<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
[LOGO]
Seeks long-term capital appreciation.
KEMPER-DREMAN
FINANCIAL SERVICES FUND
"... We believe that the perception of the market and the reality of the
strength of these [bank] stocks are at odds. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
16
FINANCIAL HIGHLIGHTS
18
NOTES TO FINANCIAL STATEMENTS
22
REPORT OF INDEPENDENT AUDITORS
23
TAX INFORMATION
24
SHAREHOLDERS' MEETING
AT A GLANCE
TERMS TO KNOW
KEMPER-DREMAN FINANCIAL SERVICES
FUND TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL KEMPER-DREMAN FINANCIAL LIPPER FINANCIAL SERVICES
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS A SERVICES FUND CLASS B SERVICES FUND CLASS C FUNDS CATEGORY AVERAGE*
- --------------------------------------------- ----------------------- ----------------------- -------------------------
<S> <C> <C> <C>
1.95 1.08 1.09 3.95
</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; IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
DUE TO THE FUND'S CONCENTRATION IN THE FINANCIAL SECTOR, THE FUND MAY BE
SUBJECTED TO GREATER SHARE PRICE VOLATILITY THAN A MORE DIVERSIFIED PORTFOLIO.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
.........................................................
<S> <C> <C> <C> <C>
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS A $9.74 $9.65
.........................................................
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS B $9.65 $9.59
.........................................................
KEMPER-DREMAN FINANCIAL
SERVICES FUND CLASS C $9.69 $9.61
.........................................................
</TABLE>
KEMPER-DREMAN FINANCIAL SERVICES
FUND RANKINGS AS OF 11/30/99
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER FINANCIAL SERVICES FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.............................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #37 of #40 of #39 of
64 funds 64 funds 64 funds
.............................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE FISCAL YEAR, KEMPER-DREMAN FINANCIAL SERVICES FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...................................................................................................
<S> <C> <C> <C> <C> <C>
INCOME DIVIDEND $0.08 $0.01 $0.01
...................................................................................................
SHORT-TERM CAPITAL GAIN.. $0.02 $0.02 $0.02
...................................................................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. 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 BOXES 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-DREMAN FINANCIAL SERVICES FUND IN THE
LARGE VALUE CATEGORY. PLEASE CONSULT THE
PROSPECTUS FOR A DESCRIPTION OF INVESTMENT
POLICIES.
</TABLE>
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. This trailing P/E ratio, also known as the multiple, is a
measure of how much an investor is paying for a company's earning power.
SECTOR STOCKS Stocks that are usually found in related industries, such as
financial services. Stocks within a market sector may be similarly affected by
financial, economic, business and other developments.
TWO-TIER MARKET A securities market in which most of the gains are represented
by only a small group of companies. In 1998 and 1999's two-tier market, only the
largest growth-style stocks enjoyed particularly strong gains.
VOLATILITY The characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
<PAGE> 3
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC Overview
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question hanging
over the economy is whether the Federal Reserve Board will boost interest rates
to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. And unfortunately, all parties end. This one will, too. The questions
are when and how.
The "when" should be before the second half of the year. The Fed has already
raised interest rates three times, and is likely to raise them again on Feb. 2.
Fed officials said they left the rate at 5.5 percent in December mainly because
of "market uncertainties associated with the century-date change." But the Fed
expressed concern that "increases in demand" will foster "inflationary
imbalances" that could spark rate increases once the Y2K issue has been handled.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system (causing some stock indexes, as well as the
bond markets, to drop sharply in early January), the "how" is likely to be a
slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely costs
more. But the rate of inflation for non-energy goods and services has actually
slowed during the past year. Although most analysts are worried that the
reprieve won't last -- assuming that higher commodity prices, a softer dollar
and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
the Fed to raise the federal funds rate and the discount rate by one quarter of
a point (0.25%) each on Feb. 2. (More extreme possibilities bandied about by
bearish investors -- including a half-point rise or an emergency move before the
Fed's February meeting -- are unlikely.) We project that the result will be a
gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this
3
<PAGE> 4
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 (12/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6)* 2.10 2.10 2.30 2.70
</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 11/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
Economic OVERVIEW
one iota. As a result, we expect profits to be virtually flat in all of 2000 and
to decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JANUARY 6, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
IT WAS A VOLATILE YEAR FOR FINANCIAL SERVICES
STOCKS. IN THIS SECTION, LEAD PORTFOLIO MANAGER
DAVID DREMAN EXPLAINS HOW HE MANAGED THE KEMPER-
DREMAN FINANCIAL SERVICES FUND THROUGH THE
VOLATILITY, AND WHY HE REMAINS OPTIMISTIC ABOUT THE
LONG-TERM PROSPECTS FOR THE FINANCIAL SERVICES
SECTOR.
