<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1998
[MORNINGSTAR RATINGS LOGO]
SEEKING CAPITAL APPRECIATION THROUGH THE
USE OF AGGRESSIVE INVESTMENT TECHNIQUES
KEMPER AGRESSIVE GROWTH FUND
"... As aggressive-growth stock investors,
we recognize that over the long-term,
volatility can also yield opportunities. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
AT A GLANCE
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
15
REPORT OF INDEPENDENT AUDITORS
16
FINANCIAL STATEMENTS
18
NOTES TO FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A (8.67%)
CLASS B (9.30%)
CLASS C (9.29%)
LIPPER CAPITAL APPRECIATION CATEGORY AVERAGE* (8.08%)
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES WHEN
REDEEMED MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER AGGRESSIVE
GROWTH FUND CLASS A $10.98 $12.60
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE
GROWTH FUND CLASS B $10.83 $12.52
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE
GROWTH FUND CLASS C $10.84 $12.53
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH
FUND RANKINGS AS OF 9/30/98*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER CAPITAL APPRECIATION CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-YEAR
#117 OF N/A #121 OF
238 FUNDS 238 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED SEPTEMBER 30, 1998, KEMPER AGGRESSIVE GROWTH FUND MADE
THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM
CAPITAL GAIN $0.55 $0.55 $0.55
- --------------------------------------------------------------------------------
</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.
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Data provided by Morningstar, Inc., Chicago, IL (312) 696-6000. The
Equity Style Box placement is based on a fund's price-to-earnings and
price-to-book ratios relative to the S&P 500, as well as the size of the
companies in which it invests, or median market capitalization. PLEASE NOTE THAT
STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORT- FOLIO 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 AGGRESSIVE
GROWTH FUND IN THE SMALL-CAP GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR
A DESCRIPTION OF INVESTMENT POLICIES.
TERMS TO KNOW
BEAR MARKET A period of generally declining stock prices.
GROWTH STOCK The stock of a company whose earnings growth has consistently
exceeded the growth rate of the overall market and whose growth is expected to
continue.
MARKET CAPITALIZATION A measure of the size of a publicly traded company, as
determined by multiplying the current price by the number of shares outstanding.
The market capitalization of a company has bearing on its perceived earnings
potential and risk. Small cap companies (less than one billion dollars) may
present the potential for greater growth than larger more established companies.
On the other hand, the stock of small cap companies may be expected to be more
volatile and therefore present greater risk to capital.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply 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
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited reduction in interest
rates by the Federal Reserve Board. In September, the Fed reduced the federal
funds rate a modest 1/4 of a percentage point, however, the cut disappointed
some investors who were expecting a more dramatic gesture. In October, the Fed
reduced the rate an additional 1/4 of a percentage point. This was an unexpected
cut that seemed to have a positive effect on Wall Street. Investors were also
pleasantly surprised by better-than-expected corporate earnings reports early in
the fourth quarter. (Other contributors to the good vibrations included Mark
McGwire, Sammy Sosa and John Glenn. While they don't have the market clout of
Alan Greenspan, they may have played a role in elevating the national mood.)
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year.
Other signs of strength this year have included better-than-expected regional
retail sales, as well as robust housing starts and home sales. The nation's
budget surplus for 1998 came in at $60 billion, with another budget surplus
expected for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2 and 3 percent for the second half of 1998 and is anticipated to
hover around 2 percent for the first half of 1999. The consumer price index
(CPI) remains at about 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
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>
OCTOBER 31, 1998 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 4.53 5.64 6.03 6.53
PRIME RATE(2) 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.43 1.38 2.22 3.00
THE U.S. DOLLAR(4)* 0.89 3.92 7.62 4.74
CAPITAL GOODS ORDERS(5)* 10.21 10.47 15.67 4.79
INDUSTRIAL PRODUCTION(5)* 2.45 2.57 2.60 3.18
EMPLOYMENT GROWTH(6)* 2.34 2.57 2.65 2.22
</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 SEPTEMBER 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. A threat of impeachment, new acts
of terrorism or any other hints of crisis could help drag our markets downward
again.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ John E. Silvia
JOHN E. SILVIA
November 9, 1998
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF NOVEMBER 9, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[STALZER PHOTO]
KURT R. STALZER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN JANUARY 1997 AND HAS
MORE THAN 15 YEARS OF INVESTMENT EXPERIENCE. HE IS A MANAGING DIRECTOR OF
SCUDDER KEMPER INVESTMENTS AND LEAD 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 THE ASSOCIATION OF INVESTMENT
MANAGEMENT AND RESEARCH.
