<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeks to achieve a high rate of total return
KEMPER-DREMAN HIGH
RETURN EQUITY FUND
"... The difficult part of being a value investor is
that you sometimes get in on stocks TOO early.
But the rewards are often worth the
pain if you can be patient. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
INDUSTRY SECTORS
8
LARGEST HOLDINGS
9
PORTFOLIO OF
INVESTMENTS
12
FINANCIAL STATEMENTS
14
NOTES TO
FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
21
SHAREHOLDERS' MEETING
At A GLANCE
- -------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 8.77%
CLASS B 8.27%
CLASS C 8.31%
LIPPER EQUITY INCOME FUNDS CATEGORY AVERAGE* 11.02%
- -------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
RETURNS, RANKINGS 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-DREMAN HIGH RETURN
EQUITY FUND CLASS A $34.44 $33.52
- -------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS B $34.27 $33.37
- -------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS C $34.29 $33.38
- -------------------------------------------------------------------------------
</TABLE>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND RANKINGS AS OF 5/31/98
- -------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER
EQUITY INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #112 of #137 of #136 of
202 funds 202 202 funds
- -------------------------------------------------------------------------------
3-YEAR #2 of N/A N/A
132 funds
- -------------------------------------------------------------------------------
5-YEAR #1 of N/A N/A
69 funds
- -------------------------------------------------------------------------------
10-YEAR #1 of N/A N/A
37 funds
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE SIX-MONTHS, KEMPER-DREMAN
HIGH RETURN EQUITY FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $.4025 $.2552 $.2585
- -------------------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $.5500 $.5500 $.5500
- -------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $.9500 $.9500 $.9500
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- -------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- -------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style Box
is based on a portfolio date as of May 31, 1998.) The Equity Funds 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.
CONTRARIAN INVESTING Investing in stocks that are out of favor due to negative
investor sentiment. The contrarian investor seeks to buy the stocks of companies
selling below their intrinsic worth, with the belief that the market will come
to appreciate their true value over time, leading to higher stock prices.
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters.
<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
[DREMAN PHOTO]
DAVID N. DREMAN IS CHAIRMAN OF DREMAN VALUE MANAGEMENT, L.L.C., INC. AND
PORTFOLIO MANAGER OF KEMPER- DREMAN HIGH RETURN EQUITY FUND. HE HAS MORE THAN 30
YEARS OF EXPERIENCE AS AN INVESTMENT ANALYST, ADVISOR AND MANAGER. DREMAN HOLDS
A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA, WINNIPEG,
MANITOBA, CANADA. DREMAN IS ALSO THE AUTHOR OF SEVERAL BOOKS ON CONTRARIAN
INVESTING AND IS A REGULAR COLUMNIST IN FORBES.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. tHE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER-DREMAN HIGH RETURN EQUITY FUND GAINED 8.77 PERCENT (CLASS A SHARES,
UNADJUSTED FOR ANY SALES CHARGE) DURING THE FIRST SIX MONTHS OF THE FISCAL
YEAR, YET LAGGED THE STANDARD & POOR'S 500 INDEX'S POWERFUL 15.07 PERCENT
ADVANCE. BELOW, PORTFOLIO MANAGER DAVID DREMAN DISCUSSES THE MARKET'S BEHAVIOR,
THE PERFORMANCE OF THE FUND, AND WHAT IT MEANS TO BE A CONTRARIAN INVESTOR.
Q THE STOCK MARKET RALLIED FROM NOVEMBER THROUGH THE END OF MAY, GAINING
15.07 PERCENT FOR THE PERIOD AS MEASURED BY THE S&P 500. WHAT FUELED THE
MARKET'S ADVANCE, AND WHY DID THE FUND TRAIL SO SIGNIFICANTLY?
A As you may recall, last October the market was spooked by the turbulence
in Asian economies and the effect it might have on the profit outlooks of U.S.
companies. The strong performance of the S&P 500 embodies what has happened
since then: earnings announcements continued to be strong, and investors became
confident that the problems in Asia wouldn't have a significant effect. But in
May, additional concerns about the yen triggered more turbulence, and the market
retraced a portion of its previous advance. Only the largest growth companies
held onto their gains, a fact that can be seen in the S&P 500. Overall, it was
up 15 percent. But if you take out the 50 best performing companies, its gain
drops to 10 percent. So 10 percent of the companies in the Index accounted for
one third of its performance. Obviously, the rally hasn't been a broad one, and
it has favored growth stocks rather than value stocks.
