<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS BOX]
SEEKS TO ACHIEVE A HIGH RATE OF TOTAL RETURN
KEMPER-DREMAN
HIGH RETURN EQUITY FUND
"... The fund's largest holdings were also its
strongest performers this year. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
TERMS TO KNOW
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF
INVESTMENTS
14
REPORT OF
INDEPENDENT AUDITORS
15
FINANCIAL STATEMENTS
17
NOTES TO
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<CAPTION>
[BAR GRAPH]
<S> <C>
Class A 14.25%
Class B 13.22%
Class C 13.32%
Lipper Equity Income Funds Category Average* 10.65%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS A $35.69 $33.52
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS B $35.51 $33.37
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS C $35.54 $33.38
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. THIS FUND MAY
CONCENTRATE ITS INVESTMENTS IN SPECIFIC SECTORS WHICH CREATES SPECIAL RISK
CONSIDERATIONS.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY
FUND RANKINGS AS OF 11/30/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER EQUITY INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #54 of 218 funds #72 of 218 funds #69 of 218 funds
- --------------------------------------------------------------------------------
3-YEAR #1 of 141 funds #5 of 141 funds #3 of 141 funds
- --------------------------------------------------------------------------------
5-YEAR #1 of 84 funds n/a n/a
- --------------------------------------------------------------------------------
10-YEAR #1 of 41 funds n/a n/a
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER-DREMAN HIGH RETURN EQUITY FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.86 $0.56 $0.58
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $0.55 $0.55 $0.55
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.95 $0.95 $0.95
- --------------------------------------------------------------------------------
</TABLE>
YOUR FUND'S STYLE
[EQUITY STYLE BOX]
<TABLE>
<S> <C>
MORNINGSTAR EQUITY STYLE BOX
Source: Morningstar, Inc. Chicago, IL.
312-696-6000. The Morningstar Style Box is
based on a software release date of
11/30/98. The Equity Style Box placement
is based on two variables: a fund's market
capitalization relative to the movements
of the market and a fund's valuation,
which is calculated by comparing the
stocks in the fund's portfolio with the
most relevant of the three market-cap
groups.
Please note that style boxes do not
represent an exact assessment of risk and
do not represent future performance. The
fund's portfolio changes from day-to-day.
A longer-term view is represented by the
fund's Morningstar category, which is
based on its actual investment style as
measured by its underlying portfolio
holdings over the past three years.
Morningstar has placed Kemper-Dreman High
Return Equity Fund in the large value
category. Please consult the prospectus
for a description of investment policies.
</TABLE>
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR
TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA
REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</TABLE>
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John E. Silvia as of January 4, 1999,
and may not actually come to pass. This information is subject to change. No
part of this material is intended as an investment recommendation.
4
<PAGE> 5
PERFORMANCE UPDATE
[DREMAN PHOTO]
David N. Dreman is chairman of Dreman Value Management, L.L.C. (DVM), Inc. and
portfolio manager of Kemper-Dreman High Return Equity Fund. He has more than 35
years of experience as an investment analyst, advisor and manager. Dreman holds
a bachelor of commerce degree from the University of Manitoba, Winnipeg. Dreman
is a regular columnist in Forbes and also the author of several books on
contrarian investing, including Contrarian Investment Strategies: The Next
Generation (Simon & Schuster 1998).
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report, as stated on the cover. The
manager's views are subject to change at any time, based on market and other
conditions. This report must be preceded or accompanied by a prospectus when
used as sales literature.
IN A DIFFICULT PERIOD FOR VALUE INVESTORS, KEMPER-DREMAN HIGH RETURN EQUITY FUND
CONTINUED TO OUTPERFORM MANY OF ITS PEERS. THE FUND GAINED 14.25 PERCENT (CLASS
A SHARES, UNADJUSTED FOR ANY SALES CHARGE) FOR THE YEAR ENDED NOVEMBER 30, 1998,
COMPARED TO THE LIPPER EQUITY INCOME FUNDS CATEGORY AVERAGE OF 10.65 PERCENT.
PORTFOLIO MANAGER DAVID DREMAN MAINTAINS THAT PATIENCE, EXPERIENCE AND SOUND
STOCK PICKING HELPED THE FUND IN THE YEAR'S VOLATILE ENVIRONMENT. HERE HE
DISCUSSES HIS STRATEGY.
Q THE DOW JONES AVERAGE PEAKED AT MORE THAN 9,000 IN JULY 1998, AND THEN
DRAMATICALLY DECLINED IN AUGUST, ONLY TO RALLY BACK UP AGAIN THROUGH NOVEMBER,
THE FUND'S FISCAL YEAR END. HOW DID YOU POSITION THE FUND IN SUCH A VOLATILE
MARKET?
A This year certainly presented us with a strange market. Stocks that were
already overvalued skyrocketed to unbelievable heights, while fundamentally
solid companies with reasonable price-to-earnings (P/E) multiples languished. It
was a very narrow market, in which the primary benefactors were the largest
growth-style stocks. For value investors, those overvalued stocks with their
extremely high P/E multiples just don't make sense. We continued to look for
financially-sound companies with low price-to-earnings, price-to-book,
price-to-cash flow and price-to-dividend ratios. As contrarian investors, we're
always loath to pay a premium for any stock, and this year was no different.
