<PAGE> 1
KEMPER-DREMAN
CONTRARIAN FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996
Seeks long-term capital appreciation with current income as its secondary
objective
" . . . This fund is positioned to be an
all-weather operator going forward. We believe it
should provide good upside potential with lower
downside volatility . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Industry Sectors
10
Individual Holdings
11
Portfolio of Investments
14
Report of Independent Auditors
15
Financial Statements
17
Notes to Financial Statements
20
Financial Highlights
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER DREMAN-CONTRARIAN FUND
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 14.42%
CLASS B 13.61%
CLASS C 13.51%
LIPPER GROWTH & INCOME
FUNDS CATEGORY AVERAGE* 20.78%
- -------------------------------------------------------------------------------
</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.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges. If they had, results may have been less
favorable. Returns and rankings are historical and do not reflect future
performance.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
12/31/96 12/31/95
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER-DREMAN CONTRARIAN
FUND CLASS A $16.93 $16.20
- -------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN
FUND CLASS B $16.92 $16.20
- -------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN
FUND CLASS C $16.90 $16.20
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN
FUND LIPPER RANKINGS
- -------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH & INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #488 OF 523 FUNDS #496 OF 523 FUNDS #498 OF 523 FUNDS
- -------------------------------------------------------------------------------
3-YEAR #66 OF 330 FUNDS N/A N/A
- -------------------------------------------------------------------------------
5-YEAR #70 OF 212 FUNDS N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER-DREMAN CONTRARIAN FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.22 $0.1087 $0.1121
- -------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.14 $0.14 $0.14
- -------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $1.21 $1.21 $1.21
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
PRICE/EARNINGS MULTIPLE A company's stock price divided by its earnings for the
past four quarters, also referred to as its P/E.
VALUE (CONTRARIAN) INVESTING An investment strategy that seeks to identify
strongly financed growing companies whose stocks sell at low multiples of
earnings (P/Es). This strategy is also described as contrarian because such
stocks are typically out of favor.
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.
DEEP DISCOUNT VALUE STOCKS Those stocks that have a very low price/earnings
ratio relative to the market and are feared by most analysts and neglected by
Wall Street in general. These stocks often lack glamour and do not always
generate high comfort levels, hence their "contrarian" nature.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER:
As we progress through the first quarter of 1997, the fundamentals of the
economy are remarkably similar to what they were one year ago. Long-term
interest rates are in the same 6.5% to 7% range they were in during the first
half of 1996. We believe the economy is growing at a rate of approximately 2.5%.
Inflation continues to be well under control, at about 3.0%.
One significant difference between today and last year is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates.
The other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (1/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.58 6.64 5.81 7.47
PRIME RATE(2) 8.25 8.25 8.25 9.00
INFLATION RATE(3)* 3.24 2.95 2.72 2.87
THE U.S. DOLLAR(4) 4.59 4.26 0.82 (5.54)
CAPTIAL GOODS ORDERS(5)* 0.58 15.00 4.72 21.53
INDUSTRIAL PRODUCTION(5)* 4.32 3.38 0.39 5.60
EMPLOYMENT GROWTH(6) 2.50 2.17 1.78 3.49
</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 family income and retail sales.
* Data as of December 31, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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
Zurich Kemper Investments, Inc.
February 5, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[BERTELSEN PHOTO]
CHRISTIAN BERTELSEN IS CHIEF INVESTMENT OFFICER FOR DREMAN VALUE ADVISORS, INC.
(DVA) THE INVESTMENT ADVISOR TO THE KEMPER-DREMAN FUNDS. HE IS PORTFOLIO MANAGER
OF KEMPER-DREMAN CONTRARIAN FUND AND HOLDS AN M.B.A. IN FINANCE AND MARKETING
AND A B.A. IN HISTORY AND ECONOMICS FROM BOSTON 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.
AFTER REPOSITIONING THE FUND EARLY IN THE YEAR, KEMPER-DREMAN CONTRARIAN FUND
HAS TRACKED THE PERFORMANCE OF THE STANDARD & POOR'S 500 STOCK INDEX* (S&P 500)
SINCE JULY. BELOW, PORTFOLIO MANAGER CHRIS BERTELSEN DISCUSSES THE EVENTS OF
1996 AND HOW, FOR 1997, THE FUND IS POSITIONED TO RESPOND IN A VOLATILE
MARKETPLACE.