As far as the fund is concerned, the major contributors to our
underperformance were our heavy weightings in two sectors: tobacco and oil. We
believe both sectors will work out well for the fund over the longer term, but
both trailed the market considerably in the first half of the fiscal year.
Q LET'S TALK ABOUT EACH SEPARATELY. FIRST, TOBACCO COMPANIES.
A Tobacco companies are a very compelling buy right now. Because the
settlement package being debated by Congress has been a major source of
uncertainty, these companies have lagged in a strong market. But investors have
actually discounted the stocks BEYOND the worst-case scenario. For example,
Philip Morris, Kraft Foods, Miller Brewing and international tobacco
subsidiaries alone are worth at least $48 per share. But because of the concern
surrounding Philip Morris' domestic tobacco business, the stock is trading at
about $39 per share. In other words, their domestic tobacco operation is being
valued at -$9 per share.
That's the type of opportunity that a contrarian investor looks for: a
solid company that is selling for far less than its intrinsic value. With
politics, you can never be sure of the timetable, but it's likely that IF a
settlement is reached, it won't put tobacco companies out of business, because
the government needs tobacco tax revenue to subsidize the federal budget. When
a settlement is reached and the uncertainty dissipates, we believe these stocks
will shoot out the lights.
5
<PAGE> 6
PERFORMANCE UPDATE
Certainly, it's difficult to ignore the pain and watch these stocks
languish as the market roars ahead. It would be much easier to buy the stocks
that look great based on the expert opinion of the time. But our experience is
that the stocks that are treated favorably in the headlines are already fully
valued. It's the stocks that are treated negatively that offer the true value.
Most people won't buy them because it takes grit and determination to buy
stocks when they're hated. But history has shown that these stocks are the best
long term performers, and it's that long-term value that we want to deliver to
shareholders.
Q HOW ABOUT OIL?
A Oil stocks are a bit of a different story, and they haven't underperformed
as significantly as tobacco stocks. They're under pressure because oil prices
are at an 11-year low, which we believe is unsustainable. So we're being
opportunistic and picking up good, solid oil stocks dirt cheap right now, in
some cases at half the multiple of the overall market. We're confident that oil
prices will bounce back off the floor and, when they do, oil stocks will bounce
back, too.
Q YOU MENTIONED THAT NEGATIVELY TREATED STOCKS ARE WHERE INVESTORS FIND REAL
VALUE. HAS THERE BEEN A SIMILAR SITUATION IN YOUR EXPERIENCE THAT IS REMINISCENT
OF TOBACCO AND OIL RIGHT NOW?
A Probably the closest parallel was banking stocks in the early '90s. The
country was in a recession, real estate was getting hammered and investors
feared that big money center banks like Citicorp and Chase Manhattan could
actually go out of business. That's when we began buying them. We got hurt in
1990, but in subsequent years those stocks performed extremely well.
Pharmaceutical stock performance during the Clinton national health plan debate
was a similar situation, too -- a politically generated sell-off of high quality
companies. These stocks lost half of their value. Then the health care plan died
and they rose 3 or 4 fold.
The difficult part of being a value investor is that you sometimes get
in on stocks TOO early. But the rewards are often worth the pain if you can
be patient. [see chart below]
Q FINANCIAL STOCKS REMAIN THE FUND'S LARGEST SECTOR WEIGHTING. HOW HAVE THEY
PERFORMED?
A Financial stocks have lagged the market a little bit during the first part
of 1998, mostly due to investors' concerns over their red-hot performance in
recent years, and fears that potentially higher interest rates may rein them in.
We think there is still a lot of value in the sector, but we're being more
selective. Mergers continue to provide opportunity, but we're concentrating on
mergers that make sense. Many of the big ones that make the news don't really
offer investors a lot of upside. We're concentrating on regional banks involved
in mergers that result in earnings expansion and can provide good long-term
results.
Q AFTER THE FIRST COUPLE OF MONTHS OF THE YEAR, THE MARKET'S RALLY SEEMS TO
HAVE BECOME A BIT UNSTABLE, WITH MORE VOLATILITY AND LESS PROGRESS. WHAT'S YOUR
VIEW OF THE MARKET IN THE NEXT FEW MONTHS?
A We think the volatility is likely to continue, and perhaps intensify. The
Japanese yen is showing a lot of weakness, and that could lead to another round
of Asian currency devaluations that could rock the markets again. As I've said
before, however, volatility creates opportunity for contrarian investors. The
market's short-term irrationality is sure to punish good stocks as well as bad
stocks, and that's when we have a chance to add real long-term value for our
shareholders.
As for the fund, we currently intend to maintain our defensive portfolio
to help lessen potential downside, and look for inexpensive stocks that may
provide powerful gains in the long run.
CAPITALIZING ON INVESTOR OVERREACTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
CORRESPONDING INCREASE
PERCENTAGE INCREASE IN S&P 500*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank Stocks (9/90-12/97) 487.12% 205.12%
- -----------------------------------------------------------------------------------------------------
Drug Stocks (3/94-12/97) 298.06% 107.49%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Source: Standard and Poor's. The Standard & Poor's 500 Stock Index is an
unmanaged index generally representative of the U.S. stock market. Bank stocks
and drug stocks are represented by the S&P Bank Composite and the S&P Drug
Index, respectively, which are unmanaged indices generally representative of
stocks in these sectors.
6
<PAGE> 7
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 BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN EQUITY FUND KEMPER-DREMAN HIGH RETURN EQUITY FUND
ON 5/31/98 ON 11/30/97
<S> <C> <C>
FINANCE 33.2% 31.0%
CONSUMER STAPLES 19.8% 26.4%
ENERGY 17.9% 24.1%
HEALTH CARE 6.8% 6.9%
CAPITAL GOODS 5.2% 2.6%
CONSUMER CYCLICALS 4.6% 3.5%
TECHNOLOGY 4.1% 3.9%
COMMUNICATIONS SERVICES 3.8% 0%
UTILITIES 2.8% 0%
BASIC MATERIALS 1.6% 1.6%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX+
Data shows the percentage of the common stocks in the portfolio that each sector
of the Kemper-Dreman High Return Equity Fund represented on May 31, 1998,
compared to the industry sectors that make up the fund's benchmark, the Standard
& Poor's 500 Stock Index.
[STANDARD & POOR'S COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN EQUITY FUND STANDARD & POOR'S 500 STOCK INDEX ON
ON 5/31/98 ON 5/31/98
<S> <C> <C>
FINANCE 33.2% 17.6%
CONSUMER STAPLES 19.8% 15.0%
ENERGY 17.9% 7.7%
HEALTH CARE 6.8% 11.5%
CAPITAL GOODS 5.2% 8.8%
CONSUMER CYCLICALS 4.8% 9.5%
TECHNOLOGY 4.1% 14.5%
COMMUNICATIONS SERVICES 3.8% 6.9%
UTILITIES 2.8% 3.0%
BASIC MATERIALS 1.6% 4.4%
</TABLE>
+The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
REPRESENTING 39.1 PERCENT OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the U.S. Through its 7.0%
Miller Brewing subsidiary, it is also the country's
second-largest brewer. This company is also a major
branded food producer through its Kraft and General
Foods subsidiaries.
2. AMOCO Engaged in the exploration, development and production 5.2%
of crude oil and natural gas, and in the refining and
marketing of petroleum products and petrochemicals.
3. ATLANTIC RICHFIELD Engaged in exploring, developing and producing 4.5%
petroleum which includes petroleum liquids and natural
gas.
4. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae", this is a private 4.1%
ASSOCIATION corporation federally chartered to provide financial
products and services that increase the availability
and affordability of housing to low, moderate and
middle-income Americans.
5. UST Manufactures and sells smokeless tobacco. 3.9%
6. RJR NABISCO HOLDINGS The second largest producer of primarily branded 3.6%
cigarettes sold domestically and internationally.
Through its 81 percent-owned subsidiary, it is the
leading producer of crackers and cookies in the U.S.
market with significant products in various other food
categories both domestically and internationally.
7. TEXACO Engaged in the worldwide exploration for and 3.2%
production, transportation, refining and marketing of
crude oil, natural gas and petroleum products.
8. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie Mac", this corporation 3.0%
CORP. provides for the transfer of capital between mortgage
lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
9. FIRST CHICAGO NBD A multi-bank holding company engaged in consumer 2.4%
banking, commercial banking, trust and investment
services, investment management, real estate
operations, lease financing and international banking.
10. NATIONSBANK Provides financial services in nine states and the 2.2%
District of Columbia.
</TABLE>
*The fund's holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--70.6% NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--16.8% Banc One Corp. 1,409,520 $ 77,700
Bank of New York Co., Inc. 321,400 19,645
BankAmerica Corp. 456,264 37,727
BankBoston Corp. 344,600 36,312
Bankers Trust New York Corp. 198,500 24,515
Crestar Financial Corp. 452,300 25,979
First Chicago NBD Corp. 1,250,432 109,335
First Union Corp. 1,426,020 78,877
Fleet Financial Group, Inc. 794,800 65,174
J.P. Morgan & Co., Inc. 162,400 20,168
KeyCorp 1,673,900 63,504
NationsBank Corp. 1,304,573 98,821
Norwest Corp. 186,800 7,262
PNC Bank Corp. 1,345,635 77,710
Republic New York Corp. 13,700 1,760
Wells Fargo & Co. 6,200 2,241
---------------------------------------------------------------------------
746,730
- ---------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--1.8% AT&T Co. 1,286,100 78,291
---------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--.2% Louisiana-Pacific Corp. 482,700 9,624
---------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--1.9% Dayton Hudson Corp. 222,800 10,332
Dillard's, Inc. 77,800 3,272
(a)Fruit of the Loom, Inc. "A" 156,600 5,628
(a)Toys "R" Us, Inc. 2,207,600 58,501
Wal-Mart Stores, Inc. 158,200 8,731
---------------------------------------------------------------------------
86,464
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--15.3% Imperial Tobacco Group, ADR 1,006,150 15,092
Philip Morris Companies, Inc. 8,279,300 309,439
Quaker Oats Co. 184,800 10,661
RJR Nabisco Holdings Corp. 5,613,700 158,236
UST, Inc. 6,480,200 172,535
Universal Corp. 190,600 7,160
V.F. Corp. 123,000 6,542
---------------------------------------------------------------------------
679,665
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY--17.1% AMOCO Corp. 5,511,600 230,454
Atlantic Richfield Co. 2,498,500 197,069
Columbia Gas System 974,800 82,249
ENSCO International, Inc. 1,157,500 29,299
(a)Global Marina Inc. 1,199,000 26,753
(a)Noble Drilling Corp. 975,500 28,765
Texaco Inc. 2,419,900 139,749
Tidewater Inc. 715,000 27,170
---------------------------------------------------------------------------
761,508
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES--10.6% American General Corp. 77,300 $ 5,189
American International Group, Inc. 150,000 18,572
Associates First Capital Corp. 113,250 8,473
Capital One Finance Corp. 585 58,430
Federal Home Loan Mortgage Corp. 2,923,900 133,037
Federal National Mortgage Association 3,032,800 181,589
St. Paul Companies, Inc. 179,200 7,952
Travelers Group, Inc. 1,000,000 61,000
---------------------------------------------------------------------------
474,242
- ---------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--3.5% Columbia/HCA Healthcare Corp. 2,342,200 76,561
(a)Humana, Inc. 1,355,700 42,111
(a)Tenet Healthcare Corp. 995,400 34,839
---------------------------------------------------------------------------
153,511
- ---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--2.6% General Electric Co. 293,600 24,479
Hanson PLC, ADR 734 21,711
(a)Philips Electronics N.V., ADR 361,100 34,350
Xerox Corp. 338,100 34,740
---------------------------------------------------------------------------
115,280
- ---------------------------------------------------------------------------------------------------------------------------
UTILITIES--.8% Energy Group PLC, ADR 674,125 37,667
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--70.6%
(Cost $2,715,463) 3,142,982
---------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)MONEY MARKET Yield--4.71% to 5.57%
INSTRUMENTS--29.4% Due--June and July 1998
AMOCO Corp. $ 25,000 24,864
American Home Products Corp. 36,850 36,773
American Honda Financial 61,185 60,960
Bank of America 59,000 58,850
Barton Capital 28,588 28,534
CSW Credit 50,100 49,921
Ciesco L.P. 25,000 24,882
Coca Cola Enterprises, Inc. 50,000 49,878
Corporate Asset Funding Co. 27,000 26,901
Duke Energy Corp. 55,000 54,642
E.I. DuPont de Nemours and Co. 89,000 88,678
Export Development Corp. 70,000 69,767
Ford Motor Credit 42,000 41,734
General Motors Corp. 35,000 34,966
International Business Machines 45,000 44,761
National Rural Utilities 45,000 44,975
Philip Morris Capital 96,750 96,650
Sheffield Receivables Corp. 45,000 44,843
Shell Oil 61,000 60,857
U.S. Treasury bills 60,000 59,587
Xerox Credit Corp. 91,200 91,099
Other 212,313 211,705
-----------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--29.4%
(Cost $1,305,834) 1,305,827
-----------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $4,021,297) $4,448,809
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The Fund has entered into exchange traded S&P 500 Index futures contracts in
order to take advantage of anticipated market conditions and effectively
invest in equities approximately $1,211,481,000 of money market instruments.
As a result, approximately 98% 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 $4,021,297,000 for federal income tax
purposes at May 31, 1998, the gross unrealized appreciation was $517,769,000,
the gross unrealized depreciation was $90,257,000 and the net unrealized
appreciation on investments was $427,512,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
Investments, at value
(Cost $4,021,297) $4,448,809
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 20,516
- --------------------------------------------------------------------------
Dividends 6,466
- --------------------------------------------------------------------------
Interest 21
- --------------------------------------------------------------------------
TOTAL ASSETS 4,475,812
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 42,204
- --------------------------------------------------------------------------
Fund shares redeemed 3,906
- --------------------------------------------------------------------------
Management fee 2,546
- --------------------------------------------------------------------------
Distribution services fee 1,417
- --------------------------------------------------------------------------
Administrative services fee 894
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,761
- --------------------------------------------------------------------------
Directors' fees and other 163
- --------------------------------------------------------------------------
Total liabilities 52,891
- --------------------------------------------------------------------------
NET ASSETS $4,422,921
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $3,840,829
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 134,646
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 427,512
- --------------------------------------------------------------------------
Undistributed net investment income 19,934
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $4,422,921
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,098,626 / 60,937 shares outstanding) $34.44
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $36.54
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,931,472 / 56,365 shares outstanding) $34.27
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($361,046 / 10,529 shares outstanding) $34.29
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($31,777 / 922 shares outstanding) $34.45
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
STATEMENT OF OPERATIONS
Six months ended May 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest $ 36,985
- ------------------------------------------------------------------------
Dividends 32,821
- ------------------------------------------------------------------------
Total investment income 69,806
- ------------------------------------------------------------------------
Expenses:
Management fee 13,144
- ------------------------------------------------------------------------
Distribution services fee 7,261
- ------------------------------------------------------------------------
Administrative services fee 4,450
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 5,334
- ------------------------------------------------------------------------
Professional fees 53
- ------------------------------------------------------------------------
Reports to shareholders 326
- ------------------------------------------------------------------------
Registration fees 648
- ------------------------------------------------------------------------
Directors' fees and other 57
- ------------------------------------------------------------------------
Total expenses 31,273
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 38,533
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 5,377
- ------------------------------------------------------------------------
Net realized gain from futures transactions 131,035
- ------------------------------------------------------------------------
Net realized gain 136,412
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 96,629
- ------------------------------------------------------------------------
Net gain on investments 233,041
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $271,574
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
ENDED ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------
Net investment income $ 38,533 32,716
- ---------------------------------------------------------------------------------------------------
Net realized gain 136,412 134,870
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 96,629 249,096
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 271,574 416,682
- ---------------------------------------------------------------------------------------------------
Distribution from net investment income (33,892) (17,802)
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain (135,946) (3,648)
- ---------------------------------------------------------------------------------------------------
Total dividends to shareholders (169,838) (21,450)
- ---------------------------------------------------------------------------------------------------
Net increase from capital share transactions 1,389,464 1,798,655
- ---------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 1,491,200 2,193,887
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------
Beginning of period 2,931,721 737,834
- ---------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$19,934 and $15,293, respectively) $4,422,921 2,931,721
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman High Return Equity Fund (the Fund) is
a separate series of Kemper Value Series, Inc.
