<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKS LONG-TERM CAPITAL APPRECIATION
KEMPER SMALL CAP
VALUE FUND
"... Small-cap value stocks bore the brunt of the
market's volatility, as both small-cap stocks and value
stocks moved out of favor with investors. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Industry Sectors
9
Largest Holdings
10
Portfolio Of
Investments
13
Report Of
Independent Auditors
14
Financial Statements
16
Notes Of
Financial Statements
20
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A -15.69
CLASS B -16.45
CLASS C -16.37
LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY AVERAGE* -6.77
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth 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 and, if they had, results may have been less favorable.
Investing in securities of small companies may involve a greater risk of loss
and more abrupt fluctuations in market price than investments in larger
companies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAP VALUE FUND CLASS A $17.80 $21.83
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND CLASS B $17.33 $21.46
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND CLASS C $17.39 $21.51
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND
RANKINGS AS OF 11/30/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #549 of #562 of #559 of
620 funds 620 funds 620 funds
- --------------------------------------------------------------------------------
3-YEAR #162 of #196 of #190 of
352 funds 352 funds 352 funds
- --------------------------------------------------------------------------------
5-YEAR #57 of N/A N/A
198 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER SMALL CAP VALUE FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN $0.27 $0.27 $0.27
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.43 $0.43 $0.43
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
KEMPER FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc., Chicago, IL. (312) 696-6000. The Morningstar Style
Box is based on a software release date of 11/30/98. The Equity Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOX ES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND
DO NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY TO
DAY. A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH
IS BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED KEMPER SMALL CAP
VALUE FUND IN THE SMALL VALUE CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. The P/E ratio, also known as the multiple, is a measure of
how much an investor is paying for a company's earning power.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
TWO-TIER MARKET Characteristic of a securities market in which most of the gains
are represented by only a small group of companies. In 1998, a two-tier market
existed in which only the largest growth-style stocks enjoyed particularly
strong gains.
<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.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND 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 $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
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 (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</TABLE>
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John E. Silvia as of January 4, 1999,
and may not actually come to pass. This information is subject to change. No
part of this material is intended as an investment recommendation.
4
<PAGE> 5
PERFORMANCE UPDATE
[FORESTER PHOTO]
TOM FORESTER IS A CO-LEAD PORTFOLIO MANAGER OF KEMPER SMALL CAP VALUE FUND.
FORESTER IS A PHI BETA KAPPA GRADUATE OF THE UNIVERSITY OF COLORADO, AND HOLDS A
MASTER'S DEGREE IN MANAGEMENT FROM NORTHWESTERN UNIVERSITY'S J.L. KELLOGG
GRADUATE SCHOOL OF MANAGEMENT. HE IS ALSO A CHARTERED FINANCIAL ANALYST.
[STOKES PHOTO]
STEVE STOKES IS A CO-LEAD PORTFOLIO MANAGER OF KEMPER SMALL CAP VALUE FUND.
STOKES RECEIVED A BACHELOR OF SCIENCE DEGREE IN FINANCE IN 1985 FROM STATE
UNIVERSITY OF NEW YORK AT NEW PALTZ. A CHARTERED FINANCIAL ANALYST, HE IS A
MEMBER OF THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH, THE FINANCIAL
ANALYST FEDERATION AND THE NEW YORK SOCIETY OF SECURITIES ANALYSTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS WHEN
USED AS SALES LITERATURE.
KEMPER SMALL CAP VALUE FUND STRUGGLED ALONG WITH THE REST OF THE SMALL CAP
VALUE MARKET OVER THE PAST YEAR. LEAD PORTFOLIO MANAGERS STEVE STOKES AND TOM
FORESTER EXPLAIN THE PSYCHOLOGY BEHIND THE UNDERPERFORMANCE OF SMALL CAP VALUE
STOCKS AND THEIR STRATEGY IN MANAGING THE FUND THIS YEAR.
Q IT SEEMED LIKE THE MARKET WAS QUITE VOLATILE THIS YEAR. COULD YOU EXPLAIN
WHY?
A There are a lot of reasons for the volatility, but the underlying cause,
we believe, has been the concern over the October 1997 crisis in Southeast Asia.
Since that point, and especially through 1998, investors debated what the full
impact of Asia would be on the markets. Each time a political or economic event
took place, the market moved to extremes -- on both the buy and sell sides.
Q WHAT ABOUT SMALL CAP VALUE STOCKS? HOW WERE THEY AFFECTED?
A Small-cap value stocks bore the brunt of the market's volatility, as both
small-cap stocks and value stocks moved out of the market's favor. You see, even
though investors were concerned about the potential impact that the Asia crisis
could have on the stock market, they still wanted to remain invested. To
mitigate potential losses, investors seemed only to want to invest in securities
that they deemed "safe." U.S. Treasuries benefited from this flight to quality,
as did very large growth stocks with long histories of consistent earnings. For
the most part, these stocks tended to be the largest technology and
pharmaceutical companies like Microsoft, Dell, Pfizer and Merck. And individual
investors also moved en masse into new Internet stocks like Amazon.com and
Yahoo. Value-style stocks and even growth stocks from nearly every other
industry sector were shunned by investors, causing a decline in market value and
lackluster performance for all but the largest growth stocks, and new Internet
stocks.
