<PAGE> 1
KEMPER-DREMAN
SMALL CAP VALUE FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
Seeking long-term capital appreciation
"We were able to identify new opportunities and benefited from positions that
were already in place."
<PAGE> 2
TABLE OF CONTENTS
3
GENERAL
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
6
TERMS TO KNOW
8
INDUSTRY SECTORS
9
INDIVIDUAL HOLDINGS
10
PORTFOLIO OF INVESTMENTS
12
REPORT OF
INDEPENDENT AUDITORS
13
FINANCIAL STATEMENTS
15
NOTES TO
FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
AT A GLANCE
Kemper-Dreman Small Cap Value Fund total return for the year ended December 31,
1995 (unadjusted for any sales charge) is shown below. Please note Class B and
C Shares' one year returns are not available due to their inception date
of September 11, 1995.
<TABLE>
<CAPTION>
KEMPER-DREMAN LIPPER SMALL
SMALL CAP COMPANY GROWTH
VALUE FUND FUNDS CATEGORY
CLASS A AVERAGE*
------------ --------------
<S> <C>
43.29% 31.54%
</TABLE>
Returns are historical and do not represent future performance. Returns and
net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
NET ASSET VALUE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of As of As of
12/31/95 9/11/95 12/31/94
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER-DREMAN
SMALL CAP VALUE
FUND A CLASS $14.50 $15.75 $10.85
- ------------------------------------------------------------------------------
KEMPER-DREMAN
SMALL CAP VALUE
FUND CLASS B $14.48 $15.75 n/a
- ------------------------------------------------------------------------------
KEMPER-DREMAN
SMALL CAP VALUE
FUND CLASS C $14.48 $15.75 n/a
- ------------------------------------------------------------------------------
</TABLE>
KEMPER-DREMAN SMALL CAP VALUE
FUND LIPPER RANKINGS
- -------------------------------------------------------------------------------
Compared to all other funds in the Lipper Small Company Growth Funds Category*
<TABLE>
<CAPTION>
CLASS A
- -------------------------------------------------------------------------------
<C> <S>
1-YEAR #55 of 305 FUNDS
- -------------------------------------------------------------------------------
3-YEAR #74 of 151 FUNDS
- -------------------------------------------------------------------------------
</TABLE>
*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.
Returns and rankings are historical and do not reflect future performance.
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
During the fiscal year, Kemper-Dreman Small Cap Value Fund paid the following
dividends:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM
CAPITAL GAIN: $0.67 $0.67 $0.67
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN: $0.3026 $0.17 $0.17
- --------------------------------------------------------------------------------
</TABLE>
ABOUT YOUR REPORT
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager on
what might be expected in the coming months.
Specifically, your report now includes:
- Terms you need to know related to your fund
- A look at your fund's sector weightings and how they have changed
- A comparison of your fund and its benchmark sector weightings
- Your fund's largest individual holdings
If you have any comments about the revised format, please write to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[PICTURE]
Stephen B. Timbers is president, chief executive and chief investment officer
of Kemper Financial Services, Inc. (KFS). KFS and its affiliates manage
approximately $70 billion in assets, including $43 billion in retail mutual
funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDER:
Last year -- a year in which both the equity and the fixed-income markets
produced strong above-average returns -- will be a difficult year to follow.
However, based on what we see a few months into the new year, we believe 1996
also will be capable of rewarding investors. Unlike last year, however, we
expect there will be more volatility from markets and a wider range of winners
and losers in 1996. This is the time for careful decision-making.
What has changed? We continue to experience low interest rates, an acceptable
rate of economic growth and low inflation. Although certain government reports
have been late in coming due to the federal government shutdown, there's little
in the economic data that suggests cause for concern.
Yet, this year we must begin to consider the possibility of a recession
within the next 24 months. We have enjoyed one of the longest economic
expansions in the 20th century. By virtue of the length of the expansion alone,
it is reasonable to expect an eventual slowdown or negative growth. Moreover, a
recession can be triggered by a surprise not forecastable by current available
data. It could take the form of political turmoil in the Middle East,
instability in Russia or even a further downturn in Japan's economic health.
Any type of surprise has the potential to reverse the growth we have become
accustomed to.
Having enjoyed an almost uninterrupted climb in 1995, the markets also are
vulnerable to correction. A key reason that stock prices have been rising is
that there have been large cash flows directed to the market. Whenever positive
liquidity is the driving force in the market -- as opposed to investors'
reactions to individual companies' fundamentals -- one has to be cautious.
