<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE
YEAR ENDED SEPTEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
Seeking capital appreciation through the
use of aggressive investment techniques
KEMPER
AGGRESSIVE GROWTH FUND
"... Generally speaking we believe that, having too
many holdings dilutes the impact of our best
investment ideas. ... Our goal is to seek a smaller
group of top-notch companies. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
15
FINANCIAL STATEMENTS
17
NOTES TO FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
23
REPORT OF INDEPENDENT AUDITORS
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A 40.44%
CLASS B 39.06%
CLASS C 38.93%
- -------------------------------------------------------------------------------
</TABLE>
RETURNS 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
9/30/99 9/30/98
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER AGGRESSIVE
GROWTH FUND CLASS A $15.42 $10.98
- -------------------------------------------------------------------------------
KEMPER AGGRESSIVE
GROWTH FUND CLASS B $15.06 $10.83
- -------------------------------------------------------------------------------
KEMPER AGGRESSIVE
GROWTH FUND CLASS C $15.06 $10.84
- -------------------------------------------------------------------------------
</TABLE>
THERE ARE SPECIAL RISK CONSIDERATIONS ASSOCIATED WITH THE FUND INCLUDING
OPERATION AS A NONDIVERSIFIED 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
YOUR FUND'S STYLE
- -------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- -------------------------------------------------------------------------------
Source: Morningstar, Inc. Chicago, IL (312) 696-6000. The Morningstar Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY TO DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED KEMPER AGGRESSIVE
GROWTH FUND IN THE LARGE-CAP GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR
A DESCRIPTION OF INVESTMENT POLICIES.
BALANCE SHEET A condensed financial statement showing what a company owns, what
it owes and the ownership interest in the company of its stockholders, at a
certain time.
CYCLICAL STOCK A stock that carries a higher degree of economic sensitivity. In
accelerating economies, cyclical stocks tend to rise quickly; in decelerating
economies, they tend to decline quickly. Cyclical stocks include those of
companies in the industrial machinery, paper and forestry, automobile and
construction sectors.
MARKET CAPITALIZATION A measure of the size of a publicly traded company, as
determined by multiplying the current share price by the number of shares
outstanding.
NARROW MARKET In a narrow market, the majority of the gains are earned by a
small number of stocks. In contrast, in a broad market, a large group of stocks
contribute to the overall gains.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers are buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight labor
markets -- i.e., many "help-wanted" signs -- forces companies to pay a premium
for talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data which were
released in late October: The Bureau of Economic Analysis (BEA) released its
third-quarter estimate of gross domestic product (GDP), the value of all goods
and services produced in the United States, and the Bureau of Labor Statistics
(BLS) released its employment cost index (ECI), which measures what employers
pay for their workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
These figures tell us that the Fed won't have inflation as an excuse to raise
interest rates for a third time this year when it meets on Nov. 16 to decide
whether to raise key interest rates for the third time this year.
But more importantly, if these numbers prove anything, it's that conventional
wisdom that growth causes inflation should be turned on its head. The Fed, in
deciding to
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 (10/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 6.1 5.2 4.5 6.0
Prime rate 2 8.25 7.75 8.25 8.5
Inflation rate 3* 2.6 1.8 1.4 2.2
The U.S. dollar 4 -0.9 -0.5 1.1 7.6
Capital goods orders 5* 5.25 5.5 8.6 4.6
Industrial production 5* 2.4 2.0 2.65 6.1
Employment growth 6 2.2 2.3 2.4 2.7
</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 9/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
target growth itself, wants the country to slow down to prevent an inflation
outbreak. This is a dangerous game. If it succeeds in slowing growth, inflation
could easily disappear or turn into deflation. Real rates that are already high
would turn punitive. Credit quality would deteriorate rudely. Only rapid growth
can ensure that companies and consumers can continue to pay their bills.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 28, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
SEWALL HODGES IS A SENIOR VICE PRESIDENT WITH SCUDDER KEMPER INVESTMENTS, INC.
HODGES BRINGS MORE THAN 20 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND
AND SERVES AS THE LEADER OF THE COMPANY'S SMALL-CAP INVESTING TEAM. HODGES IS
SUPPORTED BY THE FIRM'S LARGE STAFF OF RESEARCH ANALYSTS, TRADERS AND OTHER
INVESTMENT PROFESSIONALS.
SUBSEQUENT TO THE END OF THE FISCAL-YEAR PERIOD, J. C. CABRERA JOINED THE
INVESTMENT TEAM AS A PORTFOLIO MANAGER. CABRERA CONTRIBUTES MORE THAN A DECADE
OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND.
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 ANNUAL PERIOD HAS BROUGHT MANY OBSTACLES TO THE EQUITY INVESTOR. DESPITE
THESE CHALLENGES, FOR THE FISCAL YEAR, KEMPER AGGRESSIVE GROWTH FUND (CLASS A
SHARES, UNADJUSTED FOR ANY SALES CHARGES) RETURNED MORE THAN 40 PERCENT TO ITS
SHAREHOLDERS. LEAD PORTFOLIO MANAGER SEWALL HODGES DISCUSSES THE MARKET CLIMATE,
PERFORMANCE AND THE FUND'S INVESTMENT PHILOSOPHY.
