<PAGE> 1
Kemper Blue Chip Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1995
SEEKING GROWTH OF CAPITAL AND OF INCOME
"...Knowing which stocks to hold made the difference..."
[KEMPER MUTUAL FUND LOGO]
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
8
Terms to Know
10
Industry Sectors
11
Largest Holdings
12
Portfolio of
Investments
15
Report of
Independent Auditors
16
Financial Statements
18
Notes to
Financial Statements
22
Financial Highlights
At A Glance
Kemper Blue Chip Fund total returns for the year ended October 31, 1995
(unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
<C> <C>
CLASS A 22.74%
CLASS B 21.76%
CLASS C 22.04%
LIPPER GROWTH
& INCOME FUNDS
CATEGORY AVERAGE* 20.23%
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/95 10/31/94
---------- ----------
<S> <C> <C>
KEMPER BLUE CHIP FUND CLASS A $14.87 $12.33
KEMPER BLUE CHIP FUND CLASS B $14.82 $12.29
KEMPER BLUE CHIP FUND CLASS C $14.88 $12.32
</TABLE>
KEMPER BLUE CHIP FUND
LIPPER RANKINGS
COMPARED TO ALL OTHER FUNDS IN THE LIPPER
GROWTH & INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------- ------------- -------------
<S> <C> <C> <C>
1-YEAR # 110 OF # 147 OF # 138 OF
408 FUNDS 408 FUNDS 408 FUNDS
5-YEAR # 157 OF
187 FUNDS N/A N/A
</TABLE>
*Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the effect
of sales charges and, if they had, results may have been less favorable.
Returns and rankings are historical and do not reflect future performance.
DIVIDEND REVIEW
DURING THE FISCAL YEAR, KEMPER BLUE CHIP FUND PAID THE FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- --------- ---------
<S> <C> <C> <C>
INCOME DIVIDEND: $0.200 $0.099 $0.108
LONG-TERM
CAPITAL GAIN: $0.02 $0.02 $0.02
</TABLE>
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's sector weightings and how they have changed
- - A comparison of your fund and its benchmark sector weightings
- - Your fund's largest individual holdings
If you have any comments about
the revised, format please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[PHOTO OF STEPHEN B. TIMBERS]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income
and stock markets in 1995. The returns of most leading securities markets
worldwide are significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2% in the
third quarter. This follows much lower growth in the first two quarters, as the
economy was adjusting to the Federal Reserve Board's series of interest rate
increases. The slowdown, in fact, was acknowledged by the Fed when it eased
short-term rates by a small but symbolic 25 basis points in July. Now we know
that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very encouraging.
Although we are well along in the economic cycle and at a point when prices
often start hiking up, inflationary pressures have actually been reduced
somewhat.
It is likely that the Fed will reduce rates again, possibly as early as
December 19. An additional rate cut would provide stimulation for the economy
and acknowledge the serious discussion -- if not resolution -- on reducing the
federal budget deficit. Even with a rate cut, our forecast calls for lower
growth ranging between 2% to 3% for the next few quarters, with the momentum
likely to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in
the fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the economy
to provide above-average earnings support. Rather, stocks that have proven
themselves with a pattern of consistent earnings are likely to attract investor
support. Specifically, sectors that produce more consistent earnings, such as
health care, consumer nondurables, selected technology and selected capital
goods can be expected to do well. Picking the right sectors to invest in will
be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to its
post-World War II low in April, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
General 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 (11/30/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE (1) 5.93 6.17 7.81 5.77
PRIME RATE (2) 8.75 9.00 8.50 6.00
INFLATION RATE (3) 2.74 3.18 2.60 2.74
THE U.S. DOLLAR (4) -1.57 - 9.31 -4.52 1.71
CAPITAL GOODS ORDERS (5) (*) 7.60 17.84 13.53 23.75
INDUSTRIAL PRODUCTION (6) 2.20 3.31 6.58 2.98
EMPLOYMENT GROWTH (7) 1.50 2.29 3.15 2.58
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
*Data as of October 31, 1995
Source: Economics Department, Kemper Financial Services, Inc.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding
how these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question- and-answer interview with
your fund's portfolio manager. Thank you for your continued support. We
appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
CHIEF INVESTMENT AND EXECUTIVE OFFICER
December 12, 1995
4
<PAGE> 5
Performance Update
EXCEPTIONAL STOCKS IN A BULL STOCK MARKET -- THAT'S WHAT PORTFOLIO MANAGER
TRACY MCCORMICK CHESTER ATTRIBUTES KEMPER BLUE CHIP FUND'S 1995 PERFORMANCE TO.
