<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeks to achieve a high rate of total return
KEMPER-DREMAN HIGH
RETURN EQUITY FUND
"... As contrarian investors, we're always loath to pay a premium for any stock,
and we refused to adjust our investment style to pursue short-term gains. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
19
NOTES TO FINANCIAL STATEMENTS
23
REPORT OF INDEPENDENT AUDITORS
24
TAX INFORMATION
AT A GLANCE
KEMPER-DREMAN HIGH RETURN EQUITY
FUND TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS RETURN EQUITY FUND CLASS LIPPER EQUITY INCOME
KEMPER-DREMAN HIGH RETURN EQUITY FUND CLASS A B C FUNDS CATEGORY AVERAGE*
- --------------------------------------------- ------------------------ ------------------------ -----------------------
<S> <C> <C> <C>
- -8.88% -9.62% -9.60% 4.43%
</TABLE>
%
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES; IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
DUE TO THE FUNDS' CONCENTRATION IN VARIOUS SECTORS, THE FUND MAY BE SUBJECTED TO
GREATER SHARE PRICE VOLATILITY THAN A MORE DIVERSIFIED PORTFOLIO.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
.........................................................
<S> <C> <C>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS A $30.45 $35.69
.........................................................
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS B $30.31 $35.51
.........................................................
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS C $30.34 $35.54
.........................................................
</TABLE>
KEMPER-DREMAN HIGH RETURN EQUITY
FUND RANKINGS AS OF 11/30/99
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER EQUITY INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C>
1-YEAR #218 of 222 funds #222 of 222 funds #221 of 222 funds
....................................................................................
3-YEAR #136 of 162 funds #145 of 162 funds #144 of 162 funds
....................................................................................
5-YEAR #10 of 114 funds N/A N/A
....................................................................................
10-YEAR #1 of 40 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 $0.70 $0.40 $0.41
............................................................
SHORT-TERM CAPITAL GAIN $0.44 $0.44 $0.44
............................................................
LONG-TERM CAPITAL GAIN $1.12 $1.12 $1.12
............................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312)
BOX] 696-6000. 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>
TERMS TO KNOW
PRICE/EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters. The trailing 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 Stocks usually found in related industries, such as financial
services. Financial, economic, business and other developments may similarly
affect stocks within a market sector.
TWO-TIER MARKET A securities market in which most of the gains are represented
by only a small group of companies. In 1998 and 1999, a two-tier market existed
in which only the largest growth-style stocks enjoyed particularly strong gains.
VOLATILITY The tendency of a security, commodity or market to rise or fall
sharply in price within a short period of time.
<PAGE> 3
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question hanging
over the economy is whether the Federal Reserve Board will boost interest rates
to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. And unfortunately, all parties end. This one will, too. The questions
are when and how.
The "when" should be before the second half of the year. The Fed has already
raised interest rates three times, and is likely to raise them again on Feb. 2.
Fed officials said they left the rate at 5.5 percent in December mainly because
of "market uncertainties associated with the century-date change." But the Fed
expressed concern that "increases in demand" will foster "inflationary
imbalances" that could spark rate increases once the Y2K issue has been handled.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system (causing some stock indexes, as well as the
bond markets, to drop sharply in early January), the "how" is likely to be a
slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely costs
more. But the rate of inflation for non-energy goods and services has actually
slowed during the past year. Although most analysts are worried that the
reprieve won't last -- assuming that higher commodity prices, a softer dollar
and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
the Fed to raise the federal funds rate and the discount rate by one quarter of
a point (0.25%) each on Feb. 2. (More extreme possibilities bandied about by
bearish investors -- including a half-point rise or an emergency move before the
Fed's February meeting -- are unlikely.) We project that the result will be a
gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this
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 (12/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6) 2.10 2.10 2.30 2.70
</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 11/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
one iota. As a result, we expect profits to be virtually flat in all of 2000 and
to decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JANUARY 6, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
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, ADVISER AND MANAGER. DREMAN HOLDS
A BACHELOR OF COMMERCE DEGREE FROM THE UNIVERSITY OF MANITOBA, IN WINNIPEG,
CANADA. 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.
THE LAST 12 MONTHS WERE QUITE DIFFICULT FOR TRUE VALUE INVESTORS. IN THIS
SECTION, LEAD PORTFOLIO MANAGER DAVID DREMAN EXPLAINS THE REASONS HE STAYED TRUE
TO HIS CONTRARIAN INVESTMENT STRATEGY DESPITE THE DIFFICULT MARKET ENVIRONMENT.
Q BEFORE WE DISCUSS THE KEMPER-DREMAN HIGH RETURN EQUITY FUND PERFORMANCE,
WILL YOU EXPLAIN THE DYNAMICS OF THE MARKET OVER THE LAST 12 MONTHS?
A Certainly. A severe two-tier market continued to exist, although in April
we saw a short-lived shift to value stocks. For most of the period, however,
stocks that were already overvalued (primarily technology and Internet stocks)
continued to climb higher, while fundamentally solid companies with reasonable
price-to-earnings multiples (P/Es) languished. It was a very narrow market, in
which the primary benefactors were technology and Internet-related stocks. For
value investors like us, those overvalued stocks with their extremely high P/Es
just don't make sense.