We did not make any major allocation shifts during the year, and we
maintained strong positions in the financial services, tobacco and energy
industries. Each of these sectors provides a great deal of value and has been
out of favor for what we believe are the wrong reasons.
Q YOU MENTIONED THE MARKET WAS VERY NARROW. CAN YOU EXPLAIN WHAT YOU MEAN BY
THAT?
A By narrow market, I mean that there is a very short list of companies that
have enjoyed strong performance over the past year. However, that's sometimes
difficult to understand when you hear the Standard & Poor's 500 Stock Index (S&P
500) is up more than 21 percent for the 11-month period ended November 30. But
it's important to realize that the S&P 500 is a capitalization-weighted index,
meaning the largest companies represent a larger portion of the performance
figures that are commonly reported.
When we look at the S&P 500 on an average basis, meaning we average the
returns of all 500 companies on an equal basis, the return for the index
plummets to just 9.7 percent for the same 11-month period. The same is true of
the NASDAQ. There, the 11-month return was 25 percent on a cap-weighted basis,
but dropped to a negative 6.4 percent on an average basis.
So what we faced last year was a market in which only a very small number
of the largest growth companies made strong gains, while nearly every other
company either
5
<PAGE> 6
PERFORMANCE UPDATE
suffered declines or achieved only lackluster returns. With that said, we're
pleased with the fund's 14.25 percent gain in Class A shares unadjusted for any
sales charge.
Q WHAT WAS THE APPEAL OF THE LARGE GROWTH STOCKS? AND HOW DID THE INTERNET
STOCKS FIT INTO THE PATTERN?
A Investors were looking for security and liquidity in the market. There was
still a great deal of concern about the Southeast Asia crisis that erupted in
October 1997.
Investors, for the most part, wanted to remain invested in the market, but
only in those stocks they perceived to be safe havens -- very large, blue-chip
growth companies with a history of consistent earnings. This pattern was
reinforced as turmoil around the world surfaced such as the Russian currency
devaluation and the economic weakness in Latin American countries.
The huge appeal of internet stocks is a very difficult thing for me to
understand. Many of these companies haven't made any money yet, but are trading
at ridiculously high prices. The speculation around these stocks is amazing, and
much of it seems to be fueled by individual investors, rather than institutional
investors. This rampant rally is not likely to continue. The P/Es of these
stocks make it impossible, in my estimation, for earnings to ever reach the
level that would sustain these prices.
Q WHAT DID THE NARROW MARKET MEAN FOR THE FUND THIS YEAR AND WHAT MIGHT IT
MEAN IN THE NEW YEAR?
A Well, the narrow market made it difficult for value investors. As I said,
it was only a handful of the very largest growth stocks that led the market.
We're value investors and didn't compromise our investment strategy to ride the
latest trend in the market. Despite the strong performance of growth stocks over
value, the fund did come out in positive territory -- besting many of its peers.
We've seen narrow markets in the past, which were followed by strong
periods of outperformance by value stocks. Of course past performance cannot
predict future events, but generally no one style of stock can stay in favor
forever. And we firmly believe that it is impossible in the long run for these
growth companies to sustain their power. We don't know when the growth rally is
going to end, but we do believe that it will end some day, and the fund is well
positioned should value stocks come back into favor.
Q FINANCIAL SERVICES STOCKS MAKE UP THE LARGEST PORTION OF THE FUND'S
PORTFOLIO. HOW DID THEY PERFORM?
A Financial stocks got off to a slow start during the year and then suffered
a major blow in August as it became apparent that the Asian crisis was beginning
to impact some of the major money-center banks. Several large institutions like
Citigroup, Chase Manhattan and Bank of America announced major write-offs of
large amounts of foreign debt. Prices of these stocks then plummeted, taking the
entire financial services sector down with them.
We had been concerned about the level of foreign debt exposure these banks
held. Thus, we invested in regional banks that had no foreign exposure, but that
did have strong, sound businesses. As a result, the fund's financial services
holdings withstood the downturn in August much better than the sector.
In September, we took initial positions in some money-center banks and
added to others at very discounted prices. We were confident in our decision
because the banks were still fundamentally sound. There were loan defaults but
they were one-time, one-quarter hits for those banks. We were confident that all
the bad news had already been communicated. The market supported that
assumption, and the prices of these stocks rose dramatically in September and
October. This was of course very positive for the fund because we missed much of
the decline of the money-center banks, but participated more fully in their
sharp recovery.
Financial stocks, we believe, are still undervalued by the market. Over
the next few years we're looking for a 10 percent growth rate in financials.
Q WHAT ABOUT THE FUND'S OIL STOCKS? HOW HAS THE SHARP DROP IN CRUDE OIL
PRICES AND THE CONSOLIDATION OF MAJOR OIL COMPANIES IMPACTED THE INDUSTRY AND
THE FUND?
A Oil and oil service stocks have been beaten up quite a bit. But we firmly
believe this is just a temporary situation that should resolve itself fairly
soon. The industry remains a strong one and these battered prices represent a
great buying opportunity for the fund.
To combat the low crude oil prices, a consolidation of the industry is
taking form, which should be positive for the industry and the fund. During the
year Amoco, our second largest holding, was taken over by British Petroleum.