[BURSHTAN PHOTO]
DAVID H. BURSHTAN JOINED SCUDDER KEMPER INVESTMENTS IN SEPTEMBER 1995. HE IS A
SENIOR VICE PRESIDENT AND A MEMBER OF SCUDDER KEMPER'S GLOBAL EQUITY GROUP AS
WELL AS PORTFOLIO MANAGER OF KEMPER AGGRESSIVE GROWTH FUND. BURSHTAN RECEIVED
HIS B.A. DEGREE IN ECONOMICS FROM BROWN UNIVERSITY AND HIS M.B.A. DEGREE IN
FINANCE FROM THE UNIVERSITY OF CHICAGO.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
THE PAST FISCAL YEAR HAS BEEN AN EXTREMELY CHALLENGING ENVIRONMENT FOR STOCK
INVESTING. LEAD PORTFOLIO MANAGER KURT STALZER TAKES A LOOK AT SOME OF THE
FACTORS THAT IMPACTED THE FUND'S PERFORMANCE, AND DISCUSSES THE STRATEGIES HE
FOLLOWED TO HOLD THE FUND ON COURSE WITH ITS PEERS.
Q TO BEGIN, COULD YOU PROVIDE US WITH A BRIEF OVERVIEW OF THE MARKET
CLIMATE?
A Uncertainty and volatility were the key themes of the past year. In large
part, I think that the uncertainty can be traced to the changing, increasingly
global investment frontier. In this evolving global economy, investors must now
evaluate and address the consequences of international issues more thoroughly,
and often find themselves in unfamiliar territory.
Uncertainty and volatility established a foothold fairly soon after the start
of the fiscal year. On October 27, 1997, doubts about the economic stability of
several Southeast Asian nations cast a shadow of uncertainty across our domestic
markets, and the U.S. stock market fell 7 percent in a single day. The
floundering Asian economies triggered profound concerns about the strong
domestic economic growth we had enjoyed during the last four years: To what
extent would gross domestic product be impacted by a softer demand for exports?
How would domestic earnings be influenced by cheaper imports?
At least initially, the markets bounced back rapidly from the correction. The
bailout plans developed by the International Monetary Fund gave investors
renewed hope, as did the strong earnings posted by many domestic companies. As
1997 ended, the markets were rocketing upward, in a rally that continued through
the first quarter of 1998.
This ebullience was not to be long-lived, however. Concerns about Asia's
impact on domestic stocks had been lurking in the shadows of the enthusiastic
rally, and returned to the forefront by summer. Already extremely edgy,
investors responded frantically to the Russian debt crisis and reports about
Latin America's potential economic weakness. In the wake of the Russian default,
the markets plunged in August.
Q HOW DID INVESTORS RESPOND IN THIS TURBULENT ENVIRONMENT?
A In the uncertain market climate, jittery investors began to flock to
companies that seemed to offer safe haven: large, domestic-oriented companies
with predictable, stable earnings. Liquidity became paramount. Companies with
perceived minimal susceptibility to Asia's woes were rewarded. A firm's
perceived ability to generate a steady stream of earnings carried far more cache
than underlying values.
Indeed, the rally that we saw in the middle of the year was not broad-based.
Mega-cap domestic names were the market leaders, while small-company stocks and
those with international exposure trailed in performance. Investors were too
nervous to give any second chances, and abandoned stocks that fell short of
earnings expectations. This trend continued throughout the second half of the
fiscal year, as investors bestowed their favor on an increasingly limited group
of mega-cap stocks. Earnings disappointments were punished more than usual with
panicked selling, and the prices of many smaller and more-aggressive stocks
dropped.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DID THE FUND PERFORM IN THIS TURBULENT MARKET CLIMATE?
A Kemper Aggressive Growth Fund was down 8.67 percent (Class A shares,
unadjusted for any sales charges) for the one-year period ending September 30,
1998. In comparison, the fund's benchmark, the Russell 3000 Index, gained 4.64
percent. The fund's performance was more closely in line with its peer group
average, however. For the one-year period ended September 30, 1998, the Lipper
capital appreciation category average was down 8.08 percent.
In the semiannual report (March 31, 1998) we noted that the fund was
performing solidly, outpacing the category average by nearly six percentage
points. So, in the second half of the year, we gave up our gains, and then some.
We recognize that a loss of any magnitude can be disheartening. Even if the
fund's performance is closely in line with its peers, we don't like it when the
fund falters and shareholders lose money. However, we take confidence from the
historical performance of aggressive growth stocks. While these stocks can dip
more than more conservative equities, they often have the potential to rise more
rapidly as well. Over the past year, the markets have been particularly
challenging, but as aggressive-growth stock investors, we recognize that over
the long-term, volatility can also yield opportunities.
Q HOW DO YOU INVEST WHEN THE MARKETS ARE AS TURBULENT AS THEY HAVE BEEN?
