<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1997.
1933 ACT REGISTRATION NO. 33-18477
1940 ACT REGISTRATION NO. 811-5385
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 17 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 19 [X]
</TABLE>
------------------
KEMPER-DREMAN FUND, INC.
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (312) 537-7000
</TABLE>
Copies to:
<TABLE>
<S> <C>
Philip J. Collora, Vice President and Secretary Charles F. Custer
Kemper-Dreman Fund, Inc. David A. Sturms
222 South Riverside Plaza Vedder, Price, Kaufman & Kammholz
Chicago, Illinois 60606 222 North LaSalle Street
(Name and Address Chicago, Illinois 60601
of Agent for Service)
</TABLE>
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has elected to register an indefinite number of shares of common stock under the
Securities Act of 1933. On February 26, 1997, Registrant filed its notice
pursuant to Rule 24f-2 for its fiscal year ended December 31, 1996.
It is proposed that this filing will become effective (check appropriate
box)
____ immediately upon filing pursuant to paragraph (b)
X on April 25, 1997 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
================================================================================
<PAGE> 2
KEMPER-DREMAN FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
<S> <C> <C>
PART A PROSPECTUS
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ Summary; Summary of Expenses; Supplement to
Prospectus
Item 3. Condensed Financial Information..... Financial Highlights; Supplement to Prospectus
Item 4. General Description of Registrant... Cover Page; Summary; Investment Objectives, Policies
and Risk Factors
Item 5. Management of the Fund.............. Summary; Investment Manager and Underwriter
Item 5A. Management's Discussion of Fund
Performance......................... Performance
Item 6. Capital Stock and Other
Securities.......................... Summary; Investment Manager and Underwriter; Net
Asset Value; Purchase of Shares; Capital Structure
Item 7. Purchase of Securities Being
Offered............................. Summary; Purchase of Shares
Item 8. Redemption or Repurchase............ Summary; Redemption or Repurchase of Shares
Item 9. Legal Proceedings................... Inapplicable
</TABLE>
<PAGE> 3
KEMPER-DREMAN FUND, INC.
SUPPLEMENT TO PROSPECTUS
DATED APRIL 25, 1997
CLASS I SHARES
Kemper-Dreman Contrarian Fund (the "Contrarian Fund"), Kemper-Dreman High
Return Equity Fund (the "High Return Equity Fund") and Kemper-Dreman Small Cap
Value Fund (the "Small Cap Value Fund") (collectively, the "Funds") currently
offer four classes of shares to provide investors with different purchasing
options. The Class A, Class B and Class C shares are described in the
prospectus; and Class I shares are described in the prospectus as supplemented
hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Zurich Kemper Investments, Inc.
("ZKI"), and its affiliates; and (b) the following investment advisory clients
of ZKI and its investment advisory affiliates (including Zurich Investment
Management, Inc. and Dreman Value Advisors, Inc.) that invest at least $1
million in a Fund: (1) unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); (2) unaffiliated banks and insurance companies purchasing for their own
accounts; and (3) endowment funds of unaffiliated non-profit organizations.
Class I shares currently are available for purchase only from Zurich Kemper
Distributors, Inc., principal underwriter for the Funds. Share certificates are
not available for Class I shares.
The primary distinctions among the classes of each Fund's shares lie in
their initial and contingent deferred sales charge schedules and in their
ongoing expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will typically be
higher for Class I shares than for Class A, Class B and Class C shares.
The following information supplements the indicated sections of the
prospectus.
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO EACH FUND)
<TABLE>
<CAPTION>
CLASS I
-------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)........................................... None
Maximum Sales Charge on Reinvested Dividends................ None
Redemption Fees............................................. None
Exchange Fee................................................ None
Deferred Sales Charge (as a percentage of redemption
proceeds)................................................. None
</TABLE>
<PAGE> 4
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
Management Fees (restated).................................. .75% .74% .75%
12b-1 Fees.................................................. None None None
Other Expenses (restated)................................... .10% .14% .09%
---- ---- ----
Total Operating Expenses.................................... .85% .88% .84%
==== ==== ====
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following Contrarian $9 $27 $47 $105
expenses
on a $1,000 investment, assuming High Return $9 $28 $49 $108
(1) 5% annual return and Small Cap Value $9 $27 $47 $104
(2) redemption at the end of each
time period:
</TABLE>
-----------------
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly. See "Investment Manager and Underwriter" in the
prospectus for more information. Since no Class I shares had been issued for the
Contrarian Fund as of the fiscal year end, "Other Expenses" shown above are
estimates for that Fund.
"Management Fees" and "Other Expenses" in the tables above have been restated to
reflect current fees.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED NOV. 1 TO
DECEMBER 31, 1996 DEC. 31, 1995
----------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.51 19.90
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .04
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain 5.70 2.03
- -----------------------------------------------------------------------------------------------------
Total from investment operations 6.24 2.07
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .06
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .73 .40
- -----------------------------------------------------------------------------------------------------
Total dividends 1.26 .46
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $26.49 21.51
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 29.36% 10.47
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .88% .47
- -----------------------------------------------------------------------------------------------------
Net investment income 2.45% 1.99
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .88% .85
- -----------------------------------------------------------------------------------------------------
Net investment income 2.45% 1.61
- -----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED NOV. 1
DECEMBER 31, 1996 TO DEC. 31, 1995
----------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.52 14.25
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .25 --
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.13 1.11
- -----------------------------------------------------------------------------------------------------
Total from investment operations 4.38 1.11
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .07 --
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .43 .84
- -----------------------------------------------------------------------------------------------------
Total dividends .50 .84
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $18.40 14.52
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 30.28% 8.03
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund .84% .47
- -----------------------------------------------------------------------------------------------------
Net investment income 1.34% .28
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .84% .90
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) 1.34% (.15)
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTES: 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 Funds through December 31, 1995. The "Other
Ratios to Average Net Assets" are completed without this expense waiver
or absorption.
For the Small Cap Value Fund, per share data for 1996 were determined
based on average shares outstanding.
No financial information is presented for Class I shares of the Contrarian Fund
since no Class I shares have been issued as of such Fund's fiscal year end.
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of ZKI and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Zurich Money
Funds--Zurich Money Market Fund who have purchased shares because they are
participants in tax-exempt retirement plans of ZKI and its affiliates may
exchange their shares for Class I shares of "Kemper Mutual Funds" to the extent
that they are available through their plan. Exchanges will be made at the
relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
April 25, 1997
DRE-1 (4/97)
3
<PAGE> 6
<TABLE>
<S> <C>
TABLE OF CONTENTS
- ------------------------------------------------
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 5
- ------------------------------------------------
Investments Objectives, Policies and Risk
Factors 10
- ------------------------------------------------
Investment Manager and Underwriter 15
- ------------------------------------------------
Dividends and Taxes 18
- ------------------------------------------------
Net Asset Value 19
- ------------------------------------------------
Purchase of Shares 20
- ------------------------------------------------
Redemption or Repurchase of Shares 25
- ------------------------------------------------
Special Features 29
- ------------------------------------------------
Performance 33
- ------------------------------------------------
Capital Structure 34
- ------------------------------------------------
</TABLE>
This prospectus of the Kemper-Dreman Fund, Inc. ("KDF") contains information
about KDF that you should know before investing and should be retained for
future reference. A Statement of Additional Information dated April 25, 1997,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available upon request without charge from KDF at the
address or telephone number on this cover or the firm from which this prospectus
was obtained.
KDF'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
KEMPER FUNDS LOGO
KEMPER-DREMAN
FUND, INC.
PROSPECTUS APRIL 25, 1997
KEMPER-DREMAN FUND, INC.
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This prospectus describes a choice of three portfolios managed by Dreman Value
Advisors, Inc.
KEMPER-DREMAN CONTRARIAN FUND
KEMPER-DREMAN HIGH RETURN EQUITY FUND
KEMPER-DREMAN SMALL CAP VALUE FUND
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 7
KEMPER-DREMAN FUND, INC.
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The Kemper-Dreman Fund, Inc. ("KDF") is an open-end,
diversified management investment company. KDF's three portfolios ("Funds")
covered in this prospectus are as follows:
KEMPER-DREMAN CONTRARIAN FUND (the "Contrarian Fund") seeks long-term capital
appreciation with current income as its secondary objective.
KEMPER-DREMAN HIGH RETURN EQUITY FUND (the "High Return Equity Fund") seeks to
achieve a high rate of total return.
KEMPER-DREMAN SMALL CAP VALUE FUND (the "Small Cap Value Fund") seeks long-term
capital appreciation.
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate. The Funds will invest principally
in securities that, in the judgment of the investment manager, are undervalued.
Investment by the Small Cap Value Fund primarily in smaller companies involves
greater risk than investment in larger, more established companies. The Funds
are authorized to invest in stock index futures and options to buy and sell such
futures. In these investments, the Funds assume the risk that, if the investment
manager's judgment regarding the direction of the securities markets is
incorrect, their investment performance might have been better if they had not
acquired futures contracts. The Funds are authorized to write covered call
options on securities. The High Return Equity and Small Cap Value Funds may
write put options. If the market price of stock subject to a call option rises
above the exercise price of the option, the Funds will lose the opportunity for
further appreciation of that security. In selling a put option, the High Return
Equity and Small Cap Value Funds assume the risk that they might be obligated to
acquire the optioned stock at a price above the current market price. See
"Investment Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. KDF provides investors with the option of purchasing
shares in the following ways:
Class A Shares.......... Offered at net asset value plus a maximum sales
charge of 5.75% of the offering price. Reduced sales
charges apply to purchases of $50,000 or more. Class
A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge if redeemed within
one year of purchase and a .50% contingent deferred
sales change if redeemed during the second year of
purchase.
Class B Shares.......... Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales
charge that declines from 4% to zero on certain
redemptions made within six years of purchase. Class
B shares automatically convert into Class A shares
(which have lower ongoing expenses) six years after
purchase.
Class C Shares.......... Offered at net asset value without an initial sales
charge, but subject to a Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on
redemptions made within one year of purchase. Class C
shares do not convert into another class.
1
<PAGE> 8
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and investments thereafter
must be at least $100. Shares are redeemable at net asset value, which may be
more or less than original cost, subject to any applicable contingent deferred
sales charge. See "Purchase of Shares" and "Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Dreman Value Advisors, Inc. ("DVA") serves
as investment manager for each Fund. DVA is paid an investment management fee by
each Fund based upon average daily net assets of that Fund at an annual rate
ranging from .75% to .62%. Zurich Kemper Distributors, Inc. ("ZKDI"), an
affiliate of DVA, is principal underwriter and administrator for each Fund. For
Class B shares and Class C shares, ZKDI receives a Rule 12b-1 distribution fee
at an annual rate of .75% of average daily net assets. ZKDI also receives the
amount of any contingent deferred sales charges paid on the redemption of
shares. Administrative services are provided to shareholders under an
administrative services agreement with ZKDI. KDF pays an administrative services
fee at an annual rate of up to .25% of average daily net assets of Class A, B
and C shares of the Funds, which ZKDI pays to financial services firms. See
"Investment Manager and Underwriter."
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, the Small Cap Value Fund normally
distributes annual dividends of net investment income and each Fund distributes
any net realized capital gains at least annually. Income and capital gain
dividends of a Fund are automatically reinvested in additional shares of that
Fund, without sales charge, unless the shareholder makes a different election.
See "Dividends and Taxes."
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B CLASS C
(APPLICABLE TO ALL FUNDS)(1) ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a
percentage of offering price).................. 5.75%(2) None None
Maximum Sales Charge on Reinvested Dividends..... None None None
Redemption Fees.................................. None None None
Exchange Fee..................................... None None None
Deferred Sales Charge (as a percentage of
redemption proceeds)........................... None(3) 4% during the first 1% during the
year, 3% during the first year
second and third years,
2% during the fourth and
fifth years and 1% in
the sixth year
</TABLE>
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares--Initial Sales Charge Alternative--Class A Shares."
(3) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% the first year and .50% the second year. See "Purchase of
Shares--Initial Sales Charge Alternative--Class A Shares."
2
<PAGE> 9
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS A SHARES
Management Fees (restated).................................. .75% .74% .75%
12b-1 Fees.................................................. None None None
Other Expenses (restated)................................... .50% .47% .72%
----- ----- -----
Total Operating Expenses.................................... 1.25% 1.21% 1.47%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS B SHARES
Management Fees (restated).................................. .75% .74% .75%
12b-1 Fees(4)............................................... .75% .75% .75%
Other Expenses (restated)................................... .84% .82% .99%
----- ----- -----
Total Operating Expenses.................................... 2.34% 2.31% 2.49%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
CONTRARIAN HIGH RETURN SMALL CAP VALUE
FUND EQUITY FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
CLASS C SHARES
Management Fees (restated).................................. .75% .74% .75%
12b-1 Fees(5)............................................... .75% .75% .75%
Other Expenses (restated)................................... 1.30% .84% .69%
----- ----- -----
Total Operating Expenses.................................... 2.80% 2.33% 2.19%
===== ===== =====
</TABLE>
- ---------------
(4) As a result of 12b-1 fees, long-term shareholders may pay more than the
economic equivalent of the maximum initial sales charges permitted by the
National Association of Securities Dealers, although ZKDI believes that it
is unlikely because of the automatic conversion feature described under
"Purchase of Shares--Deferred Sales Charge Alternative--Class B Shares."
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
You would pay the Contrarian Fund $70 $ 95 $122 $200
following expenses on a High Return Equity Fund $69 $ 94 $120 $196
$1,000 investment, Small Cap Value Fund $72 $101 $133 $223
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
</TABLE>
3
<PAGE> 10
EXAMPLE
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES(6)
You would pay the Contrarian Fund $54 $93 $135 $215
following expenses on a High Return Equity Fund $53 $92 $134 $211
$1,000 investment, Small Cap Value Fund $55 $98 $143 $234
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
You would pay the Contrarian Fund $24 $73 $125 $215
following expenses on High Return Equity Fund $23 $72 $124 $211
the same investment, Small Cap Value Fund $25 $78 $133 $234
assuming no redemption:
</TABLE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES(7)
You would pay the Contrarian Fund $28 $87 $148 $313
following expenses on a High Return Equity Fund $24 $73 $125 $267
$1,000 investment, Small Cap Value Fund $22 $69 $117 $252
assuming (1) 5% annual
return and (2)
redemption at the end of
each time period:
</TABLE>
- ---------------
(6) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
(7) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was not applicable for any of
the periods shown. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class C Shares."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. DVA
waived its management fee and absorbed operating expenses of each Fund to the
extent necessary to limit the Fund's operating expenses to the following
percentage of such Fund's average net assets through November 11, 1996: Class A
shares - 1.25%; Class B shares - 2.00%; and Class C shares - 1.95%. "Management
Fees" and "Other Expenses" in the tables above have been restated to reflect
current fees.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
4
<PAGE> 11
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund expressed in terms of
one share outstanding throughout the period. The information in the tables has
been audited by Ernst & Young LLP, independent auditors, except for the
information for the periods ended December 31, 1994 and prior which have been
audited by other independent auditors. The report of Ernst & Young LLP is
contained in KDF's Registration Statement and is available from KDF. The
financial statements contained in each Fund's 1996 Annual Report to Shareholders
are incorporated herein by reference and may be obtained by writing or calling
KDF.
CONTRARIAN FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .26 .28 .22 .25 .28 .25 .29 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.07 5.05 (.28) .96 1.13 2.38 (.94) 1.60 .54
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.30 5.31 -- 1.18 1.38 2.66 (.69) 1.89 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .22 .24 .28 .22 .26 .28 .26 .29 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain 1.35 1.05 1.16 .84 -- .11 .28 .81 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends 1.57 1.29 1.44 1.06 .26 .39 .54 1.10 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.93 16.20 12.18 13.62 13.50 12.38 10.11 11.34 10.55
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.42% 44.57 (.03) 9.10 11.32 26.53 (6.08) 18.29 6.96
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.23% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 1.34
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.56% 1.85 1.89 1.64 2.04 2.35 2.46 2.59 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.25% 1.66 1.42 1.54 1.53 1.76 1.52 1.67 2.37
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.54% 1.44 1.71 1.34 1.76 1.84 2.19 2.17 1.39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
5
<PAGE> 12
<TABLE>
<CAPTION>
CLASS B CLASS C
-------------------------------------- --------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
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:
Distributions from net investment income .11 .07 .11 .08
- ----------------------------------------------------------------------------------------------------------------------------
Distributions 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 (loss) .45% .52 (.01) .57
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------- MARCH 18 TO
1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $77,592 25,482 12,983 17,157 14,884 14,292 11,782 9,632 5,889
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 95% 30 16 16 28 36 37 45 39
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0490.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 13
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(A)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .39 .26 .25 .21 .24 .31 .34 .39 .25
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 5.75 6.76 (.39) 1.13 2.21 3.87 (1.21) 1.41 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.14 7.02 (.14) 1.34 2.45 4.18 (.87) 1.80 1.25
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .38 .24 .25 .21 .24 .30 .35 .43 .22
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .73 .40 -- .25 .12 .20 .07 2.26 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends 1.11 .64 .25 .46 .36 .50 .42 2.69 .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.52 21.49 15.11 15.50 14.62 12.53 8.85 10.14 11.03
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.79% 46.86 (.99) 9.22 19.80 47.57 (8.63) 18.45 13.04
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.21% 1.25 1.25 1.25 1.25 1.25 1.25 1.25 .57
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.55 1.58 1.47 1.88 2.52 3.61 3.83 3.75
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses 1.21% 1.57 1.39 1.56 1.70 2.31 2.38 2.74 3.36
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.23 1.44 1.16 1.43 1.46 2.48 2.34 .96
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 18, 1988 (inception date) to December 31, 1988.
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $21.47 19.45 21.48 19.45
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .07 .20 .09
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 5.72 2.41 5.72 2.41
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.91 2.48 5.92 2.50
- ---------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment
income .21 .06 .22 .07
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .73 .40 .73 .40
- ---------------------------------------------------------------------------------------------------------------------------
Total dividends .94 .46 .95 .47
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.44 21.47 26.45 21.48
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.63% 12.88 27.66 12.94
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.20% 2.00 2.22 1.95
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.13% .61 1.11 .66
- ---------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.31% 2.35 2.33 2.30
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 1.02% .26 1.00 .31
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------- MARCH 18 TO
1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $737,834 98,196 35,005 28,413 14,425 7,238 3,868 3,992 2,413
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 10% 18 12 14 13 37 204 156 107
- --------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was $.0513.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 14
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996(B) 1995 1994 1993 1992(A)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.50 10.85 11.23 11.52 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14 (.02) -- .06 .03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.14 4.64 .02 .23 1.95
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.28 4.62 .02 .29 1.98
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distributions from net investment income .07 -- -- .06 .03
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain .43 .97 .40 .52 .43
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .50 .97 .40 .58 .46
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.28 14.50 10.85 11.23 11.52
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 29.60% 43.29 .15 2.54 32.51*
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.31% 1.25 1.25 1.25 1.25
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .87% (.16) (.03) .53 .81
- ------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.47% 1.83 1.82 2.09 4.29
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .71% (.74) (.61) (.32) (2.24)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------- ------------------------------------------
YEAR ENDED SEPTEMBER 11 TO YEAR ENDED SEPTEMBER 11 TO
DECEMBER 31, 1996(B) DECEMBER 31, 1995 DECEMBER 31, 1996(B) DECEMBER 31, 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B AND C SHARES
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $14.48 15.75 14.48 15.75
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .01 (.02) .01 (.02)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 4.11 (.41) 4.14 (.41)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.12 (.43) 4.15 (.43)
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .03 -- .03 --
Distributions from net realized
gain .43 .84 .43 .84
- -----------------------------------------------------------------------------------------------------------------------------
Total dividends .46 .84 .46 .84
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.14 14.48 18.17 14.48
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 28.54% (2.52) 28.77 (2.51)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)
Expenses absorbed by the Fund 2.12% 2.00 2.06 1.95
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .06% (.99) .12 (.94)
- -----------------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.49% 2.39 2.19 2.35
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (.31)% (1.38) (.01) (1.34)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Per share data for 1996 were determined based on average shares outstanding.
8
<PAGE> 15
ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------- MAY 22 TO
1996 1995 1994 1993 DECEMBER 31, 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $273,222 31,606 6,931 4,875 2,385
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 23% 86 140 79 37
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average commission rate paid per share on stock transactions for the year ended
December 31, 1996 was $.0426.
- --------------------------------------------------------------------------------
NOTES: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 Funds through November 11, 1996. The "Other Ratios to
Average Net Assets" are computed without this expense waiver or
absorption.
9
<PAGE> 16
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. The investment objective of each Fund may be changed without the
affirmative vote of a majority of the outstanding securities of that Fund. Each
Fund's returns and net asset value will fluctuate and there is no assurance that
any Fund will meet its objective. For a description of how DVA selects specific
securities for inclusion in a Fund's portfolio, see "Additional Investment
Information."
CONTRARIAN FUND. The Contrarian Fund's primary investment objective is to seek
long-term capital appreciation and its secondary objective is to seek current
income. It will invest principally in a diversified portfolio consisting
primarily of common stocks believed by DVA to be undervalued. Securities of a
company may be undervalued as a result of overreaction by investors to
unfavorable news about a company, industry or the stock markets in general or as
a result of a market decline, poor economic conditions, tax-loss selling or
actual or anticipated unfavorable developments affecting the company.
The Fund will invest primarily in common stocks of larger, listed companies with
a record of earnings and dividends, low price-earnings ratios, reasonable
returns on equity, and sound finances which, in the opinion of DVA, have
intrinsic value. The Fund may, however, from time to time, invest in stocks that
pay no dividends. It is anticipated that most stocks purchased will be listed on
the New York Stock Exchange, but the Fund may also purchase securities listed on
other securities exchanges and in the over-the-counter market. The Fund may sell
call options on securities it holds ("covered call options").
HIGH RETURN EQUITY FUND. The High Return Equity Fund's investment objective is
to achieve a high rate of total return. The common stocks held by the Fund will
have the same investment characteristics as those held by the Contrarian Fund.
The Fund generally will invest in common stocks that pay relatively high
dividends, i.e. comparable to the dividend yield of Standard & Poor's 500
Composite Stock Index. In order to enhance its investment return, the Fund may
sell covered call options, and sell put options on securities it may acquire.
The Fund will earn premium income on the sale of these options.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities. Equity securities include common stocks, preferred
stocks, securities convertible into or exchangeable for common or preferred
stocks, equity investments in partnerships, joint ventures and other forms of
non-corporate investment and warrants and rights exercisable for equity
securities and equity equivalents.
While most investments will be in dividend paying stocks, the Fund may also
acquire stocks that do not pay dividends in anticipation of market appreciation,
future dividends, and when DVA believes that it would be advantageous to write
options on such stocks. The Fund will be managed with a view to achieving a high
rate of total return on investors' capital primarily through appreciation of its
common stock holdings, options transactions and by acquiring and selling stock
index futures and options thereon and, to a lesser extent, through dividend and
interest income, all of which, in DVA's judgment, are elements of "total
return."
Although the Fund will not invest 25% or more of the assets in any one industry,
it may, from time to time, invest a significant percentage of its total assets
in one or more market sectors, such as the financial services sector. If the
Fund concentrates its investments in a market sector, financial, economic,
business and other developments affecting issuers in that sector may have a
greater effect on the Fund than if it had not concentrated its assets in that
sector.
SMALL CAP VALUE FUND. The Small Cap Value Fund's investment objective is to seek
long-term capital appreciation. It will invest principally in a diversified
portfolio of equity securities of small companies with market capitalizations
ranging from $100 million to $1 billion that DVA believes to be undervalued.
Securities of a company may be undervalued as a result of overreactions by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the company.
Under normal market
10
<PAGE> 17
conditions, at least 65% of the total assets of the Fund will be invested in
securities of companies whose market capitalizations are less than $1 billion.
The Fund will invest primarily in common stocks of companies with a record of
earnings, low price-earnings ratios, reasonable returns on equity and sound
finances which, in the opinion of DVA, have intrinsic value. Such securities are
generally traded on the New York Stock Exchange, the American Stock Exchange and
in the over-the-counter market. The Fund may also sell covered call options and
put options on securities it may acquire.