This transaction drove the price of Amoco up significantly -- about 30 percent
since January 1998. Two of our other major oil holdings -- Atlantic Richfield
and Texaco -- are
6
<PAGE> 7
PERFORMANCE UPDATE
also sound takeover candidates in our opinion.
There has been talk that the price of oil may move below $10 a barrel and
remain there for an extended period of time. This is where the contrarian
strategy always comes into play; we don't agree with that outlook at all. When
you hear all the "experts" saying that oil is going down to about $8 a barrel
and will stay there forever, that's as good of a buy signal as you'll get. Not
long ago a similar scenario happened in the tobacco industry. The experts told
the world that the tobacco industry would be finished as a result of its pending
lawsuits. Well, the litigation with the individual states was settled this past
fall, and tobacco stocks are alive and well.
We believe the doom and gloom surrounding the oil industry now is equally
irrational for two reasons. One is economic and the other political. First, the
oil producers are not going to continue to sell oil that is cheaper than their
cost to produce it. If crude prices do move to $8 or $9 a barrel, the oil
companies can't afford to produce higher cost reserve oil any more, so the
supply will begin to dry up and prices will rise.
Secondly, even if oil did remain under $10 a barrel, the U.S. would not
likely allow it to remain that low for any extended period of time. The reason?
Mexico, Venezuela and Saudi Arabia. All of these nations are important to the
U.S., and all would be severely hurt by a long-term downturn in oil prices. The
U.S. can't afford to let that happen, especially with Mexico and Venezuela being
so close to home and such large buyers of U.S. goods and services. So oil prices
may fall temporarily, but they won't stay there because it would destabilize a
major part of the world. This is a difficult time in the oil industry, but I
think we'll work through it, and that we'll see some more strides, especially as
industry consolidation continues.
Q WHAT ABOUT TOBACCO STOCKS? ARE YOU STILL COMMITTED TO THAT SECTOR, AND DO
YOU BELIEVE THE TOBACCO COMPANIES' LEGAL TROUBLES ARE GONE FOR GOOD?
A I'll never bet on the mind of a politician, but it looks as if the tobacco
industry may be out of the woods. If you'll remember, a group of 46 states filed
lawsuits against the tobacco companies seeking compensation to cover government
healthcare costs to treat smoking-related diseases. In November, a settlement
was reached giving the states $206 billion to settle all lawsuits pending
against the tobacco industry and ensuring legal protection for years to come.
Part of the deal requires the industry to commit $1.7 billion to research and
programs aimed at discouraging smoking.
With this sweeping agreement in place, we believe it's unlikely that the
federal government would pursue any further litigation against the tobacco
industry. The settlement is much narrower and much more positive for tobacco
companies than any of the proposed litigation Congress came up with last year.
Those proposals would have put huge price increases on cigarettes, granted the
FDA authority over tobacco, and imposed penalties on the cigarette companies if
teen smoking did not fall by certain percentages.
Tobacco companies are taking enormous charges, but have the flexibility to
raise prices significantly enough to finance the cost of the settlement over the
next 20 years. The market responded favorably to the settlement and the prices
of tobacco stocks have risen dramatically over the past several months.
Most of the largest tobacco companies such as Philip Morris and R.J.
Reynolds are well-diversified with solid consumer package goods businesses
outside the tobacco industry and solid tobacco operations outside the United
States. So we think there is still much more room for growth in these stocks,
and we will continue to invest in these companies and the tobacco industry as a
whole.
Q ARE THERE ANY PARTICULAR STOCKS THAT PERFORMED EXCEPTIONALLY WELL DURING
THE LAST 12 MONTHS?
A The fund's largest holdings were also its strongest performers this year.
On the whole, tobacco companies came through big for us. At this writing, Philip
Morris, our largest holding, is at an all-time high. Amoco, even though oil is
down on the whole, has done extremely well because of its takeover by British
Petroleum. Amoco had reached a low of about $40 in July and is now trading at
close to $60. Humana has also performed exceptionally well. In June the stock
traded at just over $30, then declined sharply to just over $13. We doubled our
position in Humana at about the time it reached its lows and since then, it's
been on the rise. At the close of the year it was trading at approximately $19
per share.
7
<PAGE> 8
PERFORMANCE UPDATE
Q WHAT ABOUT DISAPPOINTMENTS, WERE THERE ANY ISSUES THAT SURPRISED YOU WITH
POORER THAN EXPECTED PERFORMANCE?
A The oil companies overall have been disappointing, but as mentioned
earlier, we think that it's only a temporary situation. Retailers have also
disappointed us. Toys R Us, for example, is in a turnaround situation that
hasn't worked itself out as quickly as we had hoped. But we're holding on to
it and believe it will eventually come around and become a great holding for the
fund.
Q WHAT DO YOU EXPECT FROM THE MARKETS IN 1999, AND HOW WILL YOU POSITION THE
FUND?
A I expect the volatility to continue, so we'll continue to manage the fund
conservatively. What we want to do with the fund is have less volatility and,
hopefully, reasonable return. We will continue our conservative stance, but if
volatility knocks down areas that we like, we'll become more aggressive.
- --------------------------------------------------------------------------------
TERMS TO KNOW
VALUE (CONTRARIAN) STYLE OF INVESTING Investors following this investment style
seek to find value among promising stocks that are currently out of favor or, in
other words, trading at prices lower than their earnings would suggest. Stocks
become undervalued as a result of overreaction by investors to unfavorable news
about a company, industry or the stock markets in general. They can also become
undervalued as a result of a market decline, poor economic conditions, tax-loss
selling or actual or anticipated unfavorable developments affecting the company.