Moreover, corporate earnings will not continue to grow at their earlier,
breakneck paces. In 1996, we expect profit growth to be in the single-digit.
Despite all, at this point early in the year, we think the stock market has the
potential to return close to its historical average of about 10 percent (+).
Remember, of course, that in January alone the Standard & Poor's 500 Stock
Index gained 3.4 percent. Our forecast assumes added stock market volatility
this year.
Our equities forecast assumes some help from the bond market. As you
know, the Federal Reserve Board has begun to ease short-term interest rates,
and we expect rates to drop further. The relationship between short and
long-term rates at this point in the economic cycle is an intriguing one, and
one that would argue against a recession forecast. Short-term interest rates
are falling. Yet, rates typically rise in an economy headed toward recession.
As is typical after a strong year in the domestic markets, many investors
will be looking overseas for superior return opportunities in 1996. This move
makes good sense to us, as well. Foreign economies' expansions often follow the
U.S. In fact, improvement abroad could help sustain this country's expansion as
it could boost the demand for exports.
The value of the dollar, having had a roller coaster year in 1995, should
settle down. Strength in foreign markets could boost those countries'
currencies, which would bring an end to the current dollar rally later this
year.
As we head toward the November presidential elections, we can expect
continued discussion from both political parties about balancing the federal
budget and related taxation issues. Frankly, we see the candidates as waging a
war in sameness -- there's really little difference between the Republican
primary platform and what President Bill Clinton has committed to about a
balanced budget. Economically as well as socially, the trend in government is
toward conservativism.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
President, Chief Investment and Executive Officer
February 20, 1996
(+) Source: Based upon the average of the Standard & Poor's 500 Stock Index
since 1928 (Towers Data Systems). This data is historical and does not
reflect future results. The S&P 500 is an unmanaged index generally
representative of the U.S. Stock Market.
3
<PAGE> 4
GENERAL 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.
<TABLE>
<CAPTION>
Now (1/31/96) 6 Months ago 1 Year ago 2 Years ago
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10 YEAR TREASURY RATE(1) 5.65 6.49 7.47 5.97
PRIME RATE(2) 8.50 8.75 9.00 6.00
INFLATION(3)* 2.60 2.90 2.87 2.52
U.S. DOLLAR(4) -0.57 -4.1 5.54 -0.02
CAPITAL GOODS ORDERS(5)* 11.63 7.10 23.00 15.48
INDUSTRIAL PRODUCTION(6) 0.07 3.17 5.41 4.21
EMPLOYMENT GROWTH(7) 1.18 2.03 3.15 2.49
</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%. 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 corporate profits and equity performance.
7 An influence on family income and retail sales.
Source: Economics Department, Kemper Financial Services, Inc.
* Data as of December 31, 1995
4
<PAGE> 5
PERFORMANCE UPDATE
Michael Berry joined Dreman Value Advisors, Inc. (DVA) in 1994 and is a
managing director of DVA and portfolio manager of Kemper-Dreman Small Cap Value
fund. Berry received a bachelors in math from the University of Waterloo, and
M.B.A. in marketing from the University of connecticut and a Ph.D. in Finance
from Arizona State University.
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.
AMID A STRONG BULL STOCK MARKET, KEMPER-DREMAN SMALL CAP VALUE FUND ENDED THE
YEAR OUTPERFORMING THE AVERAGE OF ITS LIPPER PEERS. PORTFOLIO MANAGER MICHAEL
BERRY DISCUSSES THE STRATEGY BEHIND THIS STRONG PERFORMANCE AND HIS OUTLOOK FOR
1996.
Q THROUGH MOST OF 1995, SMALL CAPITALIZATION STOCKS GENERALLY LAGGED
THEIR LARGER COUNTERPARTS. YET KEMPER-DREMAN SMALL CAP VALUE FUND CLASS
A SHARES POSTED A 43.29% GAIN FOR THE YEAR, OUTPACING BOTH THE DOW JONES
INDUSTRIAL AVERAGE AND THE STANDARD & POOR'S 500 STOCK Index. WHAT WAS
THE KEY TO THE FUND'S SUCCESS?
A Looking at the overall market, large cap stocks did outperform small
caps for most of the year. But within the small cap arena, value
generally outperformed growth. Within that context, we were able to
identify new opportunities and benefited from positions that were already
in place. For example, the financial stocks we'd purchased in 1994, and
even earlier, really came to life as interest rates declined. As of
December 31, we had about 29% of assets in this sector, diversified among
savings and loan institutions, banks, financial services and insurance.