A We strive to adhere to our growth-at-a-reasonable-price discipline in all
market environments, including volatile ones. We're not interested in finding
the next investment fad or concept. Instead, we want to invest in sensibly
priced stocks of companies that show sustainable above-average earnings growth
potential for at least a two- to five-year time horizon. To find these
companies, we research, scrutinize and evaluate a multitude of factors. Using
qualitative and quantitative analysis, we monitor the growth trends of stocks
and sectors, stock prices, industry growth expectations and company balance
sheets. Our goal is to use these criteria, as well as many others, to hone in on
companies that offer innovative products or services, occupy a niche market, or
have minimum competition.
Q COULD YOU HIGHLIGHT SOME INSTANCES WHERE YOUR STOCK SELECTION CRITERIA
PROVED ADVANTAGEOUS?
A Many of our health care stocks contributed good performance. We found
many reasonably priced stocks that met our criteria, and overweighted the fund's
allocation relative to the Russell 3000 index. Within the health care arena,
we've preferred device and product companies over service firms, prompted by
concerns that a shifting regulatory outlook could negatively impact service
stocks. Safeskin and ResMed are two stocks that embody the traits we seek, and
both posted nice gains for the fund. Safeskin, a stock we had held through much
of the fiscal year but not part of the portfolio as of 9/30/98, is a leading
producer of powder free surgical gloves, the preferred choice of physicians.
ResMed is a stock we back with considerable conviction -- it is a large holding
in the fund. ResMed develops products to treat sleep apnea. Both stocks dominate
a niche, have excellent records, and are underfollowed by the market.
The fund also garnered returns from McKesson, a producer and distributor of
pharmaceuticals and healthcare products. McKesson is a standout among large-cap
stocks, offering highly predictable 25 percent earnings growth. That's amazing
for a company of its size. McKesson displays great innovations in its
applications of technology to meet routine hospital needs in a more
cost-efficient manner.
We found a profitable niche play in Profit Recovery Group International which
was not part of the portfolio as of 9/30/98. This firm provides auditing
services, monitoring the bills that large companies receive from their
suppliers. Profit Recovery collects fees when it uncovers instances that its
clients have been billed incorrectly. It's the largest firm in a surprisingly
lucrative market.
Also, we've been very happy with Concord Communications. Similar to the other
firms I discussed, Concord Communications may not be a well-recognized name, but
it offers innovation, a dominant industry presence, and strong earnings growth
potential. Concord Communications creates software that allows companies to
monitor their computer networks' service levels and traffic. Concord
Communications also provides solutions for increased network efficiency, which
help clients to significantly cut costs.
Q WHAT DID NOT PERFORM AS WELL AS EXPECTED?
A The fund's technology stake suffered in the wake of the Asian economic
crisis. We started to reduce our technology exposure after the October 27, 1997
correction, but we did not pare back
6
<PAGE> 7
PERFORMANCE UPDATE
aggressively enough. Energy stocks also clipped the fund's gains. We had been a
bit early in thinking that these stocks had bottomed out: commodity prices
dropped further than we had anticipated, and we didn't react quickly enough. The
fund was also hindered to an extent by its positions in transportation, rail and
trucking stocks. Fortunately, the fund's exposure to stocks in these three
sectors was modest.
Among specific stocks, we had some less-than-successful performers. Within the
fund's financial services stake, Sirrom Capital was a noteable disappointment.
Sirrom is involved in extending credit to small businesses, and was battered as
the result of poor loan quality and funding issues.
Within the fund's technology stocks, Computer Associates and Tecnomatix
Technologies also put a damper on returns. Computer Associates, a large-cap
software company, had built up a great track record. Unfortunately, it fell
short of its earnings expectations. Meanwhile, Tecnomatix suffered as a result
of decreased demand for its computer-aided production engineering software,
intensified competition and difficulties with a new product launch.
And while health care generally had a positive impact on performance, Dura
Pharmaceutical didn't make the grade. Slowing sales of its drug Ceclor, and the
firm's decision to change its distribution network mid-stream served to
undermine the market's confidence in the company's growth potential.
Q DID THE EMOTIONAL MARKET CLIMATE PRESENT DIFFICULTIES FOR YOUR STRICT
INVESTMENT DISCIPLINE?
A Our valuation discipline kept out some high-flying stocks, such as
Internet plays. The market showered some of these companies with favor.
Regardless, we don't feel that those stocks have yet shown the sustainable
earnings growth potential that we seek. In short, momentum investing has been
having some success lately, but we think our price-conscious approach is more
prudent over the long-term.
Also, the market's fixation on mega-cap companies created an inhospitable
climate for initial public offerings (IPOs). As the stream of IPOs dried up, we
were left with fewer stocks to consider.
Q HOW DID THE FUND'S ALLOCATION AMONG SMALL-, MID- AND LARGE-CAP STOCKS
IMPACT PERFORMANCE?