David Dreman, portfolio manager of Kemper-Dreman High Return Equity Fund, is a
pioneer of this investment philosophy.
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. The P/E ratio, also known as the multiple, is a measure of
how much an investor is paying for a company's earning power.
SECTOR Stocks usually found in related industries, such as financial services.
Stocks within a market sector may be similarly affected by financial, economic,
business and other developments.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
TWO-TIER MARKET Characteristic of a securities market in which most of the gains
are represented by only a small group of companies. In 1998, a two-tier market
existed in which only the largest growth-style stocks enjoyed particularly
strong gains.
8
<PAGE> 9
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN EQUITY
FUND CLASS A 7.70% 22.57% 21.27% 18.60% 18.41% (since 3/18/88)
......................................................................................................
KEMPER-DREMAN HIGH RETURN EQUITY
FUND CLASS B 10.22 23.44 N/A N/A 25.01 (since 9/11/95)
......................................................................................................
KEMPER-DREMAN HIGH RETURN EQUITY
FUND CLASS C 13.32 23.93 N/A N/A 25.45 (since 9/11/95)
......................................................................................................
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS A
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 3/18/88 to
11/30/98
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
A(1) STOCK INDEX+ CONSUMER PRICE INDEX++
------------------------ --------------------- ---------------------
<S> <C> <C> <C>
3/18/88 9425.00 10000.00 10000.00
10107.00 10697.00 10129.00
10154.00 10732.00 10283.00
10654.00 11060.00 10343.00
11307.00 11843.00 10498.00
11858.00 12887.00 10652.00
12771.00 14266.00 10730.00
12620.00 14559.00 10824.00
12309.00 14121.00 11047.00
12873.00 15009.00 11150.00
9933.00 12948.00 11391.00
11531.00 14108.00 11485.00
15362.00 16155.00 11588.00
15041.00 16117.00 11674.00
16188.00 16978.00 11777.00
12/31/91 17016.00 18399.00 11837.00
17858.00 17935.00 11957.00
17956.00 18275.00 12034.00
18176.00 18851.00 12129.00
20386.00 19798.00 12180.00
21293.00 20663.00 12326.00
21363.00 20762.00 12395.00
21363.00 21298.00 12455.00
22265.00 21791.00 12515.00
22046.00 20966.00 12635.00
22494.00 21054.00 12704.00
23290.00 22082.00 12824.00
12/31/94 22046.00 22078.00 12850.00
24001.00 24226.00 12996.00
26448.00 26536.00 13090.00
29154.00 28644.00 13150.00
32376.00 30367.00 13176.00
34020.00 31997.00 13365.00
35894.00 33432.00 13451.00
38079.00 34466.00 13545.00
41698.00 37337.00 13614.00
42527.00 38340.00 13734.00
48482.00 45029.00 13760.00
52542.00 48400.00 13837.00
55010.00 49790.00 13845.00
59587.00 56732.00 13923.00
58422.00 58604.00 13991.00
53917.00 52784.00 14043.00
11/30/98 61049.00 60531.00 14077.00
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS B
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 9/11/95 to
11/30/98
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
B(1) STOCK INDEX+ CONSUMER PRICE INDEX++
------------------------ --------------------- -----------------------
<S> <C> <C> <C>
9/11/95 10000.00 10000.00 10000.00
10120.40 10422.00 10020.00
11287.70 11049.00 10039.00
11835.70 11642.00 10183.00
12464.10 12164.00 10249.00
13182.00 12540.00 10320.00
12/31/96 14406.80 13585.00 10373.00
14661.30 13950.00 10464.00
16667.40 16383.00 10484.00
18025.80 17610.00 10543.00
12/31/97 18832.00 18116.00 10549.00
20358.50 20641.00 10608.00
19914.50 21323.00 10661.00
18337.90 19205.00 10700.00
11/30/98 20531.80 22024.00 10726.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 9/11/95 to
11/30/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
C(1) STOCK INDEX+ CONSUMER PRICE INDEX++
------------------------ --------------------- ---------------------
<S> <C> <C> <C>
9/11/95 10000.00 10000.00 10000.00
10188.00 10422.00 10020.00
11294.00 11049.00 10039.00
11843.00 11642.00 10183.00
12473.00 12164.00 10249.00
13189.00 12540.00 10320.00
12/31/96 14419.00 13585.00 10373.00
14668.00 13950.00 10464.00
16685.00 16383.00 10484.00
18046.00 17610.00 10543.00
12/31/97 18853.00 18116.00 10549.00
20382.00 20641.00 10608.00
19941.00 21323.00 10661.00
18365.00 19205.00 10700.00
11/30/98 20767.00 22024.00 10726.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* Average annual total return and total return measure net investment income
and capital gain or loss from portfolio investments over the periods
specified, assuming reinvestment of all dividends and, where indicated,
adjustment for the maximum sales charge. The maximum sales charge for Class
A shares is 5.75%. For Class B shares the maximum contingent deferred sales
charge (CDSC) is 4%. Class C shares have no sales charge adjustment, but
redemptions within one year of purchase may be subject to a contingent
deferred sales charge of 1%. Share classes invest in the same underlying
portfolio. Average annual total return reflects annualized change while total
return reflects aggregate change. During the periods noted, securities prices
fluctuated. For additional information, see the Prospectus and Statement of
Additional Information and the Financial Highlights at the end of this report.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CDSC IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN COMPARING KEMPER-DREMAN HIGH RETURN EQUITY
FUND TO THE STANDARD & POOR'S 500 STOCK INDEX+ AND THE CONSUMER PRICE
INDEX++, YOU SHOULD NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE
INDICES.
+THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS TOWERSDATA. INVESTORS
CANNOT ACTUALLY MAKE INVESTMENTS IN THIS INDEX.
++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 TOWERSDATA.
9
<PAGE> 10
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on November 30, 1998, and on November 30, 1997.
[COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND AS OF 11/30/98 EQUITY FUND AS OF 11/30/97
-------------------------- --------------------------
<S> <C> <C>
Finance 42.20% 31.00%
Consumer staples 23.20% 26.40%
Energy 20.10% 24.10%
Health care 5.30% 6.90%
Consumer cyclicals 3.70% 3.50%
Utilities 2.10% 0.00%
Capital goods 2.00% 2.60%
Basic materials 1.40% 1.60%
Technology 0.00% 3.90%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of the Kemper-Dreman High Return Equity Fund represented on November 30, 1998,
compared to the industry sectors that make up the fund's benchmark, the Standard
& Poor's 500 Stock Index.
[COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN STANDARD & POOR'S 500 INDEX
EQUITY FUND AS OF 11/30/98 AS OF 11/30/98
-------------------------- ------------------------------
<S> <C> <C>
Finance 42.20% 15.20%
Consumer staples 23.20% 15.30%
Energy 20.10% 6.80%
Health care 5.30% 12.30%
Consumer cyclicals 3.70% 9.10%
Utilities 2.10% 3.30%
Capital goods 2.00% 8.10%
Basic materials 1.40% 3.50%
Technology 0.00% 17.50%
Communication services 0.00% 7.90%
Transportation 0.00% 1.00%
</TABLE>
* THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS TOWERSDATA.
10
<PAGE> 11
LARGEST HOLDINGS
THE FUND'S 10 LARGEST COMMON STOCK HOLDINGS*
REPRESENTING 46.7 PERCENT OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the U.S. Through its 9.2%
Miller Brewing subsidiary, it is also the country's
second-largest brewer. This company is also a major
branded food producer through its Kraft and General
Foods subsidiaries.
- --------------------------------------------------------------------------------------------------------
2. AMOCO Engaged in the exploration, development and production 6.3%
of crude oil and natural gas, and in the refining and
marketing of petroleum products and petrochemicals.
- --------------------------------------------------------------------------------------------------------
3. BANK ONE A multi-bank holding company engaged in consumer 4.7%
banking, commercial banking, trust and investment
services, investment management, real estate
operations, lease financing and international banking.
- --------------------------------------------------------------------------------------------------------
4. UST A holding company for four wholly owned subsidiaries 4.5%
involved in tobacco, wine and entertainment
distribution. The company's primary subsidiary is
United States Tobacco, a global leader in the
production of chewing tobacco and snuff.
- --------------------------------------------------------------------------------------------------------
5. ATLANTIC RICHFIELD Engaged in exploring, developing and producing 4.4%
petroleum, which includes petroleum liquids and natural
gas.
- --------------------------------------------------------------------------------------------------------
6. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae," this is a private 4.3%
ASSOCIATION (FNMA) corporation federally chartered to provide financial
products and services that increase the availability
and affordability of housing to low, moderate and
middle-income Americans.
- --------------------------------------------------------------------------------------------------------
7. RJR NABISCO HOLDINGS The second largest producer of primarily branded 4.0%
cigarettes sold domestically and internationally.
Through its 81 percent-owned subsidiary, it is the
leading producer of crackers and cookies in the U.S.
market with significant products in various other food
categories both domestically and internationally.
- --------------------------------------------------------------------------------------------------------
8. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie Mac", this corporation 3.4%
CORP. (FHLMC) provides for the transfer of capital between mortgage
lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
- --------------------------------------------------------------------------------------------------------
9. BANKAMERICA A multi-bank holding company engaged in consumer 3.2%
banking, commercial banking, trust and investment
services, investment management, real estate
operations, lease financing and international banking.
- --------------------------------------------------------------------------------------------------------
10. TEXACO Engaged in the worldwide exploration for and 2.7%
production, transportation, refining and marketing of
crude oil, natural gas and petroleum products.
