Annual Report To
Shareholders For The Year
Ending August 31, 1999
Kemper Large Company Growth Fund
<PAGE>
Kemper Large Company Growth Fund
Average Annual Total Returns*
For period ended August 31, 1999 (adjusted for the maximum sales charge)
Life of Class
-------------
Kemper Large Company -0.30%(since 12/31/98)
Fund Class A Shares
Kemper Large Company 1.16 %(since 12/31/98)
Growth Fund Class B Shares
Kemper Large Company 4.16% (since 12/31/98)
Growth Fund Class C Shares
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.
Performance
Despite the challenges of a shifting market climate, Kemper Large Company Growth
Fund has held its own during its first eight months of operations. From December
31, 1998 through August 31, 1999, the fund earned 5.79 percent (Class A shares,
unadjusted for any sales charges). The fund's benchmark, the Russell 1000 Growth
Index, gained 8.68 percent during the same period.
Investment Philosophy
We manage the fund according to a pure-growth investment philosophy. We believe
that over time, companies with strong franchises, skilled management, and
sustainable, consistent earnings growth can produce superior long-term returns.
We are dedicated to forward-looking fundamental analysis supplemented by
quantitative research.
We're buy-and-hold investors. In other words, we have to really believe
in a stock before we buy it. Once we've bought it, we're not going to sell it
because of short-term nonfundamental price changes.
In order to maintain disciplined diversification, we use the sector
weightings of the Russell 1000 Growth Index (plus or minus 5 percent) as a guide
for creating a well-diversified growth portfolio. This strategy allows us to
focus our energies on individual bottom-up stock selection, where we believe we
can add the most value for shareholders.
General Market Commentary
While not so dramatic a period as the second half of 1998, the equity market
experienced plenty of volatility in 1999. During the eight months of the fund's
operations, the markets shifted from growth to value and back to growth again.
Large-capitalization and small-capitalization stocks have also alternated the
lead.
<PAGE>
First quarter 1999 Throughout the first quarter, the market climate was one of
cautious optimism. The Russian debt default and ensuing market correction of
August 1998 were still fresh in investors' minds. Nonetheless, by 1999, the
crisis climate had abated and the domestic economy moved forward at an
encouraging pace. Growth rates were slow and steady. Interest rates, inflation
and unemployment remained extremely low, while consumer confidence remained
high. As had been the case since late 1997, investors were reluctant to commit
to smaller-cap and value stocks. Instead, they preferred the greater liquidity
and established status of large-cap, household name companies.
The market remained generally narrow, with technology stocks performing
particularly robustly, due to enthusiasm about the growth of the Internet and
electronic commerce.
Second quarter 1999 In the second quarter, many favorable macro-economic trends
continued. These positive factors included improvements in Asian economies,
solid domestic growth, steady corporate profits and low inflationary pressure.
Yet, the equity markets experienced dramatic directional shifts in the second
quarter. In a clear departure from the trends that had been in place for the
last year, small-cap stocks significantly outperformed large-cap stocks, and
value stocks outperformed growth stocks. Moreover, the market seemed to turn a
blind eye to fundamentals: lower-quality companies were rewarded over
higher-quality ones. The Federal Reserve Bank's interest-rate hike also
contributed to a less-hospitable climate for large-cap growth stocks. While
value-oriented stocks gained, many technology stocks also contributed good
returns. One notable exception was America Online, which tumbled alongside many
other Internet stocks.
July and August 1999 In the final two months of the fiscal year, the market
changed directions once again. Large-capitalization growth stocks gained ground
back, and the market seemed to be placing a greater premium on fundamentals.
Against the backdrop of an extremely narrow market, technology stocks continued
to be strong performers.
Fund Analysis
First quarter 1999 In the first quarter, the portfolio generated a quite
respectable return of 5.89 percent (class A shares unadjusted for sales charge),
a bit behind the Russell 1000 Growth Index, up 6.36 percent. During this period,
the market favored our large-cap growth discipline. In an environment of high
consumer confidence, many of our retail holdings were stellar performers. Media
stocks performed at a brisk clip, including Clear Channel Communications and
Univision. Technology and communications stocks also contributed good returns,
including America Online, Applied Materials and EMC Corp.
<PAGE>
Although many of our retail stocks did well, Rite-Aid was a notable
exception. Overly ambitious expansion plans took a toll on earnings. (We've
since sold it from the portfolio, as its longer-term growth prospects seem
fundamentally questionable.) The fund's returns were also limited by consumer
staples, health-care and financial-service stocks. Uncertainty stemming from
emerging-market exposure hindered stocks in consumer staple and health care
groups, while a handful of insurance companies fell short of our expectations
for growth.