A Because we seek reasonably valued companies with high earnings growth
rates, the portfolio is weighted towards small-cap stocks. Throughout the year,
the fund generally held about half of its assets in small-cap names, a third in
mid-cap names, and the remainder in large-caps.
During the past year, this preference for small-cap stocks hampered the fund's
short-term gains. Because small-caps have less liquidity and often have shorter
track records, they have suffered the sting of an emotional market's disfavor
more than their large-cap counterparts. In the uncertain market climate,
investors have been less willing to take chances.
Nonetheless, we believe that small-cap stocks account for the majority of the
better long-term aggressive growth opportunities. We don't feel comfortable
trying to predict exactly when the tide will turn, but experience has taught us
that attractively valued stocks with strong earnings growth will persevere over
the long haul.
Q AS THE FUND BEGINS A NEW YEAR, WHERE ARE YOU UNCOVERING ATTRACTIVE
OPPORTUNITIES?
A Because they have limited foreign exposure and good potential for
sustainable growth, we expect that consumer nondurable stocks will remain an
important theme. Our research continues to lead us to attractively valued high-
growth-potential stocks in a variety of subsectors, including broadcasting and
retailing. Within the retail subsector, we're particularly interested in chains
that cater to young people, rather than high-end retail chains. When it comes to
shopping, teens are less likely than adults to postpone a spree because of
recessionary concerns. Also, we're keeping our eye on restaurant stocks -- the
prices of many have corrected, and we're finding interesting ideas in the casual
dining segment.
Within the technology sector, we're looking for stocks that have already been
through the worst and may now be seeing the tide turn their way. For instance,
the prices of many semiconductor and
7
<PAGE> 8
PERFORMANCE UPDATE
semiconductor-related stocks have stopped declining, even though their earnings
may continue to drop. That combination may be a signal that these stocks have
already gone through their bear market. We feel that innovative contract
manufacturers may benefit from large technology companies' increased out-
sourcing needs. In contrast, we're more cautious of software and information
technology stocks. In a slowing economy, firms will likely divert what money
they do have for Year 2000 consulting work, rather than for new software and
information technology projects.
We are keeping an eye out for emerging prospects within energy stocks, as
well. Within the oil service and drilling industries, there could be some good
growth stocks out there, and the prices are much more attractive than they were
at the beginning of the year.
Q HOW DO YOU FEEL ABOUT THE PROSPECTS FOR AGGRESSIVE GROWTH STOCK
INVESTING?
A Small-cap stocks are as cheap as they've been in nearly twenty years, and
we feel that this bodes well for our aggressive-growth focus. Also, if the
market's recent slide was actually a discounting of a recession, the outlook for
small caps could improve.
That said, investors will have to be patient. The uncertainty that has shaped
the markets has not yet been resolved. Until the liquidity issues and
international concerns abate, aggressive growth funds will face added
challenges. Nonetheless, we believe that carefully selected aggressive growth
stocks offer long-term investors very good potential. Aggressive growth
opportunities are out there; we just have to trust our disciplines and hold
tight.
8
<PAGE> 9
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER AGGRESSIVE GROWTH FUND CLASS A -13.93% 7.87% (since 12/31/96)
......................................................................................................
KEMPER AGGRESSIVE GROWTH FUND CLASS B -11.90 9.14 (since 12/31/96)
......................................................................................................
KEMPER AGGRESSIVE GROWTH FUND CLASS C -9.29 10.79 (since 12/31/96)
......................................................................................................
</TABLE>
[LINE GRAPH] KEMPER U.S. MORTGAGE FUND CLASS A
<TABLE>
<CAPTION>
Kemper
Aggressive Standard &
Growth Poors 500
Fund Class Russell Stock
A1 3000 Index' Index"
<S> <C> <C> <C>
12/31/96 9425 10000 10000
3/31/97 9236 10086 10270
11071 11776 12059
12500 12875 12961
12/31/97 12571 13177 13332
14130 12660 15187
14089 12889 15687
9/30/98 11417 11447 14130
</TABLE>
[LINE GRAPH] KEMPER U.S. MORTGAGE FUND CLASS B
<TABLE>
<CAPTION>
Kemper
Aggressive Standard &
Growth Poors 500
Fund Class Russell Stock
A1 3000 Index' Index"
<S> <C> <C> <C>
12/31/96 10000.00 10000.00 10000.00
3/31/97 9778.95 10086.00 10270.00
11694.70 11776.00 12059.00
13179.00 12875.00 12961.00
12/31/97 13222.20 13177.00 13332.00
14855.60 12660.00 15187.00
14767.30 12889.00 15687.00
9/30/98 11652.90 11447.00 14130.00
</TABLE>
[LINE GRAPH] KEMPER U.S. MORTGAGE FUND CLASS C
<TABLE>
<CAPTION>
Kemper
Aggressive Standard &
Growth Poors 500
Fund Class Russell Stock
A1 3000 Index' Index"
<S> <C> <C> <C>
12/31/96 10000 10000 10000
3/31/97 9779 10086 10270
11705 11776 12059
13189 12875 12961
12/31/97 13233 13177 13332
14867 12660 15187
14778 12889 15687
9/30/98 11964 11447 14130
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO
THAT SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 5.75%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE (CDSC) IS 4%.