Q HOW DID YOU MANAGE A VALUE FUND IN A TECHNOLOGY-AND INTERNET-ORIENTED
MARKET ENVIRONMENT?
A We don't change our management style to fit the latest fad. During the
year, 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 we refused to adjust our investment style to pursue short-term gains.
Our focus remained on the financial services, energy and tobacco industries.
We took advantage of improving energy stocks and kept sizable positions in each
of the other sectors. They all provide a great deal of value and have been out
of favor for what we believe are the wrong reasons.
Q HOW DID THE FUND PERFORM?
A The fund's Class A shares (unadjusted for any sales charge) declined 8.88
percent for the period. This compares with the 20.89 percent gain of the
Standard & Poor's 500 stock index for the same 12-month period. The Lipper
Analytical Services Equity Income Category gained 4.43 percent. The Lipper
category represents a group of 241 equity funds that seek relatively high
current income and growth of income by investing at least 60 percent of their
portfolios in equities. The disparity of the fund's performance relative to the
S&P 500 and its Lipper category is linked to the two-tier market that existed
during the period. Nearly all of the S&P's gains came from a small group of
large growth and technology companies trading at extremely high valuations. The
fund stayed true to its contrarian value strategy, while other funds in its peer
group altered their discipline to invest in the high-flying growth and
technology stocks. Additionally, this fund concentrates its investments where we
see the best long-term opportunities. Oftentimes, our concentrations are much
higher than those of the average value fund. This year, the fund's substantial
positions in financial services and tobacco stocks hurt performance.
5
<PAGE> 6
PERFORMANCE UPDATE
Q THE FUND'S HEAVIEST CONCENTRATION IS IN FINANCIAL SERVICES STOCKS. CAN YOU
DISCUSS THE PERFORMANCE OF THIS SECTOR?
A The fund's financial stocks, along with nearly the entire financial
services industry, have suffered with the recent rise in interest rates.
Although we're disappointed in the short term, our strong long-term outlook for
this sector has not changed. We believe that the perception of the market and
the reality of the strength of these stocks are at odds. Many of the large bank
stocks that the fund holds depend more upon revenue driven from fees or services
rather than from their loan businesses. Therefore, their earnings have not been
impacted by the rising rates as much as the market has punished their stock
prices. Holdings such as Fannie Mae and Freddie Mac have also been hurt
substantially despite their growing earnings. Intuitively, this doesn't make
sense. As rates rise, the likelihood of mortgage prepayments dwindles, which is
a positive for these stocks. We are optimistic that as earnings in the industry
continue to grow, the market will see financial stocks in a better light.
Q WERE THERE ANY FINANCIAL SERVICES STOCKS THAT PERFORMED WELL?
A Yes, some of the on line traders were buoyed by the Internet frenzy that
was seen across the entire market. However, we did not own these types of stocks
because we considered them to be very speculative. So much of on line trading
companies' recent success has been tied to the huge volume of trading associated
with the myriad new Internet stocks introduced to the market. It seems as if
anything with a ".com" attached to its name has immediately skyrocketed. Many of
these companies, however, have also declined precipitously after reaching their
improbable highs.
On line trading companies such as Charles Schwab, E-Trade and Morgan
Stanley's Discover Brokerage have appealed to individual investors looking to
hop onto the latest bandwagon and make a quick buck. The concept of on line
trading is very appealing to the mass public. It's a new and very exciting tool.
As trading on line has gained popularity, however, novices are finding out that
it's just as easy to lose a bundle as it is to make a bundle when trading stocks
- -- especially when you don't understand the companies in which you're investing.
We see these online trading stocks as speculative for just that reason. As
novice investors lose money, their enthusiasm for active trading is likely to
wane. Additionally, if we move into a market decline, we believe many investors
may cut their losses and suspend their online trading activity altogether. This
would seriously hurt the long-term earnings potential of the online-trading
companies.
Q WHAT ABOUT THE FUND'S OIL STOCKS? HOW HAS THE RISE IN CRUDE OIL PRICES AND
THE CONSOLIDATION OF MAJOR OIL COMPANIES HELPED THE FUND?
A Our energy stocks performed extremely well during the period. Oil and oil
service stocks had been beaten up quite a bit as the price of crude oil dipped
below $10 a barrel in late 1998. We took advantage of the slump in oil prices
and vigorously added to our oil holdings. We were right in our assessment that
oil prices would rebound, and we've enjoyed tremendous gains from our oil stocks
this period. The current decrease in oil inventory coupled with an increase in
world demand should continue to support market oil prices and our holdings.
The fund also benefited from the continuing consolidation in oils. Late in
1998, Amoco, a large holding for the fund, was taken over by British Petroleum.
The new entity, BPAmoco, then took over another of our major oil holdings -
Atlantic Richfield. We took profits by liquidating our position in BPAmoco
during the first quarter of 1999. Finally, a rumor that Texaco, another fund
holding, may be taken over has been extremely positive for the fund as the price
of this stock has been bid up by the market and helped to buoy the oil sector in
general.
Q THE FUND MAINTAINS A LARGE POSITION IN TOBACCO STOCKS. THESE COMPANIES
HAVE BEEN PLAGUED WITH LITIGATION FOR THE PAST COUPLE OF YEARS, AND IT SEEMS TO
BE CONTINUING. WHERE'S THE BRIGHT SPOT?
A Just over 13 percent of the portfolio was invested in tobacco stocks as of
November 30, 1999. Although we're disappointed by the current U.S. Justice
department suit and the class action suit being tried in Florida, we're not
surprised. President Clinton mentioned the possibility of a federal suit during
his State of the Union address last January. We believe there are many
roadblocks in both the federal case and the Florida case. If they even get
settled, we believe it will be years down the road.
Overall, the performance of tobacco stocks has been a disappointment, but
there indeed are some bright spots, and we have seen some strengthening in
recent months.
6
<PAGE> 7
PERFORMANCE UPDATE
We're pleased with our position in RJR (formerly RJR Nabisco). The market
reacted favorably to the changes this company has been through this year. RJR
Nabisco spun off its international tobacco business to Japan Tobacco. This sale
completely reduced the debt of RJR. The Nabisco food group was also spun off to
shareholders. RJR is now trading at what we believe to be a fairer market value,
and it has a very attractive dividend yield.
We remain positive on Philip Morris, our largest holding as of November 30.
The company is well diversified with solid consumer package-goods businesses
outside the tobacco industry. The company's brands include Marlboro, Kraft Foods
and Miller Beer. Similar to the RJR Nabisco situation before the spin-off,
however, the stock price discounts the tobacco unit completely. But the company
remains strong, with healthy cash flows from each of its brands - Marlboro
included. When we evaluate the strength of each business on its own, we believe
the company as a whole has extremely favorable long-term growth potential.
The current legal issues surrounding the tobacco industry seem to be
over-reflected in these companies' stock prices. And we don't believe that this
litigation is going to put the cigarette companies out of business - they will
likely be around for many years to come.
Q WHAT WILL IT TAKE FOR YOU TO REDUCE YOUR OVERALL EXPOSURE TO TOBACCO?
A Although we're not in love with what these companies do, we're drawn to
their compelling valuations, the tremendous success of some of their other
business lines and their long-term growth potential. We expect to hear positive
news in 2000 on the major cases being litigated, which of course could be
positive for tobacco companies and the fund. Even if the litigation continues,
we believe that these companies are strong enough to withstand it and should
bounce back in price.
We're not committed to maintaining our position in tobacco if we find other
compelling investment opportunities. We've already reduced our position in this
sector, and we will continue to do so if better investment opportunities arise.
Although we think these companies are very undervalued, we're not going to stick
with any company dogmatically through any circumstance - particularly with the
opportunities we see in other companies right now. We make our buy and sell
decisions based on thorough research. In some cases, even when our research is
correct, a company will prosper and provide strong earnings as we have forecast,
yet its stock price will languish. That's exactly what's happening with our
tobacco holdings today. We normally sell such a stock after three or four years
- - which is approaching for some of our tobacco positions.
Q WHAT'S YOUR NEAR-TERM OUTLOOK FOR THE FUND AND VALUE STOCKS IN GENERAL?
A The slight broadening in the market that began this year heartens us.
However, we hope to see the narrow market dissipate much further, which of
course would be positive for value investors. Although this has not been a good
time for us in terms of performance, it has been a great time for us to build
what we believe to be a powerful portfolio. We don't believe the narrow market
can continue indefinitely. If we see a shift, we firmly believe that the stocks
in the portfolio are well positioned to benefit.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED NOVEMBER 30, 1999 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS A -14.12% 18.71% 15.27% 15.79% (since 3/18/88)
..................................................................................................
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS B -12.18 n/a n/a 15.74 (since 9/11/95)
..................................................................................................
KEMPER-DREMAN HIGH RETURN
EQUITY FUND CLASS C -9.60 n/a n/a 16.09 (since 9/11/95)
..................................................................................................