Second quarter 1999 The climate of the second quarter was less hospitable to our
investment discipline. The fund slowed its pace, gaining 1.99 percent, while the
Russell 1000 Growth Index gained 3.85 percent. In addition to the market's
penchant for value and smaller-cap names, our quality-focused approach was at
odds with the overall market sentiment. Although their fundamentals remained
intact, many high quality companies saw their stock prices pummeled. As always,
we remained committed to our quality-driven approach, holding firm conviction
that lower quality companies could not sustain their outperformance over high
quality companies.
During this challenging period, our media stocks continued to post
healthy gains, with Univision and Infinity among the most notable performers.
Technology stocks Linear Technology, Cisco Systems and Applied Materials also
did well, helping to offset the declines of EMC and America Online.
Retail stocks, meanwhile, had their share of disappointments.
Regulatory and product-pipeline concerns also cast a shadow across some of our
large-cap pharmaceutical holdings.
July and August 1999 In July, many of our quality companies continued to suffer,
even when they met or exceeded earnings expectations. However, we saw a more
positive climate for our quality-driven investment style re-emerge during the
final weeks of the fiscal year. Large-cap pharmaceuticals came back during that
month. Several of our technology holdings, including Microsoft, Intel and Sun
Microsystems, closed the fiscal year on a bright note.
The market's return to fundamentals affirmed our commitment to style
consistency and quality. As we've noted, we believe that a successful long-term
investment portfolio is built around superior companies. That's a belief we
didn't stray from, and we're glad we held the course.
<PAGE>
Growth of an assumed $10,000 investment in Kemper Large Company Growth Fund
Class A from 12/31/98 through 8/31/99. Adjusted for maximum sales charge.
IN THE ORIGINAL DOCUMENT A LINE CHART APPEARS HERE
CHART DATA:
12/31/1998 4/30/99 8/31/99
---------- ------- -------
Kemper Large Company Growth Fund Class A* $10,474 $9,971
Russell 1000 Growth Index** $10,000 $10,649 $10,868
Consumer Price Index*** $10,000 $10,141 $10,195
Growth of an assumed $10,000 investment in Kemper Large Company Growth Fund
Class B from 12/31/98 through 8/31/99. Adjusted for maximum sales charge
IN THE ORIGINAL DOCUMENT A LINE CHART APPEARS HERE
CHART DATA:
12/31/1998 4/30/99 8/31/99
---------- ------- -------
Kemper Large Company Growth Fund Class B* $10,000 $10,053 $10,416
Russell 1000 Growth Index** $10,000 $10,649 $10,868
Consumer Price Index*** $10,000 $10,141 $10,195
<PAGE>
Growth of an assumed $10,000 investment in Kemper Large Company Growth Fund
Class C from 12/31/98 through 8/31/99. Adjusted for maximum sales charge
IN THE ORIGINAL DOCUMENT A LINE CHART APPEARS HERE
CHART DATA:
12/31/1998 4/30/99 8/31/99
---------- ------- -------
Kemper Large Company Growth Fund Class C* $10,000 $10,053 $10,416
Russell 1000 Growth Index** $10,000 $10,649 $10,868
Consumer Price Index*** $10,000 $10,141 $10,195
* Average annual total return and total return measures net investment income
and capital gain or loss from portfolio investments over the periods specified,
assuming reinvestment of all dividends and, where indicated, adjustment for the
maximum sales charge. The maximum sales charge for Class A shares is 5.75%. For
Class B shares the maximum contingent deferred sales charge (CDSC) is 4%. Class
C shares have no sales charge adjustment, but redemptions within one year of
purchase may be subject to a contingent deferred sales charge of 1%. Share
classes invest in the same underlying portfolio. Average annual total return
reflects annualized change while total return reflects aggregate change. During
the periods noted, securities prices fluctuated. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report. Returns are historical and do not
guarantee future results. Investment returns and principal values will fluctuate
so that shares, when redeemed may be worth more or less than original cost.
** The Russell 1000 Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select. Source is CDA Wiesenberger.
***The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. It is generally considered to be a measure of inflation. Source is
CDA Wiesenberger.