[PHOTO OF TRACY MCCORMICK CHESTER]
TRACY MCCORMICK CHESTER JOINED KEMPER FINANCIAL SERVICES, INC. (KFS) IN 1994
AND IS NOW A FIRST VICE PRESIDENT OF KFS AND VICE PRESIDENT AND THE PORTFOLIO
MANAGER OF KEMPER BLUE CHIP FUND. MS. MCCORMICK CHESTER RECEIVED BOTH HER B.A.
AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY.
Q. KEMPER BLUE CHIP FUND STAGED A TRUE COMEBACK DURING THIS FISCAL YEAR --
WHAT HAPPENED?
A. Several things went right during the year so let's look at them one
by one. First, it was a very good year for corporate profitability, and
the fund was invested in the industry sectors that performed best in our
slow-growth, low inflation economy. Kemper's style of equity investing for
Kemper Blue Chip Fund is to invest in growth stocks -- stocks of companies
whose earnings are growing faster than the market average. As the growth
of the economy slowed down, the market rotated away from companies whose
earnings are cyclical and toward the steady, consistent earners. These are
the kinds of companies that Kemper Blue Chip Fund invests in.
In addition, during most of the year -- with the late spring and
the late summer as the exception -- investors tended to favor large
capitalization, blue chip companies, in particular.
Finally, what specifically helped the fund was our stock selection.
Knowing which stocks to hold made the difference and contributed to the
fund's performance.
Q. THERE ARE MANY WAYS TO MEASURE PERFORMANCE -- HOW DO YOU RECOMMEND THAT
SHAREHOLDERS EVALUATE THE PROGRESS THAT THE FUND MADE?
A. Total return -- which includes net investment income and any
capital gain or loss from the portfolio's investments, assuming that
dividends are reinvested -- is generally considered the most important
measure, and each of the fund's three classes returned better than 21
percent for the year (see page 2). That's more than double the fund's
median return of 10.32 percent over the seven full years since its
inception (starting November 1 and ending on October 31 of each year).
For help in putting these absolute returns in context, there are
also several benchmarks to refer to. For example, our research this summer
told us that shareholders place a high value on the fund's competitive
ranking. Here, too, we made progress: In the last 12 months, the fund
moved from the bottom quartile of comparable growth and income funds
ranked by Lipper Analytical Services, Inc. to #110 of 408 funds -- near
the top of the second quartile. That's over the one-year period ended
October 31, 1995. (For the rankings over all time periods, please see page
2).
5
<PAGE> 6
Performance Update
Another way to consider performance and the impact of individual decisions
we've made is to compare the fund's performance to a broad market index. We
track our progress against the progress of the Standard & Poor's 500, which is
an unmanaged index of common stocks that's generally considered representative
of the U.S. stock market. The Russell 1000 Growth index is an unmanaged index
of common stocks of larger U.S. companies with the kind of growth stock
orientation that more closely resembles the kinds of stocks that the fund
invests in. A mutual fund whose composition is similar to the composition of
its benchmark should presumably perform in line -- or beat -- the performance
of the index.
However, direct comparisons cannot be made between the fund and either
index. There are differences in the composition of both -- for example, the
utilities and energy sectors will always be better represented in the indices.
And while both indices are reasonable proxies for the pursuit of capital growth
through equity investments, remember that the objective of Kemper Blue Chip
Fund includes the growth of income as well as of capital. (The graph on page 9
presents the performance of the fund compared to the Russell 1000 Growth Index,
and you can find details on the composition of the fund and the index on page
10.)