Q FOR THE ONE-YEAR PERIOD ENDING SEPTEMBER 30, 1999, KEMPER AGGRESSIVE
GROWTH FUND EARNED 40.44 PERCENT (CLASS A SHARES, UNADJUSTED FOR ANY SALES
CHARGES). SEWALL, COULD YOU PUT THIS GAIN INTO A BROADER CONTEXT FOR US?
A Kemper Aggressive Growth Fund's return meaningfully exceeded the gains of
both the large-cap Standard & Poor's 500 index (+27.79 percent) and the
small-cap Russell 2000 index (+19.07 percent).
Over the past 20 calendar years, stocks have posted an average yearly
return of 18 percent. The past few years -- including this most recent
fiscal-year period -- have been a particularly robust time. We can only be
pleased with a year in which the fund produces a gain well in excess of this 18
percent hurdle and, at the same time, beats the benchmark indices.
Q PLEASE PROVIDE US WITH AN OVERVIEW OF SOME OF THE KEY THEMES AND EVENTS
THAT SHAPED THE MARKET DURING THE PAST YEAR.
A The past year has not been smooth for investors. The stock market
continued to be turbulent and narrow (see Terms To Know on page 2). When the
fiscal year began in October 1998, the fallout from the Russian debt default was
in full swing. Equity prices in the first week of October 1998 declined sharply
worldwide. Because they offered a higher degree of perceived stability and
liquidity, large-cap companies outperformed.
In hindsight, the October decline in valuations proved to be an exceptional
buying opportunity. The commercialization of the Internet was just starting. The
resulting investment cycle created by the Internet over the past year continues
today. Numerous newly formed companies came to market with strong business plans
and growth prospects. It appears that the Internet will affect all but a very
few businesses. Investors recognize this, having rewarded the leaders and
punished the losers. The growth prospects for electronic commerce appear so
strong that many slower-growth, traditional industries were not able to compete
for investor attention. The market experienced a sharp rotation into cyclical
and value stocks in April 1999. This was a result of Internet companies becoming
overvalued in the short term as well as rising long-term interest rates and oil
prices. This rotation was short-lived, as investors returned strongly to growth
stocks.
Thanks to this excitement about the Internet, the technology sector
provided an excellent spot to create returns for Kemper Aggressive Growth Fund's
shareholders.
The health-care industry proved a disappointment this year. The sector
stumbled in a climate of legislative and political uncertainty. Interest-rate
increases also hurt many financial-service companies. Despite high consumer
confidence,
5
<PAGE> 6
PERFORMANCE UPDATE
retail and consumer-staples stocks faced challenges of Internet-generated
deflation.
Other issues unique to 1999 were the advent of the Internet "day traders"
and the year 2000 computer-glitch phenomenon.
Q YOU BECAME THE LEAD PORTFOLIO MANAGER OF KEMPER AGGRESSIVE GROWTH FUND
MID-WAY THROUGH THE FISCAL YEAR. DID THE FUND CHANGE ITS INVESTMENT OBJECTIVE,
TOO?
A The fund's objective remains the same. Kemper Aggressive Growth Fund
continues to seek capital appreciation by investing in rapidly growing
companies. To this end, our charter affords us a high degree of flexibility. We
can invest in companies of any size, and in any industry or sector. The fund is
tailored to more-aggressive investors, who are comfortable taking on added risk
in exchange for greater return potential.
Q PLEASE TELL US ABOUT YOUR INVESTMENT APPROACH.
A We evaluate investments using rigorous qualitative and quantitative
analysis on a company-by-company basis. Our qualitative research process focuses
on seven fundamental business attributes:
1. Product innovation and/or new business lines
2. Competitive position
3. A high percentage of revenues from repeat customers
4. Talented management
5. Ability to manage product prices and to control costs
6. Superior industry growth
7. Strong balance sheets and free cash flows
All of the fund's investments are ranked in these above seven categories.
This process leads us to a good understanding of a company's strengths and
weaknesses. It also provides a mechanism by which business risk and opportunity
can be gauged. In particular, we make a point of avoiding companies in which
management is weak: If we don't have confidence in the people at the helm of a
company, we'll steer clear.
Q COULD YOU GIVE US SOME EXAMPLES OF YOUR STOCK-SELECTION DISCIPLINE IN
ACTION?
A Vitesse Semiconductor, one of our largest holdings, is a standout company
as ranked by our investment process. An innovative designer of integrated
circuits for communications equipment, the company scores high on all seven of
our criteria. Vitesse's management has an impressive level of scientific and
technical expertise, as well as the ability to manage costs and cash flow.
Thanks to increased demand for high-speed communications, the market for
Vitesse's products is growing. In terms of competition, Vitesse is well
positioned, as its products are proprietary in the marketplace.
VISX is another example of an exceptional growth stock. The company is the
leading provider of a revolutionary laser treatment used for permanently
correcting poor vision, including both nearsightedness and farsightedness. VISX
also offers quality management and dominates its markets. One weakness is that
the company generates little repeat revenues, because a client undergoes the
operation only once. However, our analysis indicates that the market for vision
correction is so large that repeat revenues are not required to ensure high
growth for many years.
Q SOME FUNDS -- SUCH AS INDEX FUNDS -- INVEST IN HUNDREDS OF STOCKS, WHILE
OTHER FUNDS INVEST IN FAR FEWER. WHERE DOES KEMPER AGGRESSIVE GROWTH FUND FIT
IN?
A Well, index funds serve a different purpose from aggressive-growth funds.
While the very broad diversification of index funds may be appropriate as a core
component of a larger portfolio, Kemper Aggressive Growth Fund is designed to
serve the needs of investors who wish to participate in the highest-growth
segments of the U.S. economy.
Generally speaking, we believe that having too many holdings dilutes the
impact of our best investment ideas. Investing in a large number of average or
slightly better than average companies isn't what we want to do. Instead, our
goal is to seek a smaller group of top-notch companies. We have calculated
statistically that only a small percentage of the available investment universe
are great long-term growth stocks. Therefore, we believe in limiting the number
of investment positions. Doing so focuses us on the investments with the
greatest promise. Shareholders should expect the fund to hold between 50 and 70
stocks, on average.
Also, in keeping with our aggressive-growth charter, we believe it makes
sense to maintain a relatively high degree of concentration in our largest
holdings. We don't feel it inappropriate if the fund's top 20 holdings comprise
more than half of the portfolios' assets. At the present time, our top 20 names
account for roughly 40 percent of the fund's net assets. Building our
concentration in the stocks we like best is one of our key objectives for the
upcoming year.
6
<PAGE> 7
PERFORMANCE UPDATE
Q OVER THE PAST FEW YEARS, THE MARKETS HAVE FAVORED LARGE-CAP STOCKS OVER
SMALL CAPS. DO YOU ALLOCATE THE FUND'S ASSETS BY MARKET CAP?
A Market capitalization is not a consideration of our investment approach.
We are not going to limit ourselves to a certain percentage of small,
medium-size or large companies. Simply put, great companies are great for
reasons that are more often related not to their market capitalization, but to
other factors. A predetermined market-cap allocation only makes it more
difficult to own the best growth stocks. Therefore, we give ourselves the
flexibility to invest without market-cap restrictions.
Q WHAT ARE SOME OF THE FACTORS THAT BENEFITED THE FUND DURING THE FISCAL
YEAR?
A Many of our technology stocks earned outstanding gains. These include
semiconductor companies such as Applied Micro Circuits, Vitesse Semiconductor
and Linear Technology. We also had large profits in Comverse Technologies.
Comverse provides multimedia-telecommunications applications, including
sophisticated voice-mail and voice-identification systems. Lexmark
International, a manufacturer of computer printers and printer accessories, has
also contributed to performance.
While technology companies dominated our roster of top performers, stocks
from other sectors also contributed gains. Entertainment company Univision
Communications has been nicely rewarded. Currently one of the fund's largest
holdings, Univision offers quality exposure to Spanish-language media, a rapidly
growing market. The company operates television and radio stations, as well as
producing television content.
Although many health-care stocks suffered, eye laser surgery innovator VISX
was a bright star. Litigation concerns did slow the stock during points of the
year, but VISX has emerged unscathed, with excellent prospects for continued
growth.
Q WHAT FACTORS HINDERED PERFORMANCE?
A In general terms, we were hurt by not holding an even greater
concentration in technology stocks. We should have invested more heavily in our
best technology names, instead of diverting money into less-successful sectors.
So, during the fiscal year, too much diversification hurt performance.
In particular, our limited exposure to the ".com" group was an opportunity
lost. Compared with many other aggressive-growth funds, we took a more cautious
approach to the Internet retailers, such as Amazon.com and ebay. We simply
didn't own as many of the pure-Internet companies, and this shortage hindered
our relative performance. To a significant extent, our lack of participation was
dictated by our investment discipline. Many of these favored stocks did not meet
our investment criteria and often lacked such characteristics as defensible
competitive positions and management strength.
Although we did not have extensive exposure to financial-service stocks,
any exposure has stung performance. Insurance companies faced tough terrain, and
our exposure to Provident Life clipped our overall returns. Our exposure to
credit-service providers also put a damper on performance. Providian Financial,
a provider of secured credit cards, revolving credit lines, loans and lending
services, was one of our largest holdings as we rounded the semiannual mark.
Unfortunately, it toppled in the wake of fears regarding a potential earnings
disappointment. We were similarly stung by Metris, another company involved in
credit and transaction services.
Also, we would have been better served by earlier recognition of the
rebound in energy stocks. Our exposure to the sector was minimal, and, in
retrospect, this proved to be an unfortunate misjudgment.
Q WHAT AREAS ARE HOLDING APPEAL?
A As bottom-up investors, we invest stock-by-stock, rather than
industry-by-industry. That said, we continue to find many attractive technology
stocks. These include companies involved in digital cameras, digital television
services, Internet-linked telecommunications, semiconductors, contract
manufacturing, and outsourcing and mobile communications.
Q YOU'VE MENTIONED THAT THE INTERNET'S GROWTH HAD A SIGNIFICANT IMPACT ON
THE STOCK MARKET. HOW IS THE FUND PARTICIPATING IN THE GROWTH OF THE INTERNET
AND ELECTRONIC COMMERCE?
A The portfolio currently includes a stake in America On Line (AOL). AOL
combines Internet and e-commerce exposure with a strong track record and sound
fundamentals. We believe that AOL offers outstanding growth potential. The
company is signing up new customers, expanding globally and building strategic
alliances.
7
<PAGE> 8
PERFORMANCE UPDATE
But AOL is not the typical Internet company. As we noted, many ".com"
companies are still unknown quantities and continue to trade at high valuations.
In our view, that translates into a high degree of business risk. However, we
recognize the outstanding growth potential of the Internet and are watching the
".com" group carefully.
Meanwhile, we're investing heavily in Internet-infrastructure companies.
These are the companies that are building and supporting the growth of the
Internet and electronic commerce. Examples are Intuit (financial-management
software), Mercury Interactive (client-server software) and Linear Technology
(component-based technology).
Q SEWALL, DO YOU HAVE ANY CLOSING THOUGHTS FOR THE SHAREHOLDERS?
A Well, as always, we encourage shareholders to remember that when it comes
to aggressive-growth investing, ups and downs are par for the course. That's a
message that bears repeating in both good and bad market climates. A long-term
outlook is essential. But, we believe that just as there is volatility, there is
also opportunity. As we move into the next year, we remain focused on this
opportunity and dedicated to seeking high-quality stocks with outstanding
earnings-growth potential.
8
<PAGE> 9
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER AGGRESSIVE GROWTH FUND CLASS A 32.36% 18.74% (since 12/31/96)
- ---------------------------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND CLASS B 36.06 19.51 (since 12/31/96)
- ---------------------------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND CLASS C 38.93 20.30 (since 12/31/96)
- ---------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 12/31/96 to
9/30/99
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE STANDARD & POOR'S 500
GROWTH FUND CLASS A1 RUSSELL 3000 INDEX+ STOCK INDEX++
-------------------- ------------------- ---------------------
<S> <C> <C> <C>
12/31/96 9425.00 10000.00 10000.00
6/30/97 11071.00 11777.00 12062.00
12/31/98 14328.00 16360.00 17116.00
9/30/99 16033.00 17018.00 17859.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 12/31/96 to
9/30/99
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE STANDARD & POOR'S 500
GROWTH FUND CLASS B1 RUSSELL 3000 INDEX+ STOCK INDEX++
-------------------- ------------------- ---------------------
<S> <C> <C> <C>
12/31/96 10000.00 10000.00 10000.00
6/30/97 11695.00 11777.00 12062.00
12/31/98 14955.00 16360.00 17116.00
9/30/99 16330.00 17018.00 17859.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER AGGRESSIVE GROWTH FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 12/31/96 to
9/30/99
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE STANDARD & POOR'S 500
GROWTH FUND CLASS C1 RUSSELL 3000 INDEX+ STOCK INDEX++
-------------------- ------------------- ---------------------
<S> <C> <C> <C>
12/31/96 10000.00 10000.00 10000.00
12/31/97 11695.00 11777.00 12062.00
12/31/98 14955.00 16360.00 17116.00
9/30/99 16621.00 17018.00 17859.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURES NET INVESTMENT INCOME AND
CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL
DIVIDENDS AND FOR CLASS A SHARES ADJUSTMENT FOR THE MAXIMUM SALES CHARGE OF
5.75%, CLASS B SHARES ADJUSTMENT FOR THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3% AND FOR CLASS C SHARES NO ADJUSTMENT FOR SALES CHARGE. THE
MAXIMUM CDSC FOR CLASS B SHARES IS 4%. FOR CLASS C SHARES, THERE IS A 1% CDSC ON
CERTAIN REDEMPTIONS WITHIN THE FIRST YEAR OF PURCHASE. AVERAGE ANNUAL TOTAL
RETURN MEASURES 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 AND CLASS C 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. SOURCE IS CDA WIESENBERGER.
++THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS CDA WIESENBERGER.