Q HOW DID THE FUND PERFORM AGAINST THIS BACKDROP?
A The fund did not perform well in the 12-month period, but in recent months
its performance has improved. For the year ended November 30, 1998, the fund
fell by 15.69 percent (Class A shares unadjusted for any sales charge), while
the Russell 2000 Index of small company stocks was down 6.62 percent. We believe
our underperformance was the result of several factors.
First, as we mentioned previously, investors favored large growth stocks
during the year in lieu of value stocks. They thought the growth stocks offered
"safety" and "predictable earnings" and feared that value stocks would be
battered should the economy begin to struggle. By their nature, value stocks
tend to be more sensitive to the strength of the economy. A study we conducted
during the year proved this by showing that the companies within the lowest
price-to-earnings segment, as measured by quintiles, performed significantly
worse than the overall market.
We were also hurt by some sizable positions in sectors that underperformed our
expectations -- energy and specialty finance. Energy stocks suffered during the
year as warmer than average temperatures continued during most of the year and
crude oil prices declined. The
5
<PAGE> 6
PERFORMANCE UPDATE
financial services sector and our holdings suffered with the Russian debt crisis
and fears of a credit crunch at home.
Finally, the highly defensive utility industry was the strongest performing
sector in the Russell 2000 in 1998 through November 30. Although we had some
exposure to utilities, it was not enough to really benefit the fund. We had not
expected utilities to perform so well and in hindsight wish we had invested more
of the portfolio in that sector.
Q WHAT WAS YOUR STRATEGY FOR MANAGING THE FUND IN THIS DIFFICULT MARKET?
A To preface, let us say that we don't think this two-tier market can
continue forever. The prices of these very large growth stocks are tremendously
high, and as they rise, it becomes more likely that the earnings of these
companies will begin to disappoint investors' unrealistic expectations. When
that happens, we believe both small cap stocks and value stocks in general will
be poised for significant growth. But nobody can predict when that tide will
turn.
As small cap value investors, it would have been wrong for us to seek returns
by jumping ship and investing in large growth stocks. That's not what we do, and
it's not why people invest in this fund. Instead, we focused on looking for the
best values we could find. And this depressed small cap market has produced
plenty of value. We found a variety of great opportunities to invest in
fundamentally sound and financially strong companies that are suffering only as
a result of the current two-tiered market.
Q CAN YOU EXPLAIN YOUR INVESTMENT PROCESS.
A Basically, we look for companies that are out of favor with the market for
what we believe are the wrong reasons. First, we screen potential candidates by
their price-to-earnings multiple (P/E). We look for stocks that are priced low
relative to their earnings stream. We also look for low price-to-book and
price-to-cash flow ratios. We then consider the management of the company and
decide whether we believe they can lead the company out of its current slump.
The overall health of the industry and the market in general also come into
play. We want to buy stocks that have the potential to gain significant value,
not those that will just get cheaper.
As we've discussed, this year has been difficult, but it has presented us with
great opportunities to buy companies that we believe will be only temporarily
depressed. Patience is the key to this strategy. As much as we would like for
the investment environment to change overnight, we know that's not likely. And
it's also unlikely that the performance of the companies in our portfolio will
change that quickly. However, we do believe we have built a portfolio of good,
strong companies that have the potential for a long period of growth ahead of
them.
Q WHAT COMPANIES DID YOU ADD THIS YEAR THAT PRESENT THE MOST UPSIDE
POTENTIAL?
A During the year we added a lot of new names to the portfolio -- 47 to be
exact. The stocks came from a variety of sectors and many provided exceptional
returns. Some of the top performers included Inter-Tel Inc., a digital
communications firm; Southdown Inc., a manufacturer of concrete products; and
Xylan Corp., a technical service provider for computer service and
telecommunication companies. We continue to search for good long-term values,
and feel that these portfolio additions offer excellent appreciation potential.
Q WERE THERE ANY COMPANIES THAT REALLY DISAPPOINTED YOU THIS YEAR?
A There were several companies whose performance fell below what we would
have expected, even given the volatile two-tier market. As previously noted, our
investments within the oil and gas and specialty finance segments all performed
poorly. Company-specific disappointments in other sectors included Birmingham
Steel Corp., a steel producer; Breed Technologies, a seat-belt manufacturer;
Budget Group, a car rental company and Genesis Health Ventures, a health care
network for senior citizens.
Q WHAT DO YOU EXPECT FROM THE MARKETS IN 1999, AND HOW WILL YOU POSITION THE
FUND?