Q DURING 1996 KEMPER-DREMAN CONTRARIAN FUND (CLASS A SHARES, UNADJUSTED FOR
ANY SALES CHARGE) RETURNED 14.42% VS. 22.95% FOR THE S&P 500. HOWEVER, SINCE WE
LAST SPOKE IN JUNE THE FUND HAS TRACKED THE MARKET AND THE AVERAGE OF ITS PEERS
WITHIN THE LIPPER ANALYTICAL SERVICES, INC. GROWTH & INCOME FUNDS CATEGORY. HOW
DO YOU ACCOUNT FOR THE UNDERPERFORMANCE AND THE STRONG TURNAROUND?
A When I began managing Kemper-Dreman Contrarian Fund I wanted to try to
differentiate it from the competition by purchasing deep discount value stocks
(see Terms To Know). I also wanted the fund to be more diversified than in the
past. When we began to restructure the fund in June, we were early sellers of
drug stocks and early buyers of technology and energy stocks. Looking back, our
timing was off and the fund lost ground relative to the market during this
restructuring period. However, since July 1, when most of the restructuring was
completed, the fund has essentially tracked the market and outperformed the
Lipper Growth & Income Funds category average. For the six-month-period ended
December 31, 1996, class A shares (unadjusted for any sales charge) gained
12.55%, compared with the S&P 500 which rose 11.68% and an average gain of
10.57% for the Lipper Growth & Income Funds category.
Some of the companies we bought such as Aluminum Company of America
(ALCOA), Chrysler, Caterpillar and E.I. DuPont de Nemours have taken a while to
contribute to the return of the fund. These are cyclical companies that had low
expectations and did not begin to show relative performance until later in the
year when they provided positive earnings surprises. We gradually added to our
holdings in financial and energy stocks which provided strong returns for us
from September through December. All in all, the restructuring that occurred in
June has worked well.
Q ARE YOU COMFORTABLE WITH THE STRUCTURE OF THE PORTFOLIO AT THE END OF
1996?
A Very. The fund is holding stocks with strong fundamentals and many that
have good dividend yields. A healthy dividend is an important component of our
strategy because, should the market flatten out, you will earn at least that
dividend. In anticipation of a more volatile market this year, it is also
important to have a well diversified portfolio. The fund has gone from owning
roughly 40 stocks at the end of 1995 to
*The Standard & Poor's 500 Stock Index is an unmanaged index generally represen-
tative of the U.S. Stock Market.
5
<PAGE> 6
PERFORMANCE UPDATE
approximately 90 stocks now. This fund is positioned to be an all-weather
operator going forward. We believe it should provide good upside potential with
lower downside volatility.
Q YOU MENTION THAT SOME COMPANIES DID NOT CONTRIBUTE TO PERFORMANCE RIGHT
AWAY. AT WHAT POINT DO YOU BEGIN TO LOSE YOUR PATIENCE WITH A COMPANY?
A I begin to lose my patience if a company cannot deliver as promised in the
ensuing four to six quarters. I think it is important to constantly monitor how
a company is doing fundamentally. You can be patient through a weak earnings
period, but I really would like to see little deceleration of the stock price on
an absolute basis during that period. As a value investor you really need
patience because some of the ideas are slow to develop. One example of an idea
that has been slow to develop would be BellSouth. It is a regional
telecommunications company that most people avoided due to venture competition
in the telecommunications market. The stock pays well above market yields, has
strong regional franchises and was treated with disdain for most of 1996.
Q THE PORTFOLIO AT THE BEGINNING OF 1996 LOOKS MUCH DIFFERENT THAN AT
DECEMBER 31, 1996. YOU HAVE PARED DOWN THE FUND'S HOLDINGS IN CONSUMER
NONDURABLES FROM 26.1% TO 15% AND FINANCIAL STOCKS FROM 38.7% TO ROUGHLY 28%.
YOU INCREASED YOUR WEIGHTING IN TECHNOLOGY FROM ZERO UP TO ALMOST 10%. IN WHAT
SECTORS OF THE MARKET WILL YOU BE LOOKING FOR VALUE IN 1997?