Q
BEFORE WE DISCUSS THE FUND'S PERFORMANCE, WOULD YOU PROVIDE AN OVERVIEW OF
THE FINANCIAL SERVICES SECTOR FOR THE LAST 12 MONTHS?
A
The performance of financial services stocks varied dramatically during
the 12-month period. During the first six months, we began to see some improved
performance in financial stocks. Like the broader market, financial stocks had
been shunned by investors seeking only the largest, growth-oriented technology
and Internet companies, creating a two-tier market where only a handful of
stocks were gaining.
The market, which for the past year had blindly bid up such a small group of
growth stocks, seemed to debate whether the companies' ongoing earnings could
support their extreme valuations. Investors began to look for quality companies
with solid long-term earnings track records that were priced more
conservatively. The defensive characteristics of financial services stocks made
them a logical alternative for investors looking for some "security." Many
financial stocks were trading at deep discounts, which meant they would likely
fall less than their highly valued counterparts if there was a shift in market
psychology. The sector was also buoyed by the continuing Internet frenzy.
Speculative, highly valued companies that we don't own such as Charles Schwab,
E-Trade and Ameritrade performed quite well in terms of earnings and market
price during the period as millions of people began trading stocks on line.
In late spring, fears of higher interest rates crept into the market, and
financial stocks began to stumble. Investors became concerned that higher
interest rates could have a profound effect on the businesses of companies in
the financial sector. Bank stocks seemed to be some of the hardest hit, but the
entire financial services sector was affected. When the Federal Reserve Board
began raising interest rates in June, financial stocks tumbled further despite
the fact that most companies were still posting positive earnings reports. The
financial stocks that weathered the storm best were the on line trading
companies and the largest diversified financial companies. We believe that this
correction was an overreaction by the market and that we'll see another
turnaround in the next six months as banks and other financial companies
continue to show strong and steady earnings.
Q
HOW DID KEMPER-DREMAN FINANCIAL SERVICES FUND PERFORM DURING THE PERIOD?
A
The fund's Class A shares (unadjusted for any sales charge) gained 1.95
percent for the 12 months ended November 30, 1999. By comparison, the Lipper
Analytical Financial Services Funds category gained an average of 3.95 percent,
and the S&P Financial index gained 8.24 percent.
[DREMAN PHOTO]
DAVID N. DREMAN IS CHAIRMAN OF DREMAN VALUE MANAGEMENT, L.L.C. (DVM), INC. AND
PORTFOLIO MANAGER OF KEMPER-DREMAN FINANCIAL SERVICES FUND. HE HAS MORE THAN 35
YEARS OF EXPERIENCE AS AN INVESTMENT ANALYST, ADVISOR AND MANAGER. DREMAN HOLDS
A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA, IN WINNIPEG,
CANADA. DREMAN IS A REGULAR COLUMNIST IN Forbes AND ALSO THE AUTHOR OF SEVERAL
BOOKS ON CONTRARIAN INVESTING, INCLUDING Contrarian Investment Strategies: The
Next Generation (SIMON & SCHUSTER 1998).
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. THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS WHEN
USED AS SALES LITERATURE.
PERFORMANCE UPDATE
5
<PAGE> 6
PERFORMANCE UPDATE
We attribute the fund's underperformance relative to its peers and the S&P
Financial index to our conservative investment style. We stayed away from the
speculative on line trading companies that buoyed the sector's performance, and
that caused the fund to underperform.
The hottest, but most speculative area of the financial services sector
included the on line-trading companies such as Charles Schwab, E-Trade and
Ameritrade. As the valuations of these stocks grew, they comprised a large
portion of the brokerage sector in the financial services index. The returns of
most other financial stocks, therefore, were dwarfed in comparison.