Imperial Credit Industries and Coast Savings Financial were big winners
for us. Gaming stocks contributed some solid performance as well. Bally
Entertainment and Casino Data Systems, two of our top holdings, were up
129% and 138%, respectively in 1995. Cyrix, a contrarian technology
position, was up almost 50% before we sold it in November.
Q SINCE JOINING THE KEMPER FAMILY IN SEPTEMBER, 1995, THE FUND HAS GROWN
FROM ABOUT $12.2 MILLION TO APPROXIMATELY $32 MILLION. HOW HAS THIS
GROWTH AFFECTED YOUR MANAGEMENT OF THE FUND?
A With a return of over 40%, a good portion of that growth obviously came
from the appreciation of assets in the portfolio. But we've also seen a
significant increase in new money coming into the fund, which put us in
an enviable position. We were able to invest in some new opportunities
without having to sell any existing positions. For example, in December
we positioned the portfolio for 1996 with issues such as Sports &
Recreation, Insurance Auto Auctions, First Financial Caribbean Corp. and
Stewart & Stevenson Services. We were able to increase the fund's yield
without selling stocks we believed to be well-positioned for 1996.
Q HOW HAS THE FUND'S INVESTMENT PORTFOLIO CHANGED OVER THE PAST YEAR?
A The past year has been a period of reaping the benefits as our
selections made gains. One area that we did cut back was technology.
Our exposure wasn't all that high to begin with -- 12.4% at the end of
1994 -- but the whole sector
5
<PAGE> 6
PERFORMANCE UPDATE
became so overowned at the beginning of the year that we couldn't justify
staying there. At the end of 1995 our only remaining technology holding was
EXAR Corporation, a company that manufactures integrated circuits. That stock
ended the year down 40%. We're still interested in EXAR, however, and several
other technology stocks that should become more value-oriented in 1996.
In terms of purchases, we added to our gaming exposure. In fact, Bally
and Casino Data systems were the fund's top two holdings as of December 31.
(See page 9 for a listing of the fund's top ten holdings.) I think this area
still presents some strong potential. Also, we bought some specialty retailers
and energy stocks. Toward year-end, I focused on adding some yield to the
portfolio with a few utilities and stocks like Haggar (apparel), Duracraft (a
maker of energy efficient home products) and Insurance Auto Auctions (the
largest reseller of stolen and damaged cars to the insurance industry) --
traditonal value stocks that boast strong fundamentals. After the market's
substantial gains in 1995, a correction would certainly not be a surprise.
Some additional yield can add a cushion for the fund's total return if one were
to occur.
Q SINCE ITS INCEPTION IN 1992, KEMPER-DREMAN SMALL CAP VALUE FUND'S DIVIDEND
PAYMENT HISTORY HAS BEEN SPORADIC-SOMETIMES QUARTERLY, SOMETIMES
SEMIANNUALLY. WHAT IS THE REASON FOR THIS, AND WHAT CAN SHAREHOLDERS EXPECT
GOING FORWARD?
A Generally speaking, companies with smaller market capitalizations typically
generate less dividend income per share than their larger counterparts, and
often reinvest profits for additional growth and development. In fact,
almost half of the stocks in the portfolio are non-income producing. While
Kemper-Dreman Small Cap Value Fund has enjoyed strong total returns, it
generally does not earn sufficient income to warrant quarterly income
distributions. In fact, since the fund's inception in 1992, most of its
dividend distributions have been derived from capital gains. For this
reason, the fund's Board of Directors has voted to change the fund's
dividend payment schedule to one annual distribution paid at year-end.
However, for regulatory reasons, additional dividend payments may be
required.
Q WHAT IS YOUR OUTLOOK FOR 1996, AND WHAT STOCKS ARE YOU CURRENTLY
INTERESTED IN?
A It's possible that we'll see slower growth in 1996. But with some strong
interest rate cuts by the Federal Reserve Board, small caps could reverse the
underperformance cycle we saw in 1995.
With regard to the stocks we're looking at, I think health maintenance
organizations -- which have been very much out of favor -- could reach
historic lows in the coming months. That area could provide some real value
opportunities. I'm looking at some oil drilling and exploration stocks,
and I think there's some potential among the retail stocks, which have been
struggling. As always, we're looking at stocks that are cheap and out of
favor but that growth-conscious investors will be seeking out in the small
cap sector.