A We're positive about financial stocks and also looking at companies that
most other funds would not consider. We believe energy stocks, particularly
domestic oil issues, are positioned to perform well this year. Oil prices appear
to be stabilizing at $20-22 a barrel and many of the large oil companies such as
Exxon, AMOCO and Royal Dutch Petroleum may have surprisingly good earnings in
1997. Among the more neglected sectors are paper and chemicals which are
represented by stocks like Union Camp, Georgia-Pacific, Dow Chemical and Eastman
Chemical.
Q TECHNOLOGY STOCKS CONTINUE TO GAIN A LOT OF ATTENTION. HOW WILL YOU
POSITION THE PORTFOLIO IN TECHNOLOGY GOING INTO 1997?
A We feel that there is still upside potential for some technology stocks,
particularly those that didn't participate in the 1996 second half technology
rally or have recently been out of favor. Nokia, a wireless communications
company, has lagged the market and is now beginning to move back up. General
Instrument, a cable box manufacturer, is also out of favor, but our analysis
indicates it has excellent potential. Read-Rite seems to have its manufacturing
and technological problems sorted out, has lagged the leader (Seagate
Technology) and is still a cheap stock.
Q IN WHAT WAYS IS THE FUND VULNERABLE TO UNFORESEEN CHANGES IN THE MARKET OR
THE ECONOMY?
A If oil prices went back down to $17 a barrel that would obviously hurt our
positions in oil stocks, lowering prices by perhaps 10 to 15 percent. If the
economy slips into a recession, most investors would wind up getting hurt.
However, in that scenario, we believe that Kemper-Dreman Contrarian Fund should
perform relatively well because value stocks have low P/E's relative to the
market and, hence, have tended to fall less in a declining market.
Q 1996 WAS A YEAR CHARACTERIZED BY ROTATION AMONG DIFFERENT SECTORS OF THE
MARKET. WHAT DO YOU EXPECT GOING INTO 1997?
A I think inflation will be a bit higher than the general consensus of
low-to-no inflation. If the 30 year Treasury bond goes above 7%, the stock
market may become quite nervous. Although market conditions cannot be predicted
with certainty, I am expecting the market to return 10-12% for the year with
continued rotation. I also expect to see a lot of rotation among sectors.
Overall, most investors want liquidity (large company stocks), comfort and
glamour. With this in mind, we have gone into some more defensive type issues
such as oil (Mobil, AMOCO and Royal Dutch Petroleum) and depressed cyclical
stocks (ALCOA, Carpenter Technology and Union Camp). We are also purchasing
selected chemical companies
6
<PAGE> 7
PERFORMANCE UPDATE
(Dow Chemical and Eastman Chemicals). We still feel financials are modestly
undervalued and will continue to hold our positions. We will continue to be
different -- contrarian -- instead of owning just Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage Corp. (Freddie Mac), we
also hold Student Loan Marketing Association (Sallie Mae); in addition to owning
NationsBank we also own ADVANTA, a credit card company. We also own some
insurance companies: American International Group, General Re Corp. and
Travelers/Aetna Property & Casualty. Again, for many of these companies Wall
Street either has or had low expectations for their prospects. We feel they are
solid companies that are being offered at reasonable prices. Our goal is to
build a comfortable portfolio by using stocks that are less than perfect. On the
downside, we believe these companies have already had the excesses wrung out.
But on the upside there is potential for earnings surprises that could send
these stocks back to their old highs or beyond.
My feeling is that we will see a more volatile market than we did last year.