- --------------------------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--21.7% Bank One Corporation 4,768,479 $ 244,683
Bank of New York Co., Inc. 642,800 22,016
BankAmerica Corp. 2,545,081 165,907
BancBoston Corp. 724,700 30,166
Bankers Trust New York Corp. 738,200 64,223
Citigroup Inc. 1,824,000 91,542
Crestar Financial Corp. 452,300 30,021
First Union Corp. 1,546,520 93,951
Fleet Financial Group, Inc. 2,314,400 96,482
J.P. Morgan & Co., Inc. 162,400 17,357
KeyCorp 2,549,700 78,244
National Bank of Canada 1,166,900 18,256
PNC Bank Corp. 2,206,535 113,774
Republic New York Corp. 1,356,800 63,430
---------------------------------------------------------------------------
1,130,052
- ------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--1.1% Hanson, PLC, ADR 734,425 27,266
Universal Corp. 880,350 30,977
---------------------------------------------------------------------------
58,243
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--2.9% Dayton Hudson Corp. 222,800 10,026
Dillard's, Inc. 77,800 2,674
(a)Fruit of the Loom, Inc., "A" 2,855,700 42,122
(a)Toys "R" Us, Inc. 4,522,200 89,313
V.F. Corporation 123,000 6,035
---------------------------------------------------------------------------
150,170
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--18.1% Imperial Tobacco Group, ADR 1,006,150 21,381
Philip Morris Companies, Inc. 8,567,800 479,261
RJR Nabisco Holdings Corp. 7,211,800 207,790
UST, Inc. 6,790,400 235,966
---------------------------------------------------------------------------
944,398
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--15.7% Amoco Corp. 5,511,600 324,840
Atlantic Richfield Co. 3,396,200 225,847
Diamond Offshore Drilling, Inc. 1,059,500 23,706
ENSCO International, Inc. 2,296,400 21,959
(a)Global Marine, Inc. 1,757,100 16,473
(a)Noble Drilling Corp. 1,806,200 20,884
Texaco, Inc. 2,419,900 139,295
Tidewater, Inc. 981,500 22,636
Transocean Offshore, Inc. 937,500 23,145
---------------------------------------------------------------------------
818,785
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--11.3% American General Corp. 74,800 5,269
American International Group, Inc. 225,000 21,150
Associates First Capital Corp. 113,248 8,819
Bear Stearns Companies, Inc. 296,500 12,453
Capital One Financial Corp. 585,400 64,394
Federal Home Loan Mortgage Corp. 2,923,900 176,896
Federal National Mortgage Association 3,032,800 220,636
Lehman Brothers Holdings, Inc. 335,000 16,729
Merrill Lynch & Co., Inc. 290,000 21,750
MONY Group, Inc. 19,000 588
Ohio Casualty Corp. 145,800 5,905
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Safeco Corp. 175,500 $ 7,536
St. Paul Companies, Inc. 731,010 25,768
---------------------------------------------------------------------------
587,893
- ------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--4.1% Columbia/HCA Healthcare Corp. 2,342,200 57,677
(a)Humana, Inc. 6,343,770 125,686
(a)Tenet Healthcare Corp. 1,027,800 30,384
---------------------------------------------------------------------------
213,747
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.6% Columbia Energy Group 1,462,200 82,980
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
OTHER--1.6% Philips Electronics, N.V 701,300 44,401
Xerox Corp. 338,100 36,346
---------------------------------------------------------------------------
80,747
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--78.1%
(Cost $3,532,706) 4,067,015
---------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) REPURCHASE Investors Fiduciary Trust Co.,
AGREEMENT--1.8% dated 11/30/98, 4.00%, due 12/01/98
(Cost $93,663) $ 93,663 93,663
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(c) MONEY MARKET Yield--4.75% to 5.44%
INSTRUMENTS--20.1% Due--December 1998
American Honda Financial 40,000 39,765
BellSouth Corp. 53,083 52,925
Ciesco L.P. 80,000 79,828
Coca Cola Co. 87,000 86,662
Duke Energy Corp. 61,000 60,945
Export Development Corp. 74,000 73,623
Ford Motor Credit Co. 50,000 49,769
General Electric Capital Corp. 85,000 84,751
IBM Corp. 30,000 29,910
IBM Credit Corp. 110,000 109,539
Morgan Stanley Dean Witter & Co. 30,000 29,811
National Rural Utilities Cooperative
Finance Corp. 40,000 39,983
Shell Oil Co. 64,000 63,891
U.S. Treasury bills 45,000 44,932
Windmill Funding Corp. 32,000 31,965
Other 166,000 165,730
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--20.1%
(Cost $1,044,029) 1,044,029
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $4,670,398) $5,204,707
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Repurchase Agreements are fully collateralized by U.S. Treasury or
Government agency securities. The collateral is monitored daily by the fund
so that its market value exceeds the carrying value of the repurchase
agreement.
(c) 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 $833,580,000 of money market instruments.
