<PAGE> 1
Kemper-Dreman
High Return Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1995
Seeks to achieve a high rate of total return
" ...We owned some of the best stocks in two or three of the top-performing
sectors of the S&P 500..."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
8
Terms to Know
9
Industry Sectors
10
Individual Holdings
11
Portfolio of
Investments
13
Report of
Independent Auditors
14
Financial Statements
16
Notes to
Financial Statements
20
Financial Highlights
At A Glance
Kemper-Dreman High Return Fund total return for the year ended December 31,
1995 (unadjusted for any sales charge) is shown below. Please note that Class B
and C Shares' one year returns are not available due to their inception date of
September 11, 1995.
<TABLE>
<CAPTION>
LIPPER
EQUITY INCOME
FUNDS CATEGORY
CLASS A AVERAGE*
- --------------------------------------------------------------------------------
<S> <C>
46.86% 30.17%
</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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF AS OF
12/31/95 9/11/95 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN FUND
CLASS A $21.49 $19.45 $15.11
KEMPER-DREMAN HIGH RETURN FUND
CLASS B $21.47 $19.45 N/A
KEMPER-DREMAN HIGH RETURN FUND
CLASS C $21.48 $19.45 N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN FUND LIPPER RANKINGS
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EQUITY INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-YEAR #1 OF 130 FUNDS
3-YEAR #6 OF 70 FUNDS
5-YEAR #1 OF 56 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 HIGH RETURN FUND PAID THE FOLLOWING
DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND: $0.24 $0.642 $0.0669
LONG-TERM
CAPITAL GAIN: $0.40 $0.40 $0.40
- --------------------------------------------------------------------------------
</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
[TIMBERS PHOTO]
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.
[BAR GRAPH]
<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 RATE(3)* 2.60 2.90 2.87 2.52
THE U.S. DOLLAR(4) -0.57 -4.11 -5.54 -0.07
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>
* Data as of December 31, 1995
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: ECONOMIC DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
4
<PAGE> 5
Performance Update
[DREMAN PHOTO]
DAVID N. DREMAN IS CHAIRMAN AND CHIEF INVESTMENT OFFICER OF DREMAN VALUE
ADVISORS, INC. AND PORTFOLIO MANAGER OF KEMPER-DREMAN HIGH RETURN FUND. HE HAS
MORE THAN 30 YEARS' EXPERIENCE AS AN INVESTMENT ANALYST, ADVISOR AND MANAGER.
DREMAN HOLDS A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA,
WINNIPEG, MANITOBA, CANADA.
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.
INVESTING IS A COMPETITIVE WORLD, WITH THRONGS OF PROFESSIONAL INVESTORS
SEARCHING FOR OPPORTUNITIES THAT OTHERS MIGHT NOT YET RECOGNIZE. BELOW
PORTFOLIO MANAGER DAVID DREMAN DESCRIBES HOW HIS SUCCESS IN ACCUMULATING
UNDERAPPRECIATED STOCKS RESULTED IN AN EXCEPTIONAL YEAR FOR KEMPER-DREMAN HIGH
RETURN FUND.
Q. DAVID, KEMPER-DREMAN HIGH RETURN FUND FINISHED THE YEAR #1 IN ITS PEER
GROUP OF EQUITY INCOME FUNDS RANKED BY LIPPER ANALYTICAL SERVICES, INC.
[KEMPER-DREMAN HIGH RETURN FUND RANKED #1 OF 130 FUNDS IN ITS EQUITY INCOME
FUND PEER GROUP FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 1995, #6 OF 70 FUNDS
FOR THE THREE-YEAR PERIOD AND #1 OUT OF 56 FUNDS FOR THE FIVE-YEAR PERIOD.*]
AND ITS RETURN WAS THE SECOND-BEST RETURN IN THE FUND'S HISTORY.**
WHAT HAPPENED IN 1995?
A. It was a very surprising market. We really hadn't expected the Standard
& Poor's 500 Stock Index*** to climb as high as it did. [The Standard & Poor's
500 Stock Index gain of 34.1 percent was its best performance since 1958,
according to BARRON'S.] We did like the market's prospects at the beginning of
the year, but interest rates fell more than we had expected. That was good for
us because the fund was positioned for neutral to slightly lower rates, and the
steeper decline just enhanced our position.
The year before, 1994, was lackluster -- the majority of mutual funds
were up or down 1 or 2 percent and there just wasn't much performance to talk
about. But, 1994 was a good year for us. What we purchased in 1994 was what
positioned us for the performance we experienced in 1995.
Q. WHERE, SPECIFICALLY, DID THE FUND'S OUTPERFORMANCE COME FROM?
A. We were concentrated in financial stocks (including money center and
regional banks and financial services firms) and health care services
(including pharmaceuticals and health maintenance organizations). Why were we
the #1 fund? We owned some of the best stocks in two or three of the
top-performing sectors of the S&P 500 -- specifically, financials and health
care.
*LIPPER RANKINGS ARE BASED UPON CHANGES IN CLASS A SHARE NET ASSET VALUE WITH
ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES. IF
THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE. RANKINGS ARE HISTORICAL AND DO
NOT REFLECT FUTURE PERFORMANCE. RETURNS AND NET ASSET VALUE FLUCTUATE. SHARES
ARE REDEEMABLE AT NET ASSET VALUE, WHICH MAY BE MORE OR LESS THAN THE ORIGINAL
COST.
**CLASS A SHARES PRODUCED AN UNADJUSTED RETURN OF 46.86 PERCENT IN 1995, THE
SECOND HIGHEST RETURN OF THE SEVEN FULL YEARS THAT THE FUND HAS BEEN IN
EXISTENCE. ITS HIGHEST RETURN (47.57 PERCENT UNADJUSTED FOR A SALES CHARGE) WAS
GENERATED IN 1991.
***THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX OF 500 STOCKS
WHOSE PERFORMANCE IS GENERALLY CONSIDERED REPRESENTATIVE OF THE U.S. STOCK
MARKET.
5
<PAGE> 6
Performance Update
The financial sector, representing more than 40 percent of our portfolio,
is a sector we've liked for quite some time. It's outperformed the S&P 500 four
out of the last five years and, in 1995, it was the S&P 500's #1 sector in
performance. Financials tend to do well in a declining interest rate
environment.
In general, financial stocks offer dividend yields that range between 40
and 50 percent higher than the average yield of the S&P 500. Banks have the
best capital structures they have had in years, since they've moved away from
the third-world or real estate loans that gave them trouble in the late 1980s
and early 1990s. They produce highly predictable earnings and, when you
consider their consolidation and acquisition powers, they have excellent
prospects. The financial sector's price/earnings multiples continue to be
attractive. Financials have really been a value manager's delight. (SEE TERMS
TO KNOW ON PAGE 8 FOR AN EXPLANATION OF THE VALUE STYLE OF INVESTING.)
Q. WHICH FINANCIAL STOCKS ESPECIALLY CONTRIBUTED?
A. Midlantic Bank, Travelers Group and the Federal National Mortgage
Association were our top performers. We also benefited when two of our banks --
Midlantic and First Fidelity -- were acquired.
Q. AND WHY DO YOU LIKE HEALTH CARE SERVICES?
A. Health care was another top-performing sector in 1995. Pharmaceuticals,
and for our fund Merck and Eli Lilly in particular, had a strong year. In 1995,
they recovered from being overdiscounted during the 1994 health care reform
debate led by Hillary Clinton. Again, the dividend yields of these stocks --
averaging 2.84 percent versus the S&P 500 average dividend yield of 2.31
percent -- add to their appeal.
Q. WHAT ROLE DID THE TECHNOLOGY STOCK RALLY PLAY IN THE FUND'S 1995
PERFORMANCE?
A. Well, that's where we differ from many funds reporting excellent years.
Our technology holdings -- which represented 8.5 percent of the portfolio at
its highest in July -- contributed early in 1995. However, we eliminated all
technology stocks by the end of August. Our early departure from technology
enabled us to move more money into even better performing industry sectors. For
example, as we were selling our technology stocks, we were able to increase our
holdings of Humana and U.S. Healthcare, which are two health care stocks that
had been beaten up in the market.
