million figure last year. It helps
the fund's economies of scale in terms of fund expenses. We've increased the
number of stocks the fund has in its portfolio, from 71 at November 30, 1996 to
141 in 1997. We put to work quickly the money coming in and were able to still
outperform our peer group average and maintain a well diversified portfolio.
Q ARE THERE STOCKS IN THE FUND
THAT PLEASED YOU THIS YEAR, AND, ON THE FLIP SIDE, ANY THAT DISAPPOINTED
YOU?
A Sure, there always are
those stocks that work out better than others. Airborne Freight was a
massive home run for us. General Cable was a very good performer for us, and the
financial sector overall has done well. The banks have done well because the
bigger banks are buying them, and people are willing to pay a premium for
takeovers.
The entire fund industry was let down by technology stocks this year as a
whole, and this fund was not excluded. Although tech stocks were disappointing
this year, we are looking at them as an opportunity longer term. We're going to
hold onto what we've got. We're in good stocks and the market is simply not
realizing their potential right now, which fits right into our value philosophy.
With technology stocks unfavored by the market, we should be able to find strong
companies at value prices. The other sector that could have done better was
energy. Energy stocks started the year out poorly but have turned around
somewhat in the latter half of the fund's fiscal year. We have decreased our
weighting in energy stocks, however.
6
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE
Q THE FUND IS HEAVILY WEIGHTED IN
FINANCIALS. EXPLAIN THE FUND'S SECTOR WEIGHTINGS.
A We altered our sector
weightings in the first half of the fund year by increasing our holdings
in financial and consumer discretionary stocks. Valuations within the financial
stocks remain attractive. We picked up several sub-prime mortgage companies --
companies that provide mortgages to people with less than perfect credit
ratings. We like companies with solid fundamentals, good growth potential and
attractive valuations, such as Friedman's and Nine West. As I mentioned earlier,
we reduced our weighting in energy stocks as they have not done as well. We
remain slightly underweighted in technology, which has benefited the fund.
Q HERBALIFE IS A STOCK YOU DON'T
SEE IN TOO MANY VALUE FUNDS OUT THERE. WHAT ABOUT THIS COMPANY MADE YOU
TAKE A CLOSER LOOK?
A Herbalife is an interesting
stock. It's a multi-level marketing company and most value managers want
to see something more manufacturing oriented. But it's growing nicely and its
earnings are strong. We look for stocks that look inexpensive, that are solid
and have prospects for improvement. Those are the types of stocks that we buy,
and Herbalife is just one example of such a stock.
Q THE ECONOMY WAS STRONG AND
INFLATION WAS BENIGN THROUGHOUT THE YEAR. WHAT EFFECT DID THIS ECONOMY
HAVE ON THE FUND?
A As always, we stuck more
to valuation than to economic trends. We want to be longer-term holders of
these stocks. Trends get started, then they reverse themselves. There is not a
lot you can do about the economy or about interest rates. We sought inexpensive
stocks that we expected to outperform by coming back to fair valuation, rather
than trying to determine how a particular stock would fair if interest rates
rose or fell.
Q HOW WILL YOU POSITION THE FUND
GOING INTO 1998?
A We'll stay the course we're
on now. We don't see huge changes in sector allocations. Stocks will
continue to change as we continue to execute our strategy of buying inexpensive
stocks and selling them when they become fairly valued. Overall, we strive to
position the portfolio to perform well in either an up or down market. We
believe value stocks generally provide strong upside potential and less downside
risk.
Q HOW DO YOU EXPECT THE SMALL
CAP MARKET TO FARE IN 1998?
A As I mentioned earlier,
small caps have far less exposure to the Far East than large caps. Over
time, stocks with foreign exposure may get hit, although the magnitude is
unclear right now. We believe small caps are a better place to be in 1998. You
don't see it right now because there is a lot of money pouring in the Standard &
Poor's 500, as investors emphasize the relative safety of big cap stocks. But we
believe you'll begin to see it in 1998.