Q. WHAT DOES THE BAR CHART COMPARING THE SECTOR-BY-SECTOR BREAKDOWN OF THE
FUND AT THE END OF ITS 1995 FISCAL YEAR VERSUS AT THE END OF ITS 1994
FISCAL YEAR (SEE PAGE 10) TELL US?
A. You can tell a few things. First, we're holding fewer consumer
nondurables -- stocks such as Coca-Cola, Newell, CPC and ConAgra have been
eliminated. Because many of these companies tend to have a high component
of international sales, this sector generally benefits from a weak dollar.
Mid-year, it became apparent that the dollar had bottomed, which made us
concerned about these companies' earnings comparisons going forward. In
addition, valuations for many consumer nondurables -- particularly in
health care -- were compelling in mid-1994. More than one year later,
there are still attractively priced stocks, but overall valuation measures
are not as attractive as they were. Finally, the stable earnings growth
characteristics of this sector make it an area where investors move when
they are nervous about the economy, as they were this summer.
We believe that the economic slowdown in 1995 was an inventory
correction. An inventory correction is a short-lived pause as opposed to a
recession scenario that could continue for months or even years. As we
move into 1996, investors will have more conviction about the more
economically-sensitive sectors. As you can see from our sector breakdown,
we are overweight -- in other words, have a greater exposure than the
index -- in basic industries (primarily chemicals such as Monsanto and
FMC). We're also favoring capital goods (Boeing and Fluor), which should
benefit from a strengthening economy in 1996.
Q. WHAT, SPECIFICALLY, DID YOU DO DURING THE YEAR TO ENHANCE PERFORMANCE?
A. We made some excellent individual investment decisions. As an investment
manager, Kemper's strength is in evaluating a company's fundamentals
(including its profitability, its cash flow, the strength of its
financials and its earnings prospects). Our strong research capabilities
identified some exceptional stocks in the last year.
Q. SUCH AS?
A. Performance came from a broad range of stocks. The performance of the
stock market this year was rotational, which is why you need a diversified
portfolio.
Everyone's list of top performers this year will have individual
technology names. Ours were Adobe Systems, Informix, Hewlett Packard and
Sun Microsystems. Our health care
6
<PAGE> 7
Performance Update
(predominantly pharmaceuticals such as Eli Lilly, SmithKline Beecham and
Boston Scientific) and defensive stocks such as our regional bell
operating companies (Southwestern Bell and Cincinnati Bell) performed when
technology was weak. Strong consumer stocks included Procter & Gamble,
Sara Lee and Pioneer Hi-Bred. We made some good moves in chemicals,
as well. Monsanto, in particular, is an example of a chemical company
whose years of investing in agricultural biotechnology look as if they're
ready to pay off.
Q. YOU WERE NOT ENTHUSIASTIC ABOUT TECHNOLOGY STOCKS AT A TIME WHEN EVERYONE
ELSE WAS HANGING ONTO THE BANDWAGON.
A. Yes, that's right. I can't deny that there's a lot of growth in the
technology sector but when values get as extended as they were during the
summer and fall, I felt I had to become more selective. I focus on several
ratios -- stock price to sales, relative price to earnings and
price/earnings to growth -- and the upside of many of these measures was
fairly limited late in the summer.
I was most concerned about the semiconductor stocks and the
software companies. For example, Adobe, which was a software company that
we singled out for its performance in the fund's semiannual report, was
eliminated from the portfolio. Its valuations had just gotten extreme.
At the highest point during the year, 24 percent of the fund was
invested in technology stocks but then I became concerned about
valuations. As you can see in the bar chart on page 10, we closed the year
with technology stocks representing about 15 percent of our holdings. I've
stuck with the companies that seemed to offer reasonable valuations and
expectations -- companies like GM Electronic Data Systems, Intel and
Automatic Data.