9
<PAGE> 10
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON SEPTEMBER 30, 1999, AND ON SEPTEMBER 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE GROWTH KEMPER AGGRESSIVE GROWTH
FUND ON 9/30/99 FUND ON 9/30/98
------------------------ ------------------------
<S> <C> <C>
Technology 34.3 18.2
Consumer non-durables 30.8 30.6
Communication services 12.2 10.0
Capital goods 9.8 6.3
Health care 9.5 27.6
Finance 2.6 4.4
Energy 0.8 1.6
Transportation 0.0 1.3
</TABLE>
A COMPARISON WITH THE RUSSELL 3000 INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER AGGRESSIVE GROWTH FUND REPRESENTED ON SEPTEMBER 30, 1999 COMPARED TO
THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 3000 INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER AGGRESSIVE GROWTH
FUND ON 9/30/99 RUSSELL 3000 INDEX ON 9/30/99
------------------------ -----------------------------
<S> <C> <C>
Technology 34.30 23.50
Consumer non-durables 30.80 21.20
Communication services 12.20 7.40
Capital goods 9.80 8.00
Health care 9.50 10.90
Finance 2.60 16.10
Energy 0.80 5.00
Utilities 0.00 3.60
Basic materials 0.00 3.30
Transportation 0.00 1.00
</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 23.0 percent of the fund's total net assets on September 30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
1. UNIVISION COMMUNICATIONS A leading provider of 2.8%
Spanish-language broadcasting.
- -----------------------------------------------------------------------------------------
2. LEXMARK INTERNATIONAL Global developer, manufacturer and 2.7%
supplier of computer printers and
printer products.
- -----------------------------------------------------------------------------------------
3. CONCORD EFS Provides transaction management 2.6%
services and equipment. Services
include check and credit-card
authorization.
- -----------------------------------------------------------------------------------------
4. MERCURY INTERACTIVE Creates products to automate the 2.5%
testing and quality assurance of
client-server software.
- -----------------------------------------------------------------------------------------
5. PINNACLE HOLDINGS Owns wireless communication towers 2.2%
that it leases to a variety of
customers, including
telecommunication providers, and
government agencies.
- -----------------------------------------------------------------------------------------
6. COMVERSE TECHNOLOGIES Develops, manufactures and markets 2.2%
high-performance computer systems
designed to serve a broad range of
commercial and military
multimedia-communications-processing
applications.
- -----------------------------------------------------------------------------------------
7. CINAR FILMS Develops, produces and distributes 2.0%
family-oriented programming and
educational services.
- -----------------------------------------------------------------------------------------
8. VITESSE SEMICONDUCTOR Produces component technologies 2.0%
for a variety of industries,
including computers,
telecommunications, defense and
aerospace.
- -----------------------------------------------------------------------------------------
9. LINEAR TECHNOLOGY Designs, manufactures and markets 2.0%
integrated circuits for a variety
of products, including
telecommunications equipment,
computers, satellites and
automotive systems.
- -----------------------------------------------------------------------------------------
10. GLOBAL INDUSTRIAL Manufacturer of mining and 2.0%
TECHNOLOGIES INC. construction equipment.
- -----------------------------------------------------------------------------------------
</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, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--8.86% PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--0.82%
(b)Repurchase Agreement with State Street Bank
and Trust Company dated 9/30/1999 at 5.26%,
to be repurchased at $608 on 10/1/1999,
collateralized by a $425 U.S. Treasury
Bond, 11.25%, 1/15/2007 (Cost $608) 608 $ 608
----------------------------------------------------------------------------
608
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER--8.04%
Ameritech Corp., 5.300%, 10/04/1999 4,500 4,498
Ford Motor Credit Corp. 5.440%, 10/01/1999 1,500 1,500
----------------------------------------------------------------------------
(Cost $5,998) 5,998
----------------------------------------------------------------------------
TOTAL
(Cost $6,606) 6,606
----------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--91.14% NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER
DISCRETIONARY--18.89
APPAREL & SHOES--0.58
(a)Tommy Hilfiger Corp 15,400 $ 434
----------------------------------------------------------------------------
DEPARTMENT & CHAIN STORES--5.69
(a)Bebe Stores Inc 36,100 871
Dayton Hudson Corp 17,000 1,021
(a)Dollar Tree Stores Inc 12,500 499
(a)Kohl's Corp 8,000 529
(a)Men's Wearhouse Inc. 33,300 716
TJX Companies, Inc. (New) 21,300 597
----------------------------------------------------------------------------
4,233
HOTELS & CASINOS--1.86
(a)Station Casinos Inc. 59,600 1,386
----------------------------------------------------------------------------
RECREATIONAL PRODUCTS--1.03
Harley-Davidson Inc. 15,300 766
----------------------------------------------------------------------------
RESTAURANTS--3.66
(a)CEC Entertainment Inc. 41,100 1,474