A We expect that the volatility will continue as economic and political
events are debated. We'll continue to manage the fund conservatively, while
maintaining our value discipline. Our philosophy is built on long-term empirical
evidence that low-P/E investing within the small cap market has historically
provided above average returns. This year proved to be challenging for value
investors, but has only magnified the discrepancy in valuations among growth
versus value and large versus small that currently exists. We expect that the
market euphoria surrounding the high-growth segments of the market such as the
Internet will give way to a return to fundamental valuation techniques, which
will favor our investment style.
6
<PAGE> 7
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR LIFE OF CLASS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER SMALL CAP VALUE FUND
CLASS A -20.54% 8.93% 13.06% 12.60% (since 5/22/92)
...................................................................................................
KEMPER SMALL CAP VALUE FUND
CLASS B -18.88 9.53 n/a 6.32 (since 9/11/95)
...................................................................................................
KEMPER SMALL CAP VALUE FUND
CLASS C -16.37 10.27 n/a 6.98 (since 9/11/95)
...................................................................................................
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 5/22/92 to
11/30/98
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE
FUND CLASS A1 RUSSELL 2000 INDEX' CONSUMER PRICE INDEX"
---------------------- ------------------- ---------------------
<S> <C> <C> <C>
5/22/92 10000.00 10000.00 10000.00
9576.00 9527.00 10036.00
9661.00 9802.00 10115.00
11297.00 12907.00 10157.00
11332.00 14306.00 10279.00
11106.00 14396.00 10336.00
11278.00 12828.00 10387.00
11584.00 15508.00 10437.00
11302.00 17421.00 10537.00
11548.00 19157.00 10594.00
12542.00 21402.00 10694.00
12/31/94 11601.00 22871.00 10716.00
12910.00 18682.00 10838.00
15030.00 21283.00 10916.00
16652.00 18675.00 10966.00
16623.00 18560.00 10988.00
18951.00 20397.00 11145.00
19868.00 24240.00 11217.00
20294.00 30849.00 11296.00
12/31/96 21544.00 36653.00 11353.00
21014.00 32361.00 11453.00
24232.00 9936.00 11475.00
26942.00 10519.00 11539.00
25857.00 13133.00 11546.00
28344.00 14896.00 11611.00
26479.00 14426.00 11668.00
20106.00 14426.00 11711.00
11/30/98 21691.00 14620.00 11739.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 9/11/95 to
11/30/98
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE
FUND CLASS B1 RUSSELL 2000 INDEX' CONSUMER PRICE INDEX"
---------------------- ------------------- ---------------------
<S> <C> <C> <C>
9/11/95 10000.00 10000.00 10000.00
9777.78 10179.00 10020.00
9748.46 11997.00 10039.00
11088.20 12728.00 10183.00
11606.90 13288.00 10249.00
11823.00 14867.00 10320.00
12/31/96 12532.70 12804.00 10373.00
12201.10 14288.00 10464.00
14025.10 19181.00 10484.00
15551.90 21283.00 10543.00
12/31/97 14895.30 21846.00 10549.00
16289.50 23189.00 10608.00
15188.70 18405.00 10661.00
11500.50 21817.00 10700.00
11/30/98 12186.60 19529.00 10726.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP VALUE FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 9/11/95 to
11/30/98
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE
FUND CLASS C1 RUSSELL 2000 INDEX' CONSUMER PRICE INDEX"
---------------------- ------------------- ---------------------
<S> <C> <C> <C>
9/11/95 10000.00 10000.00 10000.00
9778.00 10179.00 10020.00
9749.00 11997.00 10039.00
11095.00 12728.00 10183.00
11614.00 13288.00 10249.00
11851.00 14867.00 10320.00
12/31/96 12554.00 12804.00 10373.00
12229.00 14288.00 10464.00
14053.00 19181.00 10484.00
15580.00 21283.00 10543.00
12/31/97 14930.00 21846.00 10549.00
16331.00 23189.00 10608.00
15230.00 18405.00 10661.00
11535.00 21817.00 10700.00
11/30/98 12429.00 19529.00 10726.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUES
WILL FLUCTUATE SO THAT THE SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN
ORIGINAL COST.
*Average annual total return and total return
measure net investment income and capital gain
or loss from portfolio investments over the
periods specified, assuming reinvestment of all
dividends and, where indicated, adjustment for
the maximum sales charge. The maximum sales
charge for class a shares is 5.75%. For Class B
shares, the maximum contingent deferred sales
charge (CDSC) is 4%. Class C shares have no
sales charge adjustment, but redemptions within
one year of purchase may be subject to a
contingent deferred sales charge of 1%. Share
classes invest in the same underlying portfolio.
Average annual total return reflects annualized
change while total return reflects aggregate
change. 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 CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF THE
PERIOD FOR 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
DEDUCTION OF THE MAXIMUM SALES CHARGE, WHILE
NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEXES.
+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. investors cannot actually make investments
in this index.
++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 TowersData.
7
<PAGE> 8
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON NOVEMBER 30, 1998, AND ON NOVEMBER 30, 1997
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND KEMPER SMALL CAP VALUE FUND
ON 11/30/98 ON 11/30/97
--------------------------- ---------------------------
<S> <C> <C>
Capital goods 24.10 22.80
Finance 23.80 25.50
Consumer nondurables 17.60 18.10
Energy 7.20 8.90
Technology 6.50 9.80
Transportation 6.40 4.90
Basic industries 5.40 0.00
Utilities 3.40 0.70
Health care 3.10 4.20
Other 2.50 5.10
Consumer durables 0.00 0.00
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER SMALL CAP VALUE FUND REPRESENTED ON NOVEMBER 30, 1998, COMPARED TO THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 2000 INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP VALUE FUND
ON 11/30/98 RUSSELL 2000 INDEX
--------------------------- ------------------
<S> <C> <C>
Capital goods 24.10 8.30
Finance 23.80 23.10
Consumer nondurables 17.60 20.50
Energy 7.20 4.10
Technology 6.50 17.80
Transportation 6.40 2.60
Basic industries 5.40 6.10
Utilities 3.40 5.10
Health care 3.10 9.40
Other 2.50 0.20
Consumer durables 0.00 2.80
</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.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 14.2 percent of the fund's total net assets on November 30, 1998
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
1. JONES INTERCABLE Engaged in acquiring, developing 2.0%
and operating cable television
systems.
- ------------------------------------------------------------------------------------
2. HUTCHINSON TECHNOLOGY World's leading supplier of 1.6%
suspension assemblies for rigid
disk drives.
- ------------------------------------------------------------------------------------
3. ELCOR One of the leading manufacturers 1.5%
of residential premium laminated
fiberglass asphalt roofing
shingles and proprietary finishes
for original equipment and
recycled diesel engine cylinder
liners for the railroad, marine
and stationary power industries.
- ------------------------------------------------------------------------------------
4. VALLASSIS COMMUNICATIONS A leading sales promotion 1.4%
company, offering the broadest
array of consumer promotion
techniques.
- ------------------------------------------------------------------------------------
5. CONMED Develops, manufactures and 1.4%
markets disposable
electrosurgical instruments and
accessories, electrosurgical
generators and disposable medical
devices for monitoring.
- ------------------------------------------------------------------------------------
6. HMT TECHNOLOGY Supplies high-performance thin 1.4%
film disks for high-end,
high-capacity hard disk drives,
which in turn are used in
high-end personal computers,
network servers and workstations.
- ------------------------------------------------------------------------------------
7. FORTRESS INVESTMENT Opportunistically invests in 1.3%
undervalued real estate-related
assets, both domestic and
international.
- ------------------------------------------------------------------------------------
8. BRIGGS & STRATTON Produces air cooled gasoline 1.2%
engines for outdoor power.
- ------------------------------------------------------------------------------------
9. FREMONT GENERAL Engaged through subsidiaries in 1.2%
writing life, property and
casualty insurance and
reinsurance, and in asset-based
lending and leasing to small and
medium-sized businesses.
- ------------------------------------------------------------------------------------
10. YOUNG BROADCASTING Owns network-affiliated TV 1.2%
stations and one independent TV
station.
- ------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
Portfolio of Investments at November 30, 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GOODS--4.7%
Albany International Corp. 324,486 $ 6,165
(a) Alliant Techsystems, Inc. 109,400 8,335
Apogee Enterprises, Inc. 694,900 8,599
Kaydon Corp. 45,600 1,610
(a) Lydall, Inc. 452,700 5,744
(a) MasTec, Inc. 400,000 9,300
Robbins & Myers 68,100 1,362
Southdown, Inc. 88,200 5,138
--------------------------------------------------------------------------
46,253
- ---------------------------------------------------------------------------------------------------------
CONSUMER
DISCRETIONARY--14.2%
(a) AMC Entertainment, Inc. 436,800 7,316
Applebee's International 432,500 8,893
Brown Group, Inc. 458,900 8,232
(a) Brylane, Inc. 356,400 5,658
(a) Budget Group, Inc. 295,200 3,690
(a) Carmike Cinemas, Inc. 201,300 4,026
(a) CDI Corp. 143,300 3,842
(a) Dollar Thrifty Automotive Group 849,200 10,615
First Brands Corp. 238,700 8,936
(a) Footstar, Inc. 114,900 2,801
Four Seasons Hotels, Ltd. 195,500 5,217
Harman International Industries 227,500 9,711
Herbalife International, 'A' 154,366 1,823
Herbalife International, 'B' 308,733 2,991
(a) Lone Star Steakhouse & Saloon 268,200 2,045
(a) Modis Professional Services, Inc. 640,600 7,647
(a) Pacific Sunwear of California, Inc. 260,100 3,918
Springs Industries, Inc. 211,100 8,220
(a) Superior Services, Inc. 174,300 3,203
True North Communication, Inc. 167,500 4,711
(a) Vallassis Communications 326,400 13,994
(a) Young Broadcasting Corp. 325,200 11,585
--------------------------------------------------------------------------
139,074
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.9%
(a) Fresh Del Monte Produce, Inc. 456,100 10,034
(a) Performance Food Group 362,500 8,881
Richfood Holdings 299,400 5,558
(a) Swisher International Group, Inc. 570,000 3,562
--------------------------------------------------------------------------
28,035
- ---------------------------------------------------------------------------------------------------------
ENERGY--5.4%
(a) Basin Exploration, Inc. 368,600 4,285
(a) Chieftain International, Inc. 441,700 7,067
Cross Timbers Oil Co. 341,700 3,887
Giant Industries 214,600 2,562
KCS Energy 484,900 1,940
(a) Newpark Resources 547,200 4,036
(a) Nuevo Energy Co. 355,700 5,269
(a) Seitel, Inc. 494,800 6,618
(a) Tesoro Petroleum Corp. 630,000 8,387
USEC, Inc. 543,500 7,371
(a) Veritas DGC, Inc. 94,600 1,384
--------------------------------------------------------------------------
52,806
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--23.3%