TERMS TO KNOW
VALUE STYLE OF INVESTING Investors following this investment style seek to
find value among promising stocks that are currently out of favor -- or, in
other words, are trading at prices lower than their earnings would suggest. A
value stock is the stock of a company that is out of favor with investors
because the market underestimates its value or overlooks its potential. Stocks
become undervalued as a result of overreaction by investors to unfavorable news
about a company, industry or the stock markets in general. Or they can become
undervalued as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the
company.
6
<PAGE> 7
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
- ------------------------------------------------------------------------------
For periods ended December 31, 1995 (adjusted for the applicable sales charge)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR CLASS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER-DREMAN SMALL CAP VALUE FUND CLASS A 35.07% 15.12% (since 5/22/92)
- ---------------------------------------------------------------------------------------
KEMPER-DREMAN SMALL CAP VALUE FUND CLASS B N/A -6.19 (since 9/11/95)
- ---------------------------------------------------------------------------------------
KEMPER-DREMAN SMALL CAP VALUE FUND CLASS C N/A -2.51 (since 9/11/95)
- ---------------------------------------------------------------------------------------
</TABLE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER-DREMAN
SMALL CAP VALUE FUND CLASS A FROM 5/31/92 THROUGH 12/31/95
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/92 12/31/93 12/31/94 12/31/95
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman Small Cap Value Fund Class A(1) $10,000 $11,584 $11,601 $16,623
Russell 2000 Index (+) 10,000 13,391 13,147 16,889
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return, and for B and C Shares, 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
maximum contingent deferred sales charge of 4%. There is no sales charge for
Class C Shares. 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 shown is for Class A Shares and includes reinvestment of
dividends and adjustment for the maximum sales charge of 5.75%. In comparing
Kemper-Dreman small Cap Value Fund to the Russell 2000 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 index.
(+) 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.
7
<PAGE> 8
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on December 31, 1995 and on December 31, 1994.
<TABLE>
<CAPTION>
KEMPER-DREMAN SMALL DREMAN SMALL CAP
CAP VALUE FUND AS OF VALUE FUND AS OF
12/31/95 12/31/94
- ------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 32.6% 24.3%
CONSUMER NONDURABLES 25.1% 22.6%
CAPITAL GOODS 23.7% 5.9%
ENERGY 10.4% 7.4%
BASIC INDUSTRIES 3.0% 13.2%
TECHNOLOGY 2.7% 12.4%
TRANSPORTATION 2.5% 4.9%
HEALTH CARE 0.0% 9.3%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX
Data show the percentage of the common stocks in the portfolio that each sector
of Kemper-Dreman Small Cap Value Fund represented on December 31, 1995, compared
to the industry sectors that make up the fund's benchmark, the Russell 2000
Index.
<TABLE>
<CAPTION>
KEMPER-DREMAN SMALL RUSSELL 2000
CAP VALUE FUND AS OF INDEX AS OF
12/31/95 12/31/95
- ------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 32.6% 22.2%
CONSUMER NONDURABLES 25.1% 21.7%
CAPITAL GOODS 23.7% 9.5%
ENERGY 10.4% 4.9%
BASIC INDUSTRIES 3.0% 6.0%
TECHNOLOGY 2.7% 16.7%
TRANSPORTATION 2.5% 2.5%
HEALTH CARE 0.0% 10.0%
CONSUMER DURABLES 0.0% 3.6%
UTILITIES 0.0% 2.8%
SMALL CAPITALIZATION/
INTERNATIONAL 0.0% 0.1%
</TABLE>
8
<PAGE> 9
INDIVIDUAL HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS
Representing 43.7% of the fund's total net assets on December 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. BALLY ENTERTAINMENT CORP. Through its subsidiaries, Bally owns and operates casino hotels in 6.3%
Atlantic City, New Jersey, and Las Vegas, Nevada; operates a gambling
house in Tunica, Mississippi; and is currently building a riverboat
casino in New Orleans, Louisiana. Through Bally's Health and Tennis,
this company also owns and operates about 350 fitness centers in the
U.S. and Canada.
- ---------------------------------------------------------------------------------------------------------------------------------
2. CASINO DATA SYSTEMS A leading supplier to the gaming industry of slot accounting and player 5.8%
tracking systems; manufactures meters, signs and graphics; designs and
manufactures gaming devices and develops custom programming tools.