CLASS C SHARES HAVE NO SALES CHARGE
ADJUSTMENT, BUT REDEMPTIONS WITHIN ONE
YEAR OF PURCHASE MAY BE SUBJECT TO A
(CDSC) OF 1%. SHARE CLASSES INVEST IN
THE SAME UNDERLYING PORTFOLIO. AVERAGE
ANNUAL TOTAL RETURN REFLECTS
ANNUALIZED CHANGE WHILE TOTAL RETURN
REFLECTS AGGREGATE CHANGE. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING KEMPER AGGRESSIVE GROWTH
FUND TO THE INDICES, YOU SHOULD ALSO
NOTE THAT THE FUND'S PERFORMANCE
REFLECTS THE MAXIMUM SALES CHARGE,
WHILE NO SUCH CHARGES ARE REFLECTED
IN THE PERFORMANCE OF THE INDICES.
+THE RUSSELL 3000 INDEX IS AN UNMANAGED
INDEX COMPRISED OF 3000 OF THE LARGEST
CAPITALIZED U.S. DOMICILED COMPANIES
WHOSE COMMON STOCKS TRADE IN THE U.S.
THIS PORTFOLIO OF SECURITIES
REPRESENTS APPROXIMATELY 98 PERCENT OF
THE INVESTABLE U.S. EQUITY MARKET.
++THE STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS TOWERSDATA.
9
<PAGE> 10
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on September 30, 1998, and on September 30, 1997.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE KEMPER AGGRESSIVE
GROWTH FUND GROWTH FUND
ON 9/30/98 ON 9/30/97
<S> <C> <C>
CONSUMER NON-DURABLES 30.6% 29.4%
HEALTH CARE 27.6% 14.5%
TECHNOLOGY 18.2% 24.9%
TELECOMMUNICATIONS 10.0% 0.0%
CAPITAL GOODS 4.8% 14.0%
FINANCE 4.4% 7.4%
ENERGY 1.6% 2.1%
CONSUMER DURABLES 1.5% 1.4%
TRANSPORTATION 1.3% 4.6%
BASIC INDUSTRIES 0.0% 1.7%
</TABLE>
A COMPARISON WITH THE RUSSELL 3000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of Kemper Aggressive Growth Fund represented on September 30, 1998 compared to
the industry sectors that make up the fund's benchmark, the Russell 3000 Index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE RUSSELL 3000 INDEX
GROWTH FUND ON 9/30/98
ON 9/30/98
<S> <C> <C>
CONSUMER NON-DURABLES 30.6% 19.9%
HEALTH CARE 27.6% 12.8%
TECHNOLOGY 18.2% 16.3%
TELECOMMUNICATIONS 10.0% 10.6%
CAPITAL GOODS 4.8% 7.9%
FINANCE 4.4% 18.2%
ENERGY 1.6% 6.8%
CONSUMER DURABLES 1.5% 2.4%
TRANSPORTATION 1.3% 1.2%
BASIC INDUSTRIES 0.0% 3.9%
</TABLE>
* THE RUSSELL 3000 INDEX IS AN UNMANAGED INDEX COMPRISED OF 3000 OF THE LARGEST
CAPITALIZED U.S. DOMICILED COMPANIES WHOSE COMMON STOCKS TRADE IN THE U.S.
THIS PORTFOLIO OF SECURITIES REPRESENTS APPROXIMATELY 98 PERCENT OF THE
INVESTABLE U.S. EQUITY MARKET.
10
<PAGE> 11
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 21.0 percent of the fund's total net assets on September 30, 1998
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
1. XOMED SURGICAL Producer of surgical products relating to the ears, nose 2.5%
PRODUCTS and throat.
- --------------------------------------------------------------------------------------------------------
2. PROFIT RECOVERY GROUP A provider of accounts payable and other audit recovery 2.2%
INTERNATIONAL services to retailers and other transaction intensive
companies.
- --------------------------------------------------------------------------------------------------------
3. CONCORD COMMUNICATIONS Developer and marketer of software solutions for 2.2%
computer networks.
- --------------------------------------------------------------------------------------------------------
4. VENTANA MEDICAL SYSTEMS Manufacturer and marketer of systems that automate 2.1%
medical tests for analyzing cells and tissues on
microscope slides, for the diagnosis and treatment of
cancer.