(a)Jack in the Box Inc. 50,500 1,259
----------------------------------------------------------------------------
2,733
SPECIALTY RETAIL--4.01
(a)CSK Auto Corp. 25,000 545
(a)O'Reilly Automotive 12,000 572
Regis Corp. 36,600 705
(a)Zale Corp. 30,500 1,168
----------------------------------------------------------------------------
2,990
MISCELLANEOUS--2.06
(a)Cinar Corp. 50,800 1,537
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--1.19
FOOD & BEVERAGE--1.19
(a)Hain Food Group, Inc. 36,000 891
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
HEALTH--8.62
BIOTECHNOLOGY--1.86
(a)Biogen Inc. 17,600 1,387
----------------------------------------------------------------------------
HEALTH INDUSTRY
SERVICES--1.09
(a)MedQuist, Inc. 24,400 816
----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
MEDICAL SUPPLY & SPECIALTY--5.67
Biomet Inc. 28,300 $ 745
Medtronic Inc. 16,514 586
(a)ResMed, Inc. 19,900 658
(a)VISX Inc. 16,200 1,281
(a)Xomed Surgical Products, Inc. 16,650 949
----------------------------------------------------------------------------
4,219
- ----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.78
TELEPHONE/ COMMUNICATIONS--3.78
(a)MCI WorldCom, Inc. 16,300 1,172
(a)Pinnacle Holdings, Inc. 63,000 1,646
----------------------------------------------------------------------------
2,818
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL--2.32
INSURANCE--2.32
Orion Capital Corp. 9,200 436
Protective life Corp. 20,000 580
Providian Financial Corp. 9,050 717
----------------------------------------------------------------------------
1,733
- ----------------------------------------------------------------------------------------------------------------------
MEDIA--7.32
ADVERTISING--1.40
(a)Outdoor Systems, Inc. 29,200 1,044
----------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT--5.92
(a)CBS Corp. 23,600 1,091
(a)Hispanic Broadcasting Corp. 16,700 1,271
(a)Univision Communication Inc. 25,200 2,051
----------------------------------------------------------------------------
4,413
- ----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--9.19
EDP SERVICES--0.52
(a)CSG Systems International, Inc. 14,200 389
----------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL--7.55
(a)Concord EFS, Inc. 94,950 1,958
(a)Dycom Industries, Inc. 20,350 859
Ecolab, Inc. 17,400 594
Metris Companies Inc. 36,100 1,063
Select Appointments Hldgs. (ADR) 34,100 1,151
----------------------------------------------------------------------------
5,625
MISCELLANEOUS CONSUMER--1.12
(a)NovaCare Employee Services, Inc. 343,600 838
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
DURABLES--3.65
AEROSPACE--0.98
(a)Gilat Satellite Networks Ltd. 13,600 729
----------------------------------------------------------------------------
AUTOMOBILES--0.68
(a)Tower Automotive, Inc. 25,600 507
----------------------------------------------------------------------------
CONSTRUCTION/ AGRICULTURAL--1.99
(a)Global Industrial Technologies, Inc. 121,900 1,486
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.11
MACHINERY/ COMPONENTS--1.40
(a)Wyman-Gordon Co. 56,000 1,047
----------------------------------------------------------------------------
OFFICE EQUIPMENT/SUPPLIES--2.71
(a)Lexmark International Group Inc. "A" 25,100 2,021
----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
TECHNOLOGY--31.35
COMPUTER SOFTWARE--11.0
(a)Advanced Digital Information Corporation 39,200 $ 1,090
(a)America Online Inc. 6,600 686
(a)Applied Digital Access, Inc. 177,200 919
(a)Comverse Technologies Inc. 17,250 1,627
(a)ITXC Corp. 2,700 86
(a)Interleaf, Inc. 5,900 100
(a)Intuit Inc. 8,400 736
(a)Microsoft Corp. 10,600 960
(a)Verity, Inc. 16,900 1,163
(a)Viasoft, Inc. 91,100 783
(a)Vitria Technology, Inc. 1,400 51
----------------------------------------------------------------------------
8,201
DIVERSE ELECTRONIC PRODUCTS--1.19
(a)Solectron Corp. 12,400 890
----------------------------------------------------------------------------
EDP PERIPHERALS--2.46
(a)Mercury Interactive Corp. 28,400 1,834
----------------------------------------------------------------------------
ELECTRONIC COMPONENTS--4.84
(a)Applied Micro Circuits Corp. 25,600 1,459
(a)Cisco Systems, Inc. 16,300 1,118
(a)Jabil Circuit 20,700 1,025
----------------------------------------------------------------------------
3,602
OFFICE/PLANT AUTOMATION--2.93
(a)Mercury Computer Systems, Inc. 40,000 1,360
(a)Novell Inc. 39,900 825
----------------------------------------------------------------------------
2,185
SEMICONDUCTORS--8.93
(a)Atmel Corp. 18,800 636
Linear Technology Corp. 25,400 1,493
(a)QLogic Corp. 9,100 636
(a)SDL, Inc. 14,000 1,068
(a)Sanmina Corp. 17,200 1,331
(a)Vitesse Semiconductor Corp. 17,500 1,494
----------------------------------------------------------------------------
6,658
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--0.72
OILFIELD SERVICES--0.72
Halliburton Co. 13,100 537
----------------------------------------------------------------------------
TOTAL
(Cost $50,736) 67,949
----------------------------------------------------------------------------
TOTAL INVESTMENT
(Cost $57,342) $74,555
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. The collateral is monitored daily by the fund
so that its market value exceeds the carrying value of the repurchase
agreement.