With that volatility comes buying opportunities. Also, with increased
volatility, we believe that our portfolio is positioned to provide a nice
cushion. First, it is well diversified, so we don't feel that a correction in
one sector or stock would have a tremendous impact on the portfolio. Secondly,
although past performance is not predictive of future results, low P/E stocks
have traditionally performed better in volatile markets than higher P/E stocks.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED DECEMBER 31, 1996 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER-DREMAN CONTRARIAN FUND CLASS A 7.83% 13.60% 12.64% (since 3/18/88)
- --------------------------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN FUND CLASS B 10.61 N/A 18.71 (since 9/11/95)
- --------------------------------------------------------------------------------------------------
KEMPER-DREMAN CONTRARIAN FUND CLASS C 13.51 N/A 20.81 (since 9/11/95)
- --------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper-Dreman Contrarian Fund Class A FROM 3/18/88 THROUGH 12/31/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3/18/88 12/31/90 12/31/92 12/31/94 12/31/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper-Dreman Contrarian Fund Class A(1) $10,000 $11,201 $15,777 $17,203 $28,458
Standard & Poor's 500 Stock Index+ $10,000 $14,175 $19,880 $22,172 $37,453
Consumer Price Index++ $10,000 $11,485 $12,180 $12,850 $13,614
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper-Dreman Contrarian Fund Class B FROM 9/11/95 THROUGH 12/31/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/11/95 12/31/95 6/30/96 12/31/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman Contrarian Fund Class B(1) $10,000 $11,284 $11,688 $12,519
Standard & Poor's 500 Stock Index+ $10,000 $11,091 $12,209 $13,631
Consumer Price Index++ $10,000 $10,039 $10,249 $10,373
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper-Dreman Contrarian Fund Class C FROM 9/11/95 THROUGH 12/31/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/11/95 12/31/95 6/30/96 12/31/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper-Dreman Contrarian Fund Class C(1) $10,000 $11,285 $11,474 $12,810
Standard & Poor's 500 Stock Index+ $10,000 $11,091 $12,209 $13,631
Consumer Price Index++ $10,000 $10,039 $10,249 $10,373
</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.
* Average annual 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%, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) of 3% and for Class C shares no adjustment for
sales charge. The maximum B share CDSC is 4%. For C shares purchased on or
after April 1, 1996, there is a 1% CDSC on certain redemptions within the
first year of purchase. During the periods noted, securities prices
fluctuated. For additional information, see the Prospectus, Statement of
Additional Information and the Financial Highlights at the end of this
report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred
sales charge in effect at the end of the period for B shares. In comparing
Kemper-Dreman Contrarian Fund to the Standard & Poor's 500 Stock Index+ and
the Consumer Price Index++, you should note that the fund's performance
reflects the maximum sales charge, while no such charges are reflected in
the performance of the indexes.
+ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
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, 1996, and on December 31, 1995.
[YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN CONTRARIAN FUND KEMPER-DREMAN CONTRARIAN FUND
ON 12/31/96 ON 12/31/95
<S> <C> <C>
FINANCE 27.7% 38.7%
ENERGY 18.4% 11.4%
CONSUMER NONDURABLES 15.0% 26.1%
CAPITAL GOODS 10.4% 0.0%
TECHNOLOGY 9.6% 0.0%
BASIC INDUSTRIES 9.2% 3.0%
HEALTH CARE 3.8% 14.9%
CONSUMER DURABLES 2.4% 3.1%
UTILITIES 2.1% 0.0%
TRANSPORTATION 1.4% 0.0%
OTHER 0.0% 2.8%
</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 Contrarian Fund represented on December 31, 1996, compared
to the industry sectors that make up the fund's benchmark, the Standard & Poor's
500 Stock Index.
[STANDARD & POORS COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN CONTRARIAN FUND STANDARD & POOR'S 500 STOCK INDEX
ON 12/31/96 ON 12/31/96
<S> <C> <C>
FINANCE 27.7% 14.8%
ENERGY 18.4% 10.1%
CONSUMER NONDURABLES 15.0% 21.5%
CAPITAL GOODS 10.4% 10.1%
TECHNOLOGY 9.6% 13.2%
BASIC INDUSTRIES 9.2% 5.9%
HEALTH CARE 3.8% 10.6%
CONSUMER DURABLES 2.4% 2.9%
UTILITIES 2.1% 9.5%
TRANSPORTATION 1.4% 1.4%
</TABLE>
* The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
9
<PAGE> 10
INDIVIDUAL HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
REPRESENTING 17.3% OF THE FUND'S TOTAL NET ASSETS ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Holdings Percent
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Exxon Corp. Explores for and produces crude oil and natural gas 2.4%
and manufactures petroleum products; explores for and
mines coal.
2 Student Loan Marketing The major financial intermediary to the nation's 2.0%
Association (Sallie Mae) education credit market.
3 Mobil Corp. Engaged in the production, transportation, refining 1.9%
and marketing of petroleum and natural gas and related
products.
4 British Petroleum Engaged in all phases of the petroleum industry 1.6%
including: exploration, production, transportation,
processing and marketing of crude oil, petro products
and natural gas.