As a result, approximately 94% 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 $4,670,398,000 for federal income tax
purposes at November 30, 1998, the gross unrealized appreciation was
$758,177,000, the gross unrealized depreciation was $223,868,000 and the net
unrealized appreciation on investments was $534,309,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
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
as of November 30, 1998, and the related statements of operations for the year
then ended and changes in net assets for the year then ended and the eleven
months ended November 30, 1997, and the financial highlights for each of the
fiscal periods since 1995. 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 year 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
November 30, 1998, 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 November 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and the eleven months ended November 30, 1997, and the financial
highlights for each of the fiscal periods since 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1999
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost $4,670,398) $5,204,707
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 17,808
- --------------------------------------------------------------------------
Dividends and interest 7,636
- --------------------------------------------------------------------------
TOTAL ASSETS 5,230,151
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 24,704
- --------------------------------------------------------------------------
Fund shares redeemed 7,821
- --------------------------------------------------------------------------
Management fee 3,228
- --------------------------------------------------------------------------
Distribution services fee 1,487
- --------------------------------------------------------------------------
Administrative services fee 787
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,667
- --------------------------------------------------------------------------
Directors' fees and other 836
- --------------------------------------------------------------------------
Total liabilities 41,530
- --------------------------------------------------------------------------
NET ASSETS $5,188,621
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $4,418,085
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 228,464
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 534,309
- --------------------------------------------------------------------------
Undistributed net investment income 7,763
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $5,188,621
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,420,144 / 67,808 shares outstanding) $35.69
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $37.87
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($2,275,687 / 64,079 shares outstanding) $35.51
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($461,586 / 12,989 shares outstanding) $35.54
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($31,204 / 874 shares outstanding) $35.71
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $338) $ 80,249
- ------------------------------------------------------------------------
Interest 68,240
- ------------------------------------------------------------------------
Total investment income 148,489
- ------------------------------------------------------------------------
Expenses:
Management fee 29,284
- ------------------------------------------------------------------------
Distribution services fee 16,361
- ------------------------------------------------------------------------
Administrative services fee 9,889
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 12,382
- ------------------------------------------------------------------------
Professional fees 112
- ------------------------------------------------------------------------
Reports to shareholders 800
- ------------------------------------------------------------------------
Registration fees 1,124
- ------------------------------------------------------------------------
Directors' fees and other 279
- ------------------------------------------------------------------------
Total expenses 70,231
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 78,258
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 71,415
- ------------------------------------------------------------------------
Net realized gain from futures transactions 158,813
- ------------------------------------------------------------------------
Net realized gain 230,228
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 203,426
- ------------------------------------------------------------------------
Net gain on investments 433,654
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $511,912
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------
Net investment income $ 78,258 32,716
- -----------------------------------------------------------------------------------------------------
Net realized gain 230,228 134,870
- -----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 203,426 249,096
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 511,912 416,682
- -----------------------------------------------------------------------------------------------------
Distribution from net investment income (85,786) (17,802)
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain (135,946) (3,648)
- -----------------------------------------------------------------------------------------------------
Total dividends to shareholders (221,732) (21,450)
- -----------------------------------------------------------------------------------------------------
Net increase from capital share transactions 1,966,720 1,798,655
- -----------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 2,256,900 2,193,887
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------
Beginning of period 2,931,721 737,834
- -----------------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed
net investment income of $7,763 and
$15,293, respectively) $5,188,621 2,931,721
- -----------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper-Dreman High Return Equity Fund (the fund) is
a separate series of Kemper Value Series, Inc.
(KVS), an open-end management investment company
organized as a corporation in the state of
Maryland. KVS is authorized to issue three billion
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 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 which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq) for which there have been sales, are
valued at the most recent sale price reported. If
there are no such sales, the value is the most
recent bid quotation. Securities which are not
quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Futures contracts are valued at the
most recent settlement price. Money market
instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair
market value as determined in good faith by the
Valuation Committee of the Board of Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. 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 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
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. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The fund pays a monthly
investment management fee of 1/12 of the annual
rate of .75% of the first $250 million of average
daily net assets declining to .62% of average daily
net assets in excess of $12.5 billion. The fund
incurred a management fee of $29,284,000 for the
year ended November 30, 1998. Dreman Value
Management, L.L.C. serves as sub-adviser with
respect to the investment and reinvestment of
assets in the fund, and is paid by Scudder Kemper
for its services.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Directors of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares of the fund
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended November 30, 1998 $2,099,000 17,133,000 228,000
</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 separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended November 30, 1998 $19,183,000 37,078,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (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 November 30, 1998 $ 9,889,000 10,206,000 21,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$9,561,000 for the year ended November 30, 1998.
OFFICERS AND DIRECTORS. Certain officers or
directors of the fund are also officers or
directors of Scudder Kemper. For the year ended
November 30, 1998, the fund made no payments to its
officers and incurred directors' fees of $127,000
to independent directors.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended November 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $2,180,221
Proceeds from sales 191,208
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN MONTHS ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 40,754 $1,379,719 32,374 $ 979,187
---------------------------------------------------------------------------------
Class B 31,947 1,078,528 31,055 934,233
---------------------------------------------------------------------------------