7
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE UPDATE
KEMPER SMALL CAP VALUE 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 SMALL CAP 13.23% 17.25% 18.64% (since 5/22/92)
VALUE FUND CLASS A
.......................................................................
KEMPER SMALL CAP 15.99 N/A 18.28 (since 9/11/95)
VALUE FUND CLASS B
.......................................................................
KEMPER SMALL CAP 19.03 N/A 19.51 (since 9/11/95)
VALUE FUND CLASS C
.......................................................................
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND CLASS A
KEMPER SMALL CAP
VALUE FUND CLASS A(1) RUSSELL 2000 INDEX+
<S> <C> <C>
5/22/92 $10,000 $10,000
12/31/93 $11,584 $13,391
12/31/95 $16,623 $16,889
11/30/97 $25,728 $23,665
Growth of an assumed $10,000 investment in Class A shares from 5/22/92 to
11/30/97
<CAPTION>
KEMPER SMALL CAP VALUE FUND CLASS A
CONSUMER PRICE INDEX++
<S> <C>
5/22/92 $10,000
12/31/93 $10,437
12/31/95 $10,988
11/30/97 $11,568
Growth of an assumed $10,000 investment in Class A shares from 5/22/92 to
11/30/97
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Kemper Small Cap Value Fund Class B
Kemper Small Cap
Value Fund Class Russell 2000 In-
B(1) dex+
9/11/95 $10,000 $10,000
12/31/95 $9,748 $10,400
12/31/96 $12,538 $12,117
11/30/97 $14,526 $14,572
Growth of an assumed $10,000 investment in Class B shares from 9/11/95 to
11/30/97
<CAPTION>
Kemper Small Cap Value Fund Class B
<S> <C>
Consumer Price Index++
9/11/95 $10,000
12/31/95 $10,039
12/31/96 $10,373
11/30/97 $10,569
Growth of an assumed $10,000 investment in Class B shares from 9/11/95 to
11/30/97
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Kemper Small Cap Value Fund Class C
Kemper Small Cap
Russell 2000 In-
Value Fund Class C(1) dex+
9/11/95 $10,000 $10,000
12/31/95 $9,749 $10,400
12/31/96 $12,554 $12,117
11/30/97 $14,861 $14,572
Growth of an assumed $10,000 investment in Class C shares from 9/11/95 to
11/30/97
<CAPTION>
Kemper Small Cap Value Fund Class C
<S> <C>
Consumer Price Index++
9/11/95 $10,000
12/31/95 $10,039
12/31/96 $10,373
11/30/97 $10,569
Growth of an assumed $10,000 investment in Class C shares from 9/11/95 to
11/30/97
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT REFLECT 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 SMALL CAP VALUE FUND TO
THE RUSSELL 2000 INDEX+ AND THE CONSUMER PRICE INDEX++, YOU SHOULD NOTE THAT
THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE INDICES.
+THE RUSSELL 2000 INDEX IS AN UNMANAGED CAPITALIZATION WEIGHTED PRICE ONLY INDEX
WHICH IS COMPRISED OF 2000 OF THE SMALLEST STOCKS (ON THE BASIS OF
CAPITALIZATION) IN THE RUSSELL 3000 INDEX. SOURCE IS LIPPER ANALYTICAL
SERVICES, INC.
++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>
- --------------------------------------------------------------------------------
INDUSTRY SECTORS
- --------------------------------------------------------------------------------
A FISCAL YEAR-END COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on November 30, 1997 and on December 31, 1996.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND AS OF 11/30/97 KEMPER SMALL CAP VALUE FUND AS OF 12/31/96
<S> <C> <C>
Finance 25.5% 21.9%
Capital goods 22.8% 28.8%
Consumer nondurables 18.1% 13.9%
Technology 9.8% 9.5%
Energy 8.9% 11.3%
Other 5.1% 0.9%
Transportation 4.9% 8.4%
Health care 4.2% 0.6%
Utilities 0.7% 2.8%
Basic industries 0.0% 1.9%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of Kemper Small Cap Value Fund represented on November 30, 1997, compared to the
industry sectors that make up the fund's benchmark, the Russell 2000 Index.