We also chose not to own any lower-quality lenders, another area that
performed strongly. In addition, we reduced our position in large money center
banks when we believed their valuations surpassed fair market value. While this
hurt us over the last 12 months, it should help the fund in the long term.
Q
WHY DID YOU STAY AWAY FROM THE ON LINE-TRADING COMPANIES AND LOWER-QUALITY
LENDERS?
A
We view these stocks as dangerous. The stock prices of the on line traders
have been boosted by the Internet frenzy sweeping the market. Their earnings are
now very much tied to the huge volume of trading taking place, specifically in
Internet-related stocks. Although the Internet is a dynamic area that has
already begun to change the face of commerce, we don't believe that the inflated
prices at which these on line-trading companies were trading would ever be
justified.
The concept of on line trading is appealing to the mass public. It's a new and
exciting tool. As trading on line has gained popularity, novices are finding out
that it's easy to gain and lose money very fast. Over the past year, it seems as
if all new Internet-related stocks have made tremendous gains, but now we're
seeing many of these stocks lose market value just as quickly. If we move into a
market decline, we believe many novice investors may cut their losses and
suspend their on line trading activity. This would seriously hurt the earnings
of the on line-trading companies.
We also stayed away from what we call "second-tier" lenders -- those who loan
money to lower-quality borrowers. These speculative lenders enjoyed strong gains
over the last six months, pushing their valuations to levels we can't justify --
particularly in light of their riskier loan portfolios. If the economy slows or
overheats, we would expect that these lenders would be the first to experience
an increase in loan defaults.
Q
WHAT IMPACT DID THE HIGHER-INTEREST-RATE ENVIRONMENT HAVE ON THE FUND'S
BANK STOCKS?
A
The higher-interest-rate environment hurt nearly all banks stocks -- ours
included. Although we're disappointed in the short-term performance declines,
our strong long-term outlook for this area has not changed. We believe that the
perception of the market and the reality of the strength of these stocks are at
odds. Many of the bank stocks that the fund holds depend more upon revenue
driven from fees or services rather than from their loan businesses. Therefore,
their earnings have not been impacted by the rising rates as much as the market
has punished their stock prices.
Q
THE FUND HAS SUBSTANTIAL POSITIONS IN FANNIE MAE AND FREDDIE MAC. WHAT
DRAWS YOU TO THESE STOCKS?
A
We think these are two of the best holdings in the portfolio, and they
have been trading at extreme discounts that we believe are completely
unwarranted. Federal National Mortgage Association (Fannie Mae) and Federal Home
Loan Mortgage Corp. (Freddie Mac) are involved in providing products and
services associated with the home loan mortgage industry. Both have long track
records of strong earnings growth, and both of these stocks had a huge run-up in
price in 1998. This year the stocks began to underperform. Some of the
underperformance was likely in response to the gains they made last year and
concerns that new governmental regulation may be introduced. As with the rest of
the financial sector, the higher-interest-rate environment also hurt Fannie Mae
and Freddie Mac. Intuitively, though, this doesn't make sense. As rates rise,
the likelihood of mortgage prepayments dwindles, which is a positive for these
stocks. We are optimistic that as their earnings continue to grow, the market
will see these stocks in a better light.
Q
WHERE ELSE ARE YOU FINDING VALUE?
A
We're finding good value in insurance. Our top holding, American
International Group (AIG), has been one of the best companies in the financial
sector, and it represents a large portion of the financial index. On an absolute
basis, the stock is not cheap, but we feel it's a real blue-chip holding and
6
<PAGE> 7
PERFORMANCE UPDATE
that its long track record of consistent earnings warrants its somewhat higher
valuation. AIG has also not had the disappointments of some of the other large,
pricey financial firms such as Citigroup or American Express, and it has
weathered the recent rise in rates better than most other financial companies.
We're also looking for more opportunities to invest in property and casualty
insurers. Many such stocks are trading at extremely low prices, and we believe
they have a great deal of improvement ahead of them. These insurers have been
held back because of intense competition in pricing. However, it looks as though
that is beginning to change, and that insurers should have more room to raise
prices, which would increase their earnings potential.
These companies have also benefited from the prospect of more merger and
acquisition activity in the sector. The recent passage of the new financial
services reform act (the Gramm-Leach-Bliley Act of 1999) opens the door for more
consolidation, which could be positive for insurers and the rest of the
financial services industry.