<PAGE>
Kemper Large Company Growth Fund
Portfolio of Investments at August 31,1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Common stocks Number of Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Communications-2.7%
<S> <C> <C>
Telephone/communications Frontier Corp. 400 16,775
(a) JDS Uniphase Corp. 100 10,606
(a) MCI WorldCom, Inc. 400 30,300
----------------------------------------------------------------------------
57,681
- -----------------------------------------------------------------------------------------------------------------------------
Consumer discretionary-12.7%
Department & chain stores-7.4% (a) Costco Wholesale Corp. 400 29,900
Dayton Hudson Corp. 400 23,200
Gap Inc. 450 17,606
Home Depot, Inc. 700 42,787
Wal-Mart Stores, Inc. 1,000 44,313
----------------------------------------------------------------------------
157,806
Recreational products-2.8% (a) Electronic Arts, Inc. 400 27,450
Hasbro, Inc. 600 14,662
(a) Premier Parks, Inc. 500 16,375
----------------------------------------------------------------------------
58,487
Restaurants-1.4% McDonald's Corp. 700 28,963
----------------------------------------------------------------------------
Specialty retail-1.1% Circuit City Stores, Inc. 400 17,200
(a) Priceline.com, Inc. 100 6,813
----------------------------------------------------------------------------
24,013
- -----------------------------------------------------------------------------------------------------------------------------
Consumer staples-7.7%
Food & beverage-3.2% Coca-Cola Co., Inc. 800 47,850
PepsiCo, Inc. 600 20,475
----------------------------------------------------------------------------
68,325
Package goods/cosmetics-4.5% Colgate-Palmolive Co. 700 37,450
Estee Lauder Companies "A" 400 18,375
Procter & Gamble Co. 400 39,700
----------------------------------------------------------------------------
95,525
- -----------------------------------------------------------------------------------------------------------------------------
Durables-3.5%
Telecommunications equipment Lucent Technologies, Inc. 1,150 73,672
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Energy-.9%
Oilfield services/equipment Schlumberger Ltd. 300 20,025
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Financial-4.6%
Consumer finance-1.6% American Express Credit Corp. 140 19,250
Capital One Finance Corp. 400 15,100
----------------------------------------------------------------------------
34,350
Insurance-2.2% American International Group, Inc. 500 46,344
----------------------------------------------------------------------------
Other financial companies-.8% Morgan Stanley, Dean Witter & Co. 200 17,163
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Health-14.5%
Health industry services-.6% IMS Health, Inc. 500 13,812
----------------------------------------------------------------------------
Medical supply & specialty-2.8% Medtronic, Inc. 640 50,080
(a) VISX, Inc. 100 9,050
----------------------------------------------------------------------------
59,130
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------
Common stocks Number of Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals-11.1% Bristol-Myers Squibb Co. 400 28,150
Johnson & Johnson 430 43,968
Merck & Co., Inc. 640 43,000
Pfizer, Inc. 1,800 67,950
Schering-Plough Corp. 500 26,281
Warner-Lambert Co. 400 26,500
----------------------------------------------------------------------------
235,849
- -----------------------------------------------------------------------------------------------------------------------------
Manufacturing-8.3%
Diversified manufacturing-7.4% General Electric Co. 750 84,234
Textron, Inc. 400 32,300
Tyco International Ltd. (New) 400 40,525
----------------------------------------------------------------------------
157,059
Industrial specialty-.9% (a) QUALCOMM, Inc. 100 19,219
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Media-7.1%
Advertising-2.0% Omnicom Group, Inc. 400 30,150
(a) Outdoor Systems, Inc. 350 11,309
----------------------------------------------------------------------------
41,459
Broadcasting & entertainment-4.2% (a) Clear Channel Communications, Inc. 700 49,044
(a) Infinity Broadcasting Corp. 700 18,944
(a) Univision Communication, Inc. 300 22,125
----------------------------------------------------------------------------
90,113
Cable television-.9% (a) AT&T Corp - Liberty Media Group 600 19,200
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Service industries-5.4%
Edp services-3.7% (a) America Online, Inc. 440 40,177
Electronic Data Systems Corp. 300 16,837
(a) PSINet, Inc. 450 21,544
----------------------------------------------------------------------------
78,558
Investment-.8% Charles Schwab Corp. 400 15,800
----------------------------------------------------------------------------
Miscellaneous commercial services-.9% Galileo International, Inc. 400 19,400
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Technology-23.9%
Computer software-5.3% (a) Microsoft Corp. 1,220 112,926
----------------------------------------------------------------------------
Diverse electronic products-3.0% (a) Applied Materials, Inc. 350 24,872
Motorola, Inc. 200 18,450
(a) Teradyne, Inc. 300 20,419
----------------------------------------------------------------------------
63,741
Edp peripherals-1.6% (a) EMC Corp. 550 33,000
----------------------------------------------------------------------------
Electronic components/distributors-4.9%(a) Cisco Systems, Inc. 1,550 105,109
----------------------------------------------------------------------------
Electronic data processing-3.3% International Business Machines Corp. 215 26,781
(a) Sun Microsystems, Inc. 550 43,725
----------------------------------------------------------------------------
70,506
Semiconductors-5.8% Intel Corp. 1,370 112,597
Linear Technology Corp. 180 11,329
----------------------------------------------------------------------------
123,926
----------------------------------------------------------------------------
TOTAL COMMON STOCKS-91.3%
(Cost: $1,759,419) 1,941,161
----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------
Principal Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase agreement-8.7% (b) State Street Bank and Trust Company
dated 8/31/99, 5.41%, due 9/1/99
(Cost: $186,000) 186,000 186,000
----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100%
(Cost: $1,945,419) 2,127,161
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Notes to Portfolio of Investments
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or
Government securities. The collateral is monitored daily by the fund so
that its market value is at least equal to the carrying value of the
repurchase agreement, including accrued interest.
Based on the cost of investments of $1,945,665 for federal income tax purposes
at August 31, 1999, the gross unrealized appreciation was $244,227, the gross
unrealized depreciation was $62,731 and the net unrealized appreciation on
investments was $181,496.
See accompanying Notes to Financial Statements.
<PAGE>
The Board of Trustees and Shareholders
Kemper Large Company Growth Fund
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Large Company Growth Fund (one
of the portfolios constituting Kemper Funds Trust Series) as of August 31, 1999,
and the related statements of operations and changes in net assets and the
financial highlights for the period from December 31, 1998 (commencement of
operations) to August 31, 1999. 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 audit.
We conducted our audit 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 and financial highlights. Our procedures included confirmation of
investments owned as of August 31, 1999, 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 audit provides 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 Large Company Growth Fund at August 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights for
the period from December 31, 1998 (commencement of operations) to August 31,
1999, in conformity with generally accepted accounting principles.
ERSNT & YOUNG LLP
Chicago, Illinois
October 19, 1999
<PAGE>
Statement of Assets & Liabilities
August 31, 1999
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Investments, at value
(Cost: $1,945,419) $2,127,161
- --------------------------------------------------------------------------------
Cash 633
- --------------------------------------------------------------------------------
Receivable for:
Dividends 591
- --------------------------------------------------------------------------------
Interest 28
- --------------------------------------------------------------------------------
Due from advisor 3,963
- --------------------------------------------------------------------------------
Total assets 2,132,376
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Payable for:
Investments purchased 20,738
- --------------------------------------------------------------------------------
Management fee 1,233
- --------------------------------------------------------------------------------
Distribution services fee 879
- --------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,343
- --------------------------------------------------------------------------------
Other 367
- --------------------------------------------------------------------------------
Total liabilities 24,560
- --------------------------------------------------------------------------------
Net assets, at market value $2,107,816
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net assets
- --------------------------------------------------------------------------------
Net assets consist of:
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments $181,742
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (51,838)
- --------------------------------------------------------------------------------
Paid-in capital 1,977,912
- --------------------------------------------------------------------------------
Net assets, at market value $2,107,816
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The pricing of shares
- --------------------------------------------------------------------------------
Class A Shares
Net asset value and redemption price per share
($705,556 / 70,201 shares outstanding) $10.05
- --------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $10.66
- --------------------------------------------------------------------------------
Class B Shares
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($701,123 / 70,182 shares outstanding) $9.99
- --------------------------------------------------------------------------------
Class C Shares
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($701,137 / 70,182 shares outstanding) $9.99
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
<PAGE>
Statement of Operations
For the period from December 31, 1998 (commencement of operations) to August 31,
1999
- --------------------------------------------------------------------------------
Investment income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $23) $6,833
- --------------------------------------------------------------------------------
Interest income 4,340
- --------------------------------------------------------------------------------
Total investment income 11,173
- --------------------------------------------------------------------------------
Expenses:
Management fee 9,516
- --------------------------------------------------------------------------------
Distribution services fee 6,789
- --------------------------------------------------------------------------------
Administrative services fee 3,399
- --------------------------------------------------------------------------------
Custodian and accounting fees 4,535
- --------------------------------------------------------------------------------
Transfer agent fees 1,928
- --------------------------------------------------------------------------------
Trustees' fees 4,007
- --------------------------------------------------------------------------------
Reports to shareholders 500
- --------------------------------------------------------------------------------
Auditing 6,667
- --------------------------------------------------------------------------------
Legal 1,246
- --------------------------------------------------------------------------------
Registration fees 83
- --------------------------------------------------------------------------------
Other 1,601
- --------------------------------------------------------------------------------
Total expenses before expense waiver 40,271
- --------------------------------------------------------------------------------
Less expenses waived and absorbed by investment manager (6,641)
- --------------------------------------------------------------------------------
Total expenses after expense waiver 33,630
- --------------------------------------------------------------------------------
Net investment income (loss) (22,457)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (51,838)
- --------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on investments 181,742
- --------------------------------------------------------------------------------
Net gain (loss) on investments 129,904
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $107,447
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
<PAGE>
Statement of Changes in Net Assets
For the period from December 31, 1998 (commencement of operations) to August 31,
1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Operations and capital share activity
- -----------------------------------------------------------------------------------
<S> <C>
Net investment income (loss) ($22,457)
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments (51,838)
- -----------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on investments 181,742
- -----------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 107,447
- -----------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 1,967,036
- -----------------------------------------------------------------------------------
Total increase (decrease) in net assets 2,074,483
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------------
Beginning of period 33,333
- -----------------------------------------------------------------------------------
End of period $2,107,816
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Notes to financial statements
1. Description of the fund
Kemper Large Company Growth Fund (the "fund") is a diversified series of Kemper
Funds Trust (the "trust") which is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust. Currently, shares of the
fund are available only to Scudder Kemper Investments, Inc. employees in the
following states: California, Connecticut, Florida, Illinois, Kansas,
Massachusetts, Missouri, New Hampshire, New Jersey and New York.
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.
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, shareholders 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 by the fund in the preparation of its
financial statements.
2. Significant accounting polices
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.
All other securities are valued at their fair market value as determined in good
faith by the Valuation Committee of the Board of Trustees.
Foreign currency translations. The books and records of the fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign
<PAGE>
currency exchange contracts and foreign currencies, and the difference between
the amount on net investment income accrued and the U.S. dollar amount actually
received. That portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates is
not separately disclosed but is included with the net realized and unrealized
gains and losses on investment securities.
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 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.
The fund incurred approximately $51,600 of net realized capital losses post
October 31, 1998. As permitted by tax regulations, the fund intends to elect to
defer these losses and treat them as arising in the fiscal year ended August 31,
2000.
Distribution of income and gains. Distribution of net investment income, if any,
is 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. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
Expenses. Expenses arising in connection with a specific fund are allocated to
that fund. Other trust expenses are allocated between the funds in proportion to
their relative net assets.
3. Transactions with affiliates
Management agreement. The fund has a management agreement with Scudder Kemper
Investments, Inc. (Scudder Kemper) and pays a monthly investment management fee
of 1/12 of the annual rate of .70% of the first $250 million of average daily
net assets declining to .63% of average daily net assets in excess of $2.5
billion. The fund incurred a management fee of $9,516 for the period ended
August 31, 1999.
Scudder Kemper has agreed to temporarily absorb certain operating expenses of
the fund. Under this arrangement, Scudder Kemper absorbed expenses of $6,641 for
the period ended August 31, 1999.
Underwriting and distribution services agreement. The fund has an underwriting
and distribution services agreement with Kemper Distributors, Inc. (KDI). For
services under the distribution services agreement, the fund pays KDI a fee of
.75% of average daily net assets of 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
<PAGE>
Class C
shares. In addition, KDI receives any contingent deferred sales charges from
redemptions of Class B and Class C shares. Distribution fees received by KDI for
the period ended August 31, 1999 are $6,789.
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 period ended August 31, 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 earned transfer agency fees of $763 for
the period ended August 31, 1999.
Fund accounting agent. Scudder Fund Accounting Corporation (SFAC) is responsible
for determining the daily net asset value per share and maintaining the
portfolio and general accounting records of the fund. The fund incurred no
accounting fees for the period ended August 31, 1999, after an expense
absorption by Scudder Kemper.
Officers and trustees. Certain officers or trustees of the fund are also
officers or directors of Scudder Kemper. During the period ended August 31,
1999, the fund made no payments to its officers or trustees and incurred
trustees' fees of $4,007 to independent trustees.