Based on the cost of investments of $57,342,000 for federal income tax purposes
at September 30, 1999, the gross unrealized appreciation was $18,872,000, the
gross unrealized depreciation was $1,659,000 and the net unrealized appreciation
on investments was $17,213,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investment securities, at value, (cost $57,342) $74,555
- -----------------------------------------------------------------------
Cash 1
- -----------------------------------------------------------------------
Receivable for investments sold 1,995
- -----------------------------------------------------------------------
Dividends receivable and interest receivable 2
- -----------------------------------------------------------------------
Receivable for Fund shares sold 223
- -----------------------------------------------------------------------
TOTAL ASSETS 76,776
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------
Payable for investments purchased 2,196
- -----------------------------------------------------------------------
Payable for Fund shares redeemed 136
- -----------------------------------------------------------------------
Accrued management fee 13
- -----------------------------------------------------------------------
Other accrued expenses 81
- -----------------------------------------------------------------------
Total liabilities 2,426
- -----------------------------------------------------------------------
NET ASSETS, AT VALUE $74,350
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investment securities $17,213
- -----------------------------------------------------------------------
Accumulated net realized loss (1,886)
- -----------------------------------------------------------------------
Paid-in capital 59,023
- -----------------------------------------------------------------------
NET ASSETS, AT VALUE $74,350
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET ASSETS VALUE
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($39,623 /2,570 shares outstanding) $15.42
- -----------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of net asset value or 5.75% of offering price) $16.36
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($27,688 /
1,838 shares outstanding) $15.06
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($7,039 / 467 shares outstanding) $15.06
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Period ended September 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------
Income:
Dividends $ 58
- -----------------------------------------------------------------------
Interest 236
- -----------------------------------------------------------------------
Total investment income 294
- -----------------------------------------------------------------------
Expenses:
Management fee 241
- -----------------------------------------------------------------------
Administrative services fee 145
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 580
- -----------------------------------------------------------------------
Trustees' fees 10
- -----------------------------------------------------------------------
Shareholder Reports 52
- -----------------------------------------------------------------------
Professional fees 22
- -----------------------------------------------------------------------
Registration fees 23
- -----------------------------------------------------------------------
Distribution service fee 204
- -----------------------------------------------------------------------
Other 1
- -----------------------------------------------------------------------
Total expenses before reductions 1,278
- -----------------------------------------------------------------------
Expense reductions (261)
- -----------------------------------------------------------------------
Expenses, net 1,017
- -----------------------------------------------------------------------
NET INVESTMENT LOSS (723)
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain from investment securities 1,651
- -----------------------------------------------------------------------
Net unrealized appreciation during the period on investment
securities 16,804
- -----------------------------------------------------------------------
Net gain on investment transactions 18,455
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,732
- -----------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss $ (723) $ (207)
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,651 (3,498)
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 16,804 (1,141)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 17,732 (4,846)
- ----------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains -- (722)
- ----------------------------------------------------------------------------------------------------------
Fund share transactions:
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 19,286 31,291
- ----------------------------------------------------------------------------------------------------------
Increase in net assets 37,018 25,723
- ----------------------------------------------------------------------------------------------------------
Net assets at beginning of year 37,332 11,609
- ----------------------------------------------------------------------------------------------------------
Net assets at end of year $74,350 $37,332
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Aggressive Growth Fund (the "fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open end,
non-diversified management investment company
organized as a Massachusetts business trust. The
fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none sold
through September 30, 1999) are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
generally have lower ongoing expenses than other
classes.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the fund have
equal rights with respect to voting subject to
class specific arrangements.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
REPURCHASE AGREEMENTS. The fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
which at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1999, the fund had a net tax basis
capital loss carryforward of approximately
$1,893,000 which may be applied against any
realized net taxable capital gains of each
succeeding year until fully utilized or until
September 30, 2007, the expiration date.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. All discounts are accreted
for both tax and financial reporting purposes.
- --------------------------------------------------------------------------------
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, 1999, the fund
incurred management fees as follows:
<TABLE>
<S> <C>
Base fee $ 386,000
Performance adjustment (145,000)
---------
Total fees $ 241,000
=========
</TABLE>
Scudder Kemper has agreed to waive certain
operating expenses of the fund. Under this
agreement, Scudder Kemper waived and absorbed
operating expenses of $261,000 for the year ended
September 30, 1999.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the year ended September 30, 1999 are $31,000.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution and CDSC received by KDI for
the year ended September 30, 1999 are $212,000
after a distribution services fee waiver by Scudder
Kemper.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets 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. The
fund incurred no administrative services fees for
the year ended September 30, 1999, after an expense
absorption by Scudder Kemper.