Q
HOW DO YOU SELECT INVESTMENTS FOR THE FUND?
A
We're contrarian investors. We look for stocks that are temporarily
undervalued, fundamentally strong, financial services companies with good
balance sheets. We screen stocks by looking for those with price-to-earnings,
price-to-book, price-to-cash-flow and price-to-dividend ratios that are low
relative to the overall market and to the financial services sector.
We've structured a relatively conservative portfolio that we believe should
perform favorably when the tide shifts and value stocks come back into favor.
But we're also opportunistic. If something comes crumbling down we invest
quickly to add value. We're always looking for breaks in the market that will
allow us to add quality companies to the portfolio when their stock prices have
reached or are on their way to reaching unsustainably low points.
Q
WHAT'S YOUR OUTLOOK FOR THE FINANCIAL SERVICES SECTOR AND KEMPER-DREMAN
FINANCIAL SERVICES FUND?
A
As I mentioned before, we are very optimistic about the financial services
sector. There are so many fundamentally solid companies out there that are
trading at depressed prices. We believe that the market will broaden, and when
it does, we'll see a great deal of improvement in this area. The fund's
conservative portfolio should enable it to perform well in such a situation.
Also, financial services companies may benefit from the anticipated increase in
mergers and acquisitions in 2000. Specifically, we're expecting improving
performance from regional banks, and from property and casualty insurance
companies. All in all, we believe we have constructed a good defensive,
all-weather portfolio.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1999 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR CLASS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS A -3.92% -1.39% (since 3/9/98)
....................................................................................................
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS B -1.92 -0.56 (since 3/9/98)
....................................................................................................
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS C 1.09 1.30 (since 3/9/98)
....................................................................................................
</TABLE>
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from XX/XX/XX to XX/XX/XX
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL STANDARD & POOR'S
SERVICES FUND CLASS A1 FINANCIAL SERVICES INDEX+ CONSUMER PRICE INDEX++
----------------------- ------------------------- ----------------------
<S> <C> <C> <C>
3/31/98 10000.00 10000.00 10000.00
9644.00 10291.00 10049.00
9/30/98 7803.00 9555.00 10086.00
9403.00 11157.00 10105.00
9848.00 11676.00 10173.00
6/30/99 10188.00 13175.00 10247.00
8855.00 11642.00 10351.00
11/30/99 9478.00 12385.00 10389.00
</TABLE>
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from XX/XX/XX to XX/XX/XX
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL STANDARD & POOR'S
SERVICES FUND CLASS B1 FINANCIAL SERVICES INDEX+ CONSUMER PRICE INDEX++
----------------------- ------------------------- ----------------------
<S> <C> <C> <C>
3/31/98 10000.00 10000.00 10000.00
10215.00 10291.00 10049.00
9/30/98 8250.00 9555.00 10086.00
9928.00 11157.00 10105.00
10369.00 11676.00 10173.00
6/30/99 10702.00 13175.00 10247.00
9275.00 11642.00 10351.00
11/30/99 9633.00 12385.00 10389.00
</TABLE>
KEMPER-DREMAN FINANCIAL SERVICES FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from XX/XX/XX to XX/XX/XX
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN FINANCIAL STANDARD & POOR'S
SERVICES FUND CLASS C1 FINANCIAL SERVICES INDEX+ CONSUMER PRICE INDEX++
----------------------- ------------------------- ----------------------
<S> <C> <C> <C>
3/31/98 10000.00 10000.00 10000.00
10225.00 10291.00 10049.00
9/30/98 8260.00 9555.00 10086.00
9939.00 11157.00 10105.00
10390.00 11676.00 10173.00
6/30/99 10723.00 13175.00 10247.00
9297.00 11642.00 10351.00
11/30/99 9943.00 12385.00 10389.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND, FOR
CLASS A SHARES, ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75% AND FOR
CLASS B SHARES, ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3%. CLASS C SHARES
HAVE NO ADJUSTMENT FOR SALES CHARGE.
THE MAXIMUM CDSC FOR CLASS B SHARES IS
4%. FOR CLASS C SHARES, THERE IS A 1%
CDSC ON CERTAIN REDEMPTIONS WITHIN THE
FIRST YEAR OF PURCHASE. SHARE CLASSES
INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN
REFLECTS ANNUALIZED CHARGES WHICH
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 CDSC IN EFFECT AT THE
END OF THE PERIOD FOR CLASS B SHARES.