4. Investment transactions
For the period ended August 31, 1999, investment transactions (excluding
short-term instruments) are as follows:
Purchases
$2,636,488
Proceeds from sales
825,231
5. Capital share transactions
The following table summarizes the activity in capital shares of the fund:
For the period December 31, 1998
(commencement of operations)
to August 31, 1999
------------------
Shares Amount
- --------------------------------------------------------------------------------
Shares sold
- --------------------------------------------------------------------------------
Class A 69,046 $ 655,967
- --------------------------------------------------------------------------------
Class B 69,012 655,641
- --------------------------------------------------------------------------------
Class C 69,012 655,641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares redeemed
- --------------------------------------------------------------------------------
Class A (15) (213)
- --------------------------------------------------------------------------------
Net increase from
capital share transactions $1,967,036
- --------------------------------------------------------------------------------
<PAGE>
Financial Highlights
For the period from December 31, 1998 (commencement of operations) to August 31,
1999
<TABLE>
<CAPTION>
Class A Class B Class C
- ------------------------------------------------------------ --------- ----------
Per share operating performance
- ------------------------------------------------------------ --------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $9.50 9.50 9.50
- ------------------------------------------------------------ --------- ----------
Income from investment operations:
Net investment income (loss) (.07) (.14) (.14)
- ------------------------------------------------------------ --------- ----------
Net realized and unrealized gain (loss) .62 .63 .63
- ------------------------------------------------------------ --------- ----------
Total from investment operations .55 .49 .49
- ------------------------------------------------------------ --------- ----------
Net asset value, end of period $10.05 9.99 9.99
- ------------------------------------------------------------ --------- ----------
Total return (not annualized) 5.79% 5.16% 5.16%
- ------------------------------------------------------------ --------- ----------
Ratios to average net assets (annualized)
- ------------------------------------------------------------ --------- ----------
Expenses 1.85% 2.77 % 2.77 %
- ----------------------------------------------------------- --------- ----------
Net investment income (loss) (1.02)% (1.95)% (1.95)%
- ----------------------------------------------------------- --------- ----------
Other ratios to average net assets (annualized)
- ------------------------------------------------------------ --------- ----------
Expenses 2.35% 3.27% 3.27%
- ----------------------------------------------------------- --------- ----------
Net investment income (loss) (1.52)% (2.45)% (2.45)%
- ----------------------------------------------------------- --------- ----------
- ------------------------------------------------------------------------------------
Supplemental data for all classes
- ------------------------------------------------------------------------------------
Net assets at end of period $ 2,107,816
- ------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 64%
- ------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive and absorb certain
operating expenses of the fund. The other ratios to average net assets are
computed without this expense absorption. Per share data for the period ended
August 31, 1999 was determined based on average shares outstanding.
- --------------------------------------------------------------------------------
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.
<PAGE>
Trustees & Officers
-------------------
Trustees Officers
James E. Akin s Mark S. Casady Maureen E. Kane
Trustee President Assistant Secretary
James R. Edgar Philip J. Collora Caroline Pearson
Trustee Vice President and Assistant Secretary
Secretary
Arthur R. Gottschalk
Trustee John R. Hebble
Treasurer
Frederick T. Kelsey
Trustee Brenda Lyons
Assistant Treasurer
Thomas W. Littauer
Trustee and Valerie Malter
Vice President Vice President
Kathryn L. Quirk Ann M. McCreary
Trustee and Vice President
Vice President
Elizabeth D. Smith
Fred B. Renwick Vice President
Trustee
William F. Truscott
Cornelia Small Vice President
Trustee and
Vice President Robert Tymoczko
Vice President
John G Weithers
Trustee Linda J. Wondrack
Vice President
- --------------------------------------------------------------------------------
Legal Counsel Dechert Price & Rhodes
Ten Post Office Square
Boston, MA. 02109
Shareholder Kemper Service Company
Service Agent P.O. Box 419557
And Transfer Agent Kansas City, MO 64141
Custodian State Street Bank and Trust Company
225 Franklin Street
Boston, Ma 02110
Independent Ernst & Young LLP
Auditors 233 South Wacker Drive
Chicago, Il 60606
Principal Kemper Distributors, Inc.
Underwriter 222 South Riverside Plaza Chicago, Il 60606-5808
www.kemper.com
This report is not to be distributed unless preceded or accompanied by a Kemper
Style prospectus.