5 Eastman Chemical Engaged in the production of chemicals. 1.6%
6 Chase Manhattan Corp. A bank holding company which conducts domestic and 1.6%
international financial services through various bank
and non-bank subsidiaries.
7 Glaxo Wellcome Engaged in the discovery, development, manufacture and 1.6%
PLC marketing of prescription and non-prescription drugs.
8 Xerox Develops, manufactures, market services and finances a 1.6%
Corporation broad range of document processing.
9 General Electric A broadly diversified company with major businesses 1.5%
including power generators, appliances, lighting,
plastics, medical systems, aircraft engines, financial
services and broadcasting.
10 Fleet Financial Group A diversified financial services company with 1.5%
businesses including: commercial and consumer banking,
mortgage banking, consumer finance, asset based
lending, equipment leasing and student loan
processing.
</TABLE>
*The fund's holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN CONTRARIAN FUND
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--8.2%
Aluminum Co. of America 5,000 $ 319
(a)Bethlehem Steel Corp. 37,500 338
Carpenter Technology Corp. 15,000 549
Champion International Corporation 17,000 735
Dow Chemical Co. 2,000 157
E.I. DuPont de Nemours & Co. 6,500 613
Eastman Chemical Co. 23,000 1,271
Georgia-Pacific Corp. 11,000 792
Louisiana-Pacific Corp. 20,000 422
Parker Hannifin Corp. 8,500 329
Union Camp Corp. 17,000 812
------------------------------------------------------------------------
6,337
- -----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.3%
Boeing Co. 3,000 319
Caterpillar 6,000 451
Deere & Co. 7,000 284
Eaton Corporation 4,000 279
General Electric Co. 12,000 1,187
Honeywell 8,000 526
Illinois Tool Works 12,500 998
Pitney Bowes Inc. 14,000 763
Westinghouse Electric Corp. 56,000 1,113
Xerox Corporation 24,000 1,263
------------------------------------------------------------------------
7,183
- -----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--4.9%
American Brands, Inc. 8,000 397
Liz Claiborne 4,000 154
Cognizant Corporation 10,000 330
(a)Fruit of the Loom 20,000 758
(a)HFS, Inc. 9,600 574
J.C. Penney Co. 6,000 293
May Department Stores Co. 6,000 281
Nordstrom 7,000 248
(a)Office Depot 10,000 178
V.F. Corp. 8,200 554
------------------------------------------------------------------------
3,767
- -----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.1%
Chrysler Corporation 22,000 726
Ford Motor Co. 29,000 924
------------------------------------------------------------------------
1,650
- -----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.6%
McDonald's Corp. 20,000 905
Nestle S.A., ADR 8,900 474
PepsiCo 20,000 585
Philip Morris Companies 10,000 1,126
RJR Nabisco Holdings Corp., preferred 120,000 810
(a)TCI Satellite 6,500 64
(a)Tele-Communications, Inc. "A", - TCI Group 65,000 849
UST, Inc. 22,000 712
Unilever N.V., ADR 6,300 1,104
------------------------------------------------------------------------
6,629
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--16.4%
AMOCO Corp. 12,000 $ 966
Atlantic Richfield Co. 6,000 795
British Petroleum, ADS 9,000 1,272
Burlington Resources 16,000 806
Chevron Corp. 16,000 1,040
Enron Corp. 17,000 733
Exxon Corp. 19,000 1,862
Halliburton Co. 14,000 844
Mobil Corp. 12,000 1,467
Royal Dutch Petroleum Co. 4,000 683
Shell Transport & Trading Company, ADR 7,500 768
Sun Company, Inc. 10,000 244
Texaco 4,000 392
YPF Sociedad Anonima "D", ADR 34,000 859
----------------------------------------------------------------------------
12,731
- ---------------------------------------------------------------------------------------------------------------------
FINANCE--24.7%
ADVANTA Corp. 21,000 858
Allstate Corp. 13,000 752
American General Corp. 10,000 409
American International Group, Inc. 9,000 974
Banc One Corporation 24,000 1,032
Bank of Boston 10,500 675
Bankers Trust New York Corp. 13,000 1,121
Chase Manhattan Corp. 14,000 1,250
Citicorp 8,000 824
Federal Home Loan Mortgage Corp. 8,000 881
Federal National Mortgage Association 28,000 1,043
First Chicago NBD Corp. 18,000 968
First Union Corp. 14,500 1,073
Fleet Financial Group, Inc. 23,500 1,172
General Re Corp. 4,900 773
Great Western Financial Corp. 18,100 525
Legg Mason 4,000 154
J.P. Morgan & Company 5,000 488
NationsBank 8,000 782
PNC Bank Corp., N.A. 10,000 376
State Street Boston Corp. 7,000 451
Student Loan Marketing Association 17,000 1,583
Travelers/Aetna Property & Casualty 29,000 1,026
----------------------------------------------------------------------------
19,190
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--3.4%
Abbott Laboratories 10,000 508
C.R. Bard 31,000 868
Glaxo Wellcome PLC, ADR 40,000 1,270
----------------------------------------------------------------------------
2,646
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--8.5%
AMP Incorporated 14,000 537
(a)Diamond Multimedia Systems, Inc. 15,000 178
Electronic Data Systems 15,000 649
GM Hughes Electronics Corp. 12,000 675
(a)General Instrument Corp. 46,000 995
Hewlett-Packard Co. 13,000 653
Motorola Inc. 9,000 552
Nokia Corporation, ADR 15,000 864
Raytheon Co. 17,000 818
(a)Read-Rite Corp. 15,000 379
(a)Seagate Technology 8,000 316
----------------------------------------------------------------------------
6,616
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--1.2%
(a)Federal Express Corp. 15,000 $ 667
Ryder System Inc. 10,000 281
----------------------------------------------------------------------------
948
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--1.9%
BellSouth Corporation 4,500 182
Duke Power Co. 2,000 93
FPL Group 3,500 161
Southern Company 46,700 1,057