Class C 7,836 264,584 5,473 164,900
---------------------------------------------------------------------------------
Class I 569 19,165 952 28,381
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 3,218 106,200 395 12,470
---------------------------------------------------------------------------------
Class B 2,506 81,999 193 6,172
---------------------------------------------------------------------------------
Class C 385 12,591 26 855
---------------------------------------------------------------------------------
Class I 69 2,252 14 422
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
Class A (18,866) (634,115) (6,529) (201,847)
---------------------------------------------------------------------------------
Class B (7,892) (262,838) (2,981) (90,730)
---------------------------------------------------------------------------------
Class C (1,841) (61,206) (572) (17,377)
---------------------------------------------------------------------------------
Class I (598) (20,159) (586) (18,011)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 1,444 48,468 469 14,557
---------------------------------------------------------------------------------
Class B (1,450) (48,468) (471) (14,557)
---------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS $1,966,720 $1,798,655
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The fund has entered into exchange traded financial
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 fluctuates. At November 30,
1998, the market value of assets pledged by the
fund to cover margin requirements for open futures
positions was $29,956,000. The fund also had liquid
assets in excess of the face amount of open futures
contracts. At November 30, 1998, the following
futures contracts were owned by the fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 11/30/98
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $833,580,000 Long December '98 $95,053,000
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------
CLASS A
----------------------------------------------------
YEAR ELEVEN MONTHS YEAR ENDED DECEMBER
ENDED ENDED 31,
NOVEMBER 30, NOVEMBER 30, ---------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.52 26.52 21.49 15.11 15.50
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .73 .54 .39 .26 .25
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.80 6.89 5.75 6.76 (.39)
- -----------------------------------------------------------------------------------------------
Total from investment operations 4.53 7.43 6.14 7.02 (.14)
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .86 .37 .38 .24 .25
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40 --
- -----------------------------------------------------------------------------------------------
Total dividends 2.36 .43 1.11 .64 .25
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $35.69 33.52 26.52 21.49 15.11
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.25% 28.15 28.79 46.86 (.99)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses 1.19% 1.22 1.21 1.25 1.25
- -----------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.55 1.58
- -----------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses 1.19% 1.22 1.21 1.57 1.39
- -----------------------------------------------------------------------------------------------
Net investment income 2.28% 2.38 2.12 1.23 1.44
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
CLASS B
----------------------------------------------------------------
YEAR ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.37 26.44 21.47 19.45
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .31 .19 .07
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.75 6.84 5.72 2.41
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 4.20 7.15 5.91 2.48
- -----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .56 .16 .21 .06
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- -----------------------------------------------------------------------------------------------------------
Total dividends 2.06 .22 .94 .46
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.51 33.37 26.44 21.47
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.22% 27.10 27.63 12.88
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 2.06% 2.12 2.20 2.00
- -----------------------------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.13 .61
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 2.06% 2.12 2.31 2.35
- -----------------------------------------------------------------------------------------------------------
Net investment income 1.41% 1.48 1.02 .26
- -----------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS C
--------------------------------------------------
YEAR ELEVEN MONTHS YEAR SEPT. 11
ENDED ENDED ENDED TO
NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.38 26.45 21.48 19.45
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .32 .20 .09
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.79 6.83 5.72 2.41
- ---------------------------------------------------------------------------------------------
Total from investment operations 4.24 7.15 5.92 2.50
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .58 .16 .22 .07
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- ---------------------------------------------------------------------------------------------
Total dividends 2.08 .22 .95 .47
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $35.54 33.38 26.45 21.48
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.32% 27.10 27.66 12.94
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 2.01% 2.10 2.22 1.95
- ---------------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.11 .66
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 2.01% 2.10 2.33 2.30
- ---------------------------------------------------------------------------------------------
Net investment income 1.46% 1.50 1.00 .31
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS I
--------------------------------------------------
YEAR ELEVEN MONTHS YEAR NOV. 1
ENDED ENDED ENDED TO
NOVEMBER 30, NOVEMBER 30, DEC. 31, DEC. 31,
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $33.51 26.49 21.51 19.90
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .95 .75 .54 .04
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain 3.76 6.81 5.70 2.03
- ---------------------------------------------------------------------------------------------
Total from investment operations 4.71 7.56 6.24 2.07
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income 1.01 .48 .53 .06
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain 1.50 .06 .73 .40
- ---------------------------------------------------------------------------------------------
Total dividends 2.51 .54 1.26 .46
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $35.71 33.51 26.49 21.51
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.83% 28.71 29.36 10.47
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .76% .83 .88 .47
- ---------------------------------------------------------------------------------------------
Net investment income 2.71% 2.77 2.45 1.99
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .76% .83 .88 .85
- ---------------------------------------------------------------------------------------------
Net investment income 2.71% 2.77 2.45 1.61
- ---------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
NOVEMBER 30, NOVEMBER 30, -----------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $5,188,621 2,931,721 737,834 98,196 35,005
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 7% 5 10 18 12
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. waived a portion of its management fee and
absorbed certain operating expenses of the fund through the year ended
December 31, 1996. The Other Ratios to Average Net Assets are computed
without this expense waiver or absorption.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid a distribution of $.95 per share from net long-term capital gains
during the year ended November 30, 1998, of which 82% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$165,514,000 as capital gain dividends for the year ended November 30, 1998, of
which 100% represents 20% rate gains.
For corporate shareholders, 52% of the income dividends paid during the year
ended November 30, 1998 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
23
<PAGE> 24
DIRECTORS&OFFICERS
DIRECTORS OFFICERS
DANIEL PIERCE MARK S. CASADY
Chairman and Director President
JAMES E. AKINS PHILIP J. COLLORA
Director Vice President and
Secretary
ARTHUR R. GOTTSCHALK
Director JOHN R. HEBBLE
Treasurer
FREDERICK T. KELSEY
Director THOMAS H. FORESTER
Vice President
THOMAS W. LITTAUER
Director and Vice President ANN M. MCCREARY
Vice President
FRED B. RENWICK
Director KATHRYN L. QUIRK
Vice President
JOHN B. TINGLEFF
Director THOMAS F. SASSI
Vice President
JOHN G. WEITHERS
Director STEVEN T. STOKES
Vice President
LINDA J. WONDRACK
Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
BRENDA LYONS
Assistant Treasurer
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed unless preceded
or accompanied by a Kemper Equity Funds/Value
Style prospectus.
KDHRF - 2 (1/26/99) 1064430