(a) Acceptance Insurance Cos. 355,100 6,991
Apartment Investment & Mgmt. Co. 196,038 6,714
Associated Banc Corp. 191,111 6,522
Chartwell Re Corp. 252,500 6,975
Commercial Federal Corp. 350,750 8,045
Compass Bancshares 174,500 6,500
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Contifinancial Corp. 455,600 2,534
Cullen Frost Bankers 123,000 6,596
Fortress Investment Corp. 750,000 13,031
Fremont General Corp. 231,500 11,662
HCC Insurance Holdings 282,000 5,235
(a) Headland Mortgage Co. 461,200 7,667
Health Care Property Investors, Inc. 259,700 8,197
HUBCO, Inc. 158,161 4,270
Imperial Credit Mortgage Holdings 418,700 4,135
LandAmerica Financial Group 115,000 7,051
(a) MONY Group, Inc. 170,600 5,278
Nationwide Health Properties 501,700 11,226
North Fork Bancorp 354,920 7,475
Omega Healthcare Investors 356,600 10,832
Pacific Bank, N.A. 78,500 3,375
Peoples Heritage Financial Group 519,100 10,642
Philips International Realty Corp. 366,700 5,684
Prentiss Properties Trust 492,800 10,718
Redwood Trust 301,000 4,346
Reliance Group Holdings, Inc. 617,900 8,612
Resource Bancshares Mortgage Group 781,200 10,741
(a) Scottish Annuity & Life Holdings, Ltd. 143,700 1,814
Sovereign Bancorp 231,332 2,964
(a) UniCapital Corp. 398,700 3,289
UST Corp. 90,000 2,227
W.R. Berkley Corp. 224,500 7,521
Webster Financial Corp. 339,800 9,429
--------------------------------------------------------------------------
228,298
- ---------------------------------------------------------------------------------------------------------
HEALTH CARE--2.0%
(a) Genesis Health Ventures 665,400 6,363
(a) Hologic, Inc. 490,500 6,407
(a) Sola International 452,600 7,185
--------------------------------------------------------------------------
19,955
- ---------------------------------------------------------------------------------------------------------
MATERIALS
AND PROCESSING--15.1%
AK Steel Holding Corp. 304,000 5,833
AMCOL International 800,000 8,500
Ball Corp. 178,600 7,635
Birmingham Steel Corp. 429,550 2,094
(a) BuckeyeTechnologies, Inc. 441,000 8,599
Carpenter Technology Corp. 276,900 9,778
(a) CONMED Corp. 509,700 13,889
(a) Elcor Corp. 479,150 14,794
Flowserv Corp. 463,513 8,227
Furon Co. 650,000 11,172
Intermet Corp. 711,500 9,739
(a) Lone Star Technologies 480,500 4,685
Mississippi Chemical Corp. 714,200 11,249
Quanex Corp. 366,000 6,565
(a) Shaw Group 415,100 3,684
(a) Stillwater Mining Co. 31,200 1,141
Trinity Industries, Inc. 280,500 10,852
Wyman-Gordon Co. 632,000 9,875
--------------------------------------------------------------------------
148,311
- ---------------------------------------------------------------------------------------------------------
PRODUCER DURABLES--6.0%
Belden, Inc. 417,300 7,042
Blount, Inc. 400,100 9,252
Briggs & Stratton Corp. 241,400 12,176
Del Webb Corp. 277,500 7,354
General Cable Corp. 366,900 6,971
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------
Number of
Common stocks shares Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stewart & Stevenson Services 592,500 5,888
Watts Industries, Inc. 538,000 10,188
--------------------------------------------------------------------------
58,871
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY--6.8%
(a) Benchmark Electronics 339,800 8,495
(a) Burr Brown Corp. 315,750 7,460
(a) Etec Systems 173,800 5,714
(a) HMT Technology Corp. 1,167,200 13,277
(a) Hutchinson Technology 505,100 15,627
(a) Inter-Tel, Inc. 363,300 8,719
(a) Tech-Sym Corp. 154,500 3,872
(a) Xylan Corp. 181,300 3,286
--------------------------------------------------------------------------
66,450
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION--7.9%
Airborne Freight Corp. 289,900 7,737
(a) America West Holdings Corp. 564,000 7,967
Borg-Warner Automotive, Inc. 192,800 9,616
(a) Breed Technologies, Inc. 232,000 1,566
(a) Coltec Industries, Inc. 585,300 11,304
(a) Eagle USA Freight 206,900 3,931
Fleetwood Enterprises 316,900 10,676
Myers Industries 391,890 8,818
Royal Nedlloyd Group, ADR 642,300 4,336
Teekay Shipping Corp. 231,400 4,180
(a) Wisconsin Central Transportation Corp. 419,300 7,600
--------------------------------------------------------------------------
77,731
- ---------------------------------------------------------------------------------------------------------
UTILITIES--3.9%
Atmos Energy Corp. 200,200 6,131
(a) El Paso Electric 435,200 4,026
(a) Jones Intercable, Inc. 627,200 19,482
TNP Enterprises, Inc. 220,900 8,394
--------------------------------------------------------------------------
38,033
- ---------------------------------------------------------------------------------------------------------
OTHER--2.4%
Standard & Poor's Midcap 400 Depositary Receipts 350,200 23,463
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--94.6%
(COST: $988,235) 927,280
- -----------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--5.4%
Principal amount Value
- -----------------------------------------------------------------------------------------------------
YIELD--4.81% TO 5.30%
DUE--DECEMBER
UBS Finance, Inc. 22,500 22,494
Other 30,500 30,432
----------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--5.4%
(COST: $52,928) 52,926
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL INVESTMENTS--100.0%
(Cost: $1,041,164) 980,206
----------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.0% 270
----------------------------------------------------------------------
NET ASSETS--100% $980,476
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
Based on the cost of investments of $0 for federal income tax purposes at
November 30, 1998, the gross unrealized appreciation was $0, the gross
unrealized depreciation was $0 and the net unrealized depreciation on
investments was $0.
See accompanying Notes to Financial Statements.
3
<PAGE> 13
Report of Independent Auditors
The Board of Directors and Shareholders
Kemper Contrarian Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Contrarian Fund as of
November 30, 1998, and the related statements of operations for the year
then ended and changes in net assets for the year then ended and the eleven