- ---------------------------------------------------------------------------------------------------------------------------------
3. BLOUNT, INC. Manufactures outdoor products, forestry harvest and sporting equipment; 5.0%
products include saw chains, sprockets, timber harvest and log loading
equipment, industrial tractors and sporting ammunition.
- ---------------------------------------------------------------------------------------------------------------------------------
4. SOFAMOR-DANEK GROUP Manufacturer of spinal implant devices. 4.8%
- ---------------------------------------------------------------------------------------------------------------------------------
5. IMPERIAL CREDIT INDUSTRIES A specialty lender with a thrift and loan subsidiary. 4.6%
- ---------------------------------------------------------------------------------------------------------------------------------
6. MERCER INTERNATIONAL Seeks assets or companies capable of providing cash flow or that can 4.3%
be used to secure long-term borrowing; operates in the financial services
and environmental industries; provides industrial remediation services
and pulp and paper recycling in eastern Germany.
- ---------------------------------------------------------------------------------------------------------------------------------
7. KCS ENERGY Engaged in the exploration, transport, production and marketing of 3.8%
natural gas, oil and gas.
- ---------------------------------------------------------------------------------------------------------------------------------
8. PHH CORPORATION A business services company specializing in vehicle fleet and fuel 3.2%
management services, corporate relocation, corporate real estate
management services and mortgage banking services.
- ---------------------------------------------------------------------------------------------------------------------------------
9. ATLANTIC TELENETWORK A holding company whose principal subsidiaries include Virgin Islands 3.1%
Telephone Co. and Guyana Telephone and Telegraph Co.
- ---------------------------------------------------------------------------------------------------------------------------------
10. FREEPORT-MCMORAN, INC. Engaged in the production of phosphate fertilizers, the mining of 2.8%
phosphate rock and the mining, transport and terminalling of sulfur;
develops related oil reserves.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN SMALL CAP VALUE FUND
Portfolio of Investments at December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS NUMBER OF SHARES VALUE
BANKS--6.7%
Brooklyn Bancorp, Inc. 6,900 $ 281
CENFED Financial Corp. 12,500 300
(a)Coast Savings Financial 8,500 294
Compass Bancshares 15,000 495
Liberty Bancorp 12,000 447
North Side Savings Bank 9,600 293
------------------------------------------------------------------------------
2,110
- ----------------------------------------------------------------------------------------------------------------
CHEMICALS--2.8%
Freeport-McMoRan Inc. 23,866 883
- ----------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.1%
(a)Atlantic Tele-Network 90,200 975
- ----------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES--9.4%
Central Maine Power Co. 30,500 438
Giant Industries 60,600 742
(a)International Technology Corp. 105,900 278
KCS Energy 80,700 1,211
Stewart & Stevenson Services 11,700 295
-----------------------------------------------------------------------------
2,964
- ----------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--12.2%
Bally Entertainment Corp. 142,800 1,999
(a)Casino Data Systems 73,900 1,848
-----------------------------------------------------------------------------
3,847
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL
SERVICES--22.5%
Del Webb Corp. 36,000 725
First Commerce Corp. 16,900 541
First Financial Caribbean Corp. 16,200 304
Guaranty National Insurance 27,300 420
Imperial Credit Industries 67,100 1,459
(a)Insurance Auto Auctions 24,000 258
(a)Mercer International, Inc. 66,600 1,365
PHH Corporation 21,700 1,014
Roosevelt Financial Group 31,400 608
T.R. Financial Corp. 16,300 416
-----------------------------------------------------------------------------
7,110
- ----------------------------------------------------------------------------------------------------------------
MANUFACTURING--22.0%
(a)ACX Technologies, Inc. 39,400 596
Ameron, Inc. 9,700 365
Blount, Inc. 60,650 1,592
(a)Duracraft Corp. 16,500 415
Matthews International Corp. 8,300 162
(a)Mueller Industries, Inc. 24,200 708
Rexene Corp. 63,500 683
(a)Sofamor-Danek Group 53,700 1,524
Sturm Ruger & Co. 16,200 443
Texas Industries 8,800 466
-----------------------------------------------------------------------------
6,954
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES VALUE
RETAILING--8.0%
J. Baker, Inc. 70,300 $ 404
Cato Corp. 84,700 656
Haggar Apparel Co. 13,800 248
(a)Jean Philippe Fragrances 77,800 632
(a)Sports & Recreation 84,600 603
-----------------------------------------------------------------------------
2,543
- ----------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS--2.5%
(a)EXAR Corporation 53,800 794
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.2%
Airborne Freight Corp. 26,300 700
-------------------------------------------------------------------------------
TOTAL COMMON STOCKS--91.4%
(Cost: $27,350) 28,880
-------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--8.6% 2,726
-------------------------------------------------------------------------------
NET ASSETS--100% $31,606
-------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $27,350,000 for federal income tax purposes
at December 31, 1995, the aggregate gross unrealized appreciation was
$2,760,000, the aggregate gross unrealized depreciation was $1,230,000 and the
net unrealized appreciation on investments was $1,530,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN SMALL CAP VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman Small Cap Value Fund as
of December 31, 1995 and the related statements of operations and changes in net
assets and the financial highlights for the year then ended. 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 audit. The statement of changes
in net assets for the year ended December 31, 1994 and the financial highlights
for each of the four years in the period then ended were audited by other
auditors whose report dated January 19, 1995 expressed an unqualified opinion on
that financial statement and financial highlights.