- --------------------------------------------------------------------------------------------------------
5. REGIS The largest owner of small-based hair and retail product 2.1%
salons in the world.
- --------------------------------------------------------------------------------------------------------
6. MAPICS Global provider of open enterprise applications and 2.0%
services for industrial and distribution companies using
mid-range and personal computers.
- --------------------------------------------------------------------------------------------------------
7. TECH DATA Distributor of computer related hardware products such 2.0%
as printers, terminals, computers, and local area
networks and application and operating systems software.
- --------------------------------------------------------------------------------------------------------
8. BIOMET Designer, manufacturer and marketer of surgical 2.0%
implants, orthopedic support devices and hospital supply
products.
- --------------------------------------------------------------------------------------------------------
9. QUINTILES A full service contract organization providing clinical, 2.0%
TRANSNATIONAL preclinical and toxicology services to pharmaceutical
and biotechnology companies.
- --------------------------------------------------------------------------------------------------------
10. PROTECTIVE LIFE Through its subsidiaries, a provider of group life and 1.9%
health insurance, individual life insurance, guaranteed
investment contracts and annuities.
- --------------------------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER AGGRESSIVE GROWTH FUND
Portfolio of Investments at September 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCKS NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
CAPITAL GOODS--4.3% Applied Power, Inc. 21,200 $ 579
(a)Casella Waste Systems, Inc. 14,300 486
(a)Solectron Corp. 11,200 538
---------------------------------------------------------------------------
1,603
- --------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--17.6% (a)Cinar Films, Inc. 27,400 491
(a)Consolidated Graphics, Inc. 13,000 494
(a)Education Management Corp. 19,400 689
(a)Guitar Center, Inc. 18,500 347
Harley-Davidson, Inc. 13,000 382
(a)ITT Educational Services, Inc. 16,900 541
(a)Men's Wearhouse 25,500 440
(a)Morton's Restaurant Group, Inc. 9,100 196
Pittway Corp. 29,600 707
(a)Profit Recovery Group International,
Inc. 26,400 825
Royal Caribbean Cruises 11,800 313
Select Appointments Holdings, ADR 19,300 335
Sylvan Learning Systems, Inc. 22,000 514
(a)United Rentals, Inc. 11,742 281
---------------------------------------------------------------------------
6,555
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.4% (a)Tower Automotive, Inc. 25,600 506
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--10.0% Albertson's, Inc. 11,800 639
(a)American Italian Pasta Co. 18,000 472
Dayton Hudson Corp. 11,800 422
(a)Dollar Tree Stores, Inc. 12,500 391
Ecolab, Inc. 17,400 495
Regis Corp. 24,400 769
Whole Foods Market 12,500 527
---------------------------------------------------------------------------
3,715
- --------------------------------------------------------------------------------------------------------------------
ENERGY--1.4% Halliburton Co. 19,000 543
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FINANCE--4.0% American Express Co. 4,500 349
American General Corp. 6,500 415
Protective Life Corp. 20,000 720
---------------------------------------------------------------------------
1,484
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
COMMON STOCKS NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C>
HEALTH CARE--24.8% ADAC Laboratories 11,000 $ 264
(a)Arterial Vascular Engineering, Inc. 16,800 622
(a)Biogen, Inc. 10,000 658
Biomet, Inc. 21,500 746
(a)Hanger Orthopedic Group, Inc. 23,300 434
McKesson Corp. 5,000 458
(a)Medicis Pharmaceutical Corp. 10,500 416
(a)Ocular Sciences, Inc. 11,800 248
(a)Province Healthcare Co. 21,100 719
(a)QuadraMed Corp. 16,900 340
(a)Quintiles Transnational Corp. 17,000 744
(a)Renal Care Group, Inc. 21,000 538
(a)ResMed, Inc. 8,100 421
(a)Serologicals Corp. 16,650 418
(a)STERIS Corp. 18,800 531
Ventana Medical Systems, Inc. 43,300 779
Xomed Surgical Products, Inc. 22,600 929
---------------------------------------------------------------------------
9,265
- --------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--16.3% (a)BMC Software, Inc. 8,900 535
(a)Cisco Systems 4,950 306
(a)Concord Communications, Inc. 20,300 807
(a)Concord EFS, Inc. 18,500 477
(a)Cotelligent Group, Inc. 25,000 439
(a)Legato Systems, Inc. 7,500 385
(a)MAPICS, Inc. 34,300 757
(a)Mercury Interactive Corp. 14,500 575
(a)Segue Software, Inc. 32,900 543
(a)Sterling Commerce, Inc. 15,000 519
(a)Tech Data Corp. 15,000 751
---------------------------------------------------------------------------
6,094
- --------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--8.9% (a)CBS Corp. 11,200 272
(a)Crown Castle International Corp. 30,000 289
(a)Hearst-Argyle Television, Inc. 10,000 334
(a)Heftel Broadcasting Corp. 10,000 377
(a)Jacor Communications, Inc. 8,800 445
(a)MCI WorldCom, Inc. 13,500 660
(a)Outdoor Systems, Inc. 26,100 509
(a)Univision Communications, Inc. 15,400 458
---------------------------------------------------------------------------
3,344
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.2% Kansas City Southern Industries 13,000 455
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--89.9%
(Cost: $33,155) 33,564
---------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
MONEY MARKET Yield--5.45% to 5.86%
INSTRUMENTS--13.4%
Due--October 1998
ConAgra, Inc. $ 1,000 $ 999
E.I. du Pont de Nemours & Co. 2,000 1,997
Enron Corp. 1,000 1,000
Goldman Sachs Group, L.P. 1,000 999
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--13.4%
(Cost: $4,995) 4,995
---------------------------------------------------------------------------
TOTAL INVESTMENTS--103.3%
(Cost: $38,150) 38,559
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(3.3)% (1,227)
---------------------------------------------------------------------------
NET ASSETS--100% $37,332
---------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security
Based on the cost of investments of $38,150,000 for federal income tax purpose
at September 30, 1998, the gross unrealized appreciation was $3,103,000, the