months ended November 30, 1997 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 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, 1998, 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 Contrarian Fund at November 30, 1998, the results of
its operations for the year then ended, the changes in net assets for the year
then ended and the eleven months ended November 30, 1997 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 19, 1999
<PAGE> 14
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(IN THOUSANDS)
- ----------------------------------------------------
ASSETS
- ----------------------------------------------------
<S> <C>
Investments, at value
(Cost: $1,041,164) $ 980,141
- ----------------------------------------------------
Cash 32
- ----------------------------------------------------
Receivable for:
Investments sold 7,824
- ----------------------------------------------------
Fund shares sold 2,354
- ----------------------------------------------------
Dividends 990
- ----------------------------------------------------
TOTAL ASSETS 991,341
- ----------------------------------------------------
- ----------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------
Payable for:
Investments purchased 3,099
- ----------------------------------------------------
Fund shares redeemed 5,845
- ----------------------------------------------------
Management fee 602
- ----------------------------------------------------
Distribution services fee 305
- ----------------------------------------------------
Administrative services fee 219
- ----------------------------------------------------
Custodian and transfer agent fees and
related expenses 850
- ----------------------------------------------------
Directors' fees and other 10
- ----------------------------------------------------
Total liabilities 10,930
- ----------------------------------------------------
NET ASSETS $ 980,411
- ----------------------------------------------------
- ----------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------
Paid-in capital $1,061,403
- ----------------------------------------------------
Accumulated net realized loss on
investments (19,969)
- ----------------------------------------------------
Net unrealized depreciation on
investments (61,023)
- ----------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 980,411
- ----------------------------------------------------
- ----------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share ($489,734 DIVIDED BY 27,510
shares outstanding) $17.80
- ----------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net asset
value or 5.75% of offering
price) $18.89
- ----------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($390,043 DIVIDED BY
22,505 shares outstanding) $17.33
- ----------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($91,473 DIVIDED BY
5,261 shares outstanding) $17.39
- ----------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
per share ($9,161 DIVIDED BY 505
shares outstanding) $18.13
- ----------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 15
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------
<S> <C>
Dividends $ 13,817
- ---------------------------------------------------
Interest 5,019
- ---------------------------------------------------
Total investment income 18,836
- ---------------------------------------------------
Expenses:
Management fee 8,166
- ---------------------------------------------------
Distribution services fee 4,096
- ---------------------------------------------------
Administrative services fee 2,749
- ---------------------------------------------------
Custodian and transfer agent fees and
related expenses 5,142
- ---------------------------------------------------
Reports to shareholders 360
- ---------------------------------------------------
Registration fees 262
- ---------------------------------------------------
Professional fees 25
- ---------------------------------------------------
Directors' fees and other 52
- ---------------------------------------------------
Total expenses 20,852
- ---------------------------------------------------
NET INVESTMENT LOSS (2,016)
- ---------------------------------------------------
- ---------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
- ---------------------------------------------------
Net realized loss on sales of
investments (14,597)
- ---------------------------------------------------
Net realized loss from futures
transactions (1,515)
- ---------------------------------------------------
Net realized loss (16,112)
- ---------------------------------------------------
Change in net unrealized depreciation
on investments (175,453)
- ---------------------------------------------------
Net loss on investments (191,565)
- ---------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(193,581)
- ---------------------------------------------------
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
ELEVEN MONTHS
YEAR ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
- -----------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ (2,016 ) 795
- -----------------------------------------------------------------------
Net realized gain (loss) (16,112 ) 35,631
- -----------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) (175,453 ) 92,608
- -----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (193,581 ) 129,034
- -----------------------------------------------------------------------
Distribution from net realized gain (37,724 ) --
- -----------------------------------------------------------------------
Net increase (decrease) from capital
share transactions (51,428 ) 860,888
- -----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (282,733 ) 989,922
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------
Beginning of period 1,263,144 273,222
- -----------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment
income
of $866 in 1997) $ 980,411 1,263,144
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 16
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Small Cap Value Fund (the fund) is a
FUND separate series of Kemper Value Series, Inc. (KVS),
an open-end management investment company organized
as a corporation in the state of Maryland. KVS is