Q. OF COURSE, THE RALLY IN TECHNOLOGY STOCKS CONTINUED INTO THE FALL. ARE
YOU SAYING THAT YOU DIDN'T MISS OUT ON ANY GAINS?
A. We're not market timers but, as it happened, we did sell close to the
highs of the technology companies that we owned.
We sold technology stocks that I really liked. My big fear was that
there were a lot of frothy (unjustifiably high-priced) stocks on the
periphery. Many of us have seen this kind of boom/bust cycle before. When hot,
small cap issues go down, they take other stocks with them. Investors don't get
out of just the frothy stocks, they get out of the sector completely.
Hewlett-Packard, which we sold, is still an excellent company. We
bought our first shares of Compaq in 1993 when it was at $17, and it was
trading at $48 at the end of 1995. We liked both stocks when they offered
strong earnings at reasonably attractive prices, but we sold them as their
prices increased.
Q. WAS THERE ANYTHING THAT DIDN'T GO AS YOU HAD HOPED IN 1995?
A. Of course, our retail position -- 6.67 percent at its highest during the
year -- hurt us. I know nothing about women's apparel, I found out.
Q. WHAT HAD YOU MISSED?
A. Apparel sales should be constant over time. We bought some retailers --
Dillard and Burlington Coat -- at a time when we should have been able to
expect them to improve, based on historical patterns. Now we know that there
has been a major transition in the retail industry. The real estate boom of the
1980s opened up too many stores, and it encouraged specialty retailers with
limited prospects.
The scene right now is very murky and many of these specialty retailers
are reorganizing. We're holding on to the stocks of the companies that we
believe will be survivors: Dayton-Hudson, May Department Stores and the TJX
Companies. We even added to our retail position at the end of the year.
6
<PAGE> 7
Performance Update
A. LET'S MOVE AWAY FROM THE MARKET FOR A MOMENT, AND TALK ABOUT A CHANGE
TO THE FUND ITSELF. IN SEPTEMBER 1995, SUBSTANTIALLY ALL OF THE ASSETS OF
DREMAN VALUE MANAGEMENT, L.P. WERE ACQUIRED BY A SUBSIDIARY OF KEMPER
FINANCIAL SERVICES, INC. WHAT EFFECT DID THE ACQUISITION HAVE?
A. A condition of the acquisition was that the value-style funds will
continue to run independently, and from our offices in Jersey City, N.J.
However, the acquisition has produced many benefits that, in turn, benefit
shareholders. The distribution of the fund by a sales force immediately
resulted in significant cash flow. The fund more than doubled in size from
August to the end of December. A larger fund provides several operating and
trading efficiencies. We also look forward to additional investment research
support.
Q. WHAT ARE YOU EXPECTING IN 1996? WHAT ARE YOUR PLANS?
A. We don't expect another 1995. We'll be doing well if the S&P 500 is up
5 to 10 percent for the year. That's a reasonable goal.
But we're not nervous about the market. The S&P 500 at December 31,
1995, was selling at 17.5 times earnings, which is in line with the post-World
War II market average. We expect to remain fully invested.
I expect that we'll continue to like the financial sector. Even after
their strong 1995 performance, banks as an industry were still selling at some
of the lowest price/earnings multiples at the end of the year. As sharply as
they moved up in 1995, I still think there may be more to come.
As a group, pharmaceuticals are approaching a price/earnings point where
we'll probably pare back in favor of other health care stocks.
In general, our strategy will be to remain alert. We'll be looking for
the opportunity to establish a position in a first-rate industry or company
that's getting clobbered for reasons that have nothing to do with its
long-term fundamentals. These are the companies that we buy at relatively low
prices with the expectation that stock market sentiment will turn in their
favor.
Q. AND WHAT ARE THE RISKS TO YOUR PLANS?
A. There is always a risk of a major correction at some point. For the
fund, in particular, the most significant risk is that interest rates will soar
sharply and our financial stocks will have a rough time under these conditions.
But we don't expect inflation to re-ignite. We expect a reasonably healthy
year. Basically, full speed ahead.