ADDITIONAL INVESTMENT INFORMATION. The portfolio turnover rates of the Funds are
listed under "Financial Highlights." A Fund may periodically experience a high
turnover rate (over 100%). The Funds will usually hold stocks acquired for the
long-term and will sell stocks when DVA believes that anticipated price
appreciation is no longer probable, alternative investments offer superior
appreciation prospects, or the risk of decline in market prices is greater than
the potential for gain. Portfolio turnover will tend to rise during periods of
economic turbulence and decline during periods of stable growth. Generally, the
Contrarian Fund will exercise the discipline of selling stocks when their
price-earnings ratio ("P/E ratio") rise to a level in excess of the P/E ratio of
the stocks that comprise the S&P 500 Composite Stock Index. The use of options
and futures contracts will tend to increase the portfolio turnover rate of the
High Return Equity Fund. To the extent the investment policies of that Fund
result in a relatively high turnover rate, it will incur greater expenses and
brokerage fees.
SELECTION OF INVESTMENTS. In order to determine whether a security is
"undervalued," the principal factor considered by DVA is the P/E ratio of the
security. DVA believes that the risk in owning stocks can be reduced by
investing in companies with sound finances whose current market prices are low
in relation to earnings. In determining whether a company's finances are sound,
DVA considers among other things, its cash position and current ratio (current
assets compared to current liabilities) and, in this regard, considers a 2:1
ratio to be favorable.
DVA applies quantitative analysis to its research process, and begins by
screening a large number of stocks. Typically, most companies selected for
inclusion in the Contrarian and High Return Equity Funds will have market
capitalizations well in excess of $1 billion and those selected for inclusion in
the Small Cap Value Fund will have market capitalizations ranging from
approximately $100 million to $1 billion. In selecting among stocks with low P/E
ratios, DVA also considers factors such as the following about the issuer:
- Financial strength,
- Book-to-market value,
- Five and ten-year earnings growth rates,
- Five and ten-year dividend growth rates,
- Five and ten-year return on equity,
- Size of institutional ownership, and
- Earnings estimates for the next 12 months.
Fundamental analysis is used on companies that initially look promising.
Earnings and cash flow analysis as well as a company's conventional dividend
payout ratio are important to this process. Generally, for the Contrarian and
High Return Equity Funds, DVA seeks companies with growth rates better than 10%
in the last five and ten-year periods for both earnings and dividends.
Typically, the Funds will consist of approximately 25 to 50 stocks, diversified
by both sector and industry. Most investments will be in securities of domestic
companies, but, the Funds may also invest up to 20% of their assets in
securities of foreign companies through the acquisition of sponsored American
Depository Receipts ("ADRs"). ADRs are receipts issued by a U.S. bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs may be listed on a national securities exchange or may be traded in
the over-the-counter market. The Funds may also invest in preferred stocks,
convertible securities and warrants. While it is anticipated that under normal
circumstances all Funds will be fully invested, in order to conserve assets
during periods when DVA believes that the markets for equity securities are
unduly speculative, each Fund may invest up to 50% of its assets in cash or
defensive-type securities, such as high-grade debt securities, securities of the
U.S. Government or its agencies and high
11
<PAGE> 18
quality money market instruments, including repurchase agreements. Investments
in such interest bearing securities will be for temporary defensive purposes
only.
The Funds' policies of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is DVA's belief, however, that the securities of sound,
well-managed companies that may be temporarily out of favor due to earnings
declines or other adverse developments are likely to provide a greater total
investment return than securities whose prices appear to reflect anticipated
favorable developments.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment manager to present minimal credit risk. The investment manager will
monitor on an on-going basis the creditworthiness of the broker-dealers and
banks with which the Funds may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Funds' limitations on illiquid securities. The Funds will not
invest more than 10% of the value of their net assets in illiquid securities
including restricted securities and repurchase agreements with remaining
maturities in excess of seven days, and other securities for which market
quotations are not readily available.
OPTIONS. The High Return Equity Fund and the Small Cap Value Fund may sell
covered call options on securities they own and put options on securities they
may acquire. The sale of a covered call option by the Fund gives the purchaser
the right to purchase a specified number of shares of a company held by the Fund
at a specified price ("strike price") on or before the exercise date. The sale
of a put option by a Fund entitles the purchaser to sell a specified number of
shares of common stock of a company to the Fund at the strike price on or before
the exercise date. The Contrarian Fund also may sell covered call options on
securities it owns when DVA believes it is advantageous for the Fund to do so.
When a Fund sells a covered call option or a put option, the purchaser will pay
the Fund a sum of cash referred to as a "premium." The amount of the premium is
established on the securities exchange on which the option is traded, and will
be determined by the market price of the optioned stock, the strike price of the
option, the length of time remaining until the expiration date, and other market
factors. To the extent that the High Return Equity Fund engages in options
transactions, it may do so to enhance its total return through the receipt of
premiums.
If the market price of the optioned stock exceeds the strike price of a covered
call option prior to the expiration date, the option may be exercised. In this
event, a Fund will either deliver the optioned stock or, at any time prior to
the expiration date, it may purchase an identical option and close out the
transaction (a "closing transaction"). If the market price of the optioned stock
does not exceed the strike price prior to the expiration date the option will
not be exercised and will expire.
If the market price of the stock subject to a put option falls below the strike
price of the put option before the expiration date, the purchaser of the option
may require the Fund to purchase the stock at the strike price. In this event,
the Fund will either purchase the optioned stock or, at any time prior to the
expiration date, the
12
<PAGE> 19
Fund may enter into a closing transaction. If the market price of the stock
subject to the put option does not fall below the strike price prior to the
expiration date, the option will expire unexercised.
The High Return Equity and Small Cap Value Funds will only sell put options and
covered call options that are issued by the Options Clearing Corporation and
listed on a national securities exchange. The Contrarian Fund will only sell
covered call options that are issued by the Options Clearing Corporation and
listed on a national securities exchange. The Funds are authorized to sell
covered call options on all of the stocks they hold. No put option will be sold,
however, if as a result the High Return Equity or Small Cap Value Fund would be
obligated to purchase securities whose total value exceeds 50% of the net assets
of the Fund. When a Fund sells a put option, it will establish a segregated
account consisting of short-term high-grade debt obligations to cover its
obligation to acquire the securities underlying the option or will hold on a
share-for-share basis a put on the same security as the put sold where the
exercise price of the put held is equal to or greater than the exercise price of
the put sold. The segregated securities will be "marked to market" daily to
equal the current market value of the optioned stock. By investing in stocks
that pay relatively high dividends and earning premiums from the sale of put and
covered call options, a Fund may seek to earn a current rate of return
comparable to that of so-called high yield bonds. A "high yield" bond (sometimes
referred to as a "junk bond") is generally considered to be a bond that offers a
higher yield than a bond with a higher credit rating as compensation for the
greater risk involved. Ordinarily, such bonds are rated BB - Ba through CC.
FUTURES CONTRACTS. The Funds may purchase and sell stock index futures contracts
and index options as hedges against changes resulting from market conditions in
the values of the securities held by the Funds, or securities that they intend
to purchase or sell, where such transactions are economically appropriate for
the reduction of risks inherent in the ongoing management of the Funds.
The High Return Equity and Small Cap Value Funds may seek to take advantage of
significant declines in the stock markets by selling put options on stocks and
index futures contracts, and during periods of rising prices, all Funds may sell
covered call options on stocks and index futures they hold, thereby availing
themselves of increased options premiums which ordinarily correspond to
significant movements in the market prices of common stocks. The ordinary
spreads between prices in the securities and futures markets, due to the
difference in the nature of those markets, are subject to distortions (e.g., the
margin requirements on futures and the relative liquidity of the respective
markets). The Funds may attempt to take advantage of such disparities. To
compensate for imperfect correlations, a Fund may buy futures contracts in a
greater dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the prices of such securities has been greater than
the historical volatility of the futures contracts. In addition, index futures
contracts may be acquired and sold to facilitate cash management of the
Contrarian, High Return Equity and Small Cap Value Funds pending investment of
the proceeds of large purchases of a Fund's shares and to facilitate large
redemptions of its shares.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur. Contracts are generally terminated by entering into an
off-setting transaction. The Funds will incur brokerage fees when they purchase
futures contracts. At the same time such a purchase is made, the Fund must
provide cash or securities as a deposit ("initial deposit") known as "margin."
Daily thereafter, the futures contract is valued and the payment of "variation
margin" may be required, because each day the Fund must provide or receive cash
reflecting the decline or increase in the value of the contract.
A Fund may not purchase futures contracts or options thereon if, immediately
thereafter the sum of the initial and variation margin deposits on its existing
futures positions would exceed 5% of its total assets (including margin
deposits).
SECURITIES LOANS. The Funds are authorized to lend their portfolio securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional investment income. KDF does not intend to lend
securities of any Fund if as a result more than 5% of the net assets of the Fund
would be on loan.
13
<PAGE> 20
BORROWING. While all of the Funds are authorized to borrow from banks in amounts
not in excess of 10% of their respective total assets, they do not intend to do
so. If, in the future, they do borrow from banks, they would not purchase
additional securities at any time when such borrowings exceed 5% of their
respective net assets.
SPECIAL RISK FACTORS. The value of the shares of the Funds will fluctuate with
the investment experience of the securities they hold. There can be no
assurance, of course, that any Fund will achieve its investment objective.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. When the High Return Equity or Small
Cap Value Fund sells a put option, the Fund may be required to purchase the
optioned stock at a price that exceeds the market price of the stock on or
before the expiration date of the option. Put options will be sold with this
possibility in mind and, therefore, the Fund will sell put options on stocks
that DVA believes would be desirable holdings even if acquired at the strike
price of the option.
When a Fund sells a covered call option, the Fund may be required to sell the
optioned stock at a price below the market price of the stock on the expiration
date of the option. In these circumstances, the ability of the Fund to realize a
capital gain on the optioned stock will be limited to the difference between the
price at which the Fund purchased the stock and the strike price of the option,
plus the premium it received for the sale of the option. However, because the
investment objective of the High Return Equity Fund is to achieve a high rate of
total return and the Contrarian Fund has a secondary objective of seeking
current income, transactions in covered call options will be effected with a
view to achieving these goals and may limit the Fund's ability to realize
additional capital gains on optioned stocks that have appreciated in value.
An option closing transaction may be effected only on an exchange that provides
a secondary market for an option of the same series. Although the Contrarian,
High Return Equity and Small Cap Value Funds will generally sell only those
options for which DVA believes there is an active market, there is no assurance
that a liquid market on an exchange will exist for any particular option. In
such event, it might not be possible to effect closing transactions in
particular options, with the result that a Fund would be unable to close out an
option position by acquiring an identical option. Moreover, there can be no
assurance that option closing transactions can be effected at prices that are
advantageous to a Fund.
A Fund will not enter into any futures contracts or options on futures contracts
if the aggregate of the contract value of the outstanding futures contracts of
the Fund and futures contracts subject to outstanding options written by the
Fund would exceed 50% of the total assets of the Fund.
Investments in futures contracts entail the risk that, if DVA's investment
judgment about the general direction of the securities markets is incorrect, the
Fund's overall performance may be poorer than if it had not entered into any
such contracts. For example, if a Fund has hedged against the possibility of a
decrease in market prices which would adversely affect the price of securities
held, and market prices increase instead, the Fund will lose part or all of the
benefit of the increased value of its securities because it will have offsetting
losses in its futures position. In addition, in such situations, if the Fund had
insufficient cash, it might have to sell securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices that reflect the rising market. Therefore, a
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
SMALL CAP SECURITIES. Investments in securities of companies with small market
capitalizations are generally considered to offer greater opportunity for
appreciation and to involve greater risks of depreciation than securities of
companies with larger market capitalizations. Since the securities of such
companies are not as broadly traded as those of companies with larger market
capitalizations, these securities are often subject to wider and more abrupt
fluctuations in market price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting
14
<PAGE> 21
greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stock prices rise, or rise in price as large company
stock prices decline. Investors should therefore expect that the value of the
Small Cap Value Fund's shares may be more volatile than the shares of a fund
that invests in larger capitalization stocks.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate or a currency
("derivatives"). Derivatives are most often used in an effort to manage
investment risk, to increase or decrease exposure to an asset class or benchmark
(as a hedge or to enhance return), or to create an investment position in
directly (often because it is more efficient or less costly than direct
investment). There is no guarantee that these results can be achieved through
the use of derivatives. The types of derivatives used by each Fund and the
techniques employed by the investment manager may change over time as new
derivatives and strategies are developed or regulatory changes occur.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Dreman Value Advisors, Inc. ("DVA"), 280 Park Avenue, 40th
Floor, New York, New York 10017, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. DVA,
which was formed in October 1994, began serving as investment manager to the
Funds in August, 1995 when it acquired substantially all the assets of Dreman
Value Management, L.P., KDF's former investment manager. DVA has approximately
$2 billion under management. It is a wholly owned subsidiary of Zurich Kemper
Investments, Inc., ("ZKI"), which is one of the largest investment managers in
the country and has been engaged in the management of investment funds for more
than forty-eight years. ZKI and its affiliates, including DVA, provide
investment advice and manage investment portfolios for the Kemper Funds, Zurich
Funds, affiliated insurance companies and other corporate, pension,
profit-sharing and individual accounts representing approximately $80 billion
under management. ZKI and its affiliates (including DVA) act as investment
manager for 32 open-end and seven closed-end investment companies, with 79
separate investment portfolios, representing more than 2.5 million shareholder
accounts. ZKI is an indirect subsidiary of Zurich Insurance Company, an
internationally recognized provider of financial services in property/casualty
and life insurance, reinsurance and asset management.
Responsibility for overall management of KDF rests with its Board of Directors
and officers. Professional investment supervision is provided by DVA. The
investment management agreement provides that DVA shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities.
Christian C. Bertelsen has been the manager of the Contrarian Fund since March,
1996. Mr. Bertelsen joined DVA in March, 1996 as Chief Investment Officer. Prior
to joining DVA, he served from April, 1993 as a senior vice president and a
portfolio manager of an unaffiliated investment management firm where he
continues to serve on a temporary part-time basis. Prior thereto, he was a
senior vice president of another unaffiliated investment management firm. Mr.
Bertelsen received a B.A. degree from Boston University, Boston, Massachusetts.
David Dreman has been the portfolio manager of the High Return Equity Fund since
its inception. He is currently the Chairman and a Director of DVA and was
associated with KDF's former investment adviser. Mr. Dreman is a pioneer of the
philosophy of contrarian investing (buying what is out of favor) and a leading
proponent of the low P/E investment style. He is a columnist for FORBES and the
author of several books on the value style of investing. He received a Bachelor
of Commerce from the University of Manitoba, Winnipeg, Manitoba, Canada.
Christian C. Bertelsen and Steven T. Stokes have been the portfolio co-managers
of the Small Cap Value Fund since July, 1996. Mr. Stokes joined DVA in April,
1996 and is currently a Managing Director of DVA. Prior thereto, he served as a
portfolio manager of an unaffiliated investment management firm. Mr. Stokes
received a
15
<PAGE> 22
B.S. degree in Finance from State University of New York at New Paltz. Mr.
Stokes is a Chartered Financial Analyst. Information regarding Mr. Bertelsen
appears above.
Each Fund pays DVA an investment management fee, payable monthly, at the annual
rate of .75% of the first $250 million of its average daily net assets, .72% of
average daily net assets between $250 million and $1 billion, .70% of average
daily net assets between $1 billion and $2.5 billion, .68% of average daily net
assets between $2.5 billion and $5 billion, .65% of average daily net assets
between $5 billion and $7.5 billion, .64% of average daily net assets between
$7.5 billion and $10 billion, .63% of average daily net assets between $10
billion and $12.5 billion and .62% of its average daily net assets over $12.5
billion. To the extent that the management fee paid to DVA is .75%, it is higher
than that paid by most other mutual funds.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with KDF, Zurich Kemper Distributors, Inc.
("ZKDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of
DVA and a wholly owned subsidiary of ZKI, is the principal underwriter and
distributor of each Fund's shares and acts as agent of each Fund in the sale of
its shares. ZKDI bears all its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. ZKDI provides
for the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than shareholders. ZKDI bears
the cost of qualifying and maintaining the qualification of the Funds' shares
for sale under the securities laws of the various states and KDF bears the
expense of registering its shares with the Securities and Exchange Commission.
ZKDI may enter into related selling group agreements with various
broker-dealers, including affiliates of ZKDI, that provide distribution services
to investors. ZKDI also may provide some of the distribution services.
CLASS A SHARES. ZKDI receives no compensation from KDF as principal underwriter
for Class A shares and pays all expenses of distribution of KDF's Class A shares
under the distribution agreement not otherwise paid by dealers or other
financial services firms. As indicated under "Purchase of Shares," ZKDI retains
the sales charge upon the purchase of shares and pays or allows concessions or
discounts to firms for the sale of KDF shares.
CLASS B SHARES. For its services under the distribution agreement, ZKDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. ZKDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares-Contingent
Deferred Sales Charge-Class B Shares." ZKDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the distribution agreement, ZKDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of such Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. ZKDI currently advances to firms
the first year distribution fee at a rate of .75% of the purchase price of such
shares. For periods after the first year, ZKDI currently intends to pay firms
for sales of Class C shares a distribution fee, payable quarterly, at an annual
rate of .75% of net assets attributable to Class C shares maintained and
serviced by the firm and the fee continues until terminated by ZKDI or KDF. ZKDI
also receives any contingent deferred sales charges. See "Redemption or
Repurchase of Shares--Contingent Deferred Charge--Class C Shares."
RULE 12B-1 PLAN. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by ZKDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may,
16
<PAGE> 23
directly or indirectly, bear the expenses of distributing its shares. The table
below shows amounts paid in connection with each Fund's Rule 12b-1 Plan during
its 1996 fiscal year.
<TABLE>
<CAPTION>
DISTRIBUTION FEES CONTINGENT DEFERRED
DISTRIBUTION EXPENSES PAID BY FUND SALES CHARGE PAID
INCURRED BY UNDERWRITER TO UNDERWRITER(a) TO UNDERWRITER
------------------------ -------------------- --------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B CLASS C
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Contrarian...................... $ 1,165,000 86,000 95,000 2,000 15,000 2,000
High Return Equity.............. $11,821,000 810,000 750,000 96,000 127,000 3,000
Small Cap Value................. $ 3,818,000 423,000 191,000 48,000 52,000 1,000
</TABLE>
- ---------------
(a) Amounts shown are after expense waiver.
If the Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of KDF to make payments to ZKDI pursuant to the Plan will cease
and KDF will not be required to make any payments past the termination date.
Thus, there is no legal obligation for KDF to pay any expenses incurred by ZKDI
in excess of its fees under the Plan, if for any reason the Plan is terminated
in accordance with its terms. Future fees under the Plan may or may not be
sufficient to reimburse ZKDI for its expenses incurred.
ADMINISTRATIVE SERVICES. ZKDI also provides information and administrative
services for shareholders of KDF pursuant to an administrative services
agreement ("administrative agreement"). ZKDI may enter into related arrangements
with various broker-dealer firms and other service or administrative firms
("firms") that provide services and facilities for their customers or clients
who are investors in KDF. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining accounts and
records, processing purchase and redemption transactions, answering routine
inquiries regarding each Fund and its special features, and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. ZKDI bears all its expenses of providing
services pursuant to the administrative agreement, including the payment of any
service fees. For services under the administrative agreement, KDF pays ZKDI a
fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of Class A, B and C shares of each Fund. ZKDI then pays each firm a
service fee at an annual rate of up to .25% of net assets of each class of those
accounts that it maintains and services for KDF. Firms to which service fees may
be paid include affiliates of ZKDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the accounts in the month following the month of purchase
and the fee continues until terminated by ZKDI or KDF. The fees are calculated
monthly and paid quarterly.
CLASS B AND CLASS C SHARES. ZKDI currently advances to firms the first-year
service fee at a rate of up to .25% of the purchase price of such shares. For
periods after the first year, ZKDI currently intends to pay firms a service fee
at a rate of up to .25% (calculated monthly and paid quarterly) of the net
assets attributable to Class B and Class C shares maintained and serviced by the
firm and the fee continues until terminated by ZKDI or KDF.
ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for KDF. Currently, the
administrative services fee payable to ZKDI is based only upon KDF assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI will pay all the administrative services fee that it receives from KDF
to firms in the form of service fees. The effective administrative services fee
rate to be charged against all assets of KDF while this procedure is in effect
will depend upon the proportion of Fund assets that is in accounts for which a
firm provides administrative services. In addition, ZKDI may, from time to
17
<PAGE> 24
time, from its own resources pay certain firms additional amounts for ongoing
administrative services and assistance provided to their customers and clients
who are shareholders of each Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of KDF maintained in the United States. IFTC also is KDF's transfer agent and
dividend-paying agent. Pursuant to a services agreement with IFTC, Zurich Kemper
Service Company ("ZKSC"), an affiliate of DVA, serves as "Shareholder Service
Agent" of KDF and, as such, performs all of IFTC's duties as transfer agent and
dividend-paying agent. For a description of transfer agent and shareholder
service agent fees, see "Investment Manager and Underwriter" in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS. DVA places all orders for purchases and sales of a
Fund's securities. Subject to seeking best execution of orders, DVA may consider
sales of shares of a Fund and of funds managed by ZKI or its affiliates as a
factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income, the Small Cap Value Fund normally
distributes annual dividends of net investment income and each Fund distributes
any net realized short-term and long-term capital gains at least annually.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income and capital gain dividends, if any, of a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a Fund that are reinvested will normally be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Funds will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions in the aggregate amount of $10
or less are automatically reinvested in shares of the same Fund unless the
shareholder requests that such policy not be applied to the shareholder's
account.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income taxes to the extent its
earnings are distributed. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
long-term capital gain dividends are taxable to shareholders as long-term
capital gain regardless of how long the shares have been held and whether
received in cash or shares.
18
<PAGE> 25
Long-term capital gain dividends received by individual shareholders are
currently taxed at a maximum rate of 28%. Dividends declared in October,
November or December to shareholders of record as of a date in one of those
months and paid during the following January are treated as paid on December 31
of the calendar year declared. A portion of the dividends paid by a Fund may
qualify for the dividends received deduction available to corporate
shareholders.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
(IRAs) or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of a Fund is determined separately for each class
by dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The per share net asset value of the
Class B and Class C shares of a Fund will generally be lower than that of the
Class A shares of the Fund because of the higher expenses borne by Class B and
Class C shares. Fund securities that are primarily 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 price available, at the last current
bid quotation. A security that is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security by the Board of Directors or its delegates. Securities not so
traded or listed are valued at the last current bid 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. Exchange traded fixed income options, 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. If an event were to occur, after the value of a security was so
established but before the net asset value per share was determined, which was
likely to materially change the net asset value, then that security would be
valued using fair value
19
<PAGE> 26
determinations by the Board of Directors or its delegates. On each day the New
York Stock Exchange (the "Exchange") is open for trading, the net asset value is
determined as of the earlier of 3:00 pm. Chicago time or the close of the
Exchange.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund 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, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
Class Maximum initial sales charge of None Initial sales charge waived or
A.... 5.75% of the public offering reduced for certain purchases
price
Class Maximum contingent deferred sales 0.75% Shares convert to Class A shares
B.... charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class Contingent deferred sales charge 0.75% No conversion feature
C.... of 1% of redemption proceeds for
redemptions made during first
year after purchase
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
20
<PAGE> 27
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------------------------------
ALLOWED TO
AS A PERCENTAGE DEALERS AS A
AS A PERCENTAGE OF NET ASSET PERCENTAGE OF
OF OFFERING PRICE VALUE* OFFERING PRICE
AMOUNT OF PURCHASE ----------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.20%
$50,000 but less than $100,000........................ 4.50 4.71 4.00
$100,000 but less than $250,000....................... 3.50 3.63 3.00
$250,000 but less than $500,000....................... 2.60 2.67 2.25
$500,000 but less than $1 million..................... 2.00 2.04 1.75
$1 million and over................................... .00** .00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by ZKDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
ZKDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, ZKDI may reallow up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such reallowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which neither DVA nor ZKI serve as investment manager
("non-Kemper fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. The redemption of the shares of the non-Kemper fund
is, for federal income tax purposes, a sale upon which a gain or loss may be
realized. ZKDI may in its discretion compensate firms for sales of Class A
shares under this privilege at a commission rate of .50% of the amount of Class
A shares purchased.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features"; or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of shares purchased under
the Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge. See "Redemption or Repurchase of Shares--Contingent Deferred Sales
Charge--Large Order NAV Purchase Privilege."