----------------------------------------------------------------------------
1,493
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--89.2%
(Cost: $61,049) 69,190
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--6.4%
Yield--5.60% to 6.20%
Due--January 1997
Enserch $ 2,000 1,998
Other 3,000 2,993
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--6.4%
(Cost: $4,992) 4,991
----------------------------------------------------------------------------
TOTAL INVESTMENTS--95.6%
(Cost: $66,041) 74,181
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--4.4% 3,411
----------------------------------------------------------------------------
NET ASSETS--100% $77,592
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $66,041,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $8,647,000, the
gross unrealized depreciation was $507,000 and the net unrealized appreciation
on investments was $8,140,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN CONTRARIAN FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman Contrarian Fund as of
December 31, 1996, the related statement of operations for the year then ended,
and the statement of changes in net assets and the financial highlights for each
of the two years in the period 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 audits. The financial highlights for each of
the three years in the period ended December 31, 1994 were audited by other
auditors whose report dated January 19, 1995 expressed an unqualified opinion on
those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper-Dreman Contrarian Fund at December 31, 1996, the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for the two years then ended, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 18, 1997
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $66,041) $74,181
- -----------------------------------------------------------------------
Cash 603
- -----------------------------------------------------------------------
Receivable for:
Investments sold 3,966
- -----------------------------------------------------------------------
Fund shares sold 542
- -----------------------------------------------------------------------
Dividends 133
- -----------------------------------------------------------------------
TOTAL ASSETS 79,425
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Investments purchased 1,635
- -----------------------------------------------------------------------
Fund shares redeemed 48
- -----------------------------------------------------------------------
Management fee 47
- -----------------------------------------------------------------------
Distribution services fee 19
- -----------------------------------------------------------------------
Administrative services fee 7
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 75
- -----------------------------------------------------------------------
Directors' fees and other 2
- -----------------------------------------------------------------------
Total liabilities 1,833
- -----------------------------------------------------------------------
NET ASSETS $77,592
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $69,082
- -----------------------------------------------------------------------
Undistributed net realized gain on investments 285
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 8,140
- -----------------------------------------------------------------------
Undistributed net investment income 85
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $77,592
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($46,929,000 / 2,771,000 shares outstanding) $16.93
- -----------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $17.96
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($28,583,000 / 1,688,000 shares outstanding) $16.92
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($2,080,000 / 123,000 shares outstanding) $16.90
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
NET INVESTMENT INCOME
- ----------------------------------------------------------------------
Dividends $1,147
- ----------------------------------------------------------------------
Interest 342
- ----------------------------------------------------------------------
Total investment income 1,489
- ----------------------------------------------------------------------
Expenses:
Management fee 400
- ----------------------------------------------------------------------
Distribution services fee 146
- ----------------------------------------------------------------------
Administrative services fee 85
- ----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 212
- ----------------------------------------------------------------------
Professional fees 7
- ----------------------------------------------------------------------
Reports to shareholders 11
- ----------------------------------------------------------------------
Registration fees 13
- ----------------------------------------------------------------------
Directors' fees and other 15
- ----------------------------------------------------------------------
Total expenses before expense waiver 889
- ----------------------------------------------------------------------
Less expenses waived by investment manager 61
- ----------------------------------------------------------------------
Total expenses after expense waiver 828
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 661
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized gain on sales of investments 5,861
- ----------------------------------------------------------------------
Net realized gain from futures transactions 52
- ----------------------------------------------------------------------