IN COMPARING KEMPER-DREMAN FINANCIAL
SERVICES FUND WITH THE STANDARD &
POOR'S FINANCIAL INDEX+ AND THE
CONSUMER PRICE INDEX++, YOU SHOULD
NOTE THAT THE FUND'S PERFORMANCE
REFLECTS THE MAXIMUM SALES CHARGE,
WHILE NO SUCH CHARGES ARE REFLECTED
IN THE PERFORMANCE OF THE INDICES.
+THE STANDARD & POOR'S FINANCIAL INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE FINANCIAL STOCK
MARKET. SOURCE IS WIESENBERGER.
++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
WIESENBERGER.
8
<PAGE> 9
INDUSTRY SECTORS
KEMPER DREMAN FINANCIAL SERVICES FUND'S
COMPOSITION BY SECTOR*
Data shows the percentage of the common stocks in the portfolio that each sector
represented on November 30, 1999, and November 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMEN FINANCIAL KEMPER-DREMEN FINANCIAL
SERVICES FUND ON 11/30/99 SERVICES FUND ON 11/30/98
------------------------- -------------------------
<S> <C> <C>
Banks 48.40 60.60
Insurance 18.20 18.50
Other finance 17.70 16.10
Consumer finance 15.70 4.80
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER-DREMAN FINANCIAL SERVICES FUND'S 10 LARGEST HOLDINGS*
Representing 56.6 percent of the fund's portfolio on November 30, 1999
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
1. AMERICAN INTERNATIONAL GROUP A holding company engaged in 9.7%
insurance and insurance-related
activities in the United States
and abroad. AIG's primary
activities are general insurance
and life insurance operations.
- ----------------------------------------------------------------------------------------
2. CITIGROUP A worldwide bank holding company 9.1%
that provides a broad array of
financial services.
- ----------------------------------------------------------------------------------------
3. BANK OF AMERICA A holding company with 7.2%
subsidiaries engaged in full-
service retail and corporate
banking, corporate finance,
capital markets, investment
advisory and trust, and other
financial service activities.
- ----------------------------------------------------------------------------------------
4. FNMA Often referred to as "Fannie Mae," 5.7%
this is a private 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. WELLS FARGO Wells Fargo and Company is a 4.7%
holding company whose subsidiaries
are engaged in banking and a
variety of related businesses.
- ----------------------------------------------------------------------------------------
6. BANK ONE Provides data processing, venture 4.4%
capital investment and merchant
banking, retail banking trust,
brokerage, investment management
and equipment leasing.
- ----------------------------------------------------------------------------------------
7. PRISON REALTY Prison Realty Trust, a real estate 4.4%
TRUST investment trust, is the world's
largest private-sector owner and
developer of prisons and jails.
- ----------------------------------------------------------------------------------------
8. FLEETBOSTON FINANCIAL FleetBoston provides asset 4.0%
management, insurance, investment
banking and mortgage banking as
well as retail services such as
checking, savings, loans, credit
cards and money market accounts.
- ----------------------------------------------------------------------------------------
9. FIRST UNION Engaged in commercial, investment 3.7%
and mortgage banking, providing
retail and commercial banking,
retail investment, mortgage, home
equity, leasing, insurance,
capital markets, cash management
and securities brokerage services.
- ----------------------------------------------------------------------------------------
10. PNC BANK Engaged in the operation of a 3.7%
variety of financial services,
including mortgage, community,
consumer, private and corporate
banking, secured lending and asset
management.
- ----------------------------------------------------------------------------------------
</TABLE>
*THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
The accompanying notes are an integral part of the financial statements.
KEMPER-DREMAN FINANCIAL SERVICES FUND
Portfolio of Investments at November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS--0.6% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C> <C>
State Street Bank and Trust Company,
dated 11/29/1999, 5.630%, to be
repurchased at $1,191 on 12/01/1999(b)
$ 1,191 $ 1,191
(Cost $1,191)
-------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--99.4% NUMBER OF SHARES
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL--99.4%
BANKS--48.1%
234,677 8,272
Bank One Corp.
56,640 2,496
BancWest Corp.
231,176 13,524
Bank of America Corp.