Q. TRACY, OCTOBER 31 MARKED YOUR 13TH MONTH AS MANAGER OF THE FUND. WHAT
KINDS OF CHANGES HAVE YOU MADE AND WHAT'S BEEN THE EFFECT OF THOSE
CHANGES?
A. I've made several adjustments to the portfolio, but I'll just highlight a
few of the more significant.
- As I mentioned in the fund's semiannual report, I've been working on
doubling the average market capitalization of the companies we invest in
to about $20 billion. This size is closer to the size of the companies
that our peers invest in and to the companies represented in the Russell
1000 Growth Index. Holding fewer, larger companies has had the intended
effect of reducing the volatility of the fund.
- I restructured the fund's top 20 holdings. These stocks, which
represent 35 percent of the portfolio, should be our hardest-working
stocks with what we believe to be significant upside potential. The
largest holding, Intel, is an example of a Top 20 that's earning its keep.
It appreciates -- at one point during 1995, it had appreciated to the
equivalent of 3.5 percent of the fund -- I trimmed it back when
expectations became overblown on a good earnings release. I think
expectations have since become more realistic and recently bought some
back. (See page 11 for a list of the fund's top 20 holdings and the
businesses they're in.)
- I'm focusing more on stocks (B.F. Goodrich and Cincinnati Bell) as a
source of dividend income. Although U.S. Treasuries are a ready source of
income from which we can meet the dividend expectations of the fund,
Treasuries' dividend-paying ability is dependent upon interest rates.
When rates fall, I'd have to increase the amount that I invest in
Treasuries just to be assured of paying a dividend. Treasuries also get
left behind in a strong equity market. We've also purchased convertible
preferred stock and bonds (Wendy's, Banc One, Thermo Electron and GM
Electronic Data Systems), which also participate when the market climbs.
- Because many of our holdings (PepsiCo, Philip Morris)
provide multinational exposure, I've eliminated our foreign stocks. For
the foreseeable future, I think the best opportunities for the fund are in
the United States.
Q. SO MUCH WENT RIGHT DURING THE LAST FISCAL YEAR BUT SURELY THERE MUST HAVE
BEEN SOME "MISSES."
A. Of course there were. Last December, I correctly predicted that interest
rates would start to fall but I didn't do enough to exploit what I
believed. I bought the stocks of some life insurers (American
7
<PAGE> 8
Performance Update
General and Providian) but I could have done more. Because of the merger
and consolidation activity in the financial sector, I wish we'd had more
financial stocks in the fund, especially during the summer.
The second major miss was that I sold 3Com too early. You know, you
can either sell too early or stay too long. I just really believe that you
must be a disciplined seller. Otherwise, it's too easy to get caught up in
a stock's momentum.
Q. WAS THERE ANYTHING THIS PAST YEAR HAS TAUGHT YOU?
A. If anything, it's proved the importance of having the strength of my
convictions. I do a lot of trading around the portfolio's core positions
-- when a stock I like is temporarily down, that's when I'll act to add
more and when it's high, that's when I'll reduce the position some. I am
price-sensitive.
On the subject of building conviction, I have to mention the
quality of Kemper's primary research. We've purchased quite a few stocks
whose prospects are excellent but yet to be discovered by Wall Street
analysts. These would include B.F. Goodrich, Cincinnati Bell and
GM-Hughes, all of which we like for the long term.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. We expect a continuation of the current environment if not a slight
uptick. Some of our recent purchases (conglomerates such as AlliedSignal,
Textron and GM-Hughes) assume a slight economic rebound. We've liked
Boeing, which reflects our strong conviction that the aerospace cycle has
turned.
Q. GIVEN HOW THE FUND IS CURRENTLY POSITIONED, WHAT COULD BACKFIRE ON YOU?
A. Well, we're not expecting a recession so we wouldn't be ready for it. And
if the economy started overheating, that would hurt, as well. But based
on what I see right now, I don't consider either scenario likely.
Terms to Know
INDEX An unmanaged group of stocks that is considered representative of the
stock or bond markets. An index does not take into account any fees or expenses
related to the individual securities that it tracks. However, for performance
comparisons, the index is adjusted to reflect reinvