<PAGE> 1
KEMPER
AGGRESSIVE GROWTH
FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED MARCH 31, 1997
Seeking capital appreciation through the use of aggressive investment techniques
" . . . This type of volatility may be
good because as the market runs up you have the
opportunity to sell out of stocks
that have become overvalued."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Largest Holdings
8
Portfolio of Investments
10
Financial Statements
12
Notes to Financial Statements
15
Financial Highlights
AT A GLANCE
- ----------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND
TOTAL RETURNS
- ----------------------------------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A -2.00%
CLASS B -2.21%
CLASS C -2.21%
LIPPERGNMA CAPITAL
APPRECIATION
CATEGORY AVERAGE* -3.26%
- ---------------------------------------------------------------------------
</TABLE>
Returns are historical and do not represent future results.
Returns and net asset value fluctuate. Shares are redeemable at current
net asset value, which may be more or less than original cost.
* Lipper Analytical Services, Inc. returns 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
NET ASSET VALUE
- ---------------------------------------------------------------------------
AS OF AS OF
3/31/97 12/31/96
- ---------------------------------------------------------------------------
<S> <C> <C>
KEMPER AGGRESSIVE
GROWTH FUND CLASS A $9.31 $9.50
- ---------------------------------------------------------------------------
KEMPER AGGRESSIVE
GROWTH FUND CLASS B $9.29 $9.50
- ---------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND
CLASS C $9.29 $9.50
- ---------------------------------------------------------------------------
</TABLE>
There are special risk considerations associated with the fund including
operation as a non-diversified fund, which allows more assets to be invested in
fewer issuers, and flexibility to concentrate in various investment sectors and
to invest significant assets in smaller companies, which present greater risk
than larger more established companies. There is no assurance that the fund's
management style will be successful or that the fund will achieve its objective.
TERMS TO KNOW
BLUE CHIP STOCK Common stock of a nationally known company that has a long
record of profit growth and dividend payment and a reputation for quality
management, products and services.
INITIAL PUBLIC OFFERING A corporation's first offering of stock to the public.
MARKET CAPITALIZATION A measure of the size of a publicly traded company, as
determined by multiplying the current market price per share by the number of
shares outstanding. The market capitalization of a company has bearing on its
perceived earnings potential and risk.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $42 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur once that date is reached. However, then we
shall enjoy the long-term positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. An economic slowdown would reduce the threat of inflation and reduce the
need for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to be
concerned about. As has been the pattern for more than five years, a few strong
quarters followed by a few weak quarters have produced an overall 2 percent to 3
percent rate of growth in gross domestic product (GDP). Job creation and the
unemployment rate are consistent with a moderately expanding economy. Corporate
profits continue to grow at an expected 4 to 5 percent rate in 1997. The
Consumer Price Index continues to track at a 2.5 percent to 3.0 percent rate.
Just as we see a limited downside to today's rising interest rate environment,
so is there a limited upside in the near future. The effect of higher rates will
have to work itself through the economy. Higher rates have significant
implications for corporate profitability, debt issuance, credit extension and
international trade. Post-correction cash flows into the financial markets will
be a subject of great scrutiny. One of the factors driving the stock market to
its recent all-time high was the unprecedented high level of investment through
mutual funds, 401(k)s and qualified contribution plans. It is realistic to
expect that, on the margin, some of that cash will find a home in short-term,
liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for the
past six months in large, multinational companies with familiar consumer brand
names. The recent rally after the announcement of a balanced budget agreement
suggests that once monetary policy is also more certain, leadership may broaden
to include small capitalization stocks.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with long-
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 (4/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.69 6.53 6.51 7.06
PRIME RATE(2)* 8.3 8.25 8.25 9
INFLATION RATE(3)* 2.79 2.99 2.83 3.05
THE U.S. DOLLAR(4) 9.32 3.46 8.51 -10.02
CAPITAL GOOD ORDERS(5)* 6.34 7.46 7.42 9.96
INDUSTRIAL PRODUCTION(5)* 5.62 3.27 2.57 3.37
EMPLOYMENT GROWTH(6) 2.23 2.2 2.07 2.79
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of March 31, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
term interest rates no lower than 6.75 percent and no higher than 7.25 percent.
One positive effect of the stock market correction was the widening of spreads
available on high yield bonds. As a consequence, high yield bonds today are more
reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested. Financial
assets react much quicker today to events. Volatility has returned to the market
and with it heightened uncertainty. Now is the time to rely on your financial
representative for the expertise and the long-term investing discipline that he
or she can provide.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
May 21, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[STALZER PHOTO]
KURT R. STALZER JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN JANUARY 1997
WITH OVER 15 YEARS OF INVESTMENT EXPERIENCE. HE IS A SENIOR VICE PRESIDENT OF
ZKI AND PORTFOLIO MANAGER OF KEMPER AGGRESSIVE GROWTH FUND. STALZER RECEIVED A
B.B.A. DEGREE FROM THE UNIVERSITY OF MICHIGAN WHERE HE EARNED A DUAL
SPECIALIZATION IN FINANCE AND ACCOUNTING. HE IS ALSO A MEMBER OF THE FINANCIAL
ANALYST FEDERATION AND ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH.
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.
BASED ON STRONG FUNDAMENTAL ANALYSIS, KEMPER AGGRESSIVE GROWTH FUND IS ABLE TO
CONCENTRATE ITS HOLDINGS IN THOSE COMPANIES THAT PORTFOLIO MANAGER KURT STALZER
BELIEVES TO HAVE THE BEST GROWTH PROSPECTS. THE FOLLOWING INTERVIEW DISCUSSES
HIS MANAGEMENT PHILOSOPHY AND THE CURRENT MARKET CONDITIONS.
Q IN THE THREE MONTHS SINCE THIS FUND'S INCEPTION THE MARKET HAS BEEN
VOLATILE. HOW HAS THIS AFFECTED THE FUND'S PERFORMANCE?
A The fund has under-performed the broader market but has outperformed its
peers in the Capital Appreciation category according to Lipper Analytical
Services, Inc. The fund was not fully invested in January and missed some of the
run in the market which would account for its underperformance relative to the
market. During February and March the fund continued to hold relatively high
cash positions which helped us against our peers.
Q KEMPER AGGRESSIVE GROWTH FUND IS ABLE TO HOLD LARGE POSITIONS, AND IN
CERTAIN CIRCUMSTANCES IN EXCESS OF FIVE PERCENT ACCORDING TO THE PROSPECTUS. HOW
DO YOU SELECT STOCKS FOR THE PORTFOLIO?
A We look for companies with the potential to deliver sustainable,
predictable earnings growth over a two- to five-year time period and attractive
valuations. When examining the business, we look for companies that hold
distinct advantages over their competition. The advantage can come from being
the low cost provider, holding a dominant market share, holding advantages in
pricing flexibility or participating in a specialized niche. We also look for
"consolidators." Consolidators are companies that, through mergers and
acquisitions, become more efficient or market leaders.
Q CAN YOU GIVE SPECIFIC EXAMPLES?
A One stock I like is Gadzooks, an attractively valued, niche apparel
company. They sell only brand names, use a unique inventory management system
and cater to the teenage segment. The teenage demographic is strong because they
have considerable disposable income and are fashion conscious. For a clothing
retailer, this company has tremendous growth: adding 20% more stores annually
and growing existing stores by 10%. Another company I like is Suiza Foods, a
consolidator within the dairy business. They make sound acquisition decisions
that are not dilutive and the profit margins of the companies acquired tend to
improve after consolidation.
Q THE FUND IS ABLE TO INVEST IN ANYTHING FROM INITIAL PUBLIC OFFERINGS TO
LARGE, BLUE CHIP STOCKS. IS THE FUND CURRENTLY CONCENTRATED IN A PARTICULAR
MARKET CAPITALIZATION?
A No, we are looking for good deals, and if they happen to appear in small or
large
5
<PAGE> 6
PERFORMANCE UPDATE
company stocks the fund can take advantage of them. The current size of the fund
gives us considerable flexibility. The positions that we purchase now are small
due to favorable market valuations. Because of the fund's size, if we need to
move in and out of a small stock we can do so without much concern for the
liquidity of an issue.
Q THE END OF THE FIRST QUARTER SAW CONSIDERABLY MORE VOLATILITY IN THE MARKET
THAN WE HAVE SEEN LATELY. WHAT TYPE OF OPPORTUNITY DID THAT CREATE?