21
<PAGE> 28
ZKDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, .50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege. For purposes of
determining the appropriate commission percentage to be applied to a particular
sale under the foregoing schedules, ZKDI will consider the cumulative amount
invested by the purchaser in a Fund and other Kemper Mutual Funds listed under
"Special Features--Class A Shares--Combined Purchases," including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features referred to above. The privilege of purchasing Class A shares
of a Fund at net asset value under the Large Order NAV Purchase Privilege is not
available if another net asset value purchase privilege is also applicable.
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as HOWARD AND AUDREY TABANKIN, ET AL. V. KEMPER
SHORT-TERM GLOBAL INCOME FUND, ET. AL., Case No. 93 C 5231 (N.D.IL). This
privilege is generally non-transferrable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, ZKDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to .25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by ZKDI. The
privilege of purchasing Class A shares of the Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.
Class A shares may be sold at net asset value in any amount to: (a) officers,
directors, employees (including retirees) and sales representatives of KDF, its
investment manager, its principal underwriter or certain affiliated companies,
for themselves or members of their families; (b) registered representatives and
employees of broker-dealers having selling group agreements with ZKDI; (c)
officers, directors, and employees of service agents of KDF; (d) shareholders
who owned shares of KDF on September 8, 1995, and have continuously owned shares
of KDF (or a Kemper Fund acquired by exchange of KDF shares) since that date,
for themselves or members of their families; and (e) any trust, pension,
profit-sharing or other benefit plan for only such persons. Class A shares may
be sold at net asset value in any amount to selected employees (including their
spouses and dependent children) of banks and other financial services firms that
provide administrative services related to order placement and payment to
facilitate transactions in shares of KDF for their clients pursuant to an
agreement with ZKDI or one of its affiliates. Only those employees of such banks
and other firms who as part of their usual duties provide services related to
transactions in Fund shares may purchase a Fund's Class A shares at net asset
value hereunder. Class A shares may be sold at net asset value in any amount to
unit investment trusts sponsored by Ranson & Associates, Inc. In addition,
unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or
its predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the Investment Advisers Act of 1940
and other financial services firms that adhere to certain standards established
by ZKDI, including a requirement that such shares be sold for the benefit of
their clients participating in an investment advisory program under which such
clients pay a fee to the investment advisor or other firm for portfolio
22
<PAGE> 29
management and other services. Such shares are sold for investment purposes and
on the condition that they will not be resold except through redemption or
repurchase by KDF. KDF may also issue Class A shares at net asset value in
connection with the acquisition of the assets of or merger or consolidation with
another investment company, or to shareholders in connection with the investment
or reinvestment of income and capital gain dividends.
Class A shares of a Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with ZKDI, for themselves or members of their
families. ZKDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
ZKDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. ZKDI
is compensated by KDF for services as distributor and principal underwriter for
Class B shares. See "Investment Manager and Underwriter." Class B shares of a
Fund will automatically convert to Class A shares of the same Fund six years
after issuance on the basis of the relative net asset value per share. The
purpose of the conversion feature is to relieve holders of Class B shares from
the distribution services fee when they have been outstanding long enough for
ZKDI to have been compensated for distribution related expenses. For purposes of
conversion to Class A shares, shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares in a
shareholder's KDF account will be converted to Class A shares on a pro rata
basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial sales charge is imposed.
Since Class C shares are sold without an initial sales charge, the full amount
of the investor's purchase payment will be invested in Class C shares for his or
her account. A contingent deferred sales charge may be imposed upon redemption
of Class C shares within one year of purchase. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Class C Shares." ZKDI currently
advances to firms the first year distribution fee at a rate of .75% of the
purchase price of such shares. For periods after the first year, ZKDI currently
intends to pay firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of .75% of net assets attributable to Class C
shares maintained and serviced by the firm. ZKDI is compensated by KDF for
services as distributor and principal underwriter for Class C shares. See
"Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge and who plan to
hold their investment for more than six
23
<PAGE> 30
years might consider Class B shares. Investors who prefer not to pay an initial
sales charge but who plan to redeem their shares within six years might consider
Class C shares. Orders for Class B shares or Class C shares for $500,000 or more
will be declined. Orders for Class B shares or Class C shares by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent will be invested instead in
Class A shares at net asset value where the combined subaccount value in KDF or
any Kemper Mutual Fund listed under "Special Features--Class A Shares--Combined
Purchases" is in excess of $5 million including purchases pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features." For more information about the three sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Financial services firms may receive different compensation depending
upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of KDF for their clients, and ZKDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. ZKDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
KDF.
ZKDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of a Fund sold by the firm under the following conditions: (i) the
purchased shares are held in a Kemper IRA account, (ii) the shares are purchased
as a direct "roll over' of a distribution from a qualified retirement plan
account maintained on a participant subaccount record keeping system provided by
ZKSC, (iii) the registered representative placing the trade is a member of
ProStar, a group of persons designated by ZKDI in acknowledgment of their
dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, ZKDI will, from
time to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of KDF. Non-cash compensation includes luxury merchandise and trips to luxury
resorts. In some instances, such discounts, commissions or other incentives will
be offered only to certain firms that sell or are expected to sell during
specified time periods certain minimum amounts of shares of KDF, or other funds
underwritten by ZKDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by ZKDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by ZKDI prior to the close of its business day will
be confirmed at a price based on the net asset value effective on that day
("trade date"). KDF reserves the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem KDF's shares. Some may establish higher minimum
investment requirements than set forth above. Firms may arrange with their
clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
KDF's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, KDF's transfer agent will have no information with
respect to or control over the
24
<PAGE> 31
accounts of specific shareholders. Such shareholders may obtain access to their
accounts and information about their accounts only from their firm. Certain of
these firms may receive compensation from KDF through the Shareholder Service
Agent for recordkeeping and other expenses relating to these nominee accounts.
In addition, certain privileges with respect to the purchase and redemption of
shares or the reinvestment of dividends may not be available through such firms.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing including, without limitation, transfers of registration
and dividend payee changes; and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. Such firms,
including affiliates of ZKDI, may receive compensation from KDF through the
Shareholder Service Agent for these services. This prospectus should be read in
connection with such firms' material regarding their fees and services.
KDF reserves the right to withdraw all or any part of the offering made by this
prospectus and to reject purchase orders. Also, from time to time, KDF may
temporarily suspend the offering of shares of any Fund or class of a Fund to new
investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such Fund or class and to have dividends
reinvested.
Shareholders should direct their inquiries to Zurich Kemper Service Company, 811
Main Street, Kansas City, Missouri 64105-2005 or to the firm from which they
received this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require KDF to redeem his or her shares. When
shares are held for the account of a shareholder by KDF's transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When KDF is asked to redeem shares for which it may not have yet received good
payment (i.e., purchases by check, EXPRESS-Transfer or Bank Direct Deposit), it
may delay transmittal of redemption proceeds until it has determined that
collected funds have been received for the purchase of such shares, which will
be up to 10 days from receipt by KDF of the purchase amount. The redemption
within two years of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege may be subject to a contingent deferred sales
charge (see "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares"), the redemption of Class B shares within six years may be subject to a
contingent deferred sales charge (see "Contingent Deferred Sales Charge--Class B
Shares" below) and the redemption of Class C shares within the first year
following purchase may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge--Class C Shares" below).
Because of the high cost of maintaining small accounts, effective January 1998,
KDF may assess a quarterly fee of $9 on an account with a balance below $1,000
for the quarter. The fee will not apply to accounts enrolled in
25
<PAGE> 32
an automatic investment program, Individual Retirement Accounts or employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. KDF or its agents may be liable for any
losses, expenses or costs arising out of fraudulent or unauthorized telephone
requests pursuant to these privileges, unless KDF or its agents reasonably
believe, based upon reasonable verification procedures, that the telephone
instructions are genuine. THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, including
loss resulting from fraudulent or unauthorized transactions, so long as the
reasonable verification procedures are followed. The verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. KDF reserves the right to terminate or modify this
privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to ZKDI, which KDF has authorized to act as its agent. There is no
charge by ZKDI with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the applicable Fund next determined after receipt
of a request by ZKDI. However, requests for repurchases received by dealers or
other firms prior to the determination of net asset value (see "Net Asset
Value") and received by ZKDI prior to the close of ZKDI's business day will be
confirmed at the net asset value effective on that day. The offer to repurchase
may be suspended at any time. Requirements as to stock powers, certificates,
payments and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
26
<PAGE> 33
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by KDF for up to seven days if DVA
deems it appropriate under then current market conditions. Once authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048 or in writing, subject to the limitations on liability described
under "General" above. KDF is not responsible for the efficiency of the federal
wire system or the account holder's financial services firm or bank. KDF
currently does not charge the account holder for wire transfers. The account
holder is responsible for any charges imposed by the account holder's firm or
bank. There is a $1,000 wire redemption minimum (including any contingent
deferred sales charge). To change the designated account to receive wire
redemption proceeds, send a written request to the Shareholder Service Agent
with signatures guaranteed as described above or contact the firm through which
shares of KDF were purchased. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed by wire transfer
until such shares have been owned for at least 10 days. Account holders may not
use this privilege to redeem shares held in certificated form. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the expedited wire transfer redemption privilege. KDF
reserves the right to terminate or modify this privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year following purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a) or a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under KDF's Systematic Withdrawal Plan at a maximum of 10% per year
of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies ZKDI that the dealer
waives the commission applicable to such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
--------------------------------- ----------
<S> <C>
First....................................................... 4%
Second...................................................... 3%
Third....................................................... 3%
Fourth...................................................... 2%
Fifth....................................................... 2%
Sixth....................................................... 1%
</TABLE>
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal
27
<PAGE> 34
plan (see "Special Features--Systematic Withdrawal Plan" below), (d) for
redemptions made pursuant to any IRA systematic withdrawal based on the
shareholder's life expectancy including, but not limited to, substantially equal
periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv)
prior to age 59 1/2 and (e) for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the shareholder's Kemper IRA
accounts). The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by employer sponsored
employee benefit plans maintained on the subaccount record keeping system made
available by the Shareholder Service Agent: (a) redemptions to satisfy
participant loan advances (note that loan repayments constitute new purchases
for purposes of the contingent deferred sales charge and the conversion
privilege), (b) redemptions in connection with retirement distributions (limited
at any one time to 10% of the total value of plan assets invested in a Fund, (c)
redemptions in connection with distributions qualifying under the hardship
provisions of the Internal Revenue Code and (d) redemptions representing returns
of excess contributions to such plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed if they are redeemed within one year of purchase.
The charge will not be imposed upon redemption of reinvested dividends or share
appreciation. The charge is applied to the value of the shares redeemed
excluding amounts not subject to the charge. The contingent deferred sales
charge will be waived in the event of: (a) redemptions by a participant-directed
qualified retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation plan described in Code
Section 457; (b) redemptions by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent; (c) redemption of shares of a shareholder (including a registered
joint owner) who has died; (d) redemption of shares of a shareholder (including
a registered joint owner) who after purchase of the shares being redeemed
becomes totally disabled (as evidenced by a determination by the federal Social
Security Administration); (e) redemptions under KDF's Systematic Withdrawal Plan
at a maximum of 10% per year of the net asset value of the account; and (f) for
any participant-directed redemption of shares held by employer sponsored
employee benefit plans maintained on the subaccount record keeping system made
available by the Shareholder Service Agent.
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of a Fund's Class B shares and that 16 months
later the value of the shares has grown by $1,000 through reinvested dividends
and by an additional $1,000 of share appreciation to a total of $12,000. If the
investor were then to redeem the entire $12,000 in share value, the contingent
deferred sales charge would be payable only with respect to $10,000 because
neither the $1,000 of reinvested dividends nor the $1,000 of share appreciation
is subject to the charge. The charge would be at the rate of 3% ($300) because
it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a monthly basis. The period of ownership for this purpose begins the first day
of the month in which the order for the investment is received. For example, an
investment made in May, 1997 will be eligible for the 3% charge if redeemed on
or after May 1, 1998. In the event no specific order is requested, the
redemption will be made first from shares representing reinvested dividends and
then from the earliest purchase of shares. ZKDI receives any contingent deferred
sales charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
or any Kemper Mutual Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds. A shareholder of a Fund or a
Kemper Mutual Fund who redeems Class A shares purchased under the Large Order
NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"), Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the
28
<PAGE> 35
full amount redeemed at net asset value at the time of the reinvestment, in
Class A, Class B or Class C shares, as the case may be, of a Fund or of other
Kemper Mutual Funds. The amount of any contingent deferred sales charge also
will be reinvested. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares of a Fund or of the Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases." Purchases through the
reinvestment privilege are subject to the minimum investment requirements
applicable to the shares being purchased and may only be made for Kemper Mutual
Funds available for sale in the shareholder's state of residence as listed under
"Special Features--Exchange Privilege." The reinvestment privilege can be used
only once as to any specific shares and reinvestment must be effected within six
months of the redemption. If a loss is realized on the redemption of shares of a
Fund, the reinvestment in the same Fund may be subject to the "wash sale" rules
if made within 30 days of the redemption, resulting in a postponement of the
recognition of such loss for federal income tax purposes. The reinvestment
privilege may be terminated or modified at any time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Fund, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund (available only upon
exchange or conversion from Class A shares of another Kemper Mutual Fund),
Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund and
Kemper-Dreman Fund, Inc., Kemper Value+Growth Fund, Kemper Quantitative Equity
Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund and
Kemper Aggressive Growth Fund ("Kemper Mutual Funds"). Except as noted below,
there is no combined purchase credit for direct purchases of shares of Zurich
Money Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash
Account Trust, Tax-Exempt New York Money Market Fund or Investors Cash Trust
("Money Market Funds"), which are not considered "Kemper Mutual Funds" for
purposes hereof. For purposes of the Combined Purchases feature described above
as well as for the Letter of Intent and Cumulative Discount features described
below, employer sponsored employee benefit plans using the subaccount record
keeping system made available through the Shareholder Service Agent may include:
(a) Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of
any Kemper Mutual Fund and (c) the value of any other plan investment, such as
guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by ZKDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record
29
<PAGE> 36
keeping system available through the Shareholder Service Agent may have special
provisions regarding payment of any increased sales charge resulting from a
failure to complete the intended purchase under the Letter. A shareholder may
include the value (at the maximum offering price) of all shares of such Kemper
Mutual Funds held of record as of the initial purchase date under the Letter as
an "accumulation credit" toward the completion of the Letter, but no price
adjustment will be made on such shares. Only investments in Class A shares are
included in this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or ZKDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of Kemper Mutual
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with ZKDI.
Exchanges may only be made for funds that are available for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Tax-Exempt New York Money
Market Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of any Kemper Mutual Fund or a Money Market
Fund under the exchange privilege described above without paying any contingent
deferred sales charge at the time of exchange. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed in accordance with the foregoing requirements provided that the shares
redeemed will retain their original cost and purchase date for purposes of the
contingent deferred sales charge.
CLASS B SHARES. Class B shares of a Fund and Class B shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class B shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
CLASS C SHARES. Class C shares of a Fund and Class C shares of any Kemper Mutual
Fund listed under "Special Features--Class A Shares--Combined Purchases" may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge being imposed at the
time of exchange. For purposes of the contingent deferred sales charge that may
be imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
GENERAL. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Mutual Fund, or from a Money Market Fund, may not be
30
<PAGE> 37
exchanged thereafter until they have been owned for 15 days (the "15 Day Hold
Policy"). For purposes of determining whether the 15-Day Hold Policy applies to
a particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, direction or advice, including without limitation accounts administered
by a financial services firm offering market timing, asset allocation or similar
services. The total value of shares being exchanged must at least equal the
minimum investment requirement of the Kemper Fund into which they are being
exchanged. Exchanges are made based on relative dollar values of the shares
involved in the exchange. There is no service fee for an exchange; however,
dealers or other firms may charge for their services in effecting exchange
transactions. Exchanges will be effected by redemption of shares of the fund
held and purchase of shares of the other fund. For federal income tax purposes,
any such exchange constitutes a sale upon which a gain or loss may be realized,
depending upon whether the value of the shares being exchanged is more or less
than the shareholder's adjusted cost basis. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or ZKDI. Exchanges may be accomplished by a written
request to ZKSC, Attention: Exchange Department, P.O. Box 419557, Kansas City,
Missouri 64141-6557, or by telephone if the shareholder has given authorization.
Once the authorization is on file, the Shareholder Service Agent will honor
requests by telephone at 1-800-621-1048, subject to the limitations on liability
under "Redemption or Repurchase of Shares--General." Any share certificates must
be deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for Kemper Funds that are eligible for sale in the shareholder's
state of residence. Currently, Tax-Exempt California Money Market Fund is
available for sale only in California and Tax-Exempt New York Money Market Fund
is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Fund, a Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another Kemper Fund. If selected, exchanges will be
made automatically until the privilege is terminated by the shareholder or the
other Kemper Fund. Exchanges are subject to the terms and conditions described
above under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable. This
privilege may not be used for the exchange of shares held in certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their KDF account and transfer the proceeds to their bank, savings
and loan, or credit union checking account. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
until such shares have been owned for at least 10 days. By enrolling in EXPRESS-
Transfer, the shareholder authorizes the Shareholder Service Agent to rely upon
telephone instructions from ANY PERSON to transfer the specified amounts between
the shareholder's KDF account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares--General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday, 8:00 a.m. to 3:00 p.m.
Chicago time. Shareholders may terminate this privilege by sending written
notice to Zurich Kemper Service Company, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer cannot
be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
31
<PAGE> 38
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, investments are made automatically (minimum $50 and maximum $50,000) from
the shareholder's account at a bank, savings and loan or credit union into the
shareholder's KDF account. By enrolling in Bank Direct Deposit, the shareholder
authorizes KDF and its agents to either draw checks or initiate Automated
Clearing House debits against the designated account at a bank or other
financial institution. This privilege may be selected by completing the
appropriate section on the Account Application or by contacting the Shareholder
Service Agent for appropriate forms. A shareholder may terminate his or her Plan
by sending written notice to ZKSC, P.O. Box 419415, Kansas City, Missouri 64141-
6415. Termination by a shareholder will become effective within thirty days
after the Shareholder Service Agent has received the request. KDF may
immediately terminate a shareholder's Plan in the event that any item is unpaid
by the shareholder's financial institution. KDF may terminate or modify this
privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a KDF account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) KDF is not responsible for the efficiency of the employer
or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount up to $50,000 to be paid to the owner or
a designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares (and Class A shares purchased under the Large Order NAV Purchase
Privilege and Class C shares in the first year following the purchase) may be
redeemed under a systematic withdrawal plan is 10% of the net asset value of the
account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, KDF will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
ZKDI will waive the contingent deferred sales charge on redemptions of Class A
shares purchased under the Large Order NAV Purchase Privilege, Class B shares
and Class C shares made pursuant to a systematic withdrawal plan. The right is
reserved to amend the systematic withdrawal plan on 30 days' notice. The plan
may be terminated at any time by the investor or KDF.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and ZKDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") with IFTC as custodian. This includes
Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") IRA
accounts and Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.
- - 403(b)(7) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
32
<PAGE> 39
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. The brochures for plans with IFTC as custodian describe the current
fees payable to IFTC for its services as custodian. Investors should consult
with their own tax advisers before establishing a retirement plan.
PERFORMANCE
KDF may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B and Class C shares.
Each of these figures is based upon historical results and is not representative
of the future performance of any class of the Funds.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged equity indexes including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, the Standard &
Poor's/Barra Value Index, the Russell 1000 Value Index and the Russell 2000
Value Index. The performance of a Fund may also be compared to the combined
performance of two indexes. The performance of a Fund may also be compared to
the performance of other mutual funds or mutual fund indexes with similar
objectives and policies as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. ("Lipper"). Lipper performance
calculations are based upon changes in net asset value with all dividends
reinvested and do not include the effect of any sales charges.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things, the
IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return and guaranteed
principal and may be insured.
A Fund may depict the historical performance of the securities in which a Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund. A Fund may also discuss the relative performance of
growth stocks versus value stocks.
Each Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included.
33
<PAGE> 40
Class B shares and Class C shares are sold at net asset value. Redemptions of
Class B shares within the first six years after purchase may be subject to a
contingent deferred sales charge that ranges from 4% during the first year to 0%
after six years. Redemption of the Class C shares within the first year after
purchase may be subject to a 1% contingent deferred sales charge. Average annual
total return figures do, and total return figures may, include the effect of the
contingent deferred sales charge for the Class B shares and Class C shares that
may be imposed at the end of the period in question. Performance figures for the
Class B shares and Class C shares not including the effect of the applicable
contingent deferred sales charge would be reduced if it were included.
Each Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost. Redemption of Class B shares and Class C shares may
be subject to a contingent deferred sales charge as described above. Additional
information concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from KDF.
CAPITAL STRUCTURE
KDF was organized as a Maryland corporation in October, 1987 and has an
authorized capitalization of 500,000,000 shares of $.01 par value common stock.
In September, 1995, KDF changed its name from Dreman Mutual Group, Inc. to
Kemper-Dreman Fund, Inc. Since KDF may offer multiple funds, it is known as a
"series company." Currently, KDF offers four classes of shares of each Fund.
These are Class A, Class B and Class C shares, as well as Class I shares, which
have different expenses, that may affect performance, and are available for
purchase exclusively by the following investors: (a) tax-exempt retirement plans
of ZKI and its affiliates; and (b) the following investment advisory clients of
ZKI and its investment advisory affiliates that invest at least $1 million in a
Fund: (1) unaffiliated benefit plans, such as qualified retirement plans (other
than individual retirement accounts and self-directed retirement plans); (2)
unaffiliated banks and insurance companies purchasing for their own accounts;
and (3) endowment funds of unaffiliated non-profit organizations. The Board of
Directors may authorize the issuance of additional classes and additional Funds
if deemed desirable, each with its own investment objectives, policies and
restrictions. Shares of a Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to the Rule 12b-1 Plan. Shares of each class also have equal rights with
respect to dividends, assets and liquidation of such Fund subject to any
preferences (such as resulting from different Rule 12b-1 distribution fees),
rights or privileges of any classes of shares of the Fund. Shares of each Fund
are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Board of Directors
of KDF may, to the extent permitted by applicable law, have the right at any
time to redeem from any shareholder, or from all shareholders, all or any part
of any series or class, or of all series or classes, of the shares of KDF.
The Funds are not required to hold annual shareholder meetings and do not intend
to do so. However, they will hold special meetings as required or deemed
desirable for such purposes as electing directors, changing fundamental policies
or approving an investment management agreement. KDF will call a meeting of
shareholders, if requested to do so by the holders of at least 10% of KDF's
outstanding shares and, in the case of a meeting called to consider removal of a
director or directors, will assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940. If shares of
more than one Fund are outstanding, shareholders will vote by Fund and not in
the aggregate or by class except when voting in the aggregate is required under
the Investment Company Act of 1940, such as for the election of directors, or
when voting by class is appropriate.
34
<PAGE> 41
PROSPECTUS
KEMPER-DREMAN
FUND, INC.
APRIL 21, 1997
KEMPER-DREMAN
CONTRARIAN FUND
KEMPER-DREMAN
HIGH RETURN EQUITY FUND
KEMPER DREMAN
SMALL CAP VALUE FUND
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
[KEMPER FUNDS LOGO]
DRE-1 (4/97) [RECYCLED PAPER LOGO]
<PAGE> 42
KEMPER-DREMAN FUND, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEMS REQUIRED
BY FORM N-1A LOCATION
-------------- --------
<S> <C> <C>
PART B STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Table of Contents
Item 12. General Information and History...... Cover Page
Item 13. Investment Objectives and Policies... Investment Restrictions; Investment Policies and
Techniques
Item 14. Management of the Fund............... Investment Manager and Underwriter; Officers and
Directors
Item 15. Control Persons and Principal Holders
of Securities........................ Officers and Directors--Principal Holders of
Securities
Item 16. Investment Advisory and Other
Services............................. Investment Manager and Underwriter; Distribution and
Servicing Arrangements
Item 17. Brokerage Allocation and Other
Practices............................ Portfolio Transactions
Item 18. Capital Stock and Other Securities... Dividends and Taxes; Shareholders Rights
Item 19. Purchase, Redemption and Price of
Securities Being Offered............. Purchase and Redemption of Shares
Item 20. Tax Status........................... Dividends and Taxes
Item 21. Underwriters......................... Investment Manager and Underwriter
Item 22. Calculation of Performance Data...... Performance
Item 23. Financial Statements................. Financial Statements
</TABLE>
<PAGE> 43
KEMPER-DREMAN FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 25, 1997
KEMPER-DREMAN CONTRARIAN FUND ("CONTRARIAN FUND")
KEMPER-DREMAN HIGH RETURN EQUITY FUND ("HIGH RETURN EQUITY FUND")
KEMPER SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for each of the above funds (the "Funds") of
the Kemper-Dreman Fund, Inc. ("KDF"). It should be read in conjunction with the
prospectus of KDF dated April 25, 1997. The prospectus may be obtained without
charge from KDF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions..................................... B-1
Investment Policies and Techniques.......................... B-2
Portfolio Transactions...................................... B-4
Investment Manager and Underwriter.......................... B-6
Purchase and Redemption of Shares........................... B-10
Dividends and Taxes......................................... B-10
Performance................................................. B-12
Officers and Directors...................................... B-17
</TABLE>
The financial statements appearing in KDF's 1996 Annual Report to Shareholders
are incorporated herein by reference. The financial statements for KDF accompany
this document.
DRE-13 (4/97) (LOGO)printed on recycled paper
<PAGE> 44
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which cannot
be changed without approval of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the shares of the Fund present at a meeting where more than 50% of
the outstanding shares are present in person or by proxy or (b) more than 50% of
the outstanding shares of the Fund.
A FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any one issuer other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
collectively ("U.S. Government Securities") if immediately thereafter more than
5% of its total assets would be invested in the securities of any one issuer, or
purchase more than 10% of an issuer's outstanding securities, except that up to
25% of each Fund's total assets may be invested without regard to these
limitations.
(2) Borrow money or issue senior securities, except that each Fund may borrow
from banks for temporary purposes in amounts not in excess of 10% of the value
of its total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing in amounts
not in excess of the lesser of the amount borrowed or 10% of the value of its
total assets at the time of such borrowing; provided that the Funds may enter
into futures contracts and related options as described in the prospectus.
Optioned securities are not considered to be pledged for purposes of this
limitation.
(3) Purchase any securities which would cause more than 25% of the value of its
total assets at the time of purchase to be invested in the securities of issuers
conducting their principal activities in the same industry.
(4) Invest more than 10% of the value of its net assets in illiquid securities,
including restricted securities and repurchase agreements with remaining
maturities in excess of seven days, and other securities for which market
quotations are not readily available.
(5) Make loans, except that each Fund may lend securities it owns as described
herein and enter into repurchase agreements pursuant to its investment objective
and policies.
(6) Purchase securities on margin or make short sales of securities, provided
that the Funds may enter into futures contracts and related options and make
initial and variation margin deposits in connection therewith.
(7) Purchase or sell commodities or commodity contracts, except futures
contracts and options thereon as stated in the prospectus, or invest in oil, gas
or mineral exploration or development programs, or in real estate or mortgage
loans provided that the Funds may, to the extent appropriate to their investment
objectives, purchase publicly traded securities of companies engaging in whole
or in part in such activities.
(8) Engage in the business of underwriting securities issued by others, except
that each Fund may acquire securities which are subject to restrictions on
disposition ("restricted securities") within the meaning of the Securities Act
of 1933.
THE FUNDS MAY NOT, AS A NON-FUNDAMENTAL POLICY:
(1) Purchase or retain securities of an issuer if the officers and directors of
KDF and/or the officers and directors of the investment advisor who own more
than 1/2 of 1% of such securities together own more than 5% of such securities.
(2) Invest for the purpose of exercising control over management of any company.
(3) Invest its assets in securities of any investment company, except by open
market purchases, including an ordinary broker's commission, or in connection
with a merger, acquisition of assets, consolidation or
B-1
<PAGE> 45
reorganization, and any investments in the securities of other investment
companies will be in compliance with the Investment Company Act of 1940.
(4) Invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation.
(5) Invest more than 5% of its net assets in warrants, including within that
amount no more than 2% in warrants which are not listed on the New York or
American Stock Exchanges except warrants acquired as a result of its holdings of
common stocks.
(6) Purchase an interest in a real estate investment trust.
(7) Purchase more than 10% of the voting securities of any issuer or purchase
oil, gas or mineral leases.
INVESTMENT POLICIES AND TECHNIQUES
STOCK INDEX FUTURES. A stock index contract is a agreement pursuant to which the
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value (which assigns
relative values to the common stocks included in the index) at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. A Fund may not purchase a futures contract if immediately
thereafter the sum of its margin deposits on its existing futures positions
would exceed 5% of the value of its total assets (including the margin
deposits).
A risk assumed in transactions in futures contracts is the possibility that
Dreman Value Advisors, Inc. ("DVA") may be incorrect in its expectations as to
the extent of various market movements or the time spans within which the
movement takes place. Should the investment manager be incorrect in its
predictions, the Fund's return might have been better had hedging not been
attempted. Further, although the Funds intend to trade in futures contracts only
on exchanges or boards of trade where there appears to be active secondary
markets, there is no assurance that a liquid secondary market on any exchange or
board of trade will exist for any particular contract or at any particular time.
Finally, it is conceivable that, under certain circumstances, a Fund would be
required to sell portfolio securities at a time when it otherwise would not do
so in order to make margin payments on its futures positions, for the reasons
above, the purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract.
While futures contracts provide for the delivery of securities, deliveries
usually do not occur, contracts are generally terminated by entering into an
off-setting transaction. The Funds will incur brokerage fees when they purchase
futures contracts. At the same time such a purchase is made, the Fund must
provide cash or securities as a deposit ("initial deposit") known as "margin."
It is expected that the initial deposit would be approximately 2% of the
contract's face value. Daily, thereafter, the futures contract is valued and the
payment of "variation margin" may he required because each day the Fund must
provide or receive cash reflecting the decline or increase in the value of the
contract.
The liquidity of a market in a futures contract may be adversely affected by
"daily price fluctuation limits" established by commodity exchanges which limit
the amount of fluctuation in a futures contract price during a single trading
day. Once the daily limit has been reached in the contract, no trades may be
entered into at a price beyond the limit thus preventing the liquidation of open
futures positions. Prices have in the past exceeded the daily limit on a number
of consecutive trading days. On any day or days when the price fluctuation
limits have been reached a Fund may be unable to liquidate existing futures
positions or to implement a hedging strategy through the purchase or sale of
particular futures.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
below the exercise price, a Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the portfolio holdings. The writing of a put option
B-2
<PAGE> 46
on a futures contract constitutes a partial hedge against increasing prices of
the securities which are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option that the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its futures
positions, a Fund's losses from existing options on futures to some extent may
be reduced or increased by changes in the value of portfolio securities.
LENDING PORTFOLIO SECURITIES. A Fund may lend its portfolio securities to
brokers, dealers and institutional investors who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a portfolio can increase its income by the receipt of interest
on the loan. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would accrue to the Fund. Securities'
loans will be made on terms which require that (a) the borrower pledge and
maintain (on a daily basis) with the Fund collateral consisting of cash, a
letter of credit or United States Government securities having a value at all
times not less than 100% of the value of the securities loaned, (b) the loan can
be terminated by the Fund at any time, (c) the Fund receives reasonable interest
on the loan which may include the Fund's investing any cash collateral in
interest bearing short-term investments), and (d) any distributions on the
loaned securities must be paid to the Fund. The Fund will not lend its
securities if, as a result, the aggregate of such loans exceeds 33% of the value
of the Fund's total assets. Loan arrangements made by a Fund will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. All relevant
facts and circumstances, including the credit worthiness of the broker, dealer
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by KDF's Board of Directors. While
voting rights may pass with the loaned securities, if a material event occurs
affecting an investment on loan, the loan must be called and the securities
voted. KDF does not intend to lend securities of any Fund if as a result more
than 5% of the net assets of the Fund would be on loan.
SELLING COVERED CALL OPTIONS. The Funds may sell covered call options on
securities that they own to reduce the effect of price fluctuations of these
securities and increase their income. Such options will generally be written on
securities which, in the investment manager's opinion, are not expected to make
any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for a Fund.
Until the option expires, the obligation of a Fund continues, requiring the Fund
to deliver the underlying security against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the Fund effects a closing purchase transaction by purchasing an
identical option to the option which it previously sold. To secure its
obligation to deliver the underlying security, a Fund is required to keep the
underlying security in escrow in accordance with the rules of the Options
Clearing Corporation and of the Exchanges.
When selling a covered call option, a Fund, in return for the premium, gives up
an opportunity for profit from a price increase in the optioned security above
the exercise price, and retains the risk of loss should the price of the
security decline. A Fund may, however, close out its obligation to deliver the
optioned securities by purchasing an identical option prior to the expiration
date of the option it has sold. A Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of the option. If a call option which
a Fund has written expires, the Fund will realize a gain in the amount of the
premium; however, such gain may be offset by a decline in the market value of
the underlying security during the option period. If the call option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security. The security underlying the call will be maintained in a segregated
account of KDF's custodian.
B-3
<PAGE> 47
The premium received by a Fund will be the current market value of the option
and will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of the Fund is computed or, in the absence of such sale,
the mean between the latest bid and latest asked prices. The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in a closing transaction, or delivery of the underlying security upon the
exercise of the option.
Closing transactions may be effected in order to realize a profit on an
outstanding call option, to prevent an optioned security from being called, or
to permit the sale of the optioned security. There is, of course, no assurance
that a Fund will be able to effect a closing transaction at a favorable price.
If a Fund cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold, in which case it would continue to
incur market risk on the security. The Funds will incur brokerage commissions in
connection with options transactions which are normally higher than those
applicable to purchases and sales of other listed securities.
Call options sold by a Fund will normally have expiration dates of less than
nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional brokerage commissions will be incurred.
The Funds will realize a profit or loss from a closing purchase transaction
depending upon whether the cost of the transaction is less or more than the
premium received from the writing of the option, Because increases in the market
price of a call option will generally reflect increases in the market price of
the underlying security, any loss resulting from the purchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract or writing a put option, a Fund
will maintain eligible securities in a segregated account. A Fund will use cover
in connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities that the
Fund holds or intends to purchase.
PORTFOLIO TRANSACTIONS
DVA is the investment manager for the Funds, and DVA, Zurich Kemper Investments,
Inc. ("ZKI") (DVA's parent company), and its affiliates also furnish investment
management services to other clients including the Kemper Funds, Zurich Funds
and affiliated insurance companies. ZKI and its affiliates share some common
research and trading facilities. At times investment decisions may be made to
purchase or sell the same investment securities for the Funds and for one or
more of the other clients managed by DVA or its affiliates. When two or more of
such clients are simultaneously engaged in the purchase or sale of the same
security through the same trading facility, the transactions are allocated as to
amount and price in a manner considered equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options KDF
will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to the Funds. On
the other hand, the ability of the Funds to participate in volume
B-4
<PAGE> 48
transactions may produce better executions for the Funds in some cases. The
Board of Directors believes that the benefits of DVA's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.
DVA, in effecting purchases and sale of portfolio securities for the account of
the Funds, will implement the Funds' policy of seeking best execution of orders.
DVA may be permitted to pay higher brokerage commissions for research services
as described below. Consistent with this policy, orders for portfolio
transactions are placed with broker-dealer firms giving consideration to the
quality, quantity and nature of each firm's professional services, which include
execution, financial responsibility, responsiveness clearance procedures, wire
service quotations and statistical and other research information provided to
the Funds and DVA and its affiliates. Subject to seeking best execution of an
order, brokerage is allocated on the basis of all services provided. Any
research benefits derived are available for all clients, including clients of
DVA and its affiliates. In selecting among firms believed to meet the criteria
for handling a particular transaction, DVA may give consideration to those firms
that have sold or are selling shares of the Funds and of other funds managed by
DVA's affiliates, as well as to those firms that provide market, statistical and
other research information to the Funds and DVA and its affiliates, although DVA
is not authorized to pay higher commissions to firms that provide such services,
except as described below.
DVA may in certain instances be permitted to pay higher brokerage commissions
solely for receipt of market, statistical and other research services as defined
in Section 28(e) of the Securities Exchange Act of 1934 and interpretations
thereunder. Such services may include among other things: economic, industry or
company research reports or investment recommendations; computerized databases;
quotation and execution equipment and software; and research or analytical
computer software and services. DVA may attempt to direct sufficient commissions
and in the case of transactions for certain types of clients, dealer selling
concessions on new issues of securities, to ensure the continued receipt of such
research products and services. Where products or services have a "mixed use," a
good faith effort is made to make a reasonable allocation of the cost of
products or services in accordance with the anticipated research and
non-research uses and the cost attributable to non-research use is paid by DVA
or one of its affiliates in cash. Subject to Section 28(e) and procedures
adopted by the Board of Directors of KDF, the Funds could pay a firm that
provides research services commissions for effecting a securities transaction
for the Funds in excess of the amount other firms would have charged for the
transaction if DVA determines in good faith that the greater commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing firm viewed in terms either of a particular
transaction or DVA's overall responsibilities to the Funds and other clients.
Not all of such research services may be useful or of value in advising the
Funds. Research benefits will be available for all clients of DVA and its
affiliates. The investment management fee paid by the Funds to DVA is not
reduced because these research services are received.
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal years and for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH IN
FUND FISCAL 1996 FISCAL 1996 FISCAL 1995 FISCAL 1994
---- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Contrarian Fund................................... $157,000 0% $15,000 $11,000
High Return Equity Fund........................... $489,000 0% $40,000 $21,000
Small Cap Value Fund.............................. $365,000 0% $58,000 $32,000
</TABLE>
The increase in the dollar amount of brokerage commissions paid by the Funds
during the 1996 fiscal year was primarily due to the increase in the amount of
assets under management of each Fund.
B-5
<PAGE> 49
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Dreman Value Advisors, Inc. ("DVA"), 280 Park Avenue, 40(th)
Floor, New York, New York 10017, is KDF's investment manager. DVA is a
wholly-owned subsidiary of ZKI, ZKI is wholly owned by ZKI Holding Corp. ZKI
Holding Corp. is more than 90% owned subsidiary of Zurich Holding Company of
America, Inc., which is a wholly owned subsidiary of Zurich Insurance Company,
an internationally recognized provider of financial services in
property/casualty and life insurance, reinsurance and asset management. Pursuant
to an investment management agreement, DVA acts as each Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, bookkeeping and
administrative services, and permits any of its officers or employees to serve
without compensation as directors or officers of KDF if elected to such
positions. Each investment management agreement provides that each Fund pays the
charges and expenses of its operations, including the fees and expenses of the
directors (except those who are affiliates of DVA or its affiliates),
independent auditors, counsel, custodian and transfer agent and the cost of
share certificates, reports and notices to shareholders, brokerage commissions
or transaction costs, costs of calculating net asset value, taxes and membership
dues. KDF bears the expenses of registration of its shares with the Securities
and Exchange Commission, while Zurich Kemper Distributors, Inc., as principal
underwriter, pays the cost of qualifying and maintaining the qualification of
each Fund's shares for sale under the securities laws of the various states. DVA
has agreed to reimburse each Fund to the extent required by applicable state
expense limitations should all operating expenses of each Fund, including the
investment management fees of DVA but excluding taxes, interest, distribution
fees, extraordinary expenses, brokerage commissions or transaction costs and any
other properly excludable expenses, exceed the applicable state expense
limitations. Currently, there are no state expense limitations in effect.
The investment management agreement provides that DVA shall not be liable for
any error of judgment or of law, or for any loss suffered by a Fund in
connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
DVA in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under each agreement.
KDF's investment management agreement continues in effect from year to year so
long as its continuation is approved at least annually by (a) a majority of the
directors who are not parties to such agreement or interested persons of any
such party except in their capacity as directors of KDF, and (b) by the
shareholders or the Board of Directors of KDF. The investment management
agreement may be terminated at any time upon 60 days notice by either party, or
by a majority vote of the outstanding shares of each Fund for that Fund, and
will terminate automatically upon assignment.
The current investment management fee rates paid by the Funds are in the
prospectus under "Investment Manager and Underwriter." Prior to August 24, 1995,
each Fund paid the former adviser an investment management fee at the annual
rate of 1.00% of average daily net assets of the Fund up to $1 billion in net
assets and .75% thereafter. The table below shows the total investment
management fees paid by each Fund to DVA (or the former adviser for the Funds)
for the last three fiscal years.
<TABLE>
<CAPTION>
FUND FISCAL 1996 FISCAL 1995 FISCAL 1994
---- ----------- ----------- -----------
<S> <C> <C> <C>
Contrarian Fund............................................. $ 400,000 $119,000 $155,000
High Return Equity Fund..................................... $2,430,000 $369,000 $320,000
Small Cap Value Fund........................................ $ 943,000 $ 90,000 $ 64,000
</TABLE>
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Zurich Kemper Distributors, Inc. ("ZKDI"),
an affiliate of DVA and a wholly owned subsidiary of ZKI, is the principal
underwriter and distributor for the shares KDF and acts as agent of KDF in the
continuous offering of its shares. ZKDI bears all its expenses of providing
services pursuant to the distribution agreement,
B-6
<PAGE> 50
including the payment of any commissions. KDF pays the cost for the prospectus
and shareholder reports to be set in type and printed for existing shareholders,
and ZKDI, as principal underwriter, pays for the printing and distribution of
copies thereof used in connection with the offering of shares to prospective
investors. ZKDI also pays for supplementary sales literature and advertising
costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Directors of KDF, including the Directors who are not interested persons of
KDF and who have no direct or indirect financial interest in the agreement. The
agreement automatically terminates in the event of its assignment and may be
terminated for a class at any time without penalty by a Fund for that Fund or by
ZKDI upon 60 days' notice. Termination by a Fund with respect to a class may be
by vote of a majority of the Board of Directors, or a majority of the Directors
who are not interested persons of KDF and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the class of KDF, as defined under the Investment Company Act of
1940. The agreement may not be amended for a class to increase the fee to be
paid by a Fund with respect to such class without approval by a majority of the
outstanding voting securities of such class of a Fund and all material
amendments must in any event be approved by the Board of Directors in the manner
described above with respect to the continuation of the agreement.
Prior to September 11, 1995, Fund/Plan Broker Services, Inc. ("FBS"), served as
the underwriter of KDF's shares, pursuant to an underwriting agreement which
became effective January 4, 1993. Under the agreement, FBS was the exclusive
agent for KDF's continuous offer of shares. Prior to September 11, 1995, shares
of KDF were offered to the public at net asset value, without a sales load. No
underwriting commissions were associated with sales of Fund shares for the
fiscal year ended December 31, 1994 and for the period January 1, 1995 to
September 10, 1995.
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
periods noted.
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
COMMISSIONS RETAINED UNDERWRITER PAID TO
FUND FISCAL YEAR BY UNDERWRITER PAID TO ALL FIRMS AFFILIATED FIRMS
---- ----------- -------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Contrarian Fund........................... 1996 $ 65,000 $ 462,000 $ 41,000
1995* $ 0 $ 117,000 $ 6,000
High Return Equity Fund................... 1996 $601,000 $4,531,000 $356,000
1995* $ 0 $ 427,000 $ 52,000
Small Cap Value Fund...................... 1996 $231,000 $1,734,000 $114,000
1995* $ 0 $ 178,000 $ 13,000
</TABLE>
*Amounts paid from September 11, 1995 through December 31, 1995.
B-7
<PAGE> 51
CLASS B SHARES AND CLASS C SHARES. Since the distribution agreement provides
for fees charged to Class B and Class C shares that are used by ZKDI to pay for
distribution services (see the prospectus under "Investment Manager and
Underwriter"), the agreement (the "Plan") is approved and renewed separately for
the Class B and Class C shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, which regulates the manner in which an
investment company may, directly or indirectly, bear expenses of distributing
its shares. Expenses of the Funds and of ZKDI in connection with the Rule 12b-1
Plans for the Class B and Class C shares are set forth below. A portion of the
marketing, sales and operating expenses shown below could be considered overhead
expense.
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS B SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 1996 $ 95,000** 15,000 584,000 15,000
1995* $ 7,000 -- 172,000 12,000
High Return Equity
Fund............... 1996 $750,000** 127,000 7,215,000 126,000
1995* $ 15,000 1,000 455,000 57,000
Small Cap Value
Fund............... 1996 $191,000** 52,000 2,299,000 47,000
1995* $ 8,000 1,000 208,000 13,000
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS B SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 148,000 9,000 293,000 57,000 74,000
14,000 3,000 34,000 5,000 3,000
High Return Equity
Fund............... 1,186,000 75,000 2,455,000 468,000 422,000
35,000 9,000 75,000 13,000 7,000
Small Cap Value
Fund............... 391,000 25,000 813,000 134,000 156,000
17,000 4,000 39,000 6,000 4,000
</TABLE>
<TABLE>
<CAPTION>
TOTAL DISTRIBUTION
DISTRIBUTION FEES PAID
DISTRIBUTION CONTINGENT FEES BY
FEES PAID DEFERRED PAID BY UNDERWRITER
FISCAL BY FUND TO SALES CHARGES UNDERWRITER TO AFFILIATED
FUND CLASS B SHARES YEAR UNDERWRITER TO UNDERWRITER TO FIRMS FIRMS
------------------- ------ ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 1996 $ 2,000** 2,000 15,000 --
1995* $ -- -- -- --
High Return Equity 1996
Fund............... $ 96,000** 3,000 281,000 --
1995* $ 1,000 -- 1,000 --
Small Cap Value 1996
Fund............... $ 48,000 1,000 130,000 --
1995* $ 1,000 -- 1,000 --
<CAPTION>
OTHER DISTRIBUTION EXPENSES PAID BY UNDERWRITER
-----------------------------------------------------------
ADVERTISING MARKETING MIS.
AND PROSPECTUS AND SALES OPERATING INTEREST
FUND CLASS B SHARES LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------------------- ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Contrarian Fund...... 20,000 1,000 41,000 6,000 3,000
-- 1,000 -- -- --
High Return Equity
Fund............... 202,000 13,000 237,000 55,000 22,000
5,000 1,000 11,000 2,000 --
Small Cap Value
Fund............... 103,000 7,000 136,000 35,000 12,000
4,000 1,000 10,000 2,000 --
</TABLE>
- ---------------
(1) No contingent deferred sales charges have been imposed on Class C shares
purchased prior to April 1, 1996.
* Amounts paid from September 11, 1995 through December 31, 1995.
** Amounts shown are after expense waiver.
ADMINISTRATIVE SERVICES. Administrative services are provided to KDF under an
administrative services agreement ("administrative agreement") with ZKDI, which
became effective September 11, 1995. ZKDI bears all its expenses of providing
services pursuant to the administrative agreement between ZKDI and KDF,
including the payment of service fees. KDF pays ZKDI an administrative services
fee, payable monthly, at an annual rate of up to .25% of average daily net
assets of the Class A, B and C shares of each Fund.
ZKDI has entered into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors in KDF. The firms
provide such office space and equipment, telephone facilities and personnel as
is necessary or beneficial for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A shares, ZKDI pays each firm a service fee,
payable quarterly, at an annual rate of up to .25% of the net assets in the
Funds' accounts that it maintains and services attributable to Class A shares,
commencing with the month after
B-8
<PAGE> 52
investment. With respect to Class B and Class C shares, ZKDI currently advances
to firms the first-year service fee at a rate of up to .25% of the purchase
price of such shares. For periods after the first year, ZKDI currently intends
to pay firms a service fee at a rate of up to .25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and C shares maintained and
serviced by the firm. After the first year, a firm becomes eligible for the
quarterly service fee and the fee continues until terminated by ZKDI or KDF.
Firms to which service fees may be paid may include affiliates of ZKDI.
The following information concerns the administrative services fee paid by each
Fund to ZKDI.
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES
PAID BY FUND SERVICE FEES SERVICE FEES
----------------------------- PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
FUND FISCAL YEAR CLASS A CLASS B CLASS C TO FIRMS TO AFFILIATED FIRMS
---- ----------- -------- ------- ------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Contrarian Fund...... 1996 $ 32,000** 42,000 3,000 114,000 2,000
1995* $ 5,000 3,000 -- 16,000 1,000
High Return Equity
Fund............... 1996 $304,000 293,000 38,000 941,000 19,000
1995* $ 19,000 6,000 -- 41,000 4,000
Small Cap Value...... 1996 $ 42,000** 109,000 19,000 351,000 6,000
1995* $ 7,000 3,000 -- 20,000 1,000
</TABLE>
- ---------------
* Amounts paid from September 11, 1995 through December 31, 1995.
** Amounts shown are after expense waiver.
ZKDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Funds. Currently, the
administrative services fee payable to ZKDI is based only upon KDF assets in
accounts for which a firm provides administrative services and it is intended
that ZKDI will pay all the administrative services fee that it receives from KDF
to firms in the form of service fees. The effective administrative services fee
rate to be charged against all assets of KDF while this procedure is in effect
will depend upon the proportion of KDF assets that is in accounts for which a
firm of record provides administrative services.
Certain directors or officers of KDF are also directors or officers of DVA and
ZKDI as indicated under "Officers and Directors."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 as sub-custodian, have custody of all securities and cash of
KDF maintained in the United States. They attend to the collection of principal
and income, and payment for and collection of proceeds of securities bought and
sold by KDF. IFTC is also the KDF transfer agent and dividend-paying agent.
Pursuant to a services agreement with IFTC, Zurich Kemper Service Company
("ZKSC"), an affiliate of DVA, serves as "Shareholder Service Agent" of the
Funds, and as such, performs all of IFTC's duties as transfer agent and dividend
paying agent. IFTC receives as transfer agent, and pays to ZKSC, annual account
fees of $6 per account plus account set up, transaction and maintenance charges,
annual fees associated with the contingent deferred sales charge (Class B shares
only) and out-of-pocket expense reimbursement. IFTC's fee is reduced by certain
earnings credits in favor of KDF. The following shows for each Fund's 1996
fiscal year, the shareholder service fees IFTC remitted to ZKSC.
<TABLE>
<CAPTION>
FEES IFTC
FUND PAID TO ZKSC
---- ------------
<S> <C>
Contrarian Fund............................................. $186,000
High Return Equity Fund..................................... $951,000
Small Cap Value Fund........................................ $541,000
</TABLE>
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. KDF's independent auditors,
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audit and
report on KDF annual financial
B-9
<PAGE> 53
statements, review certain regulatory reports and KDF's federal income tax
returns, and perform other professional accounting, auditing, tax and advisory
services when engaged to do so by KDF. Shareholders will receive annual audited
financial statements and semi-annual unaudited financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in KDF's prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares, an initial sales charge. The minimum initial investment is $1,000 and
the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time. See the prospectus for certain exceptions to these
minimums. An order for the purchase of shares that is accompanied by a check
drawn on a foreign bank (other than a check drawn on a Canadian bank in U.S.
Dollars) will not be considered in proper form and will not be processed unless
and until KDF determines that it has received payment of the proceeds of the
check. The time required for such a determination will vary and cannot be
determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by KDF at the applicable net asset value per
share of such Fund as described in KDF's prospectus.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemptions of Class B shares or Class C shares by certain classes of persons or
through certain types of transactions as described in the prospectus are
provided because of anticipated economies in sales and sales related efforts.
KDF may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for KDF to
determine the value of a Fund's net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
KDF's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel or ruling by the Internal
Revenue Service or other assurance acceptable to KDF to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares and the assessment of the administrative services fee with
respect to each Class does not result in KDF's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Contrarian and High Return Equity Funds normally distribute
quarterly dividends of net investment income and the Small Cap Value Fund
normally distributes annual dividends of net investment income. Each Fund
distributes any net realized short-term and long-term capital gains at least
annually.
Each Fund may at any time vary the foregoing dividend practices and, therefore,
reserves the right from time to time to either distribute or retain for
reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Directors of KDF determines appropriate
under the then current circumstances. In particular, and without limiting the
foregoing, a Fund may make additional distributions of net investment income or
capital gain net income in order to satisfy the minimum distribution
requirements contained in the Internal Revenue Code (the "Code"). Dividends will
be reinvested in shares of the Fund paying
B-10
<PAGE> 54
such dividends unless shareholders indicate in writing that they wish to receive
them in cash or in shares of Kemper Funds as described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed. One of the
Subchapter M requirements to be satisfied is that less than 30% of each Fund's
gross income during its fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. A Fund may be limited in its
options and futures transactions in order to prevent recognition of such gains.
A Fund's options and futures transactions are subject to special tax provisions
that may accelerate or defer recognition of certain gains or losses, change the
character of certain gains or losses, or alter the holding periods of certain of
a Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options, futures and forward contracts held by the
Fund at the end of the fiscal year. Under these provisions, 60% of any capital
gain net income or loss recognized will generally be treated as long-term and
40% as short-term. In addition, the straddle rules of the Code would require
deferral of certain losses realized on positions of a straddle to the extent
that such Fund had unrealized gains in offsetting positions at year end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 of the prior calendar year, minus any overdistribution
in the prior calendar year. Each Fund intends to declare or distribute dividends
during the appropriate periods of an amount sufficient to prevent imposition of
the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of shares held six months or less will be treated
as long-term capital loss to the extent that the shareholder has received any
long-term capital gain dividends on such shares. An exchange of a Fund's shares
for shares of another fund is treated as a redemption and reinvestment for
federal income tax purposes upon which gain or loss may be recognized. A
shareholder who has redeemed shares of a Fund or other Kemper Mutual Fund listed
in the prospectus under "Special Features--Class A Shares--Combined Purchases"
(other than shares of Kemper Cash Reserves Fund not acquired by exchange from
another Kemper Mutual Fund) may reinvest the amount redeemed at net asset value
at the time of the reinvestment in shares of a Fund or in shares of a Kemper
Mutual Fund within six months of the redemption as described in the prospectus
under "Redemption or Repurchase of Shares--Reinvestment Privilege." If redeemed
shares were held less than 91 days, then the lesser of (a) the sales charge
waived on the reinvested shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvested shares and is not
included in the basis of the redeemed shares. If a shareholder realized a loss
on the redemption or exchange of a Fund's shares and reinvests in shares of the
same Fund 30 days before or after the redemption or exchange, the transactions
may be subject to the wash sale rules resulting in a postponement of the
recognition of such loss for federal income tax purposes. If a shareholder of
Class A shares redeems or otherwise disposes of such Class A shares less than
ninety-one days after they are acquired and subsequently acquires shares of the
Fund or of a Kemper Mutual Fund without payment of any sales charge (or for a
reduced sales charge) pursuant to a reinvestment privilege acquired in
connection with the Class A shares disposed of, then the sales charge on the
Class A shares disposed of (to the extent of the reduction in the sales charge
on the shares subsequently
B-11
<PAGE> 55
acquired) shall not be taken into account in determining gain or loss on the
Class A shares disposed of, but shall be treated as incurred on the acquisition
of the shares subsequently acquired.
Investment income derived from certain American Depository Receipts may be
subject to foreign income taxes withheld at the source. Because the amount of a
Fund's investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each Fund's historical performance or return for
a class of shares may be shown in the form of "average annual total return" and
"total return" figures. These various measures of performance are described
below. Performance information will be computed separately for each class.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by a Fund have been reinvested at net asset value
on the reinvestment dates during the period. Average annual total return may
also be calculated without adjusting to deduct the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the "Financial Highlights" table in KDF's
financial statements and prospectus. Total return performance for a specific
period is calculated by first taking a hypothetical investment ("initial
investment") in a Fund's shares on the first day of the period, either adjusting
or not adjusting to deduct the maximum sales charge (in the case of Class A
shares), and computing the "ending value" of that investment at the end of the
period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares and Class C shares may or may not include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The calculation assumes that all income and capital gains
dividends paid by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B shares and Class C
shares would be reduced if such charge were included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. A Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 5.75% of the offering price. Class B
shares and Class C shares are sold at net asset value. Redemptions of Class B
shares may be subject to a contingent deferred sales charge that is 4% in the
first year following the purchase, declines by a specified percentage each year
thereafter and becomes zero after six years. Redemption of Class C shares may be
subject to a 1% contingent deferred sales charge in the first year following the
purchase. Returns and net asset value will fluctuate. Factors affecting each
Fund's performance include general market conditions, operating expenses and
investment management. Any additional fees charged by a dealer or other
financial services firm
B-12
<PAGE> 56
would reduce the returns described in this section. Shares of each Fund are
redeemable at the then current net asset value, which may be more or less than
original cost.
The figures below show performance information for various periods. Comparative
information for certain indices is also included. Please note the differences
and similarities between the investments which a Fund may purchase and the
investments measured by the applicable indices. The net asset values and returns
of each class of shares of the Funds will also fluctuate. No adjustment has been
made for taxes payable on dividends. The periods indicated were ones of
fluctuating securities prices and interest rates.
CONTRARIAN FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Capital Gain Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Income Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $15,956 $8,660 $3,842 $28,458 184.6% $30,194 201.9% 309.7%
Five Years 12,885 4,499 1,535 18,919 89.2 20.080 100.8 132.7
One Year 9,848 721 214 10,783 7.8 11,442 14.4 28.8
CLASS B SHARES
Life of Fund(++) $11,088 $1,439 $ 293 $12,520 25.2% $12,820 28.2% 41.8%
CLASS C SHARES
Life of Fund(++) $11,074 $1,439 $ 297 $ NA NA $12,810 28.1% 41.8%
<CAPTION>
Lipper
Growth
Standard Consumer Russell and U.S.
TOTAL & Poor's Price 1,000(R) Income Treasury
RETURN 500 Index Value Fund Bill
TABLE (4) (5) (6) (7) (8)
------ -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 257.6% 36.1% 254.8% 223.3% 63.1%
Five Years 102.7 15.0 121.7 98.1 24.9
One Year 22.9 3.3 21.6 20.7 5.2
CLASS B SHARES
Life of Fund(++) 33.5% 3.7% 34.4% 30.0% 7.9%
CLASS C SHARES
Life of Fund(++) 33.5% 3.7% 34.4% 30.0% 7.9%
</TABLE>
<TABLE>
<CAPTION>
Lipper
Growth
AVERAGE Dow Jones Standard Consumer Russell and U.S.
ANNUAL Fund Fund Fund Industrial & Poor's Price 1000(R) Income Treasury
TOTAL RETURN Class A Class B Class C Average 500 Index Value Fund Bill
TABLE Shares Shares Shares (3) (4) (5) (6) (7) (8)
------------ ------- ------- ------- ---------- -------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 12.6% N/A N/A 17.4% 15.6% 3.6% 15.6% 14.3 5.7
Life of Fund(++) N/A 18.7 20.8 30.6 24.6 2.8 24.8 22.2 6.0
Five Years 13.6 N/A N/A 18.4 15.2 2.8 17.3 14.7 4.5
One Year 7.9 10.6 13.5 28.8 22.9 3.3 21.6 20.7 5.2
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the Russell 1,000(R) Value which is since
March 31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Russell 1,000(R) Value which is since August 31, 1995.
N/A - Not Available.
B-13
<PAGE> 57
HIGH RETURN EQUITY FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 24,995 8,816 7,887 41,698 317.0 44,242 342.4 309.7
Five Years 19,955 1,116 2,032 23,103 131.0 24,505 145.1 132.7
One Year 11,632 125 382 12,139 21.4 12,879 28.8 28.8
CLASS B SHARES
Life of Fund(++) 13,594 412 401 14,107 41.1 14,407 44.1 41.8
CLASS C SHARES
Life of Fund(++) 13,599 412 408 N/A N/A 14,419 44.2 41.8
<CAPTION>
Lipper
Standard Consumer S&P/ Equity
TOTAL & Poor's Price Barra's Income
RETURN 500 Index Value Fund
TABLE (4) (5) (9) (12)
------ -------- -------- ------- ------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 257.6 36.1 249.4 206.5
Five Years 102.7 15.0 117.7 91.2
One Year 22.9 3.3 22.0 17.9
CLASS B SHARES
Life of Fund(++) 33.5 3.7 34.4 28.0
CLASS C SHARES
Life of Fund(++) 33.5 3.7 34.4 28.0
</TABLE>
<TABLE>
<CAPTION>
AVERAGE Standard Consumer S&P/ Lipper
ANNUAL Fund Fund Fund Dow Jones & Poor's Price Barra's Equity
TOTAL RETURN Class A Class B Class C Industrial 500 Index Value Income
TABLE Shares Shares Shares Average(3) (4) (5) (9) Fund(12)
------------ ------- ------- ------- ---------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 17.6 N/A N/A 17.4 15.6 3.6 15.4 13.6
Life of Fund(++) N/A 30.0 32.2 30.6 24.6 2.8 24.8 20.7
Five Years 18.2 N/A N/A 18.4 15.2 2.8 16.8 13.8
One Year 21.4 24.6 27.7 28.8 22.9 3.3 22.0 17.9
</TABLE>
- ---------------
(+) Since March 18, 1988, except for the S&P/Barra's Value which is since March
31, 1988.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
S&P/Barra's Value which is since August 31, 1995.
N/A - Not Available.
SMALL CAP VALUE FUND--DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Income Ending Percentage Ending Percentage Dow Jones
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase Industrial
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted) Average
TABLE (1) Reinvested (2) (1) (1) (1) (1) (3)
------ ---------- ------------ ---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 17,228 2,759 1,557 21,544 115.4 22,859 128.6 116.1
One Year 11,886 68 265 12,219 22.2 12,960 29.6 28.8
CLASS B SHARES
Life of Fund(++) 11,518 211 802 12,231 22.3 12,531 25.3 41.8
CLASS C SHARES
Life of Fund(++) 11,537 212 805 N/A N/A 12,554 25.5 41.8
<CAPTION>
Lipper Small
Standard Consumer Russell Company
TOTAL & Poor's Price 2000(R) Growth
RETURN 500 Index Value Fund
TABLE (4) (5) (10) (11)
------ -------- -------- ------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 102.8 13.5 96.8 108.7
One Year 22.9 3.3 16.5 19.9
CLASS B SHARES
Life of Fund(++) 33.5 3.7 21.1 24.1
CLASS C SHARES
Life of Fund(++) 33.5 3.7 21.1 24.1
</TABLE>
<TABLE>
<CAPTION>
Lipper
AVERAGE Small
ANNUAL Fund Fund Fund Dow Jones Standard Consumer Russell Company
TOTAL RETURN Class A Class B Class C Industrial & Poor's Price 2000(R) Growth
TABLE Shares Shares Shares Average(3) 500(4) Index(5) Value(10) Fund(11)
------------ ------- ------- ------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 18.1 N/A N/A 18.2 16.6 2.8 15.8 17.1
Life of Fund(++) N/A 16.6 19.0 30.6 24.6 2.8 15.8 17.5
One Year 22.2 25.5 28.8 28.8 22.9 3.3 16.5 19.9
</TABLE>
- ---------------
(+) Since May 22, 1992, except for the Lipper Small Company Growth Fund which
is since May 31, 1992.
(++) Since September 11, 1995 for Class B and Class C shares, except for the
Lipper Small Company Growth Fund which is since August 31, 1995.
N/A - Not Available.
B-14
<PAGE> 58
FOOTNOTES FOR ALL FUNDS
(1) The Initial Investment and adjusted amounts for Class A shares were
adjusted for the maximum initial sales charge at the beginning of the
period, which is 5.75%. The Initial Investment for Class B and Class C
shares was not adjusted. Amounts were adjusted for Class B and Class C
shares for the contingent deferred sales charge that may be imposed at the
end of the period based upon the schedule for shares sold currently; see
"Redemption or Repurchase of Shares" in the prospectus.
(2) Includes short-term capital gain dividends, if any.
(3) The Dow Jones Industrial Average is an unmanaged weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(4) The Standard & Poor's 500 Stock Index is an unmanaged unweighted average of
500 stocks, over 95% of which are listed on the New York Stock Exchange.
Assumes reinvestment of dividends. Source is Towers Data Systems.
(5) 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.
(6) The Russell 1000(R) Value Index is an unmanaged index comprised of common
stocks of larger U.S. companies with less than average growth orientation.
Companies in this index generally have low price to book and price-earnings
ratios, higher dividend yields and lower forecasted growth values. Assumes
reinvestment of dividends. Source is Lipper Analytical Services, Inc.
(7) The Lipper Growth and Income Fund Index is a net asset value weighted index
of the performance of the 30 largest growth and income mutual funds tracked
by Lipper Analytical Services, Inc. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
(8) The U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) The Standard & Poor's/Barra Value Index is constructed by dividing the
stocks in the S&P 500 Index according to a single attribute: book-to-price
ratio. The Value Index contains firms with higher book-to-price ratios and
is capitalization weighted. Source is Lipper Analytical Services, Inc.
(10) The Russell 2000(R) Value Index is an unmanaged index comprised of
securities in the Russell 2000 Index (small companies) with a less than
average growth orientation. Companies in this index generally have low
price to book and price-earnings ratios. Source is Towers Data Systems.
(11) The Lipper Small Company Growth Fund Index is a net asset value weighted
index of the 30 largest small company growth funds. Performance is based on
changes in net asset value with all dividends reinvested and with no
adjustment for sales charges. Source is Lipper Analytical Services, Inc.
(12) The Lipper Equity Income Fund Index is a net asset value weighted index of
the 30 largest equity income funds. Performance is based on changes in net
asset value with all dividends reinvested and with no adjustment for sales
charges. Source is Towers Data Systems.
The following tables illustrate an assumed $10,000 investment in Class A
shares of each Fund, which includes the current maximum sales charge of
5.75%, with income and capital gain dividends reinvested in additional
shares. Each table covers the period from commencement of operations of the
Fund to December 31, 1996.
CONTRARIAN FUND (3/18/88)
<TABLE>
<CAPTION>
- --------------DIVIDENDS--------- -----CUMULATIVE VALUE OF SHARES ACQUIRED------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 $132 $ 0 $ 9,925 $ 137 $ 0 $10,062
1989 285 785 10,668 429 806 11,903
1990 277 303 9,512 649 1,019 11,180
1991 307 126 11,645 1,119 1,381 14,145
1992 303 0 12,700 1,542 1,505 15,747
1993 267 1,001 12,812 1,827 2,537 17,176
1994 360 1,483 11,458 1,965 3,748 17,171
1995 473 1,385 15,240 3,130 6,454 24,824
1996 557 1,878 15,956 3,842 8,660 28,458
</TABLE>
B-15
<PAGE> 59
HIGH RETURN EQUITY FUND (3/18/88)
<TABLE>
<CAPTION>
-----DIVIDENDS----- ---CUMULATIVE VALUE OF SHARES ACQUIRED---
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 $247 $ 0 $10,376 $ 258 $ 0 $10,634
1989 468 2,331 9,539 687 2,370 12,596
1990 524 0 8,326 1,115 2,069 11,510
1991 387 265 11,786 1,990 3,208 16,984
1992 370 123 13,753 2,722 3,872 20,347
1993 298 345 14,581 3,189 4,453 22,223
1994 352 0 14,214 3,449 4,341 22,004
1995 351 589 20,216 5,317 6,782 32,315
1996 1,261 426 24,995 7,887 8,816 41,698
</TABLE>
SMALL CAP VALUE FUND (5/22/92)
<TABLE>
<CAPTION>
-----DIVIDENDS----- ---CUMULATIVE VALUE OF SHARES ACQUIRED---
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 $ 28 $405 $10,857 $ 29 $ 411 $11,297
1993 58 507 10,584 86 914 11,584
1994 0 416 10,226 83 1,292 11,601
1995 724 326 13,666 864 2,093 16,623
1996 454 118 17,228 1,557 2,759 21,544
</TABLE>
* Includes short-term capital gain dividends.
Investors may want to compare the performance of a Fund to certificates of
deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
B-16
<PAGE> 60
Investors may want to compare the performance of a Fund to that of money market
funds. Money market funds seek to maintain a stable net asset value and yield
fluctuates. Information regarding the performance of money market funds may be
based upon, among other things, IBC/Donoghue's Money Fund Averages(R) (All
Taxable). As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
The following tables compare the performance of the Class A shares of the Funds
over various periods ended December 31, 1996 with that of other mutual funds
within the categories described below according to data reported by Lipper
Analytical Services, Inc. ("Lipper"), New York, New York, which is a mutual fund
reporting service. Lipper performance figures are based on changes in net asset
value, with all income and capital gain dividends reinvested. Such calculations
do not include the effect of any sales charges. Future performance cannot be
guaranteed. Lipper publishes performance analyses on a regular basis. Each
category includes funds with a variety of objectives, policies and market and
credit risks that should be considered in reviewing these rankings.
<TABLE>
<CAPTION>
GROWTH & INCOME
FUNDS
CONTRARIAN FUND ---------------
<S> <C>
Five Years................................................ 70 of 209
One Year.................................................. 480 of 512
</TABLE>
The Lipper Growth & Income Funds category includes funds that combine a growth
of earnings orientation and an income requirement for level and/or rising
dividends.
<TABLE>
<CAPTION>
EQUITY INCOME
FUNDS
HIGH RETURN EQUITY FUND -------------
<S> <C>
Five Years................................................ 1 of 57
One Year.................................................. 2 of 159
</TABLE>
The Lipper Equity Income Funds category includes funds that seek relatively high
current income and growth of income through investing 60% or more of its
portfolio in equities.
<TABLE>
<CAPTION>
SMALL COMPANY
GROWTH FUNDS
SMALL CAP VALUE FUND -------------
<S> <C>
One Year.................................................. 50 of 370
</TABLE>
The Lipper Small Company Growth Fund category includes funds that by prospectus
or portfolio practice limit investments to companies on the basis of the size of
the company.
OFFICERS AND DIRECTORS
The officers and directors of KDF, their birthdates, their principal occupations
and their affiliations, if any, with Dreman Value Advisors, Inc. ("DVA"), the
investment manager, Zurich Kemper Investments, Inc. ("ZKI"), the parent company
of DVA and Zurich Kemper Distributors, Inc. ("ZKDI"), the principal underwriter,
or their affiliates are as follows (The number following each person's title is
the number of investment companies managed by DVA or ZKI for which he or she
holds similar positions):
JAMES E. AKINS (10/15/26), Director (13), 2904 Garfield Terrace N.W.,
Washington, D.C.; Consultant on International, Political and Economic Affairs;
formerly a career United States Foreign Service Officer; Energy Adviser for the
White House; United States Ambassador to Saudi Arabia, 1973-1976.
B-17
<PAGE> 61
ARTHUR R. GOTTSCHALK (2/13/25), Director (13), 10642 Brookridge Drive,
Frankfort, Illinois; Retired; formerly, President, Illinois Manufacturers
Association; Trustee, Illinois Masonic Medical Center; Member, Board of
Governors, Heartland Institute/Illinois; formerly, Illinois State Senator.
FREDERICK T. KELSEY (4/25/27), Director (13), 738 York Court, Northbrook,
Illinois; Retired; formerly, consultant to Goldman, Sachs & Co.; formerly,
President, Treasurer and Trustee of Institutional Liquid Assets and its
affiliated mutual funds; Trustee of the Benchmark Fund and the Pilot Fund.
*DOMINIQUE P. MORAX (10/2/48), Director (39), 222 South Riverside Plaza,
Chicago, Illinois; Chief Executive Officer and Chief Investment Officer, Zurich
Investment Management Limited; Director, ZKI.