Back From Bankruptcy
COLUMBIA GAS
Kemper-Dreman High Return Fund's outperformance in 1995 is related to its
higher concentration in the top-performing industry sectors of the year. Its
performance advantage also relates to what the fund avoided. For example, early
in the year, Kemper-Dreman High Return Fund had an approximate 4.6 percent
exposure to energy while its benchmark, the Standard & Poor's 500 Stock Index,
had a 9 percent weighting.
That said, Columbia Gas is a gas distribution company that David
Dreman cites as a classic example of what a value style manager hopes for. The
fund began buying shares of Columbia Gas in 1992. Dreman said he recognized the
same conditions that were in place when Texaco went into Chapter 11. Although
it was "asset-rich," Columbia Gas could not operate without a reorganization
of subsidiaries' outstanding liabilities. Shares of the company were selling at
$18 when even a worst-case scenario gave the company a value of more than twice
that price. At $437 7/8 and 8.8 times earnings, Columbia Gas still represented
excellent value at the end of 1995, according to Dreman.
7
<PAGE> 8
Performance Update
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED DECEMBER 31, 1995 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR CLASS
<S> <C> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN FUND CLASS A 38.43% 21.49% 16.25% (Since 3/18/88)
KEMPER-DREMAN HIGH RETURN FUND CLASS B N/A N/A 8.88% (Since 9/11/95)
KEMPER-DREMAN HIGH RETURN FUND CLASS C N/A N/A 12.94% (Since 9/11/95)
</TABLE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER-DREMAN
HIGH RETURN FUND FROM 3/18/88 THROUGH 12/31/95
[LINE GRAPH]
<TABLE>
<CAPTION>
3/18/88 12/31/90 12/31/93 12/31/95
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN FUND CLASS A(1) 10,000 11,510 22,223 32,315
STANDARD & POOR'S 500 STOCK INDEX+ 10,000 14,175 21,875 30,474
</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 measure 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 High Return Fund to the Standard & Poor's 500 Stock 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 Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
Terms to Know
PRICE/EARNINGS MULTIPLE A company's stock price divided by its earnings for
the past four quarters.
RALLY A sharp, short-lived rise in values after a period of either little
movement or falling values.
TOTAL RETURN A fund's total return measures both the net investment income and
any realized and unrealized appreciation or depreciation of the underlying
investments in its portfolio for the period. Total return calculations assume
that dividends are reinvested. Total return represents the aggregate percentage
or dollar value change over the period.
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 a 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. David Dreman, portfolio manager of Kemper-Dreman High Return Fund, is
a pioneer of this investment philosophy.
8
<PAGE> 9
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.
[BAR CHART]
<TABLE>
<CAPTION>
KEMPER-DREMAN DREMAN
HIGH RETURN HIGH RETURN
FUND ON FUND ON
12/31/95 12/31/94
------------- -----------
<S> <C> <C>
FINANCE 45.5% 38.5%
CONSUMER NONDURABLES 19.6% 17.4%
HEALTH CARE 16.7% 16.1%
ENERGY 8.5% 4.6%
OTHER 3.5% 5.5%
CONSUMER DURABLES 3.3% 5.1%
BASIC INDUSTRIES 2.9% 3.8%
TECHNOLOGY 0% 8.7%
TRANSPORTATION 0% 0.3%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX
DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF THE KEMPER-DREMAN HIGH RETURN FUND REPRESENTED ON
DECEMBER 31, 1995, COMPARED TO THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S
BENCHMARK, THE STANDARD & POOR'S 500 STOCK INDEX.
[BAR CHART]
<TABLE>
<CAPTION>
KEMPER-DREMAN
HIGH RETURN S&P 500
FUND ON STOCK INDEX ON
12/31/95 12/31/95
------------- -----------
<S> <C> <C>
FINANCE 45.5% 12.8%
CONSUMER NONDURABLES 19.6% 22.8%
HEALTH CARE 16.7% 10.5%
ENERGY 8.5% 9.4%
OTHER 3.5% 0.6%
CONSUMER DURABLES 3.3% 3.0%
BASIC INDUSTRIES 2.9% 6.4%
UTILITIES 0% 11.7%
TECHNOLOGY 0% 10.7%
CAPITAL GOODS 0% 10.6%
TRANSPORTATION 0% 1.5%
</TABLE>
9
<PAGE> 10
Individual Holdings
THE FUND'S 10 LARGEST HOLDINGS
REPRESENTING 31.7% OF THE FUND'S TOTAL NET ASSETS ON DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Holdings Percent
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Federal National Provides financial products and services that 5.0%
Mortgage Association increase the availability and affordability
of housing for low, moderate and middle-income
Americans.