A This type of volatility, not broad market corrections but more sector
oriented, is good because as the market runs up you may have the opportunity to
sell out of stocks that have become overvalued. When the market goes down you
may be able to purchase good stocks that have declined, but are still
fundamentally sound. The volatility created opportunity in areas such as
software, semiconductors and niche oriented service companies. We will be
watching these areas for more buy signals.
Q WHAT DO YOU SEE FOR THE MARKET IN THE NEAR FUTURE AND HOW WILL YOU POSITION
THE PORTFOLIO?
A In the current economic environment there is some evidence of increasing
interest rates and higher inflation--particularly wage inflation, and heightened
concerns over corporate earnings. In an increasing interest rate environment,
basic industry and capital goods companies will feel pressure. Within consumer
non-durables, full-service lodging remains attractive--occupancy rates are up,
pricing is strong and the supply of new hotels is quite low. Financial services
are attractive once again because their prices retreated when interest rates
experienced a modest increase. The general perception is that financial
companies' earnings are dictated by interest rates; but, as banks and other
specialty financial companies derive more revenue from fees they are less
effected by interest rates.
Based on our market outlook, we are maintaining a portfolio that contains
companies with high predictability and stability in their earnings. We feel
focusing on these types of companies is the best strategy in an uncertain market
environment.
6
<PAGE> 7
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 29.3% of the fund's common stock holdings on March 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 USLIFE A life insurance-based holding company comprised of 3.9%
eleven wholly owned subsidiaries.
2 SUIZA FOODS Processes 65% of the fresh milk in Puerto Rico. Makes 3.3%
refrigerated fruit drinks, fresh milk and dairy
products in Florida and packaged ice in Florida and
the Southeast United States.
3 CULLIGAN WATER Designs, manufactures and distributes systems that 3.3%
TECHNOLOGIES provide solutions to water problems for residential,
commercial, industrial and municipal customers.
4 GLOBAL A major supplier of pipeline construction, derrick and 3.2%
INDUSTRIES diving services to the offshore oil and gas industry
in the Gulf of Mexico.
5 ROYAL CARIBBEAN One of the leading providers of cruises for North 3.2%
CRUISES American passengers as well as a leading provider in
the Caribbean market.
6 GADZOOKS A regional apparel retailer on the East Coast. 2.6%
7 PRECISION Worldwide manufacturer of complex metal components and 2.5%
CASTPARTS products of the aerospace, power generation, energy,
general industrial, automotive and other markets.
8 SUNGARD Provides specialized computer services, principally 2.5%
DATA SYSTEMS disaster recovery services and proprietary investment
support systems for financial institutions.
9 TELLABS Engaged in designing, assembling, marketing and 2.4%
servicing telephone-related signaling and transmission
systems.
10 CONSOLIDATED One of the fastest growing printing companies in the 2.4%
GRAPHICS United States.
</TABLE>
* Portfolio holdings and composition are subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--1.7% Dekalb Genetics Corp. 2,200 $ 117,000
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--8.5% (a)Culligan Water Technologies 5,000 196,000
(a)Miller Industries 10,000 120,000
Precision Castparts Corp. 3,000 153,000
Watsco, Inc. 4,000 102,000
----------------------------------------------------------------------------
571,000
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--23.8% (a)AccuStaff 5,600 94,000
CKE Restaurants 6,000 133,000
(a)CapStar Hotel Company 4,100 115,000
Consolidated Graphics, Inc. 5,000 143,000
(a)Four Seasons Hotel Ltd. 6,000 138,000
(a)Gadzooks, Inc. 5,000 157,000
(a)ITT Corp. 2,000 118,000
Interwest Corp. 3,500 56,000
Royal Caribbean Cruises Ltd. 6,300 192,000
(a)Samsonite Corp. 2,900 125,000
Stewart Enterprises, Inc. 3,800 139,000
U.S. Rentals 3,000 54,000
(a)Viacom International, "B" 4,000 132,000
----------------------------------------------------------------------------
1,596,000
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.5% (a)Suiza Foods 7,500 201,000
Whitman Corporation 4,000 98,000
----------------------------------------------------------------------------
299,000
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--4.6% (a)Global Industries, Ltd. 9,000 192,000
(a)Trico Marine Services Inc. 2,500 119,000
----------------------------------------------------------------------------
311,000
- ---------------------------------------------------------------------------------------------------------------------
FINANCE--14.7% (a)ABR Information Services 7,000 126,000
(a)Hamilton Bancorp 2,600 45,000
Kilroy Realty Corp. 5,000 133,000
Long Island Bancorp 2,000 66,000
Protective Life Insurance Co. 3,000 126,000
Sirrom Capital Corporation 3,600 131,000
USLIFE Corporation 5,000 234,000
Wilmington Trust Corp. 3,000 127,000
----------------------------------------------------------------------------
988,000
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--13.3% (a)Boston Scientific Corp. 2,000 124,000
Cardinal Health 2,000 109,000
(a)Dura Pharmaceuticals 3,000 107,000
(a)Genzyme Corp. 5,000 113,000
(a)National Surgery Centers 4,000 116,000
(a)Henry Schein, Inc. 3,000 87,000
(a)Serologicals Corporation 7,500 112,000
(a)Total Renal Care Holdings 4,000 122,000
----------------------------------------------------------------------------
890,000
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--15.6% (a)Comverse Technology 3,200 $ 126,000
(a)Gartner Group 3,800 82,000
(a)Oracle Corp. 3,000 116,000
Paychex 2,700 111,000
(a)Rofin-Sinar Technologies, Inc. 7,500 110,000
(a)SunGard Data Systems 3,500 152,000
(a)Tech Data Corporation 5,500 133,000
(a)Tellabs, Inc. 4,000 144,000
(a)Tencor Instruments 2,000 72,000
----------------------------------------------------------------------------
1,046,000
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.9% (a)Eagle USA Airfreight 4,000 123,000
Tranz Rail Holdings, Ltd. 4,100 74,000
----------------------------------------------------------------------------
197,000