86,475 6,680
Chase Manhattan Corp.
86,265 987
Colonial BancGroup, Inc.
37,120 1,039
Corus Bankshares, Inc.
181,793 7,033
First Union Corp.
201,259 7,610
FleetBoston Financial Corp.
6,655 672
Golden West Financial Corp.
22,705 2,986
J.P. Morgan & Co., Inc.
199,390 5,383
KeyCorp, "New"
224,950 2,641
National Bank of Canada
43,060 867
North Fork Bancorporation, Inc.
124,020 6,914
PNC Bank Corp.
45,715 774
People's Heritage Financial Group, Inc.
60,440 1,738
Popular, Inc.
25,965 1,024
Provident Financial Group
69,690 4,926
Republic New York Corp.
37,020 1,208
Summit Bancorp
40,230 2,811
SunTrust Banks, Inc.
71,594 2,076
Washington Mutual, Inc.
191,525 8,906
Wells Fargo & Co.
-------------------------------------------------------------------------
90,567
INSURANCE--18.1%
12,473 1,124
Aegon NV (ADR)
110,640 2,897
Allstate Corp.
177,045 18,280
American International Group, Inc.
23,130 1,239
Chubb Corp.
24,165 1,988
Cigna Corp.
12,465 846
Jefferson Pilot Corp.
30,275 1,262
Lincoln National Corp.
25,745 2,024
Marsh & McLennan Companies, Inc.
127,950 1,971
Ohio Casualty Corp.
35,995 853
Safeco Corp.
26,090 787
St. Paul Companies, Inc.
23,430 744
Torchmark Corp.
-------------------------------------------------------------------------
34,015
CONSUMER FINANCE--15.6%
43,980 6,655
American Express Co.
319,775 17,228
Citigroup, Inc.
37,300 1,476
Household International, Inc.
70,195 2,558
Mellon Financial Corp.
29,145 1,444
SLM Holding Corp.
-------------------------------------------------------------------------
29,361
OTHER FINANCIAL
COMPANIES--17.6%
116,660 5,760
Federal Home Loan Mortgage Corp.
159,700 10,640
Federal National Mortgage Association
1,017,300 8,266
Prison Realty Trust, Inc. (REIT)
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
(DOLLARS IN THOUSANDS)
PORTFOLIO OF INVESTMENTS
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C> <C>
25,885 $ 1,056
Bear Stearns Companies, Inc.
31,375 986
Franklin Resources, Inc.
14,650 1,101
Goldman Sachs Group, Inc.
13,115 1,002
Lehman Brothers Holdings, Inc.
53,840 4,341
Merrill Lynch & Co., Inc.
-------------------------------------------------------------------------
33,152
-------------------------------------------------------------------------
TOTAL COMMON STOCKS
187,095
(Cost $190,340)
-------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
$188,286
(Cost $191,531)(a)
-------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purposes was $193,000. At November 30, 1999,
the net unrealized depreciation for all securities based on tax cost was
$4,714. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess market value over tax cost of
$25,360 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $30,074.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value,
(cost $191,531) $188,286
- ------------------------------------------------------------------------
Cash 159
- ------------------------------------------------------------------------
Receivable for investments sold 387
- ------------------------------------------------------------------------
Dividends receivable 215
- ------------------------------------------------------------------------
Receivable for Fund shares sold 418
- ------------------------------------------------------------------------
Foreign taxes recoverable 1
- ------------------------------------------------------------------------
Deferred organization expense 7
- ------------------------------------------------------------------------
TOTAL ASSETS 189,473
- ------------------------------------------------------------------------
LIABILITIES
Payable for Fund shares redeemed 702
- ------------------------------------------------------------------------
Accrued management fee 233
- ------------------------------------------------------------------------
Other accrued expenses and payables 886
- ------------------------------------------------------------------------
TOTAL LIABILITIES 1,821
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $187,652
- ------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 1,014
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities (3,245)
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) (923)
- ------------------------------------------------------------------------
Paid-in capital 190,806
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $187,652
- ------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($82,203 / 8,440 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $9.74
- ------------------------------------------------------------------------
Maximum offering price per share
(100/94.25 of $9.74) $10.33
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($89,859 / 9,297 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $9.65
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($15,590 / 1,609 outstanding shares of beneficial
interest,
$.01 par value, unlimited number of shares authorized) $9.69
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $23) $5,269
- ----------------------------------------------------------------------
Interest 193
- ----------------------------------------------------------------------
Total income 5,462
- ----------------------------------------------------------------------
Expenses:
Management fee 1,589
- ----------------------------------------------------------------------
Services to shareholders 598
- ----------------------------------------------------------------------
Custodian and accounting fees 105
- ----------------------------------------------------------------------
Distribution services fees 873
- ----------------------------------------------------------------------
Administrative services fees 530
- ----------------------------------------------------------------------
Auditing 11
- ----------------------------------------------------------------------
Legal 27
- ----------------------------------------------------------------------
Trustees' fees 17
- ----------------------------------------------------------------------
Reports to shareholders 122
- ----------------------------------------------------------------------
Amortization of organization expenses 2
- ----------------------------------------------------------------------
Other 69
- ----------------------------------------------------------------------
Total expenses before expense reductions 3,943
- ----------------------------------------------------------------------
Expense reductions (148)