gross unrealized depreciation was $2,694,000 and the net unrealized appreciation
on investments was $409,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER AGGRESSIVE GROWTH FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Aggressive Growth Fund as of
September 30, 1998, and the related statements of operations for the year then
ended and changes in net assets and the financial highlights for the year then
ended and for the period from December 31, 1996 (commencement of operations) to
September 30, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1998, by correspondence with the custodian. 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
Aggressive Growth Fund at September 30, 1998, the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for the year then ended and for the period from December 31, 1996 to September
30, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1998
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value
(Cost: $38,150) $38,559
- -----------------------------------------------------------------------
Cash 459
- -----------------------------------------------------------------------
Receivable for:
Investments sold 1,508
- -----------------------------------------------------------------------
Fund shares sold 162
- -----------------------------------------------------------------------
Reimbursement from advisor 76
- -----------------------------------------------------------------------
Dividends 3
- -----------------------------------------------------------------------
TOTAL ASSETS 40,767
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Investments purchased 3,349
- -----------------------------------------------------------------------
Fund shares redeemed 21
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 48
- -----------------------------------------------------------------------
Other 17
- -----------------------------------------------------------------------
Total liabilities 3,435
- -----------------------------------------------------------------------
NET ASSETS $37,332
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $40,460
- -----------------------------------------------------------------------
Accumulated net realized loss on investments (3,537)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 409
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $37,332
- -----------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($21,040 / 1,916 shares outstanding) $10.98
- -----------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $11.65
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($13,575 / 1,254 shares outstanding) $10.83
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($2,717 / 251 shares outstanding) $10.84
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 161
- -----------------------------------------------------------------------
Dividends 54
- -----------------------------------------------------------------------
Total investment income 215
- -----------------------------------------------------------------------
Expenses:
Management fee 98
- -----------------------------------------------------------------------
Distribution services fee 83
- -----------------------------------------------------------------------
Administrative services fee 61
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 235
- -----------------------------------------------------------------------
Professional fees 23
- -----------------------------------------------------------------------
Shareholder reports 24
- -----------------------------------------------------------------------
Trustees' fees and other 5
- -----------------------------------------------------------------------
Total expenses before expense waiver 529
- -----------------------------------------------------------------------
Less expenses waived by investment manager 107
- -----------------------------------------------------------------------
Total expenses after expense waiver 422
- -----------------------------------------------------------------------
NET INVESTMENT LOSS (207)
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on sales of investments (3,498)
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments (1,141)
- -----------------------------------------------------------------------
Net loss on investments (4,639)
- -----------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(4,846)
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
YEAR ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment loss $ (207) (41)
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) (3,498) 729
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (1,141) 1,550
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (4,846) 2,238
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments (722) --
- ---------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 31,291 9,271
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 25,723 11,509
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 11,609 100
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD $37,332 11,609
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
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 September 30, 1998) 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 SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq), for which there have been sales, are
valued at the most recent sale price reported on
the Nasdaq. If there are no such sales, the value
is the most recent bid quotation. Securities which
are not quoted on the Nasdaq but are traded in
another over-the-counter market are valued at the
most recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. All other securities are valued at
their fair market value as determined in good faith
by the Valuation Committee of 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 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 policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
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.
From November 1, 1997 through September 30, 1998,
the Fund incurred approximately $3,544,000 of net
realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer
these losses and treat them as arising in the
fiscal year ended September 30, 1999.
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.