</TABLE>
KEMPER DREMAN HIGH RETURN EQUITY FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 3/31/88 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
A(1) STOCK INDEX(+) CONSUMER PRICE INDEX(++)
------------------------ --------------------- ----------------------
<S> <C> <C> <C>
3/31/88 9426.00 10000.00 10000.00
10634.00 10727.00 10343.00
12596.00 13651.00 10824.00
11510.00 12755.00 11485.00
12/31/91 16984.00 16111.00 11837.00
20347.00 16830.00 12180.00
22223.00 18017.00 12515.00
22004.00 17740.00 12850.00
12/31/95 35315.00 23791.00 13176.00
41620.00 28612.00 13614.00
54907.00 37484.00 13845.00
61473.00 47481.00 14069.00
11/30/99 55524.00 53655.00 14464.00
</TABLE>
KEMPER DREMAN HIGH RETURN EQUITY FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 9/30/95 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
B(1) STOCK INDEX(+) CONSUMER PRICE INDEX(++)
------------------------ --------------------- ----------------------
<S> <C> <C> <C>
9/30/95 10000.00 10000.00 10000.00
11086.00 10539.00 10020.00
12/31/96 14149.00 12675.00 10352.00
12/31/97 18495.00 16605.00 10529.00
20531.00 21034.00 10698.00
11/30/99 18205.00 23769.00 10999.00
</TABLE>
KEMPER DREMAN HIGH RETURN EQUITY FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 9/30/95 to 11/30/99
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH
RETURN EQUITY FUND CLASS STANDARD & POOR'S 500
C(1) STOCK INDEX(+) CONSUMER PRICE INDEX(++)
------------------------ --------------------- ----------------------
<S> <C> <C> <C>
9/30/95 10000.00 10000.00 10000.00
11086.00 10539.00 10020.00
12/31/96 14153.00 12675.00 10352.00
12/31/97 18506.00 16605.00 10529.00
20551.00 21034.00 10698.00
11/30/99 18428.00 23769.00 10999.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND, FOR
CLASS A SHARES, ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75% AND FOR
CLASS B SHARES, ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3%. CLASS C SHARES
HAVE NO ADJUSTMENT FOR SALES CHARGE.
THE MAXIMUM CDSC FOR CLASS B SHARES IS
4%. FOR CLASS C SHARES, THERE IS A 1%
CDSC ON CERTAIN REDEMPTIONS WITHIN THE
FIRST YEAR OF PURCHASE. SHARE CLASSES
INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN
REFLECTS ANNUALIZED CHARGES WHICH
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 WITH 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 WIESENBERGER.
++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
WIESENBERGER.
8
<PAGE> 9
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, 1999, and on November 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN KEMPER-DREMAN HIGH RETURN
EQUITY FUND ON 11/30/99 EQUITY FUND ON 11/30/98
<S> <C> <C>
FINANCE 36.80% 42.20%
CONSUMER NON-DURABLES 28.40% 26.90%
ENERGY 19.50% 20.10%
HEALTH CARE 11.90% 5.30%
UTILITIES 3.40% 2.10%
CAPITAL GOODS 0.00% 2.00%
BASIC MATERIALS 0.00% 1.40%
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of the Kemper-Dreman High Return Equity Fund represented on November 30, 1999,
compared with the industry sectors that make up the fund's benchmark, the
Standard & Poor's 500 Stock Index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER-DREMAN HIGH RETURN
EQUITY FUND ON 11/30/99 S & P 500 INDEX ON 11/30/99
<S> <C> <C>
FINANCIAL 36.80% 15.50
CONSUMER NON-DURABLES 28.40% 20.90
ENERGY 19.50% 5.90
HEALTH CARE 11.90% 10.70
UTILITIES 3.40% 2.80
CAPITAL GOODS 0.00% 8.40
TECHNOLOGY 0.00% 23.50
COMMUNICATION SERVICES 0.00% 8.50
BASIC MATERIALS 0.00% 3.00
TRANSPORTATION 0.00% 0.80
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
LARGEST HOLDINGS*
Representing 43.0 percent of the fund's portfolio on November 30, 1999
<TABLE>
<CAPTION>
HOLDINGS DESCRIPTION PERCENT
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
1. PHILIP MORRIS The largest cigarette maker in the 6.7%
United States. Through its Miller
Brewing subsidiary, it is also the
country's second-largest brewer.
This company is also a major
branded food producer through its
Kraft Foods subsidiaries.
- --------------------------------------------------------------------------------------
2. FNMA Often referred to as "Fannie Mae," 4.6%
this is a private corporation
federally chartered to provide
financial products and services
that increase the availability and
affordability of housing to low-,
moderate- and middle-income
Americans.
- --------------------------------------------------------------------------------------
3. UST A holding company for four wholly 4.3%
owned subsidiaries 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.
- --------------------------------------------------------------------------------------
4. CONOCO An integrated, international energy 4.3%
company involved in the discovery,
development, production and sale of
crude oil, natural gas and natural
gas liquids.
- --------------------------------------------------------------------------------------
5. BANK ONE Provides data processing, venture 4.3%
capital investment and merchant
banking, trust, brokerage,
investment management and equipment
leasing.
- --------------------------------------------------------------------------------------
6. MCKESSON HBOC McKesson HBOC, Inc. is a health 4.1%
care supply management company. The
company also provides software
solutions, technological
innovations and comprehensive
services to the health care
industry and processes and markets
pure drinking water.
- --------------------------------------------------------------------------------------
7. TENET HEALTHCARE Provides a broad range of health 4.1%
care services through the ownership
and management of acute care
hospitals and related businesses.
- --------------------------------------------------------------------------------------
8. FHLMC Often referred to as "Freddie Mac," 3.6%
this corporation provides for the
transfer of capital between
mortgage lenders and mortgage
security investors, enabling
mortgage lenders to provide a
continuous flow of funds to borrow.
- --------------------------------------------------------------------------------------
9. ATLANTIC RICHFIELD Engaged in exploring, developing 3.5%
and producing petroleum, which
includes petroleum liquids and
natural gas. The company is also
involved in the refining and
marketing of petroleum products,
transportation, the mining and sale
of coal and interests in
intermediate, chemicals and
specialty products.