We conducted our audit 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
December 31, 1995, 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 audit provides 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 Small Cap Value Fund at December 31, 1995 and the results of its
operations, changes in its net assets and financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 16, 1996
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(in thousands)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $27,350) $28,880
- -------------------------------------------------------------------------------------------------------
Cash 3,464
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 2,679
- -------------------------------------------------------------------------------------------------------
Investments sold 133
- -------------------------------------------------------------------------------------------------------
Dividends 17
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 35,173
- -------------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Fund shares redeemed 496
- -------------------------------------------------------------------------------------------------------
Investments purchased 3,019
- -------------------------------------------------------------------------------------------------------
Management fee 9
- -------------------------------------------------------------------------------------------------------
Distribution services fee 5
- -------------------------------------------------------------------------------------------------------
Administrative services fee 3
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 7
- -------------------------------------------------------------------------------------------------------
Other 28
- -------------------------------------------------------------------------------------------------------
Total liabilities 3,567
- -------------------------------------------------------------------------------------------------------
NET ASSETS $31,606
- -------------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $29,769
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 307
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 1,530
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $31,606
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE PRICING OF SHARES
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($20,684,000 divided by 1,427,000 shares outstanding) $14.50
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $15.38
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($8,072,000 divided by 557,000 shares outstanding) $14.48
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($985,000 divided by 68,000 shares outstanding) $14.48
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($1,865,000 divided by 128,000 shares outstanding) $14.52
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended December 31, 1995
(in thousands)
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Dividends $ 123
- ---------------------------------------------------------------------------------------------------
Interest 16
- ---------------------------------------------------------------------------------------------------
Total investment income 139
- ---------------------------------------------------------------------------------------------------
Expenses:
Management fee 113
- ---------------------------------------------------------------------------------------------------
Distribution services fee 9
- ---------------------------------------------------------------------------------------------------
Administrative services fee 10
- ---------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 60
- ---------------------------------------------------------------------------------------------------
Professional fees 9
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 15
- ---------------------------------------------------------------------------------------------------
Registration fees 15
- ---------------------------------------------------------------------------------------------------
Directors' fees and other 10
- ---------------------------------------------------------------------------------------------------
Total expenses before expense waiver 241
- ---------------------------------------------------------------------------------------------------
Less expenses waived by investment manager 62
- ---------------------------------------------------------------------------------------------------
Total expenses after waiver 179
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (40)
- ----------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments 1,914
- ---------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 2,016
- ---------------------------------------------------------------------------------------------------
Net gain on investments 3,930
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,890
- ---------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment loss $ (40) (2)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,914 (4)
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,016 (465)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 3,890 (471)
- ------------------------------------------------------------------------------------------------------
Distribution from net realized gain (1,603) (173)
- ------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 22,388 2,699
- ------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 24,675 2,055
- ------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 6,931 4,876
- ------------------------------------------------------------------------------------------------------
END OF YEAR $31,606 6,931
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper-Dreman Small Cap Value Fund (the Fund) is a
separate series of Kemper-Dreman Fund, Inc. (KDF),
an open-end management investment company organized
as a corporation in the state of Maryland. Prior to
September 11, 1995, KDF was known as Dreman Mutual
Group, Inc.
On September 11, 1995, the Fund began offering 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 or a contingent deferred sales
charge but are subject to higher ongoing expenses
than Class A shares and do not convert into another
class. Class I shares, which 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. Each
share represents an identical interest in the
investments of the Fund and has the same rights.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING
POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Fixed income securities are valued by using market
quotations, or independent pricing services that
use prices provided by market makers or estimates
of market values obtained from yield data relating
to instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Other securities
and assets are valued at fair value as determined
in good faith by the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes amortization of
money market instrument premium and discount.