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--89.6%
(Cost: $6,285,000) 6,015,000
----------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.23% to 5.30%
INSTRUMENTS--8.9% Due--April 1997
Federal Home Loan Mortgage Corp. $200,000 200,000
Federal National Mortgage Association 400,000 400,000
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--8.9%
(Cost: $600,000) 600,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS--98.5%
(Cost: $6,885,000) 6,615,000
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.5% 101,000
----------------------------------------------------------------------------
NET ASSETS--100% $6,716,000
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $6,885,000 for federal income tax
purposes at March 31, 1997, the gross unrealized appreciation was $182,000,
the gross unrealized depreciation was $452,000 and the net unrealized
depreciation on investments was $270,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $6,885,000) $6,615,000
- --------------------------------------------------------------------------
Cash 180,000
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 5,000
- --------------------------------------------------------------------------
Investments sold 97,000
- --------------------------------------------------------------------------
Dividends 1,000
- --------------------------------------------------------------------------
TOTAL ASSETS 6,898,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 166,000
- --------------------------------------------------------------------------
Management fee 3,000
- --------------------------------------------------------------------------
Distribution services fee 2,000
- --------------------------------------------------------------------------
Administrative services fee 2,000
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 6,000
- --------------------------------------------------------------------------
Other 3,000
- --------------------------------------------------------------------------
Total liabilities 182,000
- --------------------------------------------------------------------------
NET ASSETS $6,716,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $6,943,000
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 32,000
- --------------------------------------------------------------------------
Net unrealized depreciation on investments (270,000)
- --------------------------------------------------------------------------
Undistributed net investment income 11,000
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $6,716,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($3,584,000 / 385,100 shares outstanding) $9.31
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $9.88
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,955,000 / 210,400 shares outstanding) $9.29
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,177,000 / 126,700 shares outstanding) $9.29
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 31, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------
Interest $ 26,000
- -------------------------------------------------------------------------
Dividends 3,000
- -------------------------------------------------------------------------
Total investment income 29,000
- -------------------------------------------------------------------------
Expenses:
Management fee 6,000
- -------------------------------------------------------------------------
Distribution services fee 5,000
- -------------------------------------------------------------------------
Administrative services fee 3,000
- -------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 6,000
- -------------------------------------------------------------------------
Professional fees 2,000
- -------------------------------------------------------------------------
Other 1,000
- -------------------------------------------------------------------------
Total expenses 23,000
- -------------------------------------------------------------------------
NET INVESTMENT INCOME 6,000
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------
Net realized gain on sales of investments 32,000
- -------------------------------------------------------------------------
Change in net unrealized depreciation on investments (270,000)
- -------------------------------------------------------------------------
Net loss on investments (238,000)
- -------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(232,000)
- -------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------
OPERATIONS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------
Net investment income $ 6,000
- ----------------------------------------------------------------------------------
Net realized gain 32,000
- ----------------------------------------------------------------------------------
Change in net unrealized depreciation (270,000)
- ----------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (232,000)
- ----------------------------------------------------------------------------------
Net equalization credits 5,000
- ----------------------------------------------------------------------------------
Net increase from capital share transactions 6,843,000
- ----------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 6,616,000
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------
Beginning of period 100,000
- ----------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $11,000) $6,716,000
- ----------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Aggressive Growth Fund is an open-end
management investment company organized as a
business trust under the laws of Massachusetts. 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 (none sold
through March 31, 1997) are offered to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund's initial tax year
will end on April 30, 1997. No federal income tax
provision is required. For future periods, the Fund
intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue
Code.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at a base annual
rate of .65% of average daily net assets which is
then adjusted upward or downward by a maximum of
.20% based upon the Fund's performance as compared
to the performance of the Standard & Poor's 500
Stock Index (thus the fee on an annual basis can
range from .45% to .85% of average daily net
assets).