- --------------------------------------------------------------------------------------
10. PNC BANK Engaged in the operation of a 3.5%
variety of financial services,
including mortgage, community,
consumer, private and corporate
banking, secured lending and asset
management.
- --------------------------------------------------------------------------------------
</TABLE>
*The fund's holding's are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Portfolio of Investments at November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--11.8% PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--0.5%
State Street Bank and Trust Company,
dated 11/30/1999, 5.630%, to be
repurchased at $22,398 on 12/01/1999
(Cost: $22,394)(b) $ 22,394 $ 22,394
-------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--10.5%
Yield--5.10%-5.86%
Due December 1999 and January 2000
Associates First Capital Corp. 15,000 14,998
Bell South Capital Funding Corp. 10,000 9,988
Ciesco L.P. 15,000 14,965
Coca Cola Enterprises, Inc. 32,000 31,861
CXC, Inc. 10,000 9,982
Duke Energy Corp. 30,000 29,954
E.I. du Pont de Nemours & Co. 42,000 41,911
Ford Motor Credit Co. 75,000 74,915
General Electric Capital Corp. 20,000 19,994
General Motors Acceptance Corp. 20,000 19,974
IBM Credit Corp. 15,000 14,970
John Deere Capital Corp. 20,000 19,986
Merrill Lynch & Co. 45,000 44,952
Monte Rosa Capital Corp. 9,743 9,716
Morgan Stanley Dean Witter & Co. 10,000 9,936
Sears Roebuck Acceptance Corp. 15,000 14,965
Variable Funding Corp. 29,000 28,904
Wal-Mart Stores, Inc 35,000 34,939
Windmill Funding Corp. 14,000 13,891
-------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER--10.5%
(Cost $460,801)(d) 460,801
-------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--0.8%
U.S. Treasury Bill, 4.360%**,
12/16/1999(c) 15,000 14,973
U.S. Treasury Bill, 4.470%**, 12/02/1999 15,000 14,998
U.S. Treasury Bill, 4.870%**, 01/06/2000 5,000 4,975
-------------------------------------------------------------------------
TOTAL US TREASURY OBLIGATIONS--0.8%
(Cost $34,946)(d) 34,946
-------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--88.2% NUMBER OF SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--5.2%
APPAREL & SHOES--0.2%
Fruit of the Loom, Inc.* 4,859,300 9,111
-------------------------------------------------------------------------
DEPARTMENT &
CHAIN STORES--0.7%
Rite Aid Corp. 4,051,600 30,640
-------------------------------------------------------------------------
SPECIALTY RETAIL--4.3%
Borders Group, Inc.* 7,274,625 112,757
Toys "R" Us Inc.* 4,289,100 75,059
-------------------------------------------------------------------------
187,816
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--17.1%
ALCOHOL & TOBACCO--14.6%
Imperial Tobacco Group ADR 863,150 $ 18,126
Philip Morris Companies, Inc. 11,212,500 295,029
R.J. Reynolds Tobacco Holdings, Inc. 3,367,960 71,780
UST, Inc. 7,078,200 188,457
Universal Corp. 2,534,850 65,114
-------------------------------------------------------------------------
638,506
FOOD & BEVERAGE--2.5%
Nabisco Group Holdings 9,266,400 107,143
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
HEALTH--10.5%
HEALTH INDUSTRY SERVICES--6.3%
Humana Inc.* 13,511,070 94,578
McKesson HBOC, Inc. 7,683,220 179,595
-------------------------------------------------------------------------
274,173
HOSPITAL MANAGEMENT--4.2%
Columbia/HCA Healthcare Corp. 283,900 7,736
Tenet Healthcare Corp.* 7,980,300 178,061
-------------------------------------------------------------------------
185,797
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL--32.5%
BANKS--21.6%
Bank One Corp. 5,272,279 185,848
Bank of America Corp. 2,349,681 137,456
Bank of New York Co., Inc. 642,800 25,632
First Union Corp. 1,555,320 60,171
FleetBoston Financial Corp. 3,186,549 120,491
J.P. Morgan & Co., Inc. 162,400 21,356
KeyCorp 3,800,500 102,614
National Bank of Canada 1,166,900 13,699
PNC Bank Corp. 2,777,935 154,870
Republic New York Corp. 1,716,500 121,335
-------------------------------------------------------------------------
943,472
INSURANCE--1.3%
American International Group, Inc. 281,250 29,039
Ohio Casualty Corp. 291,600 4,493
Safeco Corp. 175,500 4,157
St. Paul Companies, Inc. 571,010 17,237
-------------------------------------------------------------------------
54,926
OTHER FINANCIAL
COMPANIES--9.6%
Federal Home Loan Mortgage Corp. 3,173,900 156,711
Federal National Mortgage Association 3,032,800 202,060
Prison Realty Trust, Inc.(REIT) 7,579,140 61,581
-------------------------------------------------------------------------
420,352
- --------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.8%
ENVIRONMENTAL SERVICES
Transocean Offshore, Inc. 2,441,100 68,808
Waste Management, Inc. 3,319,800 53,947
-------------------------------------------------------------------------
122,755
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--17.1%
OIL & GAS PRODUCTION--6.8%
Conoco, Inc. "B" 3,301,700 $ 86,463
Conoco, Inc. "A" 7,083,458 186,383
Nabors Industries, Inc.* 965,000 25,633
-------------------------------------------------------------------------
298,479
OIL COMPANIES--7.1%
Atlantic Richfield Co. 1,607,900 154,962
Texaco, Inc. 2,539,900 154,775
-------------------------------------------------------------------------
309,737
OILFIELD SERVICES--3.2%
Diamond Offshore Drilling, Inc. 1,327,500 40,489
ENSCO International, Inc. 1,592,700 31,953
Global Marine Inc.* 1,096,100 16,784
Noble Drilling Corp.* 798,200 22,250
Santa Fe International Corp. 817,500 18,649
Tidewater, Inc. 371,500 11,865
-------------------------------------------------------------------------
141,990
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES--3.0%
NATURAL GAS DISTRIBUTION
Columbia Energy Group 1,632,900 102,465
Consolidated Natural Gas Corp. 423,100 27,131
-------------------------------------------------------------------------
129,596
-------------------------------------------------------------------------
TOTAL COMMON STOCKS--88.2%
(Cost $4,247,217) 3,854,493
-------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $4,765,358)(a) $4,372,634
-------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) The cost for federal income tax purposes was $4,772,707. At November 30,
1999, the net unrealized depreciation for all securities based on tax cost
was $400,073. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess market value over tax cost of
$461,113 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $861,186.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(c) At November 30, 1999, these securities, in part or in whole, have been
segregated to cover initial margin requirements for open futures contracts.
At November 30, 1999, open futures contracts purchased were as follows (in