authorized to issue three 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 INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Portfolio securities which are traded on
U.S. or foreign stock exchanges 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. 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. Futures contracts are valued at the
most recent settlement price. All other securities
are valued at their fair market value as determined
in good faith by the Valuation Committee of the
Board of Directors.
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.
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
<PAGE> 17
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At November 30, 1998, the fund had a tax basis net
capital loss carryforward of approximately
$7,348,000, which may be applied against any
realized net taxable gains of each succeeding year
until fully utilized or it will expire during the
period ended 2006. In addition, from November 1,
1998 through November 30, 1998 the fund incurred
approximately $11,442,000 of net realized capital
losses. As permitted by tax regulations, the fund
intends to elect to defer these losses and treat
them as arising in the fiscal year ended November
30, 1999.
DIVIDENDS TO SHAREHOLDERS. The fund generally
declares and pays dividends of net investment
income and net realized capital gains 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 MANAGEMENT AGREEMENT. The fund has a management
AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The fund pays a monthly
investment management fee of 1/12 of the 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 $8,166,000 for the
year ended November 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurichs businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the funds
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Directors of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS ALLOWED
COMMISSIONS BY KDI
RETAINED ---------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Year ended November 30, 1998 $ 233,000 2,515,000 57,000
</TABLE>
<PAGE> 18
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 separate Rule 12b-1 plans for
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>
Year ended November 30, 1998 $ 4,993,000 5,690,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (ASF) paid by
the fund are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI BY KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Year ended November 30, 1998 $ 2,749,000 2,586,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$4,007,000 for the year ended November 30, 1998.
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the year ended
November 30, 1998, the fund made no payments to its
officers and incurred directors' fees of $48,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended November 30, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $519,174
Proceeds from sales 542,149
</TABLE>
<PAGE> 19
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
SHARES SOLD
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 20,519 $411,778 31,605 $631,847
- --------------------------------------------------------------------------------
Class B 8,848 179,219 15,839 315,709
- --------------------------------------------------------------------------------
Class C 2,452 50,136 3,966 79,927
- --------------------------------------------------------------------------------
Class I 306 6,403 763 15,563
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
- --------------------------------------------------------------------------------
Class A 902 18,655 -- --
- --------------------------------------------------------------------------------
Class B 590 11,977 -- --
- --------------------------------------------------------------------------------
Class C 116 2,362 -- --
- --------------------------------------------------------------------------------
Class I 23 476 -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES REDEEMED
- --------------------------------------------------------------------------------
Class A (28,336) (579,143) (6,002) (125,310)
- --------------------------------------------------------------------------------
Class B (5,452) (105,691) (1,879) (35,807)
- --------------------------------------------------------------------------------
Class C (1,933) (37,381) (444) (9,013)
- --------------------------------------------------------------------------------
Class I (491) (10,219) (585) (12,028)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONVERSION OF SHARES
- --------------------------------------------------------------------------------
Class A 688 14,254 212 4,601
- --------------------------------------------------------------------------------
Class B (703) (14,254) (215) (4,601)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $(51,428) $860,888
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------
CLASS A
----------------------------------------------------
ELEVEN MONTHS YEAR ENDED DECEMBER
YEAR ENDED ENDED 31,
NOVEMBER 30, NOVEMBER 30, ----------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.83 18.28 14.50 10.85 11.23
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .06 .05 .14 (.02) --
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (3.39 ) 3.50 4.14 4.64 .02
- ---------------------------------------------------------------------------------------------
Total from investment operations (3.33 ) 3.55 4.28 4.62 .02
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .07 -- --
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .97 .40
- ---------------------------------------------------------------------------------------------
Total dividends .70 -- .50 .97 .40
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.80 21.83 18.28 14.50 10.85
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (15.69 )% 19.42 29.60 43.29 .15
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.42% 1.32 1.31 1.25 1.25
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .87 (.16) (.03)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.42% 1.32 1.47 1.83 1.82
- ---------------------------------------------------------------------------------------------