FRED B. RENWICK (2/1/30), Director (13), 3 Hanover Square, New York, New York;
Professor of Finance, New York University, Stern School of Business; Director;
TIFF Industrial Program, Inc.; Director, The Wartburg Home Foundation; Chairman,
Investment Committee of Morehouse College Board of Trustees; Chairman, American
Bible Society Investment Committee; previously member of the Investment
Committee of Atlanta University Board of Trustees; previously Director of Board
of Pensions Evangelical Lutheran Church in America.
*STEPHEN B. TIMBERS (8/8/44), President and Director (39), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director, ZKI; Director, ZKDI, DVA and LTV Corporation.
JOHN B. TINGLEFF (5/4/35), Director (13), 2015 South Lake Shore Drive, Harbor
Springs, Michigan; Retired; formerly, President, Tingleff & Associates
(management consulting firm); formerly, Senior Vice President, Continental
Illinois National Bank & Trust Company.
JOHN G. WEITHERS (8/8/33), Director (13), 311 Spring Lake, Hinsdale, Illinois;
Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago
Stock Exchange; Director, Federal Life Insurance Company; President of the
Members of the Corporation and Trustee, DePaul University; Director, Systems
Imagineering and Records Management Services, Inc.
*CHRISTIAN C. BERTELSEN (1/20/43), Vice President (1), 280 Park Avenue, 40th
Floor, New York, New York; Senior Managing Director and Chief Investment
Officer, DVA.
*CHARLES R. MANZONI, Jr. (1/23/47), Vice President (39), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI, Secretary of ZKI Holding Corp., Secretary ZKI Agency, Inc.;
formerly Partner, Gardner Carton & Douglas (attorneys).
*JOHN E. NEAL (3/9/50), Vice President (39), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI, DVA and
ZKDI.
*JAMES R. NEEL (4/1/43), Vice President (1), 280 Park Avenue, 40th Floor, New
York, New York; President, Chief Executive Officer and Director, DVA.
*STEVEN T. STOKES (7/18/62), Vice President (2), 280 Park Avenue, 40th Floor,
New York, New York; Managing Director, DVA.
*JEROME L. DUFFY (6/29/36), Treasurer (39), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
*PHILIP J. COLLORA (11/15/45), Vice President and Secretary (39), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
*ELIZABETH C. WERTH (10/1/47), Assistant Secretary (32), 222 South Riverside
Plaza, Chicago, Illinois; Vice President, ZKI; Vice President and Director of
State Registrations, ZKDI.
- ---------------
* "Interested persons" as defined in the Investment Company Act of 1940.
The directors and officers who are "interested persons" as designated above
receive no compensation from KDF. The table below shows amounts paid or accrued
to those directors who are not designated "interested persons" during the 1996
calendar year.
B-18
<PAGE> 62
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM KEMPER FUND
COMPENSATION COMPLEX PAID TO
NAME OF BOARD MEMBERS FROM KDF BOARD MEMBERS(2)
--------------------- ------------ ----------------
<S> <C> <C>
James E. Akins.............................................. $6,800 $ 94,300
Arthur R. Gottschalk(1)..................................... $6,900 $102,700
Frederick T. Kelsey(1)...................................... $6,800 $106,800
Fred B. Renwick............................................. $6,800 $ 94,300
John B. Tingleff............................................ $6,800 $ 94,300
John G. Weithers............................................ $6,600 $ 94,300
</TABLE>
- ---------------
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with certain Kemper funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds - Zurich
Money Market Fund. The total deferred amount and interest accrued for the
fiscal year ended December 31, 1996 for KDF is $2,900 for Mr. Gottschalk.
(2) Includes compensation for service on the boards of 13 Kemper funds with 36
fund portfolios. Each board member currently serves as a board member of 13
Kemper Funds with 36 fund portfolios.
As of April 9, 1997, the officers and directors of KDF as a group owned less
than 1% of each Fund.
B-19
<PAGE> 63
PRINCIPAL HOLDERS OF SECURITIES
As of April 9, 1997 the following owned of record more than 5% of the
outstanding stock of the Funds, as set forth below.
CONTRARIAN FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
**Louis T. Alesi & Dennis J. Fiore &........................ A 5.96
Norene Bradshaw Trustees
FBO Intermetro Industries
Salaried Employees Pension Tr.
651 N. Washington St.
Wilkes Barre PA 18705
Everen Capital Corp. 401K................................... A 5.05
Chase Manhatten Bank Trustees
FBO Everen Securities Pooled Account
77 W. Wacker Dr.
Chicago IL 60601
**NFSC FESO................................................. B 9.08
Crispin P. Spencer and
Karen R. Spencer
13906 N.W. 56th Avenue
Gainesville FL 32653
*Everen Clearing Corp....................................... B 6.35
FBO Robert K. Duncan IRA
13625 S. 48th St.
Phoenix AZ 85044
*Donaldson Lufkin Jenrette.................................. C 5.09
Securities Corporation, Inc.
P.O. Box 2052
Jersey City NJ 07303
**MLPF & S.................................................. C 6.74
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-20
<PAGE> 64
HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
**NFSC FEBO................................................. A 6.97
Craig K. Hambelton
P.O. Box 24-25
Tainan Taiwan China
**Donaldson Lufkin Jenrette................................. A 5.18
Securities Corporation Inc
P.O. Box 2052
Jersey City NJ 07303
**NFSC FEBO................................................. B 9.72
Norman W. Slatton, Sr.
6608 Adamo Dr.
Tampa FL 33619
**Donaldson Lufkin Jenrette................................. C 6.18
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
**Raymond James & Assoc Inc................................. C 6.08
Roy I Frekse IRA
5554 Devonshire Ave
St. Louis MO 63109
**NFSC FEBO................................................. C 6.64
NFSC/FMT IRASEPP
FBO Lori A. Stanley
777 E. West Salem Rd.
Creston OH 44217
**MLPF & S.................................................. C 14.04
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
</TABLE>
B-21
<PAGE> 65
SMALL CAP VALUE FUND
<TABLE>
<CAPTION>
NAME & ADDRESS CLASS PERCENTAGE
-------------- ----- ----------
<S> <C> <C>
NFSC FEBO................................................... A 8.29
Ruth Wesson
10320 Stone Canyon Road
Dallas TX 75230
Donald Lufkin Jenrette...................................... A 10.08
Securities Corporation Inc.
P.O. Box 2050
Jersey City NJ 07303
**Everen Clearing Corp...................................... B 5.97
FBO Scott D Smith IRA
305 Hopinton Culver NE
Hopinton IA 52237
NFSC FEBO................................................... B 9.36
Norman W. Slatton Sr.
6608 Adamo Dr.
Tampa FL 33619
MLPF & F.................................................... B 5.99
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
**Donaldson Lufkin Jenrette................................. C 8.28
Securities Corporation Inc.
P.O. Box 2052
Jersey City NJ 07303
**NFSC FEBO................................................. C 6.90
Beven D. Sangi
6380 Chartes Dr.
Rancho Pls Vrd CA 90275
**MLPS & S.................................................. C 16.56
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville FL 32246
**Mesirow Financial Inc. ................................... C 5.03
Eugene N. Neigoff Sep IRA
350 N. Clark Street
Chicago IL 60610
**Zurich Kemper Investments, Inc............................ I 5.37
Retirement Plan
811 Main
Kansas City MO 64105
</TABLE>
- ---------------
* Record and beneficial owner.
** Record owner only.
B-22
<PAGE> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--10.4% Banc One Corporation 163,300 $ 7,022
Bank of New York Co. 189,200 6,386
BankAmerica Corp. 86,132 8,592
Bankers Trust New York Corp. 39,800 3,433
Barnett Banks 206,500 8,492
First Chicago NBD Corp. 235,732 12,671
First Union Corp. 109,955 8,137
NationsBank 145,640 14,236
PNC Bank Corp., N.A. 200,935 7,560
----------------------------------------------------------------------------
76,529
- ---------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--3.5% Eastman Chemical Co. 1,000 55
Hanson PLC, ADR 2,428,500 16,392
Louisiana-Pacific Corp. 321,400 6,790
(a)Millennium Chemicals Inc. 152,513 2,707
----------------------------------------------------------------------------
25,944
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.2% General Electric Co. 125,900 12,448
Xerox Corporation 215,000 11,314
----------------------------------------------------------------------------
23,762
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--4.2% (a)Burlington Coat Factory 63,000 819
Liz Claiborne 47,400 1,831
Dayton Hudson Corp. 66,900 2,626
Dillard Department Stores 49,100 1,516
(a)Fruit of the Loom 94,300 3,572
Philips N.V., ADR 248,800 9,952
TJX Companies, Inc. 90,000 4,264
(a)Toys R Us 57,000 1,710
V.F. Corp. 37,000 2,497
Wal-Mart Stores 95,000 2,173
----------------------------------------------------------------------------
30,960
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--.4% Ford Motor Co. 88,000 2,805
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.9% (a)Imperial Tobacco Group, ADR 629,250 7,944
Philip Morris Companies 198,000 22,300
Quaker Oats Co. 111,000 4,232
UST, Inc. 727,300 23,546
----------------------------------------------------------------------------
58,022
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--11.6% AMOCO Corp. 393,300 31,661
Atlantic Richfield Co. 276,100 36,583
Columbia Gas System 270,900 17,236
----------------------------------------------------------------------------
85,480
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--13.0% H.F. Ahmanson & Co. 33,200 1,079
American General Corp. 45,100 1,843
American International Group, Inc. 58,300 6,311
Crestar Financial Corp. 132,800 9,877
Federal Home Loan Mortgage Corp. 229,900 25,318
Federal National Mortgage Association 580,600 21,627
Fleet Financial Group, Inc. 49,400 2,464
Great Western Financial Corp. 48,900 1,418
KeyCorp 149,700 7,560
J.P. Morgan & Company 95,000 9,274
Norwest Corp. 54,600 2,375
</TABLE>
11
<PAGE> 78
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Signet Banking Corp. 190,100 $ 5,846
Wells Fargo & Co. 3,800 1,025
----------------------------------------------------------------------------
96,017
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--5.3% Glaxo Wellcome PLC, ADR 21,700 689
(a)Humana, Inc. 1,069,200 20,448
Eli Lilly & Co 34,000 2,482
Merck & Co., Inc. 16,100 1,276
Pharmacia & Upjohn, Inc. 36,960 1,464
(a)Tenet Healthcare Corporation 580,600 12,701
----------------------------------------------------------------------------
39,060
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.6% AT&T 80,000 3,480
Lucent Technologies Inc. 25,926 1,199
Texas Instruments 116,200 7,408
----------------------------------------------------------------------------
12,087
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--61.1%
(Cost: $368,853) 450,666
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(B)MONEY MARKET Yield--4.95% to 6.20%
INSTRUMENTS--38.0% Due--January through March 1997
Baxter International $15,000 14,970
CS First Boston, Inc. 18,000 17,917
Ciesco, L.P. 20,000 19,890
ConAgra Inc. 23,000 22,877
Dynamic Funding Corporation 24,000 23,940
Enserch Corporation 14,000 13,985
General Electric Capital Corp. 14,900 14,833
IBM Credit Corp. 12,000 11,990
Madison Funding Corp. 22,000 21,962
Renaissance Energy Co. 29,000 28,849
SRD Finance Inc. 29,000 28,939
Sanwa Business Credit Corp. 12,000 11,976
U.S. Treasury Bills 11,500 11,407
Whirlpool Financial Corporation 10,000 9,989
Other 27,189 27,143
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--38.0%
(Cost: $280,693) 280,667
----------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1%
(Cost: $649,546) 731,333
----------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--.9% 6,501
----------------------------------------------------------------------------
NET ASSETS--100% $737,834
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The Fund has entered into exchange traded S&P 500 Index futures contracts in
order to take advantage of anticipated market conditions and effectively
invest in equities approximately $252,000,000 of money market instruments.
As a result, approximately 95% of the Fund's net assets are effectively
invested in equities. (See Note 6 of the Notes to Financial Statements.)
Based on the cost of investments of $649,546,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $84,628,000, the
gross unrealized depreciation was $2,841,000 and the net unrealized appreciation
on investments was $81,787,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman High Return Equity Fund
(formerly known as Kemper-Dreman High Return 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 High Return Equity 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
13
<PAGE> 80
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $649,546) $731,333
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 15,413
- ------------------------------------------------------------------------
Dividends 1,057
- ------------------------------------------------------------------------
TOTAL ASSETS 747,803
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 3,074
- ------------------------------------------------------------------------
Payable for:
Fund shares redeemed 426
- ------------------------------------------------------------------------
Investments purchased 4,928
- ------------------------------------------------------------------------
Management fee 407
- ------------------------------------------------------------------------
Distribution services fee 196
- ------------------------------------------------------------------------
Administrative services fee 136
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 649
- ------------------------------------------------------------------------
Directors' fees and other 153
- ------------------------------------------------------------------------
Total liabilities 9,969
- ------------------------------------------------------------------------
NET ASSETS $737,834
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $652,710
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 2,964
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 81,787
- ------------------------------------------------------------------------
Undistributed net investment income 373
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $737,834
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($385,895,000 / 14,549,000 shares outstanding) $26.52
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $28.14
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($295,432,000 / 11,172,000 shares outstanding) $26.44
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($44,477,000 / 1,682,000 shares outstanding) $26.45
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($12,030,000 / 454,000 shares outstanding) $26.49
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 81
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 6,262
- -----------------------------------------------------------------------
Interest 4,613
- -----------------------------------------------------------------------
Total investment income 10,875
- -----------------------------------------------------------------------
Expenses:
Management fee 2,430
- -----------------------------------------------------------------------
Distribution services fee 994
- -----------------------------------------------------------------------
Administrative services fee 635
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,028
- -----------------------------------------------------------------------
Professional fees 55
- -----------------------------------------------------------------------
Reports to shareholders 71
- -----------------------------------------------------------------------
Registration fees 143
- -----------------------------------------------------------------------
Directors' fees 16
- -----------------------------------------------------------------------
Total expenses before expense waiver 5,372
- -----------------------------------------------------------------------
Less expenses waived by investment manager 148
- -----------------------------------------------------------------------
Total expenses after expense waiver 5,224
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 5,651
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 9,589
- -----------------------------------------------------------------------
Net realized gain from futures transactions 11,891
- -----------------------------------------------------------------------
Net realized gain 21,480
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 61,834
- -----------------------------------------------------------------------
Net gain on investments 83,314
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $88,965
- -----------------------------------------------------------------------
</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 $ 5,651 730
- ------------------------------------------------------------------------------------------
Net realized gain 21,480 1,939
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation 61,834 16,825
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 88,965 19,494
- ------------------------------------------------------------------------------------------
Distribution from net investment income (5,373) (643)
- ------------------------------------------------------------------------------------------
Distribution from net realized gain (18,442) (1,637)
- ------------------------------------------------------------------------------------------
Total dividends to shareholders (23,815) (2,280)
- ------------------------------------------------------------------------------------------
Net increase from capital share transactions 574,488 45,977
- ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 639,638 63,191
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of year 98,196 35,005
- ------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $373,000 and $94,000, respectively) $737,834 98,196
- ------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF Kemper-Dreman High Return Equity Fund (the Fund) is
THE FUND 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 are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends, and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Portfolio securities 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
16
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS
for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined 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 MANAGEMENT AGREEMENT. KDF has a management
AFFILIATES 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
$2,430,000 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 $148,000 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 $601,000 4,531,000 356,000
</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
17
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS
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
$976,000 7,496,000 126,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KDF has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid by
the Fund are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended December 31, 1996 $635,000 941,000 19,000
</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
this agreement, KSvC received shareholder services
fees of $951,000 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 $16,000 to
independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended December 31, 1996, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $346,728
Proceeds from sales 43,705
18
<PAGE> 85
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, 1996 DECEMBER 31, 1995
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 11,969 $294,186 1,797 $35,340
------------------------------------------------------------------------------
Class B 10,792 264,773 772 15,914
------------------------------------------------------------------------------
Class C 1,617 40,240 93 1,919
------------------------------------------------------------------------------
Class I 612 14,409 161 3,376
------------------------------------------------------------------------------
SHARE ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 483 12,533 89 1,788
------------------------------------------------------------------------------
Class B 322 8,424 12 246
------------------------------------------------------------------------------
Class C 51 1,337 1 25
------------------------------------------------------------------------------
Class I 21 512 3 64
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (1,483) (35,513) (659) (12,361)
------------------------------------------------------------------------------
Class B (682) (16,613) (7) (167)
------------------------------------------------------------------------------
Class C (77) (1,854) (3) (64)
------------------------------------------------------------------------------
Class I (338) (7,946) (5) (103)
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 37 907 -- --
------------------------------------------------------------------------------
Class B (37) (907) -- --
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $574,488 $45,977
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES The Fund has entered into exchange traded financial
CONTRACTS futures contracts in order to take advantage of
anticipated market conditions and, as such, 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,
1996, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $9,927,000 for the following
financial futures contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION LOSS AT
TYPE AMOUNT POSITION MONTH 12/31/96
--------------------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
S&P 500 Index $251,269,000 Long Mar. '97 $2,455,000
</TABLE>
19
<PAGE> 86
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 $21.49 15.11 15.50 14.62 12.53
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .39 .26 .25 .21 .24
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 5.75 6.76 (.39) 1.13 2.21
- --------------------------------------------------------------------------------------------------
Total from investment operations 6.14 7.02 (.14) 1.34 2.45
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .38 .24 .25 .21 .24
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain .73 .40 -- .25 .12
- --------------------------------------------------------------------------------------------------
Total dividends 1.11 .64 .25 .46 .36
- --------------------------------------------------------------------------------------------------
Net asset value, end of year $26.52 21.49 15.11 15.50 14.62
- --------------------------------------------------------------------------------------------------
TOTAL RETURN 28.79% 46.86 (.99) 9.22 19.80
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.21% 1.25 1.25 1.25 1.25
- --------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.55 1.58 1.47 1.88
- --------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Expenses 1.21% 1.57 1.39 1.56 1.70
- --------------------------------------------------------------------------------------------------
Net investment income 2.12% 1.23 1.44 1.16 1.43
- --------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 87
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
<CAPTION>
------------------------------ ---------------------------- ----------------------------
CLASS B CLASS C CLASS I
------------------------------ ---------------------------- ----------------------------
YEAR ENDED SEPT. 11 TO YEAR ENDED SEPT. 11 TO YEAR ENDED NOV. 1 TO
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Net asset value, beginning of period $21.47 19.45 21.48 19.45 21.51 19.90
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Income from investment operations:
Net investment income .19 .07 .20 .09 .54 .04
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Net realized and unrealized gain 5.72 2.41 5.72 2.41 5.70 2.03
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Total from investment operations 5.91 2.48 5.92 2.50 6.24 2.07
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Less dividends:
Distribution from net investment
income .21 .06 .22 .07 .53 .06
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Distribution from net realized gain .73 .40 .73 .40 .73 .40
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Total dividends .94 .46 .95 .47 1.26 .46
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Net asset value, end of period $26.44 21.47 26.45 21.48 26.49 21.51
- -------------------------------------------------------------------- --------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 27.63% 12.88 27.66 12.94 29.36 10.47
- --------------------------------------------------------------------- ---------------------------- ----------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Expenses absorbed by the Fund 2.20% 2.00 2.22 1.95 .88 .47
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Net investment income 1.13% .61 1.11 .66 2.45 1.99
- --------------------------------------------------------------------- ---------------------------- ----------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Expenses 2.31% 2.35 2.33 2.30 .88 .85
- --------------------------------------------------------------------- ---------------------------- ----------------------------
Net investment income 1.02% .26 1.00 .31 2.45 1.61
- --------------------------------------------------------------------- ---------------------------- ----------------------------
</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) $737,834 98,196 35,005 28,413 14,425
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 10% 18 12 14 13
- ------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was
$.0513.