2. Federal Home Loan Provides for the transfer of capital between 4.8%
Mortgage Corp. mortgage lenders and mortgage security
investors, enabling mortgage lenders to
provide a continuous flow of funds to borrowers.
3. Columbia Gas System Engaged in transmitting, distributing, 4.0%
producing, purchasing and storing natural gas
and producing oil.
4. PNC Bank Corp. Operates community banking offices across 2.9%
Pennsylvania, Delaware, Ohio, Kentucky and
Indiana and mortgage origination offices in
32 States.
5. Bankers Trust Engaged in commercial banking, money and 2.7%
New York Corp. securities market operations, corporate
financial services and investment
banking, fiduciary and trust services and
other bank related services.
6. General Electric Co. Operates in major businesses including power 2.7%
generators, appliances, lighting, plastics,
medical systems, aircraft engines, financial
services and broadcasting.
7. Ford Motor Co. Manufactures, assembles and sells cars, trucks 2.6%
and related parts and accessories, and is one
of the largest providers of financial services
in the U.S.
8. Philip Morris Produces branded food through its Kraft and 2.4%
Companies General Foods subsidiaries. It is also the
country's second largest brewer.
9. Fruit of the Loom Manufactures activewear and casualwear 2.3%
products, men's and boys' underwear, family
socks, women's and girls' underwear, infant
and toddler wear, and screen print shirts
under the "Fruit of the Loom," BVD, Munsingwear
and Screen Stars brand names.
10. Humana, Inc. Provides managed care health plan services to 2.3%
more than 2.3 million members through the
operation of health maintenance organizations
and preferred provider organizations.
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN FUND
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
APPAREL--5.7% (a)Fruit of the Loom 94,300 $ 2,299
Liz Claiborne 47,400 1,315
V.F. Corp. 37,000 1,952
==========================================================================
5,566
--------------------------------------------------------------------------
AUTOMOTIVE--2.6% Ford Motor Co. 88,000 2,552
--------------------------------------------------------------------------
BANKS--15.5% BankAmerica Corp. 29,232 1,893
Bankers Trust New York Corp. 39,800 2,647
Barnett Banks 15,350 906
First Chicago NBD Corp. 49,232 1,945
First Fidelity Bancorp 15,300 1,153
First Union Corp. 19,600 1,090
KeyCorp 32,900 1,193
NationsBank 22,440 1,562
PNC Bank Corp. 88,600 2,857
==========================================================================
15,246
--------------------------------------------------------------------------
CONSUMER PRODUCTS AND Philip Morris Companies 25,800 2,335
SERVICES--3.7% UST, Inc. 39,100 1,305
==========================================================================
3,640
--------------------------------------------------------------------------
DRUGS AND Baxter International 12,600 528
HEALTH CARE--13.0% Becton Dickinson & Co. 10,800 810
Columbia/HCA Healthcare Corp. 9,257 470
Eli Lilly & Co. 34,000 1,913
Glaxo Wellcome PLC, ADR 21,700 613
(a)Humana, Inc. 81,200 2,223
Merck & Co., Inc. 16,100 1,058
Pharmacia & Upjohn Inc. 36,960 1,432
(a)Tenet Healthcare Corporation 71,600 1,486
U.S. Healthcare 47,600 2,213
==========================================================================
12,746
--------------------------------------------------------------------------
ELECTRICAL
EQUIPMENT--2.7% General Electric Co. 36,500 2,628
--------------------------------------------------------------------------
ENERGY--6.6% AMOCO Corp. 16,800 1,207
Atlantic Richfield Co. 12,300 1,362
(a)Columbia Gas System 89,400 3,922
==========================================================================
6,491
--------------------------------------------------------------------------
FINANCIAL SERVICES--19.8% H.F. Ahmanson & Co. 33,200 880
American General Corp. 45,100 1,573
American International Group, Inc. 18,300 1,693
Capital One Financial Corp. 10,200 244
Federal Home Loan Mortgage Corp. 55,900 4,668
Federal National Mortgage Association 39,400 4,890
Fleet Financial Group, Inc. 7,300 297
Great Western Financial Corp. 48,900 1,247
Hanson PLC, ADR 33,700 514
J.P. Morgan & Company 6,400 514
Midlantic Corp. 22,700 1,490
Signet Banking Corp. 10,200 242
Transport Holdings, Inc. 26 1
Travelers Group 5,327 335
Wells Fargo & Co. 3,800 821
==========================================================================
19,409
--------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER AND FOREST
PRODUCTS--2.2%
Louisiana-Pacific Corp. 90,400 $ 2,192
- -----------------------------------------------------------------------------------------------------------
RETAILING--5.8%
(a)Burlington Coat Factory 63,000 646
Dayton Hudson Corp. 22,300 1,672
Dillard Department Stores 49,100 1,399
May Department Stores Co. 7,300 308
TJX Companies, Inc. 90,000 1,699
==========================================================================
5,724
--------------------------------------------------------------------------
TOTAL COMMON STOCKS--77.6%
(Cost: $56,241) 76,194