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 shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
separately for each class by dividing the Fund's
net assets attributable to that class by the number
of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund 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
AFFILIATES MANAGEMENT AGREEMENT. On August 24, 1995, KDF
entered into a management agreement with Dreman
Value Advisors, Inc. (DVA), a wholly owned
subsidiary of Kemper Financial Services, Inc. The
Fund currently pays a management fee at an annual
rate of .75% of the first $250 million of average
daily net assets declining to .62% of average daily
net assets in excess of $12.5 billion. The Fund
incurred a management fee of $54,000 to DVA for the
period from August 24, 1995 to December 31, 1995.
Prior to August 24, 1995, KDF had entered into an
investment management agreement with Dreman Value
Management, L.P. (DVM), the Fund's former
investment manager. The Fund paid a management fee
at an annual rate of 1% of the first $1 billion of
average net assets declining to .75% of average net
assets in excess of $1 billion to DVM. The Fund
incurred a management fee of $59,000 to DVM for the
period from January 1, 1995 to August 23, 1995.
DVA has agreed to waive its management fee and
absorb operating expenses to the extent necessary
to limit the Fund's operating expenses to the
following percentages of average daily net assets
until September 11, 1996: Class A, 1.25%, Class B,
2.00% and Class C, 1.95%. Under this arrangement,
DVA waived expenses of $39,000 for the period from
August 24, 1995 to December 31, 1995. In addition,
DVM had agreed to reimburse the Fund for certain
operating expenses, which amounted to $23,000 from
January 1, 1995 to August 23, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
Effective September 11, 1995, KDF entered into an
underwriting and distribution services agreement
with Kemper Distributors, Inc. (KDI), an affiliate
of DVA. Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------- --------------
<S> <C> <C> <C>
For the period from September 11,
1995 to December 31, 1995 -- $ 178,000 13,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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 shares.
Distribution fees and commissions paid in
connection with the sale of Class B and Class C
shares and the CDSC received in connection with the
redemption of Class B shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC RECEIVED ------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- --------------
<S> <C> <C> <C>
For the period from September 11,
1995 to December 31, 1995 $10,000 209,000 13,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. Effective
September 11, 1995, KDF entered into 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 KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
For the period from September 11,
1995 to December 31, 1995 $ 10,000 20,000 1,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement effective September 11, 1995
with KDF's transfer agent, Kemper Service Company
(KSvC), an affiliate of DVA, is the shareholder
service agent of the Fund. For the period from
September 11, 1995 to December 31, 1995, the
transfer agent remitted shareholder services fees
to KSvC of $14,000 with respect to the Fund.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of DVA. During the year ended December
31, 1995, the Fund made no payments to its officers
and incurred directors' fees of $9,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended December 31, 1995, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $28,858
Proceeds from sales 10,707
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION> Year Ended December 31,
1995 1994
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------
SHARES SOLD
Class A 1,364 $19,337 637 $ 7,366
-------------------------------------------------------------------------------
Class B 544 7,969 -- --
-------------------------------------------------------------------------------
Class C 91 1,360 -- --
-------------------------------------------------------------------------------
Class I 141 2,045 -- --
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 77 1,060 15 169
-------------------------------------------------------------------------------
Class B 23 333 -- --
-------------------------------------------------------------------------------
Class C 3 44 -- --
-------------------------------------------------------------------------------
Class I 6 92 -- --
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (653) (9,016) (447) (4,836)
-------------------------------------------------------------------------------
Class B (10) (155) -- --
-------------------------------------------------------------------------------
Class C (26) (400) -- --
-------------------------------------------------------------------------------
Class I (19) (281) -- --
-------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $22,388 $ 2,699
-------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
CLASS A
<TABLE>
<CAPTION>
--------------------------------------------------
YEAR ENDED DECEMBER 31, MAY 22, 1992
1995 1994 1993 TO DEC. 31, 1992
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.85 11.23 11.52 10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) -- .06 .03
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.64 .02 .23 1.95
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 4.62 .02 .29 1.98
- --------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .06 .03
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .97 .40 .52 .43