Net realized gain 5,913
- ----------------------------------------------------------------------
Change in net unrealized appreciation on investments 1,429
- ----------------------------------------------------------------------
Net gain on investments 7,342
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,003
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
- ----------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 661 277
- ----------------------------------------------------------------------------------------
Net realized gain 5,913 1,306
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation 1,429 4,426
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,003 6,009
- ----------------------------------------------------------------------------------------
Distribution from net investment income (588) (248)
- ----------------------------------------------------------------------------------------
Distribution from net realized gain (5,627) (1,475)
- ----------------------------------------------------------------------------------------
Total dividends to shareholders (6,215) (1,723)
- ----------------------------------------------------------------------------------------
Net increase from capital share transactions 50,322 8,213
- ----------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 52,110 12,499
- ----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------
Beginning of year 25,482 12,983
- ----------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $85,000 and $11,000, respectively) $77,592 25,482
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper-Dreman Contrarian 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. KDF is
authorized to issue 500,000,000 shares of $.01 par
value common stock.
The Fund currently offers four classes of shares.
Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and, for shares sold on or
after April 1, 1996, a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none sold
through December 31, 1996) are offered to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES 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 discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies 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. KDF has a management
agreement with Dreman Value Advisors, Inc. (DVA), a
wholly owned subsidiary of Zurich Kemper
Investments, Inc. The Fund pays a management fee at
an annual rate of .75% of the first $250 million of
average daily net assets declining to .62% of
average daily net assets in excess of $12.5
billion. The Fund incurred a management fee of
$400,000 for the year ended December 31, 1996.
DVA agreed to waive certain operating expenses
through November 11, 1996 to the extent necessary
to limit the Fund's operating expenses to the
following annualized percentages of average daily
net assets: Class A, 1.25%, Class B, 2.00% and
Class C, 1.95%. Under this arrangement, DVA waived
expenses of $61,000 during the year ended December
31, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
KDF has 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>
Year ended December 31, 1996 $65,000 462,000 41,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees 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 such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
(AFTER EXPENSE WAIVER) PAID BY KDI
AND CDSC -----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------------- ------------- -------------
<S> <C> <C> <C>
Year ended December 31, 1996 $114,000 599,000 15,000
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. KDF has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. KDI in turn has various agreements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid by the Fund are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY KDI
THE FUND TO KDI -----------------------------
(AFTER EXPENSE WAIVER) TO ALL FIRMS TO AFFILIATES
----------------------- ------------- -------------
<S> <C> <C> <C>
Year ended December 31, 1996 $77,000 114,000 2,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with KDF's transfer agent,
Kemper Service Company (KSvC), an affiliate of DVA,
is the shareholder service agent of the Fund. Under
the agreement, KSvC received shareholder services
fees of $186,000 for the year ended December 31,
1996.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of DVA. During the year ended December
31, 1996, the Fund made no payments to its officers
and incurred directors' fees of $10,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT TRANSACTIONS For the year ended December 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $92,939
Proceeds from sales 56,104
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------
SHARES SOLD
Class A 1,915 $32,066 526 $8,157
-------------------------------------------------------------------------------
Class B 1,445 24,191 362 5,736
-------------------------------------------------------------------------------
Class C 156 2,614 10 159
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 224 3,746 85 1,290
-------------------------------------------------------------------------------
Class B 126 2,105 17 274
-------------------------------------------------------------------------------
Class C 10 166 -- --
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (571) (9,564) (485) (7,279)
-------------------------------------------------------------------------------
Class B (243) (4,108) (8) (124)
-------------------------------------------------------------------------------
Class C (53) (894) -- --
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 11 180 -- --