Net investment income (loss) .25% .51 .71 (.74) (.61)
- ---------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------
CLASS B
--------------------------------------------------------
ELEVEN MONTHS SEPTEMBER 11
YEAR ENDED ENDED YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.46 18.14 14.48 15.75
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12 ) (.04 ) .01 (.02)
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (3.31 ) 3.36 4.11 (.41)
- -------------------------------------------------------------------------------------------------
Total from investment operations (3.43 ) 3.32 4.12 (.43)
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .03 --
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -------------------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.33 21.46 18.14 14.48
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (16.45 )% 18.30 28.54 (2.52)
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.34% 2.34 2.12 2.00
- -------------------------------------------------------------------------------------------------
Net investment income (loss) (.67 )% (.51 ) .06 (.99)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.34% 2.34 2.49 2.39
- -------------------------------------------------------------------------------------------------
Net investment loss (.67 )% (.51 ) (.31 ) (1.38)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------
CLASS C
--------------------------------------------------------
ELEVEN MONTHS SEPTEMBER 11
YEAR ENDED ENDED YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.51 18.17 14.48 15.75
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.12) (.03) .01 (.02)
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (3.30) 3.37 4.14 (.41)
- -------------------------------------------------------------------------------------------------
Total from investment operations (3.42) 3.34 4.15 (.43)
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .03 --
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -------------------------------------------------------------------------------------------------
Total dividends .70 -- .46 .84
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.39 21.51 18.17 14.48
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (16.37)% 18.38 28.77 (2.51)
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.28% 2.24 2.06 1.95
- -------------------------------------------------------------------------------------------------
Net investment income (loss) (.61)% (.41) .12 (.94)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 2.28% 2.24 2.19 2.35
- -------------------------------------------------------------------------------------------------
Net investment loss (.61)% (.41) (.01) (1.34)
- -------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------
CLASS I
--------------------------------------------------------
ELEVEN MONTHS NOVEMBER 1
YEAR ENDED ENDED YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.08 18.40 14.52 14.25
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .13 .25 --
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (3.53) 3.55 4.13 1.11
- -------------------------------------------------------------------------------------------------
Total from investment operations (3.25) 3.68 4.38 1.11
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income -- -- .07 --
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain .70 -- .43 .84
- -------------------------------------------------------------------------------------------------
Total dividends .70 -- .50 .84
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.13 22.08 18.40 14.52
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (15.14)% 20.00 30.28 8.03
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses .86% .89 .84 .47
- -------------------------------------------------------------------------------------------------
Net investment income .81% .94 1.34 .28
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses .86% .89 .84 .90
- -------------------------------------------------------------------------------------------------
Net investment income (loss) .81% .94 1.34 (.15)
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 30, NOVEMBER 30, -------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $ 980,411 1,263,144 273,222 31,606 6,931
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 50% 83 23 86 140
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
Per share data for the year ended December 31, 1996 were determined based on
average shares outstanding. Total return does not reflect the effect of any
sales charges.
Scudder Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the period ended
December 31, 1996. The Other Ratios to Average Net Assets are computed without
this expense waiver or absorption.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid distributions of $.43 per share from net long-term capital gains
during the year ended November 30, 1998, of which 67% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
<PAGE> 23
NOTES
23
<PAGE> 24
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
DANIEL PIERCE MARK CASADY STEVEN T. STOKES
Chairman and Director President Vice President
JAMES E. AKINS PHILIP J. COLLORA LINDA J. WONDRACK
Director Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Director JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Director THOMAS H. FORESTER Assistant Secretary
Vice President
THOMAS W. LITTAUER ELIZABETH C. WERTH
Director and Vice President ANN M. MCCREARY Assistant Secretary
Vice President
FRED B. RENWICK BRENDA LYONS
Director KATHRYN L. QUIRK Assistant Treasurer
Vice President
JOHN B. TINGLEFF
Director THOMAS F. SASSI
Vice President
JOHN G. WEITHERS
Director CORNELIA SMALL
Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
.............................................................................................
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL KEMPER DISTRIBUTORS, INC.
UNDERWRITER 222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
KEMPER FUNDS LOGO
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Style/Value Style prospectus.
KSCVF - 2(1/26/99) 1064440