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 $387,000
for the year ended September 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended September 30,
1999 the fund made no payments to its officers and
incurred trustees fees of $10,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $83,177
Proceeds from sales 67,247
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,655 $ 23,822 1,734 $21,823
------------------------------------------------------------------------------
Class B 1,250 16,813 1,096 13,857
------------------------------------------------------------------------------
Class C 374 5,103 239 3,009
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A -- -- 35 399
------------------------------------------------------------------------------
Class B -- -- 22 251
------------------------------------------------------------------------------
Class C -- -- 5 59
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,047) (14,489) (373) (4,746)
------------------------------------------------------------------------------
Class B (620) (9,794) (172) (2,248)
------------------------------------------------------------------------------
Class C (158) (2,169) (88) (1,113)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 46 627 21 279
------------------------------------------------------------------------------
Class B (46) (627) (22) (279)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL
SHARE TRANSACTIONS $ 19,286 $31,291
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33% percent of its net assets under the
agreement.
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
YEAR YEAR DECEMBER 31, 1996
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.98 12.60 9.50
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.11) (.02) (.02)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.55 (1.05) 3.12
- --------------------------------------------------------------------------------------------
Total from investment operations 4.44 (1.07) 3.10
- --------------------------------------------------------------------------------------------
Less distribution from net realized gain -- .55 --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $15.42 10.98 12.60
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 40.44% (8.67) 32.63
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses absorbed by the fund 1.30% 1.25 1.49
- --------------------------------------------------------------------------------------------
Net investment loss (.81)% (.42) (.35)
- --------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses by the fund 1.59% 1.46 --
- --------------------------------------------------------------------------------------------
Net investment loss (1.10)% (.63) --
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS B
-------------------------------------------------
YEAR YEAR DECEMBER 31, 1996
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.83 12.52 9.50
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.24) (.04) (.08)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.47 (1.10) 3.10
- --------------------------------------------------------------------------------------------
Total from investment operations 4.23 (1.14) 3.02
- --------------------------------------------------------------------------------------------
Less distribution from net realized gain -- .55 --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $15.06 10.83 12.52
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 39.06% (9.30) 31.79
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses absorbed by the fund 2.17% 2.12 2.41
- --------------------------------------------------------------------------------------------
Net investment loss (1.68)% (1.29) (1.27)
- --------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses 2.77% 2.81 --
- --------------------------------------------------------------------------------------------
Net investment loss (2.28)% (1.98) --
- --------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS C
-------------------------------------------------
YEAR YEAR DECEMBER 31, 1996
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.84 12.53 9.50
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.25) (.04) (.07)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.47 (1.10) 3.10
- --------------------------------------------------------------------------------------------
Total from investment operations 4.22 (1.14) 3.03
- --------------------------------------------------------------------------------------------
Less distribution from net realized gain -- .55 --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $15.06 10.84 12.53
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 38.93% (9.29) 31.89
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses absorbed by the fund 2.30% 2.10 2.19
- --------------------------------------------------------------------------------------------
Net investment loss (1.81)% (1.27) (1.05)
- --------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses 2.96% 2.76 --
- --------------------------------------------------------------------------------------------
Net investment loss (2.47)% (1.93) --
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------
YEAR YEAR DECEMBER 31, 1996
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets at end of period (in
thousands) $74,350 37,332 11,609
- --------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 125 190 364
- --------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for the period ended September 30, 1999 was determined based on average
shares outstanding. Scudder Kemper agreed to temporarily waive and absorb
certain operating expenses of the fund during the years ended September 30, 1999
and September 30, 1998. The Other Ratios to Average Net Assets are computed
without this waiver.
22
<PAGE> 23
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, 1999, and the related statements of operations for the year then
ended, and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal periods since 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, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Aggressive Growth Fund at September 30, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the fiscal
periods since 1997 to conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 15, 1999
23
<PAGE> 24
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY CAROLINE PEARSON
Chairman and Trustee President Assistant Secretary
LEWIS A. BURNHAM PHILIP J. COLLORA BRENDA LYONS
Trustee Vice President and Assistant Treasurer
Secretary
DONALD L. DUNAWAY
Trustee JOHN R. HEBBLE
Treasurer
ROBERT B. HOFFMAN
Trustee ANN M. MCCREARY
Vice President
DONALD R. JONES
Trustee KATHRYN L. QUIRK
Vice President
THOMAS W. LITTAUER
Trustee and Vice President LINDA J. WONDRACK
Vice President
SHIRLEY D. PETERSON
Trustee MAUREEN E. KANE
Assistant Secretary
CORNELIA SMALL
Vice President and Trustee
WILLIAM P. SOMMERS
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 STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- ----------------------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG
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.
KAGGF - 2 (11/22/99) 1094310