==========================================================================
<CAPTION>
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--.8%
Yield--4.44% to 5.68%
Due--February and March 1996
(Cost: $793) $ 800 793
==========================================================================
TOTAL INVESTMENTS--78.4%
(Cost: $57,034) 76,987
==========================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--21.6% 21,209
==========================================================================
NET ASSETS--100% $98,196
==========================================================================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $57,034,000 for federal income tax
purposes at December 31, 1995, the aggregate gross unrealized appreciation
was $20,467,000, the aggregate gross unrealized depreciation was $514,000
and the net unrealized appreciation on investments was $19,953,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
Report of Independent Auditors
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN HIGH RETURN FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman High Return 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 High Return 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
13
<PAGE> 14
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $57,034) $76,987
Cash 20,391
Receivable for:
Fund shares sold 2,132
Investments sold 19
Dividends 149
TOTAL ASSETS 99,678
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 1,302
Management fee 30
Distribution services fee 9
Administrative services fee 7
Custodian and transfer agent fees and related expenses 10
Other 124
Total liabilities 1,482
NET ASSETS $98,196
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $78,222
Accumulated net realized loss on investments (73)
Net unrealized appreciation on investments 19,953
Undistributed net investment income 94
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $98,196
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($76,152,000 / 3,543,000 shares outstanding) $21.49
=======================================================================================================
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $22.80
=======================================================================================================
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($16,667,000 / 777,000 shares outstanding) $21.47
=======================================================================================================
CLASS C SHARES
Net asset value and redemption price per share
($1,948,000 / 91,000 shares outstanding) $21.48
=======================================================================================================
CLASS I SHARES
Net asset value and redemption price per share
($3,429,000 / 159,000 shares outstanding) $21.51
=======================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
Financial Statements
STATEMENT OF OPERATIONS
Year ended December 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------
Dividends $ 1,338
Interest 43
Total investment income 1,381
Expenses:
Management fee 441
Distribution services fee 16
Administrative services fee 25
Custodian and transfer agent fees and related expenses 161
Professional fees 30
Reports to shareholders 53
Registration fees 25
Directors' fees and other 40
Total expenses before expense waiver 791
Less expenses waived by investment manager 140
Total expenses after waiver 651
NET INVESTMENT INCOME 730
===================================================================================================
- ---------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 1,967
Net realized loss from futures transactions (28)
Net realized gain 1,939
Change in net unrealized appreciation on investments 16,825
Net gain on investments 18,764
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,494
===================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------
Net investment income $ 730 506
Net realized gain (loss) 1,939 (362)
Change in net unrealized appreciation 16,825 (833)
Net increase (decrease) in net assets resulting from operations 19,494 (689)
Distribution from net investment income (643) (500)
Distribution from net realized gain (1,637) --
Total dividends to shareholders (2,280) (500)
Net increase from capital share transactions 45,977 7,781
TOTAL INCREASE IN NET ASSETS 63,191 6,592
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------
Beginning of year 35,005 28,413
END OF YEAR (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$94 AND $7, RESPECTIVELY) $98,196 35,005
=====================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
Notes to Financial Statements
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper-Dreman High Return 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
16
<PAGE> 17
Notes to Financial Statements
is determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income quarterly