thousands):
<TABLE>
<CAPTION>
AGGREGATE MARKET
FUTURES EXPIRATION DATE CONTRACTS FACE VALUE ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index December 17, 1999 1,384 470,669 481,805
- ---------------------------------------------------------------------------------------------------------------
Total unrealized appreciation on open futures
contracts purchased 11,136
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(d) 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 $481,805 of short-term investments. As a
result, approximately 99% of the fund's net assets are effectively invested
in equities. (See Notes to Financial Statements.)
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments in securities, at value, (cost $4,765,358) $4,372,634
- --------------------------------------------------------------------------
Foreign currency, at value, (cost $122) 121
- --------------------------------------------------------------------------
Dividends receivable 6,551
- --------------------------------------------------------------------------
Interest receivable 4
- --------------------------------------------------------------------------
Receivable for Fund shares sold 3,398
- --------------------------------------------------------------------------
Other assets 96
- --------------------------------------------------------------------------
TOTAL ASSETS 4,382,804
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------
Due to custodian bank 97
- --------------------------------------------------------------------------
Payable for Fund shares redeemed 25,673
- --------------------------------------------------------------------------
Payable for daily variation margin on open futures contracts 6,193
- --------------------------------------------------------------------------
Accrued management fee 2,928
- --------------------------------------------------------------------------
Other accrued expenses and payables 4,184
- --------------------------------------------------------------------------
Total liabilities 39,075
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $4,343,729
- --------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) $ 10,725
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities (392,724)
- --------------------------------------------------------------------------
Futures 11,136
- --------------------------------------------------------------------------
Accumulated net realized gain (loss) 273,628
- --------------------------------------------------------------------------
Paid-in capital 4,440,964
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $4,343,729
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,043,587 / 67,105 shares of capital stock outstanding
$.01 par value, 560,000 shares authorized) $30.45
- --------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $30.45) $32.31
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($1,864,532 / 61,509 shares of capital stock outstanding
$.01 par value, 560,000 shares authorized) $30.31
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($413,963 / 13,644 shares of capital stock outstanding
$.01 par value, 140,000 shares authorized) $30.34
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price per share
($21,647 / 711 shares of capital stock outstanding $.01
par value, 140,000 shares authorized) $30.45
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $547) $ 126,584
- ---------------------------------------------------------------------------
Interest 47,945
- ---------------------------------------------------------------------------
Total income 174,529
- ---------------------------------------------------------------------------
Expenses:
Management fee 36,773
- ---------------------------------------------------------------------------
Services to shareholders 14,284
- ---------------------------------------------------------------------------
Custodian fees 302
- ---------------------------------------------------------------------------
Distribution services fees 20,704
- ---------------------------------------------------------------------------
Administrative services fees 12,704
- ---------------------------------------------------------------------------
Auditing 73
- ---------------------------------------------------------------------------
Legal 39
- ---------------------------------------------------------------------------
Directors' fees 122
- ---------------------------------------------------------------------------
Reports to shareholders 1,012
- ---------------------------------------------------------------------------
Registration fees 125
- ---------------------------------------------------------------------------
Other 148
- ---------------------------------------------------------------------------
Total expenses, before expense reductions 86,286
- ---------------------------------------------------------------------------
Expense reductions (148)
- ---------------------------------------------------------------------------
Total expenses, after expense reductions 86,138
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 88,391
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------
Net realized gain (loss) from:
Investments 245,662
- ---------------------------------------------------------------------------
Futures 99,100
- ---------------------------------------------------------------------------
Foreign currency related transactions 2
- ---------------------------------------------------------------------------
344,764
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (927,033)
- ---------------------------------------------------------------------------
Futures 11,136
- ---------------------------------------------------------------------------
(915,897)
- ---------------------------------------------------------------------------
Net gain (loss) on investment transactions (571,133)
- ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (482,742)
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
----------------------------------
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------------
Operations:
Net investment income (loss) $ 88,391 $ 78,258
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) 344,764 230,228
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (915,897) 203,426
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (482,742) 511,912
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (51,925) (49,099)
- --------------------------------------------------------------------------------------------------
Class B (26,884) (30,021)
- --------------------------------------------------------------------------------------------------