- ------------------------------------------------------------------------------------------------------
</TABLE>
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> 88
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN SMALL CAP VALUE FUND
PORTFOLIO OF INVESTMENTS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUTOS AND
TRANSPORTATION--7.4%
Airborne Freight Corporation 191,400 $ 4,474
Fleetwood Enterprises 92,200 2,536
Intermet Corp. 317,000 5,112
Myers Industries 233,300 3,937
Simpson Industries 79,100 861
Walbro Corp. 175,000 3,194
-----------------------------------------------------------------------------
20,114
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER
DISCRETIONARY--11.4%
(a)AMC Entertainment 160,000 2,300
J. Baker, Inc. 188,500 1,001
Bush Industries 46,500 895
Cato Corp. 191,000 955
Fedders Corporation 324,500 2,028
Haggar Apparel Co. 204,500 3,246
Heilig - Meyers 271,000 4,404
Hilton Hotels Corp. 226,700 5,923
(a)Insurance Auto Auctions 210,500 2,000
(a)Jean Philippe Fragrances 244,500 1,589
(a)Sports & Recreation 293,000 2,271
Del Webb Corp. 277,500 4,544
-----------------------------------------------------------------------------
31,156
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.7% (a)Performance Food Group 130,200 2,018
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--9.9%
(a)Belden & Blake Corporation 68,400 1,744
(a)Chieftain International Inc. 182,600 4,748
Enron Global Power & Pipelines L.L.C. 106,000 2,862
Giant Industries 182,500 2,555
KCS Energy 193,900 6,932
(a)Nuevo Energy Co. 69,600 3,619
(a)Seitel, Inc. 116,500 4,660
-----------------------------------------------------------------------------
27,120
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--19.2%
(a)Arbatax International, Inc. 95,000 618
Compass Bancshares 83,500 3,319
Cullen Frost Bankers 142,700 4,745
First Commerce Corp. 72,500 2,818
First Financial Caribbean Corp. 168,000 4,662
First Financial Corp. 186,875 4,578
Guaranty National Insurance 27,284 457
Imperial Credit Industries 283,720 5,958
Integon Corp. 240,800 4,274
Lawyers Title Insurance Corp. 95,000 1,864
Liberty Bancorp 39,700 1,975
Long Island Bancorp 101,500 3,553
North Fork Bancorp 88,692 3,160
PHH Corporation 138,000 5,934
Roosevelt Financial Group 105,500 2,216
T.R. Financial Corporation 67,300 2,389
-----------------------------------------------------------------------------
52,520
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--.6%
(a)Sofamor-Danek Group 51,000 1,556
</TABLE>
10
<PAGE> 89
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEGRATED OILS--1.7% (a)Tesoro Petroleum Corp. 328,100 $ 4,593
- -----------------------------------------------------------------------------------------------------------------------
MATERIALS PROCESSING--16.3% AK Steel Holding Corp. 127,500 5,052
AMCOL International 225,000 3,544
Ball Corp. 119,500 3,107
Blount, Inc. 163,050 6,257
Carpenter Technology Corp. 143,000 5,237
Elcor Corp. 160,700 3,435
(a)Global Industrial Technologies, Inc. 240,000 5,310
(a)Lydall, Inc. 135,000 3,038
(a)Mueller Industries, Inc. 84,000 3,234
Quanex Corp. 137,000 3,750
Rexene Corp. 179,000 2,439
-----------------------------------------------------------------------------
44,403
- -----------------------------------------------------------------------------------------------------------------------
PRODUCER DURABLES--8.9% (a)Asyst Technologies 71,000 1,216
BWIP, Inc. 57,900 955
(a)Electroglas 206,000 3,322
Pacific Scientific Co. 207,000 2,329
Scientific-Atlanta 345,000 5,175
Stewart & Stevenson Services 187,000 5,446
(a)Teltrend 85,000 2,359
Watts Industries, Inc. 151,600 3,619
-----------------------------------------------------------------------------
24,421
- -----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--8.3% (a)Benchmark Electronics 115,700 3,485
(a)Burr Brown Corp. 77,500 2,015
(a)Diamond Multimedia Systems, Inc. 58,000 689
(a)EXAR Corporation 146,500 2,271
(a)Jones Intercable Inc. 422,400 4,382
(a)Photronics, Inc. 34,900 951
(a)Proxima Corp. 163,500 2,105
(a)Read-Rite Corp. 117,500 2,967
(a)Tech-Sym Corporation 128,400 3,820
-----------------------------------------------------------------------------
22,685
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--2.4% (a)Atlantic Tele-Network 209,800 3,199
United Cities Gas Co. 152,500 3,431
-----------------------------------------------------------------------------
6,630
- -----------------------------------------------------------------------------------------------------------------------
OTHER--.8% Mercer International, Inc. 207,000 2,122
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--87.6%
(Cost: $217,513) 239,338
-----------------------------------------------------------------------------
</TABLE>
11
<PAGE> 90
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.30% to 6.05%
INSTRUMENTS--15.3%
Due--January and February 1997
Baxter International $ 5,000 $ 4,982
Ciesco, L.P. 8,000 7,956
ConAgra Inc 6,000 5,980
Dynamic Funding Corporation 6,000 5,991
Renaissance Energy Co. 6,000 5,966
Other 11,000 10,987
------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--15.3%
(Cost: $41,865) 41,862
------------------------------------------------------------------------------
TOTAL INVESTMENTS--102.9%
(Cost: $259,378) 281,200
------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND
OTHER ASSETS--(2.9)% (7,978)
------------------------------------------------------------------------------
NET ASSETS--100% $273,222
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $259,378,000 for federal income tax purposes
at December 31, 1996, the gross unrealized appreciation was $30,434,000, the
gross unrealized depreciation was $8,612,000 and the net unrealized appreciation
on investments was $21,822,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
KEMPER-DREMAN SMALL CAP VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman Small Cap Value Fund as
of December 31, 1996, and 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper-Dreman Small Cap Value Fund at December 31, 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
13
<PAGE> 92
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $259,378) $281,200
- ------------------------------------------------------------------------
Cash 84
- ------------------------------------------------------------------------
Receivable for:
Investments sold 1,551
- ------------------------------------------------------------------------
Fund shares sold 5,177
- ------------------------------------------------------------------------
Dividends 121
- ------------------------------------------------------------------------
TOTAL ASSETS 288,133
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 14,174
- ------------------------------------------------------------------------
Fund shares redeemed 237
- ------------------------------------------------------------------------
Management fee 154
- ------------------------------------------------------------------------
Distribution services fee 26
- ------------------------------------------------------------------------
Administrative services fee 53
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 244
- ------------------------------------------------------------------------
Directors' fees and other 23
- ------------------------------------------------------------------------
Total liabilities 14,911
- ------------------------------------------------------------------------
NET ASSETS $273,222
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $253,026
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (1,695)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 21,822
- ------------------------------------------------------------------------
Undistributed net investment income 69
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $273,222
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($144,812,000 / 7,922,000 shares outstanding) $18.28
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $19.40
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($99,355,000 / 5,477,000 shares outstanding) $18.14
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($20,054,000 / 1,104,000 shares outstanding) $18.17
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($9,001,000 / 489,000 shares outstanding) $18.40
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 93
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------
Dividends $ 1,750
- ---------------------------------------------------------------------------------
Interest 1,009
- ---------------------------------------------------------------------------------
Total investment income 2,759
- ---------------------------------------------------------------------------------
Expenses:
Management fee 943
- ---------------------------------------------------------------------------------
Distribution services fee 387
- ---------------------------------------------------------------------------------
Administrative services fee 263
- ---------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 637
- ---------------------------------------------------------------------------------
Professional fees 10
- ---------------------------------------------------------------------------------
Reports to shareholders 15
- ---------------------------------------------------------------------------------
Registration fees 42
- ---------------------------------------------------------------------------------
Directors' fees and other 19
- ---------------------------------------------------------------------------------
Total expenses before expense waiver 2,316
- ---------------------------------------------------------------------------------
Less expenses waived by investment manager 283
- ---------------------------------------------------------------------------------
Total expenses after expense waiver 2,033
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME 726
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ---------------------------------------------------------------------------------
Net realized gain on sales of investments 3,470
- ---------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 20,292
- ---------------------------------------------------------------------------------
Net gain on investments 23,762
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $24,488
- ---------------------------------------------------------------------------------
</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 (loss) $ 726 (40)
- ------------------------------------------------------------------------------------------
Net realized gain 3,470 1,914
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation 20,292 2,016
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 24,488 3,890
- ------------------------------------------------------------------------------------------
Distribution from net investment income (658) --
- ------------------------------------------------------------------------------------------
Distribution from net realized gain (5,471) (1,603)
- ------------------------------------------------------------------------------------------
Total dividends to shareholders (6,129) (1,603)
- ------------------------------------------------------------------------------------------
Net increase from capital share transactions 223,257 22,388
- ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 241,616 24,675
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of year 31,606 6,931
- ------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment income of
$69,000 in 1996) $273,222 31,606
- ------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman Small Cap Value Fund (the Fund) is a
separate series of Kemper-Dreman Fund, Inc. (KDF),
an open-end management investment company organized
as a corporation in the state of Maryland. 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 are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
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 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.
16
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS
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 generally
declares and pays dividends of net investment
income and net realized capital gains annually,
which are recorded on the ex-dividend date.
Dividends are determined in accordance with income
tax principles which may treat certain transactions
differently from generally accepted accounting
principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
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
$943,000 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 $283,000 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 $231,000 1,734,000 114,000
</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 $292,000 2,429,000 47,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. KDF has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund
17
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS
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 $170,000 351,000 6,000
</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
$541,000 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 $12,000 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 $215,905
Proceeds from sales 29,212
- --------------------------------------------------------------------------------
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 DECEMBER 31, 1995
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
-------------------------------------------------------------------------------
Class A 8,060 $140,448 1,364 $19,337
-------------------------------------------------------------------------------
Class B 6,110 105,279 544 7,969
-------------------------------------------------------------------------------
Class C 1,077 18,688 91 1,360
-------------------------------------------------------------------------------
Class I 1,043 17,495 141 2,045
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-------------------------------------------------------------------------------
Class A 182 3,250 77 1,060
-------------------------------------------------------------------------------
Class B 115 2,031 23 333
-------------------------------------------------------------------------------
Class C 25 434 3 44
-------------------------------------------------------------------------------
Class I 13 229 6 92
-------------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------------
Class A (1,764) (29,756) (653) (9,016)
-------------------------------------------------------------------------------
Class B (1,288) (21,940) (10) (155)
-------------------------------------------------------------------------------
Class C (66) (1,102) (26) (400)
-------------------------------------------------------------------------------
Class I (695) (11,799) (19) (281)
-------------------------------------------------------------------------------
CONVERSION OF SHARES
-------------------------------------------------------------------------------
Class A 17 308 -- --
-------------------------------------------------------------------------------
Class B (17) (308) -- --
-------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $223,257 $22,388
-------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 97
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------
CLASS A
-----------------------------------------------------
YEAR ENDED DECEMBER 31, MAY 22
1996 1995 1994 1993 TO DEC. 31, 1992
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.50 10.85 11.23 11.52 10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .14 (.02) -- .06 .03
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 4.14 4.64 .02 .23 1.95
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 4.28 4.62 .02 .29 1.98
- --------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .07 -- -- .06 .03
- --------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .43 .97 .40 .52 .43
- --------------------------------------------------------------------------------------------------------------
Total dividends .50 .97 .40 .58 .46
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.28 14.50 10.85 11.23 11.52
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 29.60% 43.29 .15 2.54 32.51
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.31% 1.25 1.25 1.25 1.25
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .87% (.16) (.03) .53 .81
- --------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------
Expenses 1.47% 1.83 1.82 2.09 4.29
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) .71% (.74) (.61) (.32) (2.24)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------- ------------------- ----------------------
CLASS B CLASS C CLASS I
------------------- ------------------- ----------------------
NOV. 1
YEAR SEPT. 11 YEAR SEPT. 11 YEAR TO
ENDED TO ENDED TO ENDED DEC.
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, 31,
1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------- ------------------- ---------------------
Net asset value, beginning of period $14.48 15.75 14.48 15.75 14.52 14.25
- ----------------------------------------------------------------- ------------------- ---------------------
Income from investment operations:
Net investment income (loss) .01 (.02) .01 (.02) .25 --
- ----------------------------------------------------------------- ------------------- ---------------------
Net realized and unrealized gain (loss) 4.11 (.41) 4.14 (.41) 4.13 1.11
- ----------------------------------------------------------------- ------------------- ---------------------
Total from investment operations 4.12 (.43) 4.15 (.43) 4.38 1.11
- ----------------------------------------------------------------- ------------------- ---------------------
Less dividends:
Distribution from net investment income .03 -- .03 -- .07 --
- ----------------------------------------------------------------- ------------------- ---------------------
Distribution from net realized gain .43 .84 .43 .84 .43 .84
- ----------------------------------------------------------------- ------------------- ---------------------
Total dividends .46 .84 .46 .84 .50 .84
- ----------------------------------------------------------------- ------------------- ---------------------
Net asset value, end of period $18.14 14.48 18.17 14.48 18.40 14.52
- ----------------------------------------------------------------- ------------------- ---------------------
TOTAL RETURN (NOT ANNUALIZED) 28.54% (2.52) 28.77 (2.51) 30.28 8.03
- ----------------------------------------------------------------- ------------------- ---------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------- ------------------- ---------------------
Expenses absorbed by the Fund 2.12% 2.00 2.06 1.95 .84 .47
- ----------------------------------------------------------------- ------------------- ---------------------
Net investment income (loss) .06% (.99) .12 (.94) 1.34 .28
- ----------------------------------------------------------------- ------------------- ---------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------- ------------------- ---------------------
Expenses 2.49% 2.39 2.19 2.35 .84 .90
- ----------------------------------------------------------------- ------------------- ---------------------
Net investment income (loss) (.31)% (1.38) (.01) (1.34) 1.34 (.15)
- ----------------------------------------------------------------- ------------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, MAY 22
1996 1995 1994 1993 TO DEC. 31, 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $273,222 31,606 6,931 4,875 2,385
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 23% 86 140 79 37
- ---------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended December 31, 1996 was
$.0426.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Per share data for 1996 were determined based on average shares
outstanding. 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.
19
<PAGE> 98
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C>
(a) Financial
Statements:
(1) Included in Part A of the Registration Statement: Financial
Highlights
(2) Report of Independent Accountants and Financial Statements
included in Part B of the Registration Statement:
Kemper-Dreman Contrarian Fund, Kemper-Dreman High Return
Equity Fund and Kemper-Dreman Small Cap Value Fund
Report of Independent Auditors (February 18, 1997)
Statement of Assets and Liabilities--December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for each of the two years
in the period ended December 31, 1996
Notes to Financial Statements
Portfolio of Investments--December 31, 1996
</TABLE>
Schedule I has been omitted as the required informations is presented in
the Portfolio of Investments at December 31, 1996.
Schedules II, III, IV and V have been omitted as the required information
is not present.
<TABLE>
<S> <C> <C>
(b) Exhibits:
99.B1a Articles of Incorporation of Registrant*
99.B1b Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1c Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1d Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1e Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1f Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1g Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1h Articles of Amendment to Articles of Incorporation of
Registrant
99.B2 Bylaws*
99.B3 Inapplicable
99.B4 Text of Stock Certificate*
99.B5 Investment Management Agreement*
99.B6a Underwriting and Distribution Services Agreement*
99.B6b Form of Selling Group Agreement
99.B7 Inapplicable
99.B8 Custody Agreement*
99.B9a Agency Agreement*
99.B9b Administrative Services Agreement*
99.B10 Inapplicable
99.B11 Consent and Reports of Ernst & Young LLP
99.B12 Inapplicable
99.B13 Inapplicable
</TABLE>
C-1
<PAGE> 99
99.B14 Model Retirement Plans: IRA and SEP-IRA*
99.B15 See 6(a) above (Class B and C Shares)
99.B16 Performance Calculations*
99.B18. Multi-Distribution System Plan*
99.B24. Powers of Attorney*
27.1 Financial Data Schedule (Contrarian)
27.2 Financial Data Schedule (High Return)
27.3 Financial Data Schedule (Small Cap)
485.B Representation of Counsel (Rule 485)
- ---------------
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
----------- ---------------------------- -----------
<S> <C> <C>
B5, B6(a), B6(c), B14, B24 16 4/26/96
B1(a), (b), (c), (d), (e), (f), (g), B18 15 2/29/96
B2, B4, B6b, B8, B9a, B9b, B16 14 9/8/95
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
AS OF APRIL 9, 1997
-----------------------------------------
FUND CLASS A CLASS B CLASS C CLASS I
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Kemper-Dreman Contrarian Fund 6,245 5,268 744 --
Kemper-Dreman High Return Equity Fund 53,718 54,947 8,004 4,671
Kemper-Dreman Small Cap Value Fund 30,437 27,390 4,533 3,670
</TABLE>
ITEM 27. INDEMNIFICATION
The Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. The
Registrant's Bylaws provide for the indemnification of Registrant's officers and
directors.
In no event will Registrant indemnify any of its directors, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith, gross negligence in
the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his or her office.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
C-2
<PAGE> 100
ITEM 28(A) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of Registrant's
investment adviser is hereby incorporated by reference to the sections of the
Prospectus captioned "Summary" and "Investment Manager and Underwriter" and to
the section of the Statement of Additional Information captioned "Investment
Manager and Underwriter."
Dreman Value Advisors, Inc., 280 Park Avenue, 40(th) Floor, New York, New
York 10017, performs investment advisory services for Registrant, institutional
investment advisory clients and certain Portfolios of Kemper Investors Fund.
Dreman Value Advisors, Inc. is also a subadviser for Kemper Value Plus Growth
Fund and Kemper Horizon Fund and for certain Portfolios of Kemper Investors
Fund.
C-3
<PAGE> 101
Item 28(b) Business and Other Connections of Officers and Directors
of Dreman Value Advisors, Inc., the Investment Advisor
DREMAN, DAVID N.
Director, Chairman of the Board, Dreman Value Advisors, Inc.
NEAL, JOHN E.
Director, Dreman Value Advisors, Inc.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Zurich Kemper Service Company
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
C - 4
<PAGE> 102
TIMBERS, STEPHEN B.
Director, Dreman Value Advisors, Inc.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Zurich Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Zurich Kemper Service Company
Director, President, Kemper International Management, Inc.
Director, ZKI Agency, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
C - 5
<PAGE> 103
NEEL, JAMES R.
Director, President and Chief Executive Officer, Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
BERTELSEN, CHRISTIAN C.
Senior Managing Director and Chief Investment Officer,
Dreman Value Advisors, Inc.
Vice President, Kemper-Dreman Fund, Inc.
DUDASIK, PATRICK H.
Executive Vice President, Chief Financial Officer and Treasurer, Dreman
Value Advisors, Inc.
Executive Vice President and Chief Financial Officer, Zurich Kemper
Investments, Inc.
Chief Financial Officer and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Zurich Kemper Service Company
Treasurer, ZKI Agency, Inc.
COUGHLIN, WILLIAM F.
Managing Director, Dreman Value Advisors, Inc.
C - 6
<PAGE> 104
SASSI, THOMAS
Senior Managing Director, Dreman Value Advisors, Inc.
SHIPMAN, STEPHEN E.
Managing Director, Dreman Value Advisors, Inc.
STOKES, STEPHEN T.
Managing Director, Dreman Value Advisors, Inc.
EPSTEIN, HARRY
Vice President, Operations, Dreman Value Advisors, Inc.
KAY, JONATHAN S.
Managing Director, Dreman Value Advisors, Inc.
McRAE, SUSAN A.
Vice President, Dreman Value Advisors, Inc.
MORRISSEY, JOSYANE
Vice President, Dreman Value Advisors, Inc.
RIDER, JOSEPH K.
Vice President, Dreman Value Advisors, Inc.
COLLORA, PHILIP J.
Assistant Secretary, Dreman Value Advisors, Inc.
Senior Vice President and Assistant Secretary,
Zurich Kemper Investments, Inc.
Vice President and Secretary, Kemper Funds
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
HECHT, MARC L.
Assistant Secretary, Dreman Value Advisors, Inc.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, Zurich Kemper Distributors, Inc.
Assistant Secretary, ZKI Holding Corporation
Assistant Secretary, ZKI Agency, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
MANZONI, JR., CHARLES R.
Secretary, Dreman Value Advisors, Inc.
Executive Vice Pres., Sec'y & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
Secretary, Zurich Kemper Service Company
Secretary, Zurich Kemper Distributors, Inc.
Secretary, ZKI Holding Corporation
Secretary, Zurich Investment Management, Inc.
C - 7
<PAGE> 105
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the Kemper Funds,
Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman Fund,
Inc.
(b) Information on the officers and directors of Kemper
Distributors, Inc., principal underwriter for the Registrant is set forth
below. The principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President/Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Thomas V. Bruns Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Philip D. Hausken Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Charles R. Manzoni, Jr. Secretary Vice President
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-8
<PAGE> 106
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, at the offices of Registrant's investment manager, Dreman
Value Advisors, Inc., 280 Park Avenue, 40(th) Floor, New York, New York 10017,
at the offices of Registrant's principal underwriter, Zurich Kemper
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's custodian and transfer agent, Investors Fiduciary
Trust Company, 127 West 10th Street, Kansas City, Missouri 64105 or at the
offices of the Registrant's shareholder service agent, Zurich Kemper Service
Company, 811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
(a) Inapplicable
(b) Inapplicable
(c) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of its latest annual report to shareholders, upon
request and without charge.
C-9
<PAGE> 107
S I G N A T U R E S
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago and State of
Illinois, on the 17th day of April, 1997.
KEMPER-DREMAN FUND, INC.
By /s/ Stephen B. Timbers
---------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on April 18,
1997 on behalf of the following persons in the capacities
indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President (Principal
---------------------------------------- Executive Officer) and
Stephen B. Timbers Trustee
/s/James E. Akins* Trustee
----------------------------------------
/s/Arthur R. Gottschalk* Trustee
----------------------------------------
/s/Frederick T. Kelsey* Trustee
----------------------------------------
/s/Dominique P. Morax* Trustee
----------------------------------------
/s/Fred B. Renwick* Trustee
----------------------------------------
/s/John B. Tingleff* Trustee
----------------------------------------
/s/John G. Weithers* Trustee
----------------------------------------
/s/Jerome L. Duffy Treasurer (Principal
---------------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of
attorney filed with Post-Efective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A filed on April 26, 1996.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
99.B1a Articles of Incorporation of Registrant*
99.B1b Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1c Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1d Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1e Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1f Articles Supplementary to Articles of Incorporation of
Registrant*
99.B1g Articles of Amendment to Articles of Incorporation of
Registrant*
99.B1h Articles of Amendment to Articles of Incorporation of
Registrant
99.B2 Bylaws*
99.B3 Inapplicable
99.B4 Text of Stock Certificate*
99.B5 Investment Management Agreement*
99.B6a Underwriting and Distribution Services Agreement*
99.B6b Form of Selling Group Agreement
99.B7 Inapplicable
99.B8 Custody Agreement*
99.B9a Agency Agreement*
99.B9b Administrative Services Agreement*
99.B10 Inapplicable
99.B11 Consent and Reports of Ernst & Young LLP
99.B12 Inapplicable
99.B13 Inapplicable
99.B14 Model Retirement Plans: IRA and SEP-IRA*
99.B15 See 6(a) above (Class B and C Shares)
99.B16 Performance Calculations*
99.B18. Multi-Distribution System Plan*
99.B24. Powers of Attorney*
27.1 Financial Data Schedule (Contrarian)
27.2 Financial Data Schedule (High Return)
27.3 Financial Data Schedule (Small Cap)
485.B Representation of Counsel (Rule 485)
</TABLE>
- ---------------
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
----------- ---------------------------- -----------
<S> <C> <C>
B5, B6(a), B6(c), B14, B24 16 4/26/96
B1(a), (b), (c), (d), (e), (f), (g),
B18 15 2/29/96
B2, B4, B6b, B8, B9a, B9b, B16 14 9/8/95
</TABLE>
<PAGE> 1
EXHIBIT 99.B1(h)
KEMPER-DREMAN FUND, INC.
ARTICLES OF AMENDMENT
Kemper-Dreman Fund, Inc., a Maryland Corporation registered
as an open-end investment company under the Investment Company
Act of 1940 having its principal office in the State of Maryland
in Baltimore City (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: In Article FIFTH of the Charter, the sixty million
(60,000,000) shares classified as the Kemper-Dreman High Return
Fund Class A Shares shall be redesignated as the Kemper-Dreman
High Return Equity Fund Class A Shares, the sixty million
(60,000,000) shares classified as the Kemper-Dreman High Return
Fund Class B Shares shall be redesignated as the Kemper-Dreman
High Return Equity Fund Class B Shares, the fifteen million
(15,000,000) shares classified as the Kemper-Dreman High Return
Fund Class C Shares shall be redesignated as the Kemper-Dreman
High Return Equity Fund Class C Shares, and the fifteen million
(15,000,000) shares classified as the Kemper-Dreman High Return
Fund Class I Shares shall be redesignated as the Kemper-Dreman
High Return Equity Fund Class I Shares.
SECOND: The Board of Directors of the Corporation has duly
adopted a resolution on November 19, 1996, approving the
foregoing amendment to the Charter.
THIRD: Article FIRST of these Articles of Amendment is
limited to changes expressly permitted by section 2-605(a)(4) of
the Maryland General Corporation Law to be made without action by
stockholders, and the Corporation is an open-end company under
the Investment Company Act of 1940.
The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states
that to the best of his or her knowledge, information and belief,
the matters and facts set forth in these Articles with respect to
authorization and approval are true in all material respects and
that this statement is made under the penalties for perjury.
<PAGE> 2
IN WITNESS WHEREOF, KEMPER-DREMAN FUND, INC. has caused
these Articles of Amendment to be executed in its name and on its
behalf by its President and witnessed by its Secretary on
December 2, 1996.
(SEAL) KEMPER-DREMAN FUND, INC.
Attest: /s/ Philip J. Collora By: /s/ Stephen B. Timbers
------------------------------ ---------------------------
Philip J. Collora Stephen B. Timbers
Secretary President
<PAGE> 1
EXHIBIT 99.B6(b)
SELLING GROUP AGREEMENT KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza, Chicago, Illinois 60606
Dear Financial Services Firm:
As principal underwriter and distributor, we invite you to
join a Selling Group for the distribution of shares of the Kemper
Funds (herein called "Funds"), but only in those states in which
the shares of the respective Funds may legally be offered for
sale. As exclusive agent of each of the Funds, we offer to sell
to you shares of the Funds on the following terms:
1. In all sales of these shares to the public you shall act
as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the issuer, for us, or for
any other member of the Selling Group.
2. Orders received from you will be accepted by us only at
the public offering price applicable to each order, as
established by the Prospectus of each Fund, subject to the
discount, commission or other concession, if any, as provided in
such Prospectus. Upon receipt from you of any order to purchase
shares of a Fund, we shall confirm to you in writing or by wire
to be followed by a confirmation in writing. Additional
instructions may be forwarded to you from time to time. All
orders are subject to acceptance or rejection by us in our sole
discretion.
3. You may offer and sell shares to your customers only at
the public offering price determined in the manner described in
the applicable Prospectus. The public offering price is the net
asset value per share as provided in the applicable Prospectus
plus, with respect to certain Funds, a sales charge from which
you shall receive a discount equal to a percentage of the
applicable offering price as provided in the applicable
Prospectus. You shall receive a sales commission, with respect
to certain Funds, equal to a percentage of the amount invested as
provided in the applicable Prospectus. You shall receive a
distribution service fee, for certain Funds for which such fees
are available, as provided in the applicable Prospectus which fee
shall be payable with respect to such assets, for such periods
and at such intervals as are from time to time specified by us.
The discounts or other concessions to which you may be entitled
in connection with sales to your customers pursuant to any
special features of a Fund (such as cumulative discounts, letters
of intent, etc., the terms of which shall be as described in the
applicable Prospectus and related forms) shall be in accordance
with the terms of such features. You may receive an
administrative service fee, with respect to certain Funds for
which such fees are available, as provided in the applicable
Prospectus, which fee shall be payable with respect to such
assets, for such periods and at such intervals as are from time
<PAGE> 2
to time specified by us. Our liability to you with respect to
the payment of any service fee is limited to the proceeds
received by us from the Funds for your services, and you waive
any right you may have to payment of any service fee until we are
in receipt of the proceeds from the Funds that are attributable
to your services.