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 $173,000 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 $268,000 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 $109,000 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 $31,000 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 -- $ 427,000 52,000
</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
17
<PAGE> 18
Notes to Financial Statements
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 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 $17,000 456,000 57,000
</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 $ 25,000 41,000 4,000
</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 $25,000 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 $13,000 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 $33,438
Proceeds from sales 10,487
18
<PAGE> 19
Notes to Financial Statements
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS 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 1,797 $ 35,340 747 $ 11,990
Class B 772 15,914 -- --
Class C 93 1,919 -- --
Class I 161 3,376 -- --
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-----------------------------------------------------------------------------
Class A 89 1,788 29 450
Class B 12 246 -- --
Class C 1 25 -- --
Class I 3 64 -- --
-----------------------------------------------------------------------------
SHARES REDEEMED
-----------------------------------------------------------------------------
Class A (659) (12,361) (293) (4,659)
Class B (7) (167) -- --
Class C (3) (64) -- --
Class I (5) (103) -- --
=============================================================================
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS $ 45,977 $ 7,781
=============================================================================
</TABLE>
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts to take advantage of anticipated
market conditions and bears the risk that arises
from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract changes. At December 31,
1995, the market value of investments pledged by
the Fund to cover margin requirements for open
futures positions was $695,000 for the following
financial futures contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION LOSS AT
TYPE AMOUNT POSITION MONTH 12/31/95
---------------------------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
S&P 500 Index $20,409,000 Long March '96 $ 123,000
</TABLE>
19
<PAGE> 20
Financial Highlights
<TABLE>
<CAPTION>
---------------------------------------------
CLASS A
---------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of year $15.11 15.50 14.62 12.53 8.85
Income from investment operations:
Net investment income .26 .25 .21 .24 .31
Net realized and unrealized gain (loss) 6.76 (.39) 1.13 2.21 3.87
Total from investment operations 7.02 (.14) 1.34 2.45 4.18
Less dividends:
Distribution from net investment income .24 .25 .21 .24 .30
Distribution from net realized gain .40 -- .25 .12 .20
Total dividends .64 .25 .46 .36 .50
Net asset value, end of year $21.49 15.11 15.50 14.62 12.53
==================================================================================================
TOTAL RETURN 46.86% (.99) 9.22 19.80 47.57
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
==================================================================================================
Expenses absorbed by the Fund 1.25% 1.25 1.25 1.25 1.25
Net investment income 1.55% 1.58 1.47 1.88 2.52
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Expenses 1.57% 1.39 1.56 1.70 2.31
Net investment income 1.23% 1.44 1.16 1.43 1.46
</TABLE>
20
<PAGE> 21
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 $19.45 19.45 19.90
Income from investment operations:
Net investment income .07 .09 .04
Net realized and unrealized gain 2.41 2.41 2.03
Total from investment operations 2.48 2.50 2.07
Less dividends:
Distribution from net investment income .06 .07 .06
Distribution from net realized gain .40 .40 .40
Total dividends .46 .47 .46
Net asset value, end of period $21.47 21.48 21.51
===================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 12.88% 12.94 10.47
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
===================================================================================================================
Expenses absorbed by the Fund 2.00% 1.95 .47
Net investment income .61% .66 1.99
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------
Expenses 2.35% 2.30 .85
Net investment income .26% .31 1.61
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $98,196 35,005 28,413 14,425 7,238
Portfolio turnover rate 18% 12 14 13 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.
21
<PAGE> 22
Shareholder's 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
For Against Abstain
2,824,579 95,902 17,337
3) Approval of new investment management agreement
For Against Abstain
1,394,649 137,540 18,243
4) Approval of new management agreement in the event of Zurich merger
For Against Abstain
1,393,750 137,139 19,543
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
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper-Dreman Fund, Inc. prospectus.
KDHRF - 2 (2/96) [KEMPER LOGO]
1009510
Printed in the U.S.A.