- --------------------------------------------------------------------------------------------------------------
Total dividends .97 .40 .58 .46
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.50 10.85 11.23 11.52
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 43.29% .15 2.54 32.51
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.25% 1.25 1.25 1.25
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.16)% (.03) .53 .81
- --------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 1.83% 1.82 2.09 4.29
- --------------------------------------------------------------------------------------------------------------
Net investment loss (.74)% (.61) (.32) (2.24)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS I
--------------- -------------- ------------
SEPT. 11, 1995 SEPT. 11, 1995 NOV. 1, 1995
TO DEC. 31, 1995 TO DEC. 31, 1995 TO DEC. 31, 1995
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.75 15.75 14.25
- ------------------------------------------------------------------------- ---------------- ----------------------
Income from investment operations:
Net investment loss (.02) (.02) --
- ------------------------------------------------------------------------- ---------------- ----------------------
Net realized and unrealized gain (loss) (.41) (.41) 1.11
- ------------------------------------------------------------------------- ---------------- ----------------------
Total from investment operations (.43) (.43) 1.11
- ------------------------------------------------------------------------- ---------------- ----------------------
Less distribution from net realized gain .84 .84 .84
- ------------------------------------------------------------------------- ---------------- ----------------------
Net asset value, end of period $14.48 14.48 14.52
- ------------------------------------------------------------------------- ---------------- ---------------------
TOTAL RETURN (NOT ANNUALIZED) (2.52)% (2.51) 8.03
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------- ---------------- ----------------------
Expenses absorbed by the Fund 2.00% 1.95 .47
- ------------------------------------------------------------------------- ---------------- ----------------------
Net investment income (loss) (.99)% (.94) .28
- ------------------------------------------------------------------------- ---------------- ----------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.39% 2.35 .90
- ------------------------------------------------------------------------- ---------------- ----------------------
Net investment loss (1.38)% (1.34) (.15)
- ------------------------------------------------------------------------- ---------------- ----------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
YEAR ENDED DECEMBER 31, MAY 22, 1992
1995 1994 1993 TO DEC. 31, 1992
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $31,606 6,931 4,875 2,385
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 86% 140 79 37
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. The
investment manager agreed to waive its management fee and absorb operating
expenses of the Fund. The Other Ratios to Average Net Assets are computed
without this expense waiver or absorption.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On August 1, 1995 the results of the proxy solicitation were announced at a
joint special shareholders meeting. Fund shareholders were asked to vote on four
separate issues: election of eight Directors to the Board of Directors,
ratification of Ernst & Young LLP as independent auditors, approval of a new
investment management agreement with Kemper Advisors, Inc. (now Dreman Value
Advisors, Inc. "DVA") and approval of a new investment management agreement with
DVA in the event that Zurich Insurance Group purchases a controlling interest in
the parent of DVA. The Dreman Funds voted together on items one and two which is
why the number of votes is higher for these items. We are pleased to report that
all nominees were elected and all other items were approved. Following are the
results for each issue:
1) Election of Directors
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 2,852,142 85,676
Fred B. Renwick 2,852,812 85,606
Arthur G. Gottschalk 2,838,008 99,810
Frederick T. Kelsey 2,840,264 97,554
Stephen B. Timbers 2,839,959 97,859
John G. Weithers 2,839,028 98,790
David B. Mathis 2,839,787 98,031
John B. Tingleff 2,840,150 97,668
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,824,579 95,902 17,337
</TABLE>
3) Approval of new investment management agreement
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
567,616 43,461 8,574
</TABLE>
4) Approval of new management agreement in the event of Zurich merger
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
567,198 43,434 9,019
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS AND OFFICERS
DIRECTORS
STEPHEN B. TIMBERS
President and Director
JAMES E. AKINS
Director
ARTHUR R. GOTTSCHALK
Director
FREDERICK T. KELSEY
Director
FRED B. RENWICK
Director
JOHN B. TINGLEFF
Director
JOHN G. WEITHERS
Director
OFFICERS
MICHAEL A. BERRY
Vice President
DAVID N. DREMAN
Vice President
JAMES P. HOLMES
Vice President
JOHN E. NEAL
Vice President
JAMES R. NEEL
Vice President
JOHN E. PETERS
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT
KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
DREMAN VALUE ADVISORS, INC.
10 Exchange Place
20th Floor
Jersey City, NJ 07302
PRINCIPAL UNDERWRITER
KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
(LOGO)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper-Dreman Fund, Inc. prospectus.
KDSCF - 2 (2/96) [KEMPER FUNDS LOGO]
1009530
Printed in the U.S.A.