(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
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Portfolio securities which are
traded on a U.S. stock exchange are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
("Nasdaq"), for which there have been sales, are
valued at the most recent sale price reported on
such system. If there are no such sales, the value
is the most recent bid quotation. Securities which
are not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Financial futures are valued at the
settlement price established each day by the board
of trade or exchange on which they are traded.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Dividend income is recorded on the ex-
dividend date, and interest income is recorded on
the accrual basis and includes discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
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 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 declares and
pays dividends of net investment income quarterly
and net realized capital gains at least annually,
which are recorded on the ex-dividend date.
Dividends are determined in accordance with income
tax principles which may treat certain transactions
differently from generally accepted accounting
principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. 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
$13,144,000 for the six months ended May 31, 1998.
Dreman Value Management, L.L.C. serves as
sub-adviser with respect to the investment and
reinvestment of assets in the Fund, and is paid by
Scudder Kemper for its services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
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 BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended May 31, 1998 $1,278,000 11,840,000 108,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
AND CDSC PAID BY KDI
RECEIVED BY KDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Six months ended May 31, 1998 $8,299,000 22,257,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KVS has an
administrative services agreement with KDI. For
providing information and administrative services
to
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Class A, Class B and Class C shareholders, the Fund
pays KDI a fee at an annual rate of up to .25% of
average daily net assets of each class. KDI in turn
has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid by
the Fund are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended May 31, 1998 $4,450,000 4,858,000 17,000
</TABLE>
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 this agreement,
KSvC received shareholder services fees of
$4,434,000 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. For the six months
ended May 31, 1998, the Fund made no payments to
its officers and incurred directors' fees of
$46,000 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 $1,251,093
Proceeds from sales 13,284
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS ENDED
MAY 31, 1998 NOVEMBER 30, 1997
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 23,188 $ 789,568 32,374 $ 979,187
--------------------------------------------------------------------------------
Class B 19,131 649,966 31,055 934,233
--------------------------------------------------------------------------------
Class C 4,214 143,194 5,473 164,900
--------------------------------------------------------------------------------
Class I 353 11,994 952 28,381
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,451 80,199 395 12,470
--------------------------------------------------------------------------------
Class B 2,026 65,844 193 6,172
--------------------------------------------------------------------------------
Class C 304 9,914 26 855
--------------------------------------------------------------------------------
Class I 53 1,753 14 422
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (6,735) (229,873) (6,529) (201,847)
--------------------------------------------------------------------------------
Class B (2,981) (101,785) (2,981) (90,730)
--------------------------------------------------------------------------------
Class C (598) (20,442) (572) (17,377)
--------------------------------------------------------------------------------
Class I (318) (10,868) (586) (18,011)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 775 26,463 469 14,557
--------------------------------------------------------------------------------
Class B (779) (26,463) (471) (14,557)
--------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $1,389,464 $1,798,655
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract fluctuates. At May 31,
1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $59,560,000. The Fund also had liquid
assets in excess of the face amount of open futures
contracts. At May 31, 1998, the following futures
contracts were owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 5/31/98
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $1,211,481,000 Long June '98 $11,582,000
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
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>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.52 26.52 21.49 15.11 15.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .38 .54 .39 .26 .25
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.44 6.89 5.75 6.76 (.39)
- ---------------------------------------------------------------------------------------------
Total from investment operations 2.82 7.43 6.14 7.02 (.14)
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .40 .37 .38 .24 .25
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40 --
- ---------------------------------------------------------------------------------------------
Total dividends 1.90 .43 1.11 .64 .25
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $34.44 33.52 26.52 21.49 15.11
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.77% 28.15 28.79 46.86 (.99)
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.21% 1.22 1.21 1.25 1.25
- ---------------------------------------------------------------------------------------------
Net investment income 2.50% 2.38 2.12 1.55 1.58
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.21% 1.22 1.21 1.57 1.39
- ---------------------------------------------------------------------------------------------
Net investment income 2.50% 2.38 2.12 1.23 1.44
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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 $33.37 26.44 21.47 19.45
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .31 .19 .07