-------------------------------------------------------------------------------
Class B (11) (180) -- --
-------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $50,322 $8,213
-------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $16.20 12.18 13.62 13.50 12.38
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .26 .28 .22 .25
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.07 5.05 (.28) .96 1.13
- -----------------------------------------------------------------------------------------------
Total from investment operations 2.30 5.31 -- 1.18 1.38
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .22 .24 .28 .22 .26
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain 1.35 1.05 1.16 .84 --
- -----------------------------------------------------------------------------------------------
Total dividends 1.57 1.29 1.44 1.06 .26
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $16.93 16.20 12.18 13.62 13.50
- -----------------------------------------------------------------------------------------------
TOTAL RETURN 14.42% 44.57 (.03) 9.10 11.32
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.23% 1.25 1.25 1.25 1.25
- -----------------------------------------------------------------------------------------------
Net investment income 1.56% 1.85 1.89 1.64 2.04
- -----------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 1.25% 1.66 1.42 1.54 1.53
- -----------------------------------------------------------------------------------------------
Net investment income 1.54% 1.44 1.71 1.34 1.76
- -----------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------- -------------------------------------
CLASS B CLASS C
----------------------------- -------------------------------------
SEPT. 11 SEPT. 11
YEAR ENDED TO YEAR ENDED TO
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1996 DEC. 31, 1995
- --------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------- -------------------------------------
Net asset value, beginning of period $16.20 15.26 16.20 15.26
- --------------------------------------------------------------------------- -------------------------------------
Income from investment operations:
Net investment income .11 .07 .11 .08
- --------------------------------------------------------------------------- -------------------------------------
Net realized and unrealized gain 2.07 1.85 2.05 1.85
- --------------------------------------------------------------------------- -------------------------------------
Total from investment operations 2.18 1.92 2.16 1.93
- --------------------------------------------------------------------------- -------------------------------------
Less dividends:
Distribution from net investment income .11 .07 .11 .08
- --------------------------------------------------------------------------- -------------------------------------
Distribution from net realized gain 1.35 .91 1.35 .91
- --------------------------------------------------------------------------- -------------------------------------
Total dividends 1.46 .98 1.46 .99
- --------------------------------------------------------------------------- -------------------------------------
Net asset value, end of period $16.92 16.20 16.90 16.20
- --------------------------------------------------------------------------- -----------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.61% 12.83 13.51% 12.85
- --------------------------------------------------------------------------- -------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------- -------------------------------------
Expenses absorbed by the Fund 2.11% 2.00 2.12 1.95
- --------------------------------------------------------------------------- -------------------------------------
Net investment income .68% .88 .67 .93
- --------------------------------------------------------------------------- -------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------- -------------------------------------
Expenses 2.34% 2.36 2.80 2.31
- --------------------------------------------------------------------------- -------------------------------------
Net investment income .45% .52 (.01) .57
- --------------------------------------------------------------------------- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $77,592 25,482 12,983 17,157 14,884
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 95% 30 16 16 28
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year
ended December 31, 1996 was $.0490.
NOTE: Total return does not reflect the effect of any sales charges. The
investment manager agreed to waive a portion of its management fee and absorb
certain operating expenses of the Fund. The Other Ratios to Average Net Assets
are computed without this expense waiver or absorption.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
DIRECTORS & OFFICERS
DIRECTORS OFFICERS
STEPHEN B. TIMBERS CHRISTIAN C. BERTELSEN
President and Director Vice President
JAMES E. AKINS CHARLES R. MANZONI, JR.
Director Vice President
ARTHUR R. GOTTSCHALK JOHN E. NEAL
Director Vice President
FREDERICK T. KELSEY JAMES R. NEEL
Director Vice President
DOMINIQUE P. MORAX STEVEN T. STOKES
Director Vice President
FRED B. RENWICK PHILIP J. COLLORA
Director Vice President
and Secretary
JOHN B. TINGLEFF
Director JEROME L. DUFFY
Treasurer
JOHN G. WEITHERS
Director 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.
280 Park Avenue
New York, NY 10017
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
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This report is not to be distributed
unless preceded or accompanied by a
Kemper-Dreman Fund, Inc. Prospectus.
KDCF - 2 (2/97) 1028510
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