4. By accepting this agreement, you agree:
(a) To purchase shares only from us or from your
customers.
(b) That you will purchase shares from us only to cover
purchase orders already received from your customers, or for your
own bona fide investments.
(c) That you will not purchase shares from your
customers at a price lower than the bid price then quoted by or
for the Fund involved. You may, however, sell shares for the
account of your customer to the Fund, or to us as agent for the
Fund, at the bid price currently quoted by or for the Fund and
charge your customer a fair commission for handling the
transaction.
(d) That you will not withhold placing with us orders
received from your customers so as to profit yourself as a result
of such withholding.
5. We will not accept from you any conditional orders for
shares.
6. If any shares confirmed to you under the terms of this
agreement are repurchased by the issuing Fund or by us as agent
for the Fund, or are tendered for repurchase, within seven
business days after the date of our confirmation of the original
purchase order, you shall forthwith refund to us the full
discount, commission, finder's fee or other concession, if any,
allowed or paid to you on such shares.
7. Payment for shares ordered from us shall be in New York
clearing house funds and must be received by the appropriate
Fund's shareholder service agent within seven days after our
acceptance of your order (or such shorter time period as may be
required by applicable regulations). If such payment is not
received, we reserve the right, without notice, forthwith to
cancel the sale or, at our option, to sell the shares ordered
back to the Fund, in which case we may hold you responsible for
any loss, including loss of profit suffered by us as a result of
your failure to make such payment.
8. Shares sold to you hereunder shall be available in
negotiable form for delivery at the appropriate Fund's
shareholder services agent, against payment, unless other
instructions have been given.
9. All sales will be made subject to our receipt of shares
from the Fund. We reserve the right, in our discretion, without
notice, to suspend sales or withdraw the offering of shares
entirely. We reserve the right to modify, cancel or change the
terms of this agreement, upon 15 days prior written notice to
you. Also, the sales charges, discounts, commissions or other
concessions, service fees of any kind provided for hereunder are
subject to change at any time by the Funds and us.
<PAGE> 3
10. All communications to us should be sent to the address
in the heading above. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified by you
below.
11. This agreement shall be construed in accordance with
the laws of Illinois. This agreement is subject to the
Prospectuses of the Funds from time to time in effect, and, in
the event of a conflict, the terms of the Prospectuses shall
control. References herein to the "Prospectus" of a Fund shall
mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes,
modifications or additions reflected in any such Prospectus shall
be effective on the date of such Prospectus (or supplement
thereto) unless specified otherwise.
12. This agreement is subject to the Additional
Stipulations and Conditions on the reverse side hereof, all of
which are a part of this agreement.
Kemper Distributors, Inc.
By
----------------------------
Authorized Signature
Title
-------------------------
We have read the foregoing agreement and accept and agree to the
terms and conditions thereof.
Firm
-------------------------
Witness
------------------------ By
----------------------------
Authorized Representative
Dated Title
------------------------- -------------------------
<PAGE> 4
ADDITIONAL STIPULATIONS AND CONDITIONS
13. No person is authorized to make any representations
concerning shares of any Fund except those contained in the
Prospectus of such Fund and in printed information subsequently
issued by the Fund or by us as information supplemental to such
Prospectus. If you wish to use your own advertising with respect
to a Fund, all such advertising must be approved by us or by the
Fund prior to use. You shall be responsible for any required
filing of such advertising.
14. Your acceptance of this agreement constitutes a
representation (i) that you are a registered security dealer and
a member in good standing of the National Association of
Securities Dealers, Inc. and that you agree to comply with all
state and federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., or (ii) if you
are offering and selling shares of the Funds only in
jurisdictions outside of the several states, territories and
possessions of the United States and are not otherwise required
to be a member of the National Association of Securities Dealers,
Inc., that you nevertheless agree to conduct your business in
accordance with the spirit of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and to observe
the laws and regulations of the applicable jurisdiction. You
likewise agree that you will not offer to sell shares of any Fund
in any state or other jurisdiction in which they may not lawfully
be offered for sale.
15. You shall make available an investment management
account for your customers through the Funds and shall provide
such office space and equipment, telephone facilities, personnel
and literature distribution as is necessary or appropriate for
providing information and services to your customer. Such
services and assistance may include, but not be limited to,
establishment and maintenance of shareholder accounts and
records, processing purchase and redemption transactions,
answering routine inquiries regarding the Funds, and such other
services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule, or regulation. You agree
to release, indemnify and hold harmless the Funds, us and our
respective representatives and agents from any and all direct or
indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you, your officers,
employees or agents regarding the purchase, redemption or
transfer of registration of shares of the Funds for accounts of
you, your customers and other shareholders or from any
unauthorized or improper use of any on-line computer facilities.
You shall prepare such periodic reports for us as shall
reasonably be requested by us. You shall immediately inform the
Funds or us of all written complaints received by you from Fund
shareholders relating to the maintenance of their accounts and
shall promptly answer all such complaints and other similar
correspondence. You shall provide the Funds and us on a timely
<PAGE> 5
basis with such information as may be required to complete
various regulatory forms.
16. As a result of the necessity to compute the amount of
any contingent deferred sales charge due with respect to the
redemption of shares, you may not hold shares of a Fund imposing
such a charge in an account registered in your name or in the
name of your nominee for the benefit of certain of your customers
except with our prior written consent. Except as otherwise
permitted by us, shares of such a Fund owned by a shareholder
must be in a separate identifiable account for such shareholder.
17. Shares of certain Funds have been divided into separate
classes: Class A Shares, Class B Shares and Class C Shares.
Class A Shares are offered at net asset value plus an initial
sales charge. Class B Shares are offered at net asset value
without an initial sales charge but are subject to a contingent
deferred sales charge and a Rule 12b-1 fee and have a conversion
feature. Class C Shares are offered at net asset value without
an initial sales charge but are subject to a contingent deferred
sales charge and a Rule 12b-1 fee, and have no conversion
feature. Please see the appropriate Prospectuses for a more
complete description of the distinctions between the classes of
shares.
It is important to investors not only to choose Funds
appropriate for their investment objectives, but also to choose
the appropriate distribution arrangement, based on the amount
invested and the expected duration of the investment. To assist
investors in these decisions, we have instituted the following
policies with respect to orders for shares of the Funds. The
following policies and procedures with respect to sales of
classes of shares of the Funds apply to each broker/dealer that
distributes shares of the Funds.
1. All purchase orders for $500,000 or more (not including
street name or omnibus accounts) should be for Class A Shares.
2. Any purchase order of less than $500,000 may be for
either Class A, Class B or Class C Shares in light of the
relevant facts and circumstances, including:
a. the specific purchase order dollar amount;
b. the length of time the investor expects to hold the
shares; and
c. any other relevant circumstances such as the
availability of purchases under a Letter of Intent, Combined
Purchases or Cumulative Discount Privilege.
There are instances when one pricing structure may be more
appropriate than another. For example, investors who would
qualify for a reduced sales charge on Class A Shares may
determine that payment of a reduced front-end sales charge is
preferable to payment of an ongoing Rule 12b-1 fee. On the other
hand, investors whose orders would not qualify for such a
discount and who plan to hold their investment for more than six
years may wish to defer the sales charge and would consider Class
B Shares. Investors who prefer not to pay an initial sales
charge and who plan to redeem their shares within six years might
consider Class C Shares.
<PAGE> 6
Appropriate supervisory personnel within your organization
must ensure that all employees receiving investor inquiries about
the purchase of shares of the Funds advise the investor of the
available pricing structures offered by the Funds and the impact
of choosing one method over another, including breakpoints and
the availability of Letters of Intent, Combined Purchases and
Cumulative Discounts. In some instances it may be appropriate
for a supervisory person to discuss a purchase with the investor.
18. This agreement shall be in substitution of any prior
selling group agreement between you and us regarding these
shares. This agreement shall not be applicable to the provision
of services for Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Tax-Exempt New York Money Market Fund, Investors
Cash Trust and similar wholesale money market funds. The payment
of related distribution and services fees, shall be subject to
separate services agreements.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our reports on Kemper-Dreman Contrarian Fund, Kemper-Dreman High Return
Equity Fund and Kemper-Dreman Small Cap Value Fund, dated February 18, 1997 in
the Registration Statement of Kemper-Dreman Fund, Inc, on Form N-1A and the
related Prospectus and Statement of Additional Information filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 17 to
the Registration Statement under the Securities Act of 1933 (File No. 33-18477)
and in this Amendment No. 19 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-5385).
ERNST & YOUNG LLP
Chicago, Illinois
April 18, 1997
<PAGE> 2
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 the periods ended December
31, 1994 and prior were audited by other auditors whose report dated January,
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
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Kemper-Dreman Small Cap Value Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman Small Cap Value Fund as
of December 31, 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 the
periods ended December 31, 1994 and prior 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 Small Cap Value 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
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Kemper-Dreman High Return Equity Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper-Dreman High Return Equity
Fund (formerly known as the Kemper-Dreman High Return 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 the periods ended December
31, 1994 and prior 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 High Return Equity 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
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCUEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 011
<NAME> KEMPER-DREMAN CONTRARIAN FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 66,041
<INVESTMENTS-AT-VALUE> 74,181
<RECEIVABLES> 4,641
<ASSETS-OTHER> 603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,425
<PAYABLE-FOR-SECURITIES> 1,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 198
<TOTAL-LIABILITIES> 1,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,082
<SHARES-COMMON-STOCK> 2,771
<SHARES-COMMON-PRIOR> 1,192
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,140
<NET-ASSETS> 77,592
<DIVIDEND-INCOME> 1,147
<INTEREST-INCOME> 342
<OTHER-INCOME> 0
<EXPENSES-NET> (828)
<NET-INVESTMENT-INCOME> 661
<REALIZED-GAINS-CURRENT> 5,913
<APPREC-INCREASE-CURRENT> 1,429
<NET-CHANGE-FROM-OPS> 8,003
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (457)
<DISTRIBUTIONS-OF-GAINS> (3,425)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,926
<NUMBER-OF-SHARES-REDEEMED> (571)
<SHARES-REINVESTED> 224
<NET-CHANGE-IN-ASSETS> 52,110
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 889
<AVERAGE-NET-ASSETS> 53,089
<PER-SHARE-NAV-BEGIN> 16.20
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 2.07
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (1.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.93
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 012
<NAME> KEMPER-DREMAN CONTRARIAN FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 66,041
<INVESTMENTS-AT-VALUE> 74,181
<RECEIVABLES> 4,641
<ASSETS-OTHER> 603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,425
<PAYABLE-FOR-SECURITIES> 1,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 198
<TOTAL-LIABILITIES> 1,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,082
<SHARES-COMMON-STOCK> 1,688
<SHARES-COMMON-PRIOR> 371
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,140
<NET-ASSETS> 77,592
<DIVIDEND-INCOME> 1,147
<INTEREST-INCOME> 342
<OTHER-INCOME> 0
<EXPENSES-NET> (828)
<NET-INVESTMENT-INCOME> 661
<REALIZED-GAINS-CURRENT> 5,913
<APPREC-INCREASE-CURRENT> 1,429
<NET-CHANGE-FROM-OPS> 8,003
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (122)
<DISTRIBUTIONS-OF-GAINS> (2,050)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,445
<NUMBER-OF-SHARES-REDEEMED> (254)
<SHARES-REINVESTED> 126
<NET-CHANGE-IN-ASSETS> 52,110
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 889
<AVERAGE-NET-ASSETS> 53,089
<PER-SHARE-NAV-BEGIN> 16.20
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 2.07
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.92
<EXPENSE-RATIO> 2.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 013
<NAME> KEMPER-DREMAN CONTRARIAN FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 66,041
<INVESTMENTS-AT-VALUE> 74,181
<RECEIVABLES> 4,641
<ASSETS-OTHER> 603
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,425
<PAYABLE-FOR-SECURITIES> 1,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 198
<TOTAL-LIABILITIES> 1,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,082
<SHARES-COMMON-STOCK> 123
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,140
<NET-ASSETS> 77,592
<DIVIDEND-INCOME> 1,147
<INTEREST-INCOME> 342
<OTHER-INCOME> 0
<EXPENSES-NET> (828)
<NET-INVESTMENT-INCOME> 661
<REALIZED-GAINS-CURRENT> 5,913
<APPREC-INCREASE-CURRENT> 1,429
<NET-CHANGE-FROM-OPS> 8,003
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9)
<DISTRIBUTIONS-OF-GAINS> (152)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156
<NUMBER-OF-SHARES-REDEEMED> (53)
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 52,110
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 400
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 889
<AVERAGE-NET-ASSETS> 53,089
<PER-SHARE-NAV-BEGIN> 16.20
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 2.05
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.90
<EXPENSE-RATIO> 2.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 021
<NAME> KEMPER-DREMAN HIGH RETURN FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 649,546
<INVESTMENTS-AT-VALUE> 731,333
<RECEIVABLES> 16,470
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 747,803
<PAYABLE-FOR-SECURITIES> 4,928
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,041
<TOTAL-LIABILITIES> 9,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 652,710
<SHARES-COMMON-STOCK> 14,549
<SHARES-COMMON-PRIOR> 3,543
<ACCUMULATED-NII-CURRENT> 373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,964
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,787
<NET-ASSETS> 737,834
<DIVIDEND-INCOME> 6,262
<INTEREST-INCOME> 4,613
<OTHER-INCOME> 0
<EXPENSES-NET> (5,224)
<NET-INVESTMENT-INCOME> 5,651
<REALIZED-GAINS-CURRENT> 21,480
<APPREC-INCREASE-CURRENT> 61,834
<NET-CHANGE-FROM-OPS> 88,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,533)
<DISTRIBUTIONS-OF-GAINS> (9,676)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,006
<NUMBER-OF-SHARES-REDEEMED> (1,483)
<SHARES-REINVESTED> 483
<NET-CHANGE-IN-ASSETS> 639,638
<ACCUMULATED-NII-PRIOR> 94
<ACCUMULATED-GAINS-PRIOR> (73)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,372
<AVERAGE-NET-ASSETS> 334,034
<PER-SHARE-NAV-BEGIN> 21.49
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> 5.75
<PER-SHARE-DIVIDEND> (.38)
<PER-SHARE-DISTRIBUTIONS> (.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.52
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 022
<NAME> KEMPER-DREMAN HIGH RETURN FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 649,546
<INVESTMENTS-AT-VALUE> 731,333
<RECEIVABLES> 16,470
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 747,803
<PAYABLE-FOR-SECURITIES> 4,928
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,041
<TOTAL-LIABILITIES> 9,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 652,710
<SHARES-COMMON-STOCK> 11,172
<SHARES-COMMON-PRIOR> 777
<ACCUMULATED-NII-CURRENT> 373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,964
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,787
<NET-ASSETS> 737,834
<DIVIDEND-INCOME> 6,262
<INTEREST-INCOME> 4,613
<OTHER-INCOME> 0
<EXPENSES-NET> (5,224)
<NET-INVESTMENT-INCOME> 5,651
<REALIZED-GAINS-CURRENT> 21,480
<APPREC-INCREASE-CURRENT> 61,834
<NET-CHANGE-FROM-OPS> 88,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,445)
<DISTRIBUTIONS-OF-GAINS> (7,381)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,792
<NUMBER-OF-SHARES-REDEEMED> (719)
<SHARES-REINVESTED> 322
<NET-CHANGE-IN-ASSETS> 639,638
<ACCUMULATED-NII-PRIOR> 94
<ACCUMULATED-GAINS-PRIOR> (73)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,372
<AVERAGE-NET-ASSETS> 334,034
<PER-SHARE-NAV-BEGIN> 21.47
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> 5.72
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> (.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.44
<EXPENSE-RATIO> 2.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 23
<NAME> KEMPER-DREMAN HIGH RETURN FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 649,546
<INVESTMENTS-AT-VALUE> 731,333
<RECEIVABLES> 16,470
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 747,803
<PAYABLE-FOR-SECURITIES> 4,928
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,041
<TOTAL-LIABILITIES> 9,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 652,710
<SHARES-COMMON-STOCK> 1,682
<SHARES-COMMON-PRIOR> 91
<ACCUMULATED-NII-CURRENT> 373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,964
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,787
<NET-ASSETS> 737,834
<DIVIDEND-INCOME> 6,262
<INTEREST-INCOME> 4,613
<OTHER-INCOME> 0
<EXPENSES-NET> (5,224)
<NET-INVESTMENT-INCOME> 5,651
<REALIZED-GAINS-CURRENT> 21,480
<APPREC-INCREASE-CURRENT> 61,834
<NET-CHANGE-FROM-OPS> 88,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (199)
<DISTRIBUTIONS-OF-GAINS> (1,071)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,617
<NUMBER-OF-SHARES-REDEEMED> (77)
<SHARES-REINVESTED> 51
<NET-CHANGE-IN-ASSETS> 639,638
<ACCUMULATED-NII-PRIOR> 94
<ACCUMULATED-GAINS-PRIOR> (73)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,372
<AVERAGE-NET-ASSETS> 334,034
<PER-SHARE-NAV-BEGIN> 21.48
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 5.72
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.45
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 024
<NAME> KEMPER-DREMAN HIGH RETURN FUND - CLASS I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 649,546
<INVESTMENTS-AT-VALUE> 731,333
<RECEIVABLES> 16,470
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 747,803
<PAYABLE-FOR-SECURITIES> 4,928
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,041
<TOTAL-LIABILITIES> 9,969
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 652,710
<SHARES-COMMON-STOCK> 454
<SHARES-COMMON-PRIOR> 159
<ACCUMULATED-NII-CURRENT> 373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,964
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 81,787
<NET-ASSETS> 737,834
<DIVIDEND-INCOME> 6,262
<INTEREST-INCOME> 4,613
<OTHER-INCOME> 0
<EXPENSES-NET> (5,224)
<NET-INVESTMENT-INCOME> 5,651
<REALIZED-GAINS-CURRENT> 21,480
<APPREC-INCREASE-CURRENT> 61,834
<NET-CHANGE-FROM-OPS> 88,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (196)
<DISTRIBUTIONS-OF-GAINS> (314)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 612
<NUMBER-OF-SHARES-REDEEMED> (338)
<SHARES-REINVESTED> 21
<NET-CHANGE-IN-ASSETS> 639,638
<ACCUMULATED-NII-PRIOR> 94
<ACCUMULATED-GAINS-PRIOR> (73)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,430
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,372
<AVERAGE-NET-ASSETS> 334,034
<PER-SHARE-NAV-BEGIN> 21.51
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> 5.70
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> (.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.49
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 051
<NAME> KEMPER-DREMAN SMALL CAP VALUE FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 259,378
<INVESTMENTS-AT-VALUE> 281,200
<RECEIVABLES> 6,849
<ASSETS-OTHER> 84
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,133
<PAYABLE-FOR-SECURITIES> 14,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 737
<TOTAL-LIABILITIES> 14,911
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,026
<SHARES-COMMON-STOCK> 7,922
<SHARES-COMMON-PRIOR> 1,427
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,822
<NET-ASSETS> 273,222
<DIVIDEND-INCOME> 1,750
<INTEREST-INCOME> 1,009
<OTHER-INCOME> 0
<EXPENSES-NET> (2,033)
<NET-INVESTMENT-INCOME> 726
<REALIZED-GAINS-CURRENT> 3,470
<APPREC-INCREASE-CURRENT> 20,292
<NET-CHANGE-FROM-OPS> 24,488
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (465)
<DISTRIBUTIONS-OF-GAINS> (2,920)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,077
<NUMBER-OF-SHARES-REDEEMED> (1,764)
<SHARES-REINVESTED> 182
<NET-CHANGE-IN-ASSETS> 241,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 307
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,316
<AVERAGE-NET-ASSETS> 129,151
<PER-SHARE-NAV-BEGIN> 14.50
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 4.14
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.28
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 052
<NAME> KEMPER-DREMAN SMALL CAP VALUE FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 259,378
<INVESTMENTS-AT-VALUE> 281,200
<RECEIVABLES> 6,849
<ASSETS-OTHER> 84
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,133
<PAYABLE-FOR-SECURITIES> 14,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 737
<TOTAL-LIABILITIES> 14,911
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,026
<SHARES-COMMON-STOCK> 5,477
<SHARES-COMMON-PRIOR> 557
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,822
<NET-ASSETS> 273,222
<DIVIDEND-INCOME> 1,750
<INTEREST-INCOME> 1,009
<OTHER-INCOME> 0
<EXPENSES-NET> (2,033)
<NET-INVESTMENT-INCOME> 726
<REALIZED-GAINS-CURRENT> 3,470
<APPREC-INCREASE-CURRENT> 20,292
<NET-CHANGE-FROM-OPS> 24,488
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (133)
<DISTRIBUTIONS-OF-GAINS> (1,972)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,110
<NUMBER-OF-SHARES-REDEEMED> (1,305)
<SHARES-REINVESTED> 115
<NET-CHANGE-IN-ASSETS> 241,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 307
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,316
<AVERAGE-NET-ASSETS> 129,151
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 4.11
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.14
<EXPENSE-RATIO> 2.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DERMAN FUND, INC.
<SERIES>
<NUMBER> 053
<NAME> KEMPER-DREMAN SMALL CAP VALUE FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 259,378
<INVESTMENTS-AT-VALUE> 281,200
<RECEIVABLES> 6,849
<ASSETS-OTHER> 84
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,133
<PAYABLE-FOR-SECURITIES> 14,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 737
<TOTAL-LIABILITIES> 14,911
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,026
<SHARES-COMMON-STOCK> 1,104
<SHARES-COMMON-PRIOR> 68
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,822
<NET-ASSETS> 273,222
<DIVIDEND-INCOME> 1,750
<INTEREST-INCOME> 1,009
<OTHER-INCOME> 0
<EXPENSES-NET> (2,033)
<NET-INVESTMENT-INCOME> 726
<REALIZED-GAINS-CURRENT> 3,470
<APPREC-INCREASE-CURRENT> 20,292
<NET-CHANGE-FROM-OPS> 24,488
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29)
<DISTRIBUTIONS-OF-GAINS> (384)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,077
<NUMBER-OF-SHARES-REDEEMED> (66)
<SHARES-REINVESTED> 25
<NET-CHANGE-IN-ASSETS> 241,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 307
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,316
<AVERAGE-NET-ASSETS> 129,151
<PER-SHARE-NAV-BEGIN> 14.48
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 4.14
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.17
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825062
<NAME> KEMPER-DREMAN FUND, INC.
<SERIES>
<NUMBER> 054
<NAME> KEMPER-DREMAN SMALL CAP VALUE FUND - CLASS I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 259,378
<INVESTMENTS-AT-VALUE> 281,200
<RECEIVABLES> 6,849
<ASSETS-OTHER> 84
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,133
<PAYABLE-FOR-SECURITIES> 14,174
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 737
<TOTAL-LIABILITIES> 14,911
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253,026
<SHARES-COMMON-STOCK> 489
<SHARES-COMMON-PRIOR> 128
<ACCUMULATED-NII-CURRENT> 69
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,822
<NET-ASSETS> 273,222
<DIVIDEND-INCOME> 1,750
<INTEREST-INCOME> 1,009
<OTHER-INCOME> 0
<EXPENSES-NET> (2,033)
<NET-INVESTMENT-INCOME> 726
<REALIZED-GAINS-CURRENT> 3,470
<APPREC-INCREASE-CURRENT> 20,292
<NET-CHANGE-FROM-OPS> 24,488
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31)
<DISTRIBUTIONS-OF-GAINS> (195)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,043
<NUMBER-OF-SHARES-REDEEMED> (695)
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 241,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 307
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 943
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,316
<AVERAGE-NET-ASSETS> 129,151
<PER-SHARE-NAV-BEGIN> 14.52
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> 4.13
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.40
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
Exhibit 485.B
[VEDDER PRICE LETTERHEAD]
April 18, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper-Dreman Fund, Inc.
------------------------
To The Commission:
We are counsel to the above-referenced investment company (the "Fund") and
as such have participated in the preparation and review of Post-Effective
Amendment No. 17 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures which would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
[Signature]
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
DAS/COK/de