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.42 6.84 5.72 2.41
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 2.66 7.15 5.91 2.48
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .26 .16 .21 .06
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- ---------------------------------------------------------------------------------------------------------
Total dividends 1.76 .22 .94 .46
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $34.27 33.37 26.44 21.47
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.27% 27.10 27.63 12.88
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses 2.09% 2.12 2.20 2.00
- ---------------------------------------------------------------------------------------------------------
Net investment income 1.62% 1.48 1.13 .61
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses 2.09% 2.12 2.31 2.35
- ---------------------------------------------------------------------------------------------------------
Net investment income 1.62% 1.48 1.02 .26
- ---------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
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
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.38 26.45 21.48 19.45
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .32 .20 .09
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.43 6.83 5.72 2.41
- -------------------------------------------------------------------------------------------
Total from investment operations 2.67 7.15 5.92 2.50
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .26 .16 .22 .07
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- -------------------------------------------------------------------------------------------
Total dividends 1.76 .22 .95 .47
- -------------------------------------------------------------------------------------------
Net asset value, end of period $34.29 33.38 26.45 21.48
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.31% 27.10 27.66 12.94
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 2.05% 2.10 2.22 1.95
- -------------------------------------------------------------------------------------------
Net investment income 1.66% 1.50 1.11 .66
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 2.05% 2.10 2.33 2.30
- -------------------------------------------------------------------------------------------
Net investment income 1.66% 1.50 1.00 .31
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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
CLASS I
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.51 26.49 21.51 19.90
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .49 .75 .54 .04
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain 2.42 6.81 5.70 2.03
- -------------------------------------------------------------------------------------------
Total from investment operations 2.91 7.56 6.24 2.07
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .47 .48 .53 .06
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- -------------------------------------------------------------------------------------------
Total dividends 1.97 .54 1.26 .46
- -------------------------------------------------------------------------------------------
Net asset value, end of period $34.45 33.51 26.49 21.51
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 9.03% 28.71 29.36 10.47
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AFTER EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses .82% .83 .88 .47
- -------------------------------------------------------------------------------------------
Net investment income 2.89% 2.77 2.45 1.99
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS BEFORE EXPENSE ABSORPTION (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses .82% .83 .88 .85
- -------------------------------------------------------------------------------------------
Net investment income 2.89% 2.77 2.45 1.61
- -------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------
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) $4,422,921 2,931,721 737,834 98,196 35,005
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 1% 5 10 18 12
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. The
investment manager waived a portion of its management fee and absorbed certain
operating expenses of the Fund through the period ended December 31, 1996. Data
for the period ended May 31, 1998 is unaudited.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Shareholders of Kemper-Dreman High Return Equity Fund (KDHRF), one of
three series of Kemper Value Fund, Inc., shareholders were asked to vote on six
separate issues: election of the eight members to the Board of Trustees,
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, approval of a new sub-advisory agreement with Dreman
Value Management, L.L.C. 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
Trustees and selection of auditors and separately 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 Trustees
<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. (KDHRF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
41,430,196 588,350 1,046,011
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure (KDHRF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
32,901,192 1,497,123 2,733,492
</TABLE>
5) Approval of a new sub-advisory agreement with Dreman Value Management, L.L.C.
(KDHRF).
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
41,332,190 572,434 1,159,934
</TABLE>
6) Approval of a new rule 12b-1 distribution plan with Kemper Distributors, Inc.
(KDHRF).
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 17,789,625 308,995 610,468 1,157,395
Class C 2,813,648 59,262 90,795 238,669
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS
DANIEL PIERCE MARK S. CASADY ANN M. MCCREARY
Chairman and Director President Vice President
JAMES E. AKINS PHILIP J. COLLORA KATHRYN L. QUIRK
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK THOMAS F. SASSI
Director JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY STEVEN T. STOKES
Director THOMAS H. FORESTER Vice President
Vice President
FRED B. RENWICK LINDA J. WONDRACK
Director FREDERICK L. GASKIN Vice President
Vice President
JOHN B. TINGLEFF MAUREEN E. KANE
Director JERARD K. HARTMAN Assistant Secretary
Vice President
EDMOND D. VILLANI CAROLINE PEARSON
Director THOMAS W. LITTAUER Assistant Secretary
Vice President
JOHN G. WEITHERS ELIZABETH C. WERTH
Director Assistant Secretary
- ------------------------------------------------------------------------------
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 Funds/Value Style prospectus.
KDHRF - 3 (7/98) 1050270