9
<PAGE>
- --------------------------------------------------------------------------------
INDUSTRY SECTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND AS OF 11/30/97 RUSSELL 2000 INDEX AS OF 11/30/97
<S> <C> <C>
Finance 25.5% 23.7%
Capital goods 22.8% 9.3%
Consumer nondurables 18.1% 20.4%
Technology 9.8% 15.5%
Energy 8.9% 4.8%
Other 5.1% 0.0%
Transportation 4.9% 2.3%
Health care 4.2% 9.6%
Utilities 0.7% 5.5%
Basic industries 0.0% 6.0%
Consumer durables 0.0% 2.9%
</TABLE>
*THE RUSSELL 2000 INDEX IS A CAPITALIZATION WEIGHTED PRICE ONLY INDEX WHICH IS
COMPRISED OF 2000 OF THE SMALLEST STOCKS ON THE BASIS OF CAPITALIZATION IN THE
RUSSELL 3000 INDEX.
10
<PAGE>
- --------------------------------------------------------------------------------
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 11.4 percent of the fund's total net assets on November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Holdings Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
1. AIRBORNE An integrated air express transportation company 1.3%
FREIGHT providing next morning delivery of small packages
and documents throughout the United States and
most foreign countries.
- --------------------------------------------------------------------------------
2. OREGON Integrated producer and distributor of titanium 1.2%
METALLURGICAL sponge ingot, mill products and castings for use
in the aerospace, industrial, golf and military
markets.
- --------------------------------------------------------------------------------
3. COMMERCIAL Engaged in accepting deposits from the general 1.2%
FEDERAL public and reinvesting such deposits together with
other borrowings primarily in real estate loans,
and to a lesser extent, in consumer and other
loans.
- --------------------------------------------------------------------------------
4. IMPERIAL A specialty lender with thrift and loan 1.1%
CREDIT subsidiaries.
INDUSTRIES
- --------------------------------------------------------------------------------
5. VERITAS DGC Engaged in the acquisition and processing of 1.1%
seismic data for use by the petroleum industry in
its search for new oil and gas reserves.
- --------------------------------------------------------------------------------
6. SCIENTIFIC- Leading supplier of broad band communication 1.1%
ATLANTA systems, satellite-based video, voice and data
communication networks.
- --------------------------------------------------------------------------------
7. BALL CORP. Manufactures and markets packaging, industrial and 1.1%
consumer products and provides aerospace systems
and professional services to the federal sector.
- --------------------------------------------------------------------------------
8. WEBSTER Conducts business as a holding company for First 1.1%
FINANCIAL Federal Bank, FSB. and Bristol Savings Bank, both
headquartered in Connecticut.
- --------------------------------------------------------------------------------
9. CULLEN FROST Bank holding company engaged in commercial 1.1%
BANKERS banking, mortgage financing and related services.
- --------------------------------------------------------------------------------
10. YOUNG Owns 11 network-affiliated stations and one 1.1%
BROADCASTING independent TV station.
- --------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAP VALUE FUND
Portfolio of Investments at November 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Coupon Principal
obligations Type rate Maturity amount Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITY--2.0%
Notes
(Cost: $24,940) 5.875% 1999 $ 25,000 $ 25,043
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
CONSUMER
DISCRETIONARY--15.4%
Applebee's International 432,500 9,137
BJ Services Co. 307,500 8,956
(a) Boston Chicken 660,500 5,305
Brown Group, Inc. 558,900 9,047
Burlington Coat Factory 95,000 1,775
Bush Industries 153,300 4,043
Carmike Cinemas 201,300 6,228
CDI Corp. 188,700 7,807
DIMON Inc. 421,500 10,537
Finish Line 535,500 10,174
First Brands Corp. 431,100 11,074
Footstar, Inc. 126,500 3,795
(a) Friedman's Inc. 642,000 9,389
Haggar Apparel Co. 204,500 3,246
Harman International Industries 227,500 11,517
Heilig - Myers 271,000 3,506
Herbalife International, Inc. 463,100 9,262
Hollywood Entertainment Corp. 874,000 7,538
Homebase, Inc. 346,500 2,902
J. Baker, Inc. 188,500 1,296
(a) Lone Star Steakhouse & Saloon 451,200 8,404
(a) Nine West Group 260,200 7,074
Springs Industries Inc. 211,100 10,647
(a) The Wet Seal 170,000 5,026
(a) Tommy Hilfiger Corp. 75,500 2,963
(a) Vallassis Communications 326,400 9,812
(a) Young Broadcasting Corp. 372,200 13,539
-------------------------------------------------------------------------
193,999
- --------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.6%
(a) Performance Food Group 362,500 7,612
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ENERGY--7.8%
Atmos Energy Corp. 382,900 10,171
(a) Basin Exploration 131,300 2,429
(a) Belden & Blake Corp. 286,600 9,494
(a) Chieftain International, Inc. 409,200 9,054
Giant Industries 214,600 3,943
KCS Energy 504,600 11,984
(a) Nuevo Energy Co. 300,700 12,535
(a) Seitel, Inc. 247,400 9,525
(a) Tesoro Petroleum Corp. 550,500 9,152
(a) Triton Energy Corp. 181,000 6,335
(a) Veritas DGC, Inc. 356,500 14,260
-------------------------------------------------------------------------
98,882
- --------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--22.5%
Aames Financial Corp. 88,600 1,196
(a) Acceptance Insurance Cos. 355,100 8,633
Ambassador Apartments, Inc. 354,500 7,068
(a) Amerin 157,500 3,682
Associated Banc Corp. 252,889 12,581
Astoria Financial Corp. 215,000 11,852
BankAtlantic Bancorp 691,900 9,341
Chartwell Re Corp. 252,500 8,522
(a) Cityscape Financial Corp. 251,000 455
Commercial Federal Corp. 306,500 14,731
Compass Bancshares 204,500 8,180
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Portfolio Services 295,000 $ 3,097
Cullen Frost Bankers 258,000 13,706
Doral Financial Corp. 122,000 2,653
Excel Realty Trust, Inc. 210,200 6,411
(a) First Alliance Corp. 72,500 1,522
First Commerce Corp. 184,000 11,799
Freemont General Corp. 231,500 10,649
HUBCO, Inc. 173,555 6,020
Imperial Credit Industries 597,920 14,313
Imperial Credit Mortgage Holdings 497,000 7,766
Lawyers Title Insurance Corp. 115,000 3,651
Long Island Bancorp 202,000 9,519
ML Bancorp, Inc. 47,500 1,366
New Century Financial Co. 100,000 1,312
North Fork Bancorp 236,613 7,187
(a) Ocwen Financial Corp. 145,000 3,516
PennCorp Financial Group 212,500 7,185
Peoples Heritage Financial Group 67,000 2,856
Redwood Trust 351,000 8,885
Reliance Group Holdings, Inc. 617,900 7,878
RenaissanceRe Holding, Ltd. 72,000 3,015
Resource Bancshares Mortgage Group 744,000 10,230
(a) Southern Pacific Funding Corp. 807,000 9,987
Sovereign Bancorp 157,500 2,983
(a) Trans Financial, Inc. 142,500 4,898
U.S. Trust Corp. 180,000 4,781
United Companies Financial Corp. 281,300 6,101
W.R. Berkley Corp. 133,500 5,557
Webster Financial Corp. 219,900 13,778
Winston Hotels 400,000 5,600
-------------------------------------------------------------------------
284,462
- --------------------------------------------------------------------------------------------------------
HEALTH CARE--3.7%
ADAC Laboratories 35,000 731
(a) Apria Healthcare Group 493,400 7,771
(a) CONMED Corp. 537,200 12,759
(a) Genesis Health Ventures 330,000 8,003
(a) Hologic, Inc. 242,500 6,275
Integrated Health Services 364,430 11,092
-------------------------------------------------------------------------
46,631
- --------------------------------------------------------------------------------------------------------