- ----------------------------------------------------------------------
Total expenses, after expense reductions 3,795
- ----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,667
- ----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (221)
- ----------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments 2,249
- ----------------------------------------------------------------------
Net gain (loss) on investment transactions 2,028
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $3,695
- ----------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 9, 1998
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 1,667 $ 186
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (221) (248)
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 2,249 (5,494)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 3,695 (5,556)
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (792) --
- ------------------------------------------------------------------------------------------------------
Class B (38) --
- ------------------------------------------------------------------------------------------------------
Class C (8) --
- ------------------------------------------------------------------------------------------------------
From net realized gains
Class A (216) --
- ------------------------------------------------------------------------------------------------------
Class B (207) --
- ------------------------------------------------------------------------------------------------------
Class C (34) --
- ------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 98,331 267,747
- ------------------------------------------------------------------------------------------------------
Reinvestment of distributions 1,181 --
- ------------------------------------------------------------------------------------------------------
Cost of shares redeemed (138,421) (38,130)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (38,909) 229,617
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (36,509) 224,061
- ------------------------------------------------------------------------------------------------------
Net assets at beginning of period 224,161 100
- ------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed
net investment income of $1,014 and $182, respectively) $ 187,652 $224,161
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
FOR THE PERIOD FROM
MARCH 9, 1998
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
NOVEMBER 30, 1999 TO NOVEMBER 30, 1998
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.65 9.50
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .13 .03
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .06 .12
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .19 .15
- ------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.08) --
- ------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.10) --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.74 9.65
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN %(B)(C) 1.95 1.58**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets at end of period ($ thousands) 82,203 108,206
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.44 1.55*
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.31 1.36*
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.27 .55*
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE PERIOD FROM
MARCH 9, 1998
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
NOVEMBER 30, 1999 TO NOVEMBER 30, 1998
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.59 9.50
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .04 (.01)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .05 .10
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .09 .09
- ------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.01) --
- ------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.03) --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.65 9.59
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN %(B)(C) 1.08 .95**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets at end of period ($ thousands) 89,859 99,631
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.22 2.29*
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.20 2.14*
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .38 (.23)*
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
FOR THE PERIOD FROM
MARCH 9, 1998
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
NOVEMBER 30, 1999 TO NOVEMBER 30, 1998
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.61 9.50
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .04 (.01)
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .07 .12
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .11 .11
- ------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.01) --
- ------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.02) --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.03) --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.69 9.61
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%)(B)(C) 1.09 1.16**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets at end of period ($ thousands) 15,590 16,324
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.16 2.26*
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.14 2.11*
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .44 (.20)*
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14 5*
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
** Not annualized
* Annualized
17
<PAGE> 18
NOTES TO FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper-Dreman Financial Services (the "Fund") is a
non-diversified series of Kemper Equity Trust (the
"Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as an open-end management investment company
organized as a Massachusetts business trust.
Effective July 29, 1999, based on a vote by the
Fund's shareholders, the Fund's sub-classification
under the 1940 Act was changed from a diversified
company to a non-diversified company.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation 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 value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made
semiannually. Net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not
distributed, and, therefore, will be distributed to
shareholders at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
Trust expenses are allocated between the funds in
proportion to their relative net assets.