During the period ended March 31, 1997, the Fund
incurred management fees as follows:
<TABLE>
<S> <C>
Base fee $ 9,000
Performance adjustment (3,000)
-------
Total fees $ 6,000
=======
</TABLE>
Zurich Investment Management Limited, an affiliate
of ZKI, serves as sub-adviser with respect to
foreign securities investments in the Fund and is
paid by ZKI for its services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
RETAINED BY ALLOWED BY ZKDI
ZKDI TO FIRMS
----------- ---------------
<S> <C> <C>
Period ended March 31, 1997 $5,000 25,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY PAID BY ZKDI
ZKDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Period ended March 31, 1997 $6,000 80,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI 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 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY ZKDI
THE FUND TO ZKDI TO FIRMS
----------------- -----------------
<S> <C> <C>
Period ended March 31, 1997 $3,000 8,000
</TABLE>
SHAREHOLDER SERVICES AGENT AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of $3,000
for the period ended March 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the period ended March 31, 1997, the Fund
made no payments to its officers or trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the period ended March 31, 1997, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $14,287,000
Proceeds from sales 8,034,000
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
MARCH 31, 1997
----------------------------
SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
Class A 518,000 $ 4,993,000
---------------------------------------------------------------------------
Class B 214,000 2,048,000
---------------------------------------------------------------------------
Class C 126,000 1,212,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES REDEEMED
Class A (137,000) (1,321,000)
---------------------------------------------------------------------------
Class B (7,000) (64,000)
---------------------------------------------------------------------------
Class C (3,000) (25,000)
---------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $ 6,843,000
---------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the period from December 31, 1996 (commencement of operations) to March 31, 1997
- ----------------------------------------------------------------------- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.50 9.50 9.50
- ----------------------------------------------------------------------- ---------------- ----------------
Income from investment operations:
Net investment income .02 -- --
- ----------------------------------------------------------------------- ---------------- ----------------
Net realized and unrealized loss (.21) (.21) (.21)
- ----------------------------------------------------------------------- ---------------- ----------------
Total from investment operations (.19) (.21) (.21)
- ----------------------------------------------------------------------- ---------------- ----------------
Net asset value, end of period $9.31 9.29 9.29
- ----------------------------------------------------------------------- --------------- ---------------
TOTAL RETURN (NOT ANNUALIZED) (2.00)% (2.21) (2.21)
- ----------------------------------------------------------------------- ---------------- ----------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------- ---------------- ----------------
Expenses 1.27% 2.17 2.13
- ----------------------------------------------------------------------- ---------------- ----------------
Net investment income (loss) .83% (.07) (.03)
- ----------------------------------------------------------------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Net assets at end of period $6,716,000
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 813%
- ---------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the period ended March 31, 1997 was $.0576.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
15
<PAGE> 16
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President
and Secretary
ROBERT B. HOFFMAN JEROME L. DUFFY
Trustee Treasurer
DONALD R. JONES ELIZABETH C. WERTH
Trustee Assistant Secretary
DOMINIQUE P. MORAX
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed unless preceded
or accompanied by a Kemper Equity
Fund prospectus.
KAGGF - 3 (5/97) 1031820 [KEMPER FUNDS LOGO]