Class C (5,945) (5,738)
- --------------------------------------------------------------------------------------------------
Class I (674) (928)
- --------------------------------------------------------------------------------------------------
From net realized gains
Class A (107,300) (64,098)
- --------------------------------------------------------------------------------------------------
Class B (100,703) (60,333)
- --------------------------------------------------------------------------------------------------
Class C (20,538) (10,192)
- --------------------------------------------------------------------------------------------------
Class I (1,304) (1,323)
- --------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 1,850,459 2,790,464
- --------------------------------------------------------------------------------------------------
Reinvestment of distributions 287,243 203,042
- --------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,184,579) (1,026,786)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (46,877) 1,966,720
- --------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (844,892) 2,256,900
- --------------------------------------------------------------------------------------------------
Net assets at beginning of period 5,188,621 2,931,721
- --------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed
net investment income of
$10,725 and $7,763, respectively) $ 4,343,729 $ 5,188,621
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------
YEAR ENDED ELEVEN MONTHS YEAR ENDED
NOVEMBER 30, ENDED DECEMBER 31,
----------------- NOVEMBER 30, ---------------------------
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $35.69 33.52 26.52 21.49 15.11 15.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.71(a) 0.73 0.54 0.39 0.26 0.25
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (3.69) 3.80 6.89 5.75 6.76 (0.39)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.98) 4.53 7.43 6.14 7.02 (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.70) (0.86) (0.37) (0.38) (0.24) (0.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.56) (1.50) (0.06) (0.73) (0.40) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (2.26) (2.36) (0.43) (1.11) (0.64) (0.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.45 35.69 33.52 26.52 21.49 15.11
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (8.88) 14.25 28.15** 28.79 46.86(B) (0.99)(B)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 2,043 2,420 1,383 386 76 35
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.20 1.19 1.22* 1.21 1.57 1.39
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.20 1.19 1.22* 1.21 1.25 1.25
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.09 2.28 2.38* 2.12 1.55 1.58
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18 12
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
CLASS B
------------------------------------------------------------------------
YEAR ENDED ELEVEN MONTHS
NOVEMBER 30, ENDED YEAR ENDED SEPT. 11
----------------- NOVEMBER 30, DECEMBER 31, TO DEC. 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $35.51 33.37 26.44 21.47 19.45
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.42(a) 0.45 0.31 0.19 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (3.66) 3.75 6.84 5.72 2.41
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.24) 4.20 7.15 5.91 2.48
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.40) (0.56) (0.16) (0.21) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.96) (2.06) (0.22) (0.94) (0.46)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.31 35.51 33.37 26.44 21.47
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (9.62) 13.22 27.10** 27.63(B) 12.88(B)**
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1,865 2,276 1,300 295 17
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.03 2.06 2.12* 2.31 2.35*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.03 2.06 2.12* 2.20 2.00*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.26 1.41 1.48* 1.13 0.61*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------------
CLASS C
---------------------------------------------------------------
YEAR ENDED ELEVEN MONTHS
NOVEMBER 30, ENDED YEAR ENDED SEPT. 11
--------------- NOVEMBER 30, DECEMBER 31, TO DEC. 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $35.54 33.38 26.45 21.48 19.45
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.43(a) 0.45 0.32 0.20 0.09
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (3.66) 3.79 6.83 5.72 2.41
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.23) 4.24 7.15 5.92 2.50
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.41) (0.58) (0.16) (0.22) (0.07)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (1.97) (2.08) (0.22) (0.95) (0.47)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.34 35.54 33.38 26.45 21.48
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (C) (9.60) 13.32 27.10** 27.66(B) 12.94(b)**
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 414 462 221 44 2
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.00 2.01 2.10* 2.33 2.30*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.00 2.01 2.10* 2.22 1.95*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.29 1.46 1.50* 1.11 0.66*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18*
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
CLASS I
---------------------------------------------------------------
YEAR ENDED ELEVEN MONTHS
NOVEMBER 30, ENDED YEAR ENDED NOV. 1
--------------- NOVEMBER 30, DECEMBER 31, TO DEC. 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $35.71 33.51 26.49 21.51 19.90
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.84(a) 0.95 0.75 0.54 0.04
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (3.70) 3.76 6.81 5.70 2.03
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.86) 4.71 7.56 6.24 2.07
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.84) (1.01) (0.48) (0.53) (0.06)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (1.56) (1.50) (0.06) (0.73) (0.40)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (2.40) (2.51) (0.54) (1.26) (0.46)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.45 35.71 33.51 26.49 21.51
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (8.54) 14.83 28.71** 29.36 10.47(B)**
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 22 31 28 12 3
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 0.82 0.76 0.83* 0.88 0.85*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 0.82 0.76 0.83* 0.88 0.47*
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.47 2.71 2.77* 2.45 1.99*
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 7 5* 10 18*
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect of sales charges.
** Not annualized
* Annualized
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper-Dreman High Return Equity Fund ("the Fund")
is a diversified series of Kemper Value Series,
Inc. (the "Corporation") which is registered under
the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end, management investment
company organized as a Maryland Corporation.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used. 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 value as
determined in good faith by the Valuation Committee
of the Board of Directors.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
which at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the period, the Fund
purchased securities index futures as a temporary
substitute for purchasing selected investments.
Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the Fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction,
the Fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the Fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made quarterly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund must periodically
make reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES For the year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,885,814
Proceeds from sales 1,416,965
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and 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. For the year
ended November 30, 1999, the Fund incurred a
management fee of $36,773,000, which is equivalent
to an annualized effective rate of .69% of average
daily net assets. 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.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the year ended November 30,
1999 are $941,000.
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 Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the year ended November 30, 1999 are
$28,115,000, of which $1,255,000 is unpaid at
November 30, 1999.
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 paid by the
Fund to KDI for the year ended November 30, 1999
are $12,704,000 of which $994,000 is unpaid at
November 30, 1999. Additionally, $6,000 was paid by
KDI to affiliates.
SHAREHOLDER SERVICE 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
$10,911,000 for the year ended at November 30, 1999
of which $1,599,000 is unpaid at November 30, 1999.
OFFICERS AND DIRECTORS. Certain officers or
directors of the Fund are also officers or
directors of Scudder Kemper. For the year ended
November 30, 1999, the Fund made no payments to its
officers and incurred directors fees of $122,000 to
independent directors.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
SHARES SOLD
-----------------------------------------------------------------------------------
Class A 32,690 $ 1,096,149 40,754 $1,379,719
-----------------------------------------------------------------------------------
Class B 15,739 530,959 31,947 1,078,528
-----------------------------------------------------------------------------------
Class C 6,084 205,292 7,836 264,584
-----------------------------------------------------------------------------------
Class I 536 18,059 569 19,165
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-----------------------------------------------------------------------------------
Class A 4,447 149,555 3,218 106,200
-----------------------------------------------------------------------------------
Class B 3,415 114,610 2,506 81,999
-----------------------------------------------------------------------------------
Class C 628 21,100 385 12,591
-----------------------------------------------------------------------------------
Class I 59 1,978 69 2,252
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
SHARES REDEEMED
-----------------------------------------------------------------------------------
Class A (39,388) (1,298,881) (18,866) (634,115)
-----------------------------------------------------------------------------------
Class B (20,169) (661,432) (7,892) (262,838)
-----------------------------------------------------------------------------------
Class C (6,057) (198,289) (1,841) (61,206)
-----------------------------------------------------------------------------------
Class I (758) (25,977) (598) (20,159)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
-----------------------------------------------------------------------------------
Class A 1,548 52,644 1,444 48,468
-----------------------------------------------------------------------------------
Class B (1,555) (52,644) (1,450) (48,468)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (46,877) $1,966,720
-----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees were reduced by $148,000
under these arrangements.
- --------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
22
<PAGE> 23
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, 1999, and the related statements of operations for the year
then ended and changes in net assets for each of the two years in the period
then ended 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999, by correspondence with the custodian and broker.
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, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the fiscal periods since 1995, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 2000
23
<PAGE> 24
TAX INFORMATION
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Fund paid distributions of $1.12 per share from net long-term capital gains
during its year ended November 30, 1999, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$295,000,000 as capital gain dividends for its year ended November 30, 1999, of
which 100% represents 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the Fund's
fiscal year ended November 30, 1999 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.
24
<PAGE> 25
NOTES
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
DIRECTORS&OFFICERS
DIRECTORS OFFICERS
JAMES E. AKINS MARK S. CASADY
Director President
JAMES R. EDGAR PHILLIP J. COLLORA
Director Vice President and
Secretary
ARTHUR R. GOTTSCHALK
Director JAMES M. EYSENBACH
Vice President
FREDERICK T. KELSEY
Director JOHN R. HEBBLE
Treasurer
THOMAS W. LITTAUER
Director and Vice President ANN M. MCCREARY
Vice President
FRED B. RENWICK
Director KATHRYN L. QUIRK
Vice President
JOHN G. WEITHERS
Director LOIS R. ROMAN
Vice President
THOMAS F. SASSI
Vice President
WILLIAM F. TRUSCOTT
Vice President
LINDA J. WONDRACK
Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
BRENDA LYONS
Assistant Treasurer
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- --------------------------------------------------------------------------------
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 Fund/Value Style prospectus.
KDHRF - 2 (1/25/00) 1099530