ORGANIZATION COSTS. Costs incurred by the Fund in
connection with its organization have been deferred
and are being amortized on a straight-line basis
over a five-year period.
- --------------------------------------------------------------------------------
2
PURCHASES AND SALES
OF SECURITIES For the year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $28,596
Proceeds from sales 58,193
- --------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and 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. For the year
ended November 30, 1999, Scudder Kemper did not
impose a portion of its fee amounting to $45,000,
19
<PAGE> 20
NOTES TO FINANCIAL
STATEMENTS
and the amount imposed aggregated $1,544,000, which
is equivalent to an annualized effective rate of
.73% of average daily net assets. 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. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the year ended November 30,
1999 are $38,000.
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 and CDSC received by KDI
for the year ended November 30, 1999 are
$1,365,000, of which $93,000 is unpaid at November
30, 1999.
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 paid by the
Fund to KDI for the year ended November 30, 1999
are $427,000 after an expense waiver of $103,000,
of which $451,000 is unpaid at November 30, 1999.
SHAREHOLDER SERVICE 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 $465,000
for the year ended at November 30, 1999 of which
$39,000 is unpaid at November 30, 1999.
FUND ACCOUNTING FEES. Scudder Fund Accounting
Corporation ("SFAC"), a subsidiary of the Adviser,
is responsible for determining the daily net asset
value per share and maintaining the portfolio and
general accounting records of the Fund. For the
year ended November 30, 1999, the amount charged to
the Fund by SFAC aggregated $94,000, of which
$16,000 is unpaid at November 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended November 30,
1999, the Fund made no payments to its officers and
incurred trustees fees of $17,000 to independent
trustees.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 6,579 $ 66,142 14,095 $137,426
-----------------------------------------------------------------------------
Class B 2,533 25,245 11,393 111,288
-----------------------------------------------------------------------------
Class C 692 6,944 1,951 19,033
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 94 932 -- --
-----------------------------------------------------------------------------
Class B 22 214 -- --
-----------------------------------------------------------------------------
Class C 4 35 -- --
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (9,444) (94,510) (2,888) (26,782)
-----------------------------------------------------------------------------
Class B (3,647) (35,990) (1,008) (9,043)
-----------------------------------------------------------------------------
Class C (786) (7,921) (255) (2,305)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(38,909) $229,617
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees were reduced by $53 under
these arrangements.
- --------------------------------------------------------------------------------
6
LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
21
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER-DREMAN FINANCIAL SERVICES FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman Financial Services
Fund, as of November 30, 1999, and the related statements of operations and
changes in net assets and the financial highlights for the periods indicated
therein. 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and financial highlights. Our procedures included
confirmation of investments owned as of November 30, 1999, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper-Dreman Financial Services Fund at November 30, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
periods referred to above, in conformity with accounting principles generally
accepted in the United States.
ERNST
& YOUNG LOGO
Chicago, Illinois
January 20, 2000
22
<PAGE> 23
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$106,000 as capital gain dividends for its year ended November 30, 1999, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal year ended November 30, 1999 qualified for the dividends received
deduction.
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.
23
<PAGE> 24
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on September 23, 1999, for
Kemper-Dreman Financial Services Fund. Shareholders were asked to vote on the
issue of changing the Fund's sub-classification under the Investment Company Act
of 1940 from a diversified company to a non-diversified company. Following are
the results of the vote:
1) To approve the change to the Fund's sub-classification under the Investment
Company Act of 1940 from a diversified company to a non-diversified company.
This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
9,546,170 481,265 845,672
</TABLE>
24
<PAGE> 25
NOTES
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY MAUREEN E. KANE
Trustee President Assistant Secretary
JAMES R. EDGAR PHILIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK BRENDA LYONS
Trustee THOMAS W. LITTAUER Assistant Treasurer
Vice President
FREDERICK T. KELSEY
Trustee ANN M. MCCREARY
Vice President
KATHRYN L. QUIRK
Trustee and Vice President WILLIAM F. TRUSCOTT
Vice President
FRED B. RENWICK
Trustee LINDA J. WONDRACK
Vice President
JOHN G. WEITHERS
Trustee JOHN R. HEBBLE
Treasurer
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606
www.kemper.com
</TABLE>
TRUSTEES&OFFICERS
[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.
KDFSF - 2 (1/25/00) 1099550
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