- --------------------------------------------------------------------------------
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 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 year ended September 30, 1998, the Fund
incurred management fees as follows:
<TABLE>
<S> <C>
Base fee $107,000
Performance adjustment (9,000)
--------
Total fees $ 98,000
========
</TABLE>
Scudder Kemper agreed to waive certain operating
expenses of the Fund. Under this agreement, Scudder
Kemper waived operating expenses of $107,000 for
the year ended September 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the Fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination. The
Board of Trustees of the Fund will seek shareholder
approval of the new investment management agreement
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI).
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
Underwriting commissions paid in connection with
the distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS ALLOWED BY KDI
RETAINED BY ----------------------------
KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1998 $32,000 323,000 5,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
(AFTER EXPENSE WAIVER) COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------------- ----------------------
<S> <C> <C>
Year ended
September 30, 1998 $63,000 363,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY
THE FUND TO KDI ASF PAID BY
(AFTER EXPENSE WAIVER) KDI TO FIRMS
----------------------- -------------
<S> <C> <C>
Year ended
September 30, 1998 $3,000 80,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $209,000
for the year ended September 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended September 30,
1998, the Fund made no payments to its officers and
incurred trustees fees of $1,000 to independent
trustees.
- --------------------------------------------------------------------------------
4
INVESTMENT
TRANSACTIONS For the year ended September 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $73,072
Proceeds from sales 45,435
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
YEAR ENDED TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,734 $21,823 766 $ 7,757
-------------------------------------------------------------------------------
Class B 1,096 13,857 379 3,908
-------------------------------------------------------------------------------
Class C 239 3,009 144 1,404
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 35 399 -- --
-------------------------------------------------------------------------------
Class B 22 251 -- --
-------------------------------------------------------------------------------
Class C 5 59 -- --
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (373) (4,746) (276) (2,723)
-------------------------------------------------------------------------------
Class B (172) (2,248) (47) (508)
-------------------------------------------------------------------------------
Class C (88) (1,113) (53) (567)
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 21 279 5 60
-------------------------------------------------------------------------------
Class B (22) (279) (5) (60)
-------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL
SHARE TRANSACTIONS $31,291 $ 9,271
-------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR DECEMBER 31, 1996
ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.60 9.50
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.02) (.02)
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.05) 3.12
- -------------------------------------------------------------------------------
Total from investment operations (1.07) 3.10
- -------------------------------------------------------------------------------
Less distribution from net realized gain .55 --
- -------------------------------------------------------------------------------
Net asset value, end of period $10.98 12.60
- -------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (8.67)% 32.63
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 1.25% 1.49
- -------------------------------------------------------------------------------
Net investment loss (.42)% (.35)
- -------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.46% --
- -------------------------------------------------------------------------------
Net investment loss (.63)% --
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR DECEMBER 31, 1996
ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.52 9.50
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.04) (.08)
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.10) 3.10
- -------------------------------------------------------------------------------
Total from investment operations (1.14) 3.02
- -------------------------------------------------------------------------------
Less distribution from net realized gain .55 --
- -------------------------------------------------------------------------------
Net asset value, end of period $10.83 12.52
- -------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (9.30)% 31.79
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 2.12% 2.41
- -------------------------------------------------------------------------------
Net investment loss (1.29)% (1.27)
- -------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.81% --
- -------------------------------------------------------------------------------
Net investment loss (1.98)% --
- -------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR DECEMBER 31, 1996
ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.53 9.50
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.04) (.07)
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.10) 3.10
- -------------------------------------------------------------------------------
Total from investment operations (1.14) 3.03
- -------------------------------------------------------------------------------
Less distribution from net realized gain .55 --
- -------------------------------------------------------------------------------
Net asset value, end of period $ 10.84 12.53
- -------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (9.29)% 31.89
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses absorbed by the Fund 2.10% 2.19
- -------------------------------------------------------------------------------
Net investment loss (1.27)% (1.05)
- -------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.76% --
- -------------------------------------------------------------------------------
Net investment loss (1.93)% --
- -------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
</TABLE>
<TABLE>
<CAPTION>
YEAR DECEMBER 31, 1996
ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $37,332 11,609
- -------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 190% 364
- -------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Scudder
Kemper agreed to temporarily waive certain operating expenses of the Fund during
the year ended September 30, 1998. The Other Ratios to Average Net Assets are
computed without this waiver.
TAX INFORMATION
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
23
<PAGE> 24
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <C> <C>
DANIEL PIERCE MARK S. CASADY KURT R. STALZER
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
LEWIS A. BURNHAM MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
WILLIAM P. SOMMERS
Trustee STEVEN H. REYNOLDS
Vice President
EDMOND D. VILLANI
Trustee
</TABLE>
<TABLE>
<S> <C>
..........................................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
..........................................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
..........................................................................................................
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
..........................................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
..........................................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style prospectus.
KAGGF - 2 (11/98) 1059680
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