MATERIALS
AND PROCESSING--15.3%
AK Steel Holding Corp. 631,000 12,423
AMCOL International 466,000 11,184
Ball Corp. 363,000 13,976
(a) Buckeye Cellulose 125,500 5,498
Carpenter Technology Corp. 233,000 10,980
Del Webb Corp. 277,500 6,001
Elcor Corp. 362,250 8,785
Flowserv Corp. 463,513 12,457
Furon Co. 325,000 12,838
Intermet Corp. 711,500 13,163
(a) Lone Star Technologies 334,500 9,701
(a) Lydall, Inc. 452,700 9,167
MascoTech 396,500 6,864
Mississippi Chemical Corp. 114,100 2,225
(a) Mueller Industries, Inc. 86,500 4,028
Oregon Metallurgical Corp. 474,700 15,250
Quanex Corp. 366,000 10,889
(a) The Shaw Group 355,700 8,670
Trinity Industries 256,500 11,639
(a) Wyman-Gordon Co. 365,200 7,806
-------------------------------------------------------------------------
193,544
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PRODUCER DURABLES--4.8%
Blount, Inc. 200,050 $ 10,115
Briggs & Stratton Corp. 241,400 12,342
(a) Electroglas 121,500 2,309
General Cable Corp. 306,600 10,463
Pacific Scientific Co. 207,000 3,286
Stewart & Stevenson Services 480,500 10,451
Watts Industries, Inc. 454,800 11,569
-------------------------------------------------------------------------
60,535
- --------------------------------------------------------------------------------------------------------
TECHNOLOGY--8.7%
(a) Altron, Inc. 205,000 3,229
(a) Applied Magnetics Corp. 195,000 3,291
(a) Benchmark Electronics 191,000 5,372
Breed Technologies, Inc. 190,000 3,836
(a) Burr Brown Corp. 210,500 6,368
(a) ESS Technology, Inc. 382,000 3,820
(a) EXAR Corp. 156,500 3,917
(a) HADCO Corp. 57,000 3,534
(a) HMT Technology Corp. 770,500 10,113
(a) Hutchinson Technology 352,500 8,372
(a) Komag, Inc. 299,100 6,001
(a) Kulicke & Soffa Industries 97,500 2,687
(a) Learning Co. 699,000 12,669
(a) MasTec, Inc. 184,000 4,692
(a) Read-Rite Corp. 462,500 8,845
Scientific-Atlanta 702,500 14,050
(a) Tech-Sym Corp. 154,500 4,683
(a) Vanstar Corp. 297,500 4,091
-------------------------------------------------------------------------
109,570
- --------------------------------------------------------------------------------------------------------
TRANSPORTATION--4.3%
Airborne Freight Corp. 256,400 16,329
(a) America West Airlines 610,500 9,730
Borg-Warner Automotive, Inc. 220,700 10,400
Fleetwood Enterprises 316,900 11,309
Myers Industries 391,890 6,760
-------------------------------------------------------------------------
54,528
- --------------------------------------------------------------------------------------------------------
UTILITIES--.7%
(a) Jones Intercable Inc. 581,400 8,140
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
OTHER--4.5%
(a) Global Industrial Technologies, Inc. 490,200 8,762
Standard & Poor's Depositary Receipts 111,500 10,673
Standard & Poor's MidCap 400 Depositary Receipts 600,200 37,859
-------------------------------------------------------------------------
57,294
-------------------------------------------------------------------------
TOTAL COMMON STOCKS--88.3%
(Cost: $1,000,867) 1,115,197
-------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal
amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(B) MONEY MARKET
INSTRUMENTS--9.4%
Yield--5.47% to 5.75%
Due--December 1997 and January 1998
American Honda Finance Corp. $ 17,000 $ 16,955
BI Funding, Inc. 4,000 3,993
CIESCO, L.P. 4,000 3,997
Countrywide Funding Corp. 10,000 9,992
CSW Credit, Inc. 12,000 11,979
Dynamic Funding Corp. 1,000 997
FINOVA Capital Corp. 2,900 2,875
GTE Corp. 15,000 14,979
Other 53,000 52,907
-------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--9.4%
(Cost: $118,677) 118,674
-------------------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(Cost: $1,144,484) 1,258,914
-------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.3% 4,230
-------------------------------------------------------------------------
NET ASSETS--100% $1,263,144
-------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The Fund has entered into exchange-traded Russell 2000 Index futures
contracts in order to take advantage of anticipated market conditions and
effectively invest in equities approximately $55,000,000 of money market
instruments. As a result, approximately 93% of the Fund's net assets are
effectively invested in equities. (See Note 6 of the Notes to Financial
Statements.)
Based on the cost of investments of $1,144,484,000 for federal income tax
purposes at November 30, 1997, the gross unrealized appreciation was
$170,721,000, the gross unrealized depreciation was $56,291,000 and the net
unrealized appreciation on investments was $114,430,000.
See accompanying Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER SMALL CAP VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Small Cap Value Fund as of
November 30, 1997, 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
Small Cap Value 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
15
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------
ASSETS
- ----------------------------------------------------
Investments, at value
(Cost: $1,144,484) $1,258,914
- ----------------------------------------------------
Cash 2,836
- ----------------------------------------------------
Receivable for:
Investments sold 248
- ----------------------------------------------------
Fund shares sold 7,856
- ----------------------------------------------------
Dividends and interest 1,092
- ----------------------------------------------------
TOTAL ASSETS 1,270,946
- ----------------------------------------------------
- ----------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------
Payable for:
Investments purchased 5,002
- ----------------------------------------------------
Fund shares redeemed 919
- ----------------------------------------------------
Management fee 726
- ----------------------------------------------------
Distribution services fee 302
- ----------------------------------------------------
Administrative services fee 230
- ----------------------------------------------------
Custodian and transfer agent fees and
related expenses 619
- ----------------------------------------------------
Directors' fees and other 4
- ----------------------------------------------------
Total liabilities 7,802
- ----------------------------------------------------
NET ASSETS $1,263,144
- ----------------------------------------------------
- ----------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------
Paid-in capital $1,113,914
- ----------------------------------------------------
Undistributed net realized gain on
investments 33,934
- ----------------------------------------------------
Net unrealized appreciation on
investments 114,430
- ----------------------------------------------------
Undistributed net investment income 866
- ----------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $1,263,144
- ----------------------------------------------------
- ----------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share
($736,412 DIVIDED BY 33,737 shares
outstanding) $21.83
- ----------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net
asset value or 5.75% of offering
price) $23.16
- ----------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share
($412,479 DIVIDED BY 19,222 shares
outstanding) $21.46
- ----------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share
($99,526 DIVIDED BY 4,626 shares
outstanding) $21.51
- ----------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
per share
($14,727 DIVIDED BY 667 shares
outstanding) $22.08
- ----------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Eleven months ended November 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------
Dividends $ 6,898
- --------------------------------------------------
Interest 6,006
- --------------------------------------------------
Total investment income 12,904
- --------------------------------------------------
Expenses:
Management fee 5,160
- --------------------------------------------------
Distribution services fee 2,108
- --------------------------------------------------
Administrative services fee 1,643
- --------------------------------------------------
Custodian and transfer agent fees and
related expenses 3,011
- --------------------------------------------------
Professional fees 16
- --------------------------------------------------
Reports to shareholders 89
- --------------------------------------------------
Registration fees 68
- --------------------------------------------------
Directors' fees and other 14
- --------------------------------------------------
Total expenses 12,109
- --------------------------------------------------
NET INVESTMENT INCOME 795
- --------------------------------------------------
- --------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- --------------------------------------------------
Net realized gain on sales of
investments 29,326
- --------------------------------------------------
Net realized gain from futures
transactions 6,305
- --------------------------------------------------
Net realized gain 35,631
- --------------------------------------------------
Change in net unrealized appreciation
on investments 92,608
- --------------------------------------------------
Net gain on investments 128,239
- --------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $129,034
- --------------------------------------------------
</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 $ 795 726
- --------------------------------------------------------------------
Net realized gain 35,631 3,470
- --------------------------------------------------------------------
Change in net unrealized appreciation 92,608 20,292
- --------------------------------------------------------------------
Net increase in net assets resulting
from operations 129,034 24,488
- --------------------------------------------------------------------
Distribution from net investment
income -- (658)
- --------------------------------------------------------------------
Distribution from net realized gain -- (5,471)
- --------------------------------------------------------------------
Total dividends to shareholders -- (6,129)
- --------------------------------------------------------------------
Net increase from capital share
transactions 860,888 223,257
- --------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 989,922 241,616
- --------------------------------------------------------------------
- --------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------
Beginning of period 273,222 31,606
- --------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income
of $866 and $69, respectively) $ 1,263,144 273,222
- --------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND
Kemper Small Cap Value 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 share 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.
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 fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is
18
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
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
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 $5,160,000 for the eleven months
ended November 30, 1997.
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
COMMISSIONS BY KDI
RETAINED ---------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Eleven months ended
November 30, 1997 $ 584,000 4,828,000 68,000
</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>
Eleven months ended
November 30, 1997 $ 2,351,000 10,584,000
</TABLE>
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.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 $ 1,643,000 2,042,000 5,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KVF's transfer agent, KSvC
is the shareholder service agent of the Fund. Under
the agreement, KSvC received shareholder services
fees of $2,132,000 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 $12,000 to independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS
For the eleven months ended November 30, 1997,
investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<S> <C>
Purchases $963,711
Proceeds from sales 184,743
</TABLE>
- --------------------------------------------------------------------------------
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 31,605 $631,847 8,060 $140,448
- -------------------------------------------------------------------------------
Class B 15,839 315,709 6,110 105,279
- -------------------------------------------------------------------------------
Class C 3,966 79,927 1,077 18,688
- -------------------------------------------------------------------------------
Class I 763 15,563 1,043 17,495
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
- -------------------------------------------------------------------------------
Class A -- -- 182 3,250
- -------------------------------------------------------------------------------
Class B -- -- 115 2,031
- -------------------------------------------------------------------------------
Class C -- -- 25 434
- -------------------------------------------------------------------------------
Class I -- -- 13 229
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES REDEEMED
- -------------------------------------------------------------------------------
Class A (6,002) (125,310) (1,764) (29,756)
- -------------------------------------------------------------------------------
Class B (1,879) (35,807) (1,288) (21,940)
- -------------------------------------------------------------------------------
Class C (444) (9,013) (66) (1,102)
- -------------------------------------------------------------------------------
Class I (585) (12,028) (695) (11,799)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONVERSION OF SHARES
- -------------------------------------------------------------------------------
Class A 212 4,601 17 308
- -------------------------------------------------------------------------------
Class B (215) (4,601) (17) (308)
- -------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $860,888 $223,257
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS
The Fund has entered into exchange-traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract fluctuates. At November 30,
1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $2,505,000 for the following
financial futures contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION LOSS AT
TYPE AMOUNT POSITION MONTH 11/30/97
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Russell 2000 Index $55,061,000 Long Dec. '97 $(1,782,000)
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
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 $ 18.28 14.50 10.85 11.23 11.52
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .05 .14 (.02) -- .06
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain 3.50 4.14 4.64 .02 .23
- ---------------------------------------------------------------------------------------
Total from investment operations 3.55 4.28 4.62 .02 .29
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- .07 -- -- .06
- ---------------------------------------------------------------------------------------
Distribution from net realized gain -- .43 .97 .40 .52
- ---------------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 21.83 18.28 14.50 10.85 11.23
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 19.42% 29.60 43.29 .15 2.54
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 1.32% 1.31 1.25 1.25 1.25
- ---------------------------------------------------------------------------------------
Net investment income (loss) .51% .87 (.16) (.03) .53
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 1.32% 1.47 1.83 1.82 2.09
- ---------------------------------------------------------------------------------------
Net investment income (loss) .51% .71 (.74) (.61) (.32)
- ---------------------------------------------------------------------------------------
</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 $ 18.14 14.48 15.75
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.04 ) .01 (.02)
- ---------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 3.36 4.11 (.41)
- ---------------------------------------------------------------------------
Total from investment operations 3.32 4.12 (.43)
- ---------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- .03 --
- ---------------------------------------------------------------------------
Distribution from net realized gain -- .43 .84
- ---------------------------------------------------------------------------
Total dividends -- .46 .84
- ---------------------------------------------------------------------------
Net asset value, end of period $ 21.46 18.14 14.48
- ---------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.30% 28.54 (2.52)
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------
Expenses 2.34% 2.12 2.00
- ---------------------------------------------------------------------------
Net investment income (loss) (.51 )% .06 (.99)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------
Expenses 2.34% 2.49 2.39
- ---------------------------------------------------------------------------
Net investment loss (.51 )% (.31 ) (1.38)
- ---------------------------------------------------------------------------
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<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 $ 18.17 14.48 15.75 18.40 14.52 14.25
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03 ) .01 (.02 ) .13 .25 --
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 3.37 4.14 (.41 ) 3.55 4.13 1.11
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 3.34 4.15 (.43 ) 3.68 4.38 1.11
- --------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- .03 -- -- .07 --
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .43 .84 -- .43 .84
- --------------------------------------------------------------------------------------------------------------
Total dividends -- .46 .84 -- .50 .84
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.51 18.17 14.48 22.08 18.40 14.52
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.38% 28.77 (2.51 ) 20.00 30.28 8.03
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 2.24% 2.06 1.95 .89 .84 .47
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.41 )% .12 (.94 ) .94 1.34 .28
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 2.24% 2.19 2.35 .89 .84 .90
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.41 )% (.01 ) (1.34 ) .94 1.34 (.15)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------
<TABLE>
<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) $ 1,263,144 273,222 31,606 6,931 4,875
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 83% 23 86 140 79
- ------------------------------------------------------------------------------------------
</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 $.0547
and $.0426, respectively.
- --------------------------------------------------------------------------------
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.
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.
23
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS&OFFICERS
LONG-TERM INVESTING IN A SHORT-TERM WORLD-SM-
DIRECTORS
DANIEL PIERCE
Chairman and Director
JAMES E. AKINS
Director
ARTHUR R. GOTTSCHALK
Director
FREDERICK T. KELSEY
Director
FRED B. RENWICK
Director
JOHN B. TINGLEFF
Director
EDMOND D. VILLANI
Director
JOHN G. WEITHERS
Director
OFFICERS
MARK S. CASADY
President
PHILIP J. COLLORA
Vice President,
Secretary and Treasurer
THOMAS H. FORESTER
Vice President
FREDERICK L. GASKIN
Vice President
JERARD R. HARTMAN
Vice President
JONATHAN KAY
Vice President
THOMAS W. LITTAUER
Vice President
ANN M. MCCREARY
Vice President
KATHRYN L. QUIRK
Vice President
THOMAS F. SASSI
Vice President
STEVEN T. STOKES
Vice President
LINDA J. WONDRACK
Vice President
JOHN R. HEBBLE
Assistant Treasurer
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
..............................................................................
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
[LOGO]
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This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Value Style
prospectus
KSCVF - 2 (1/98) 1042000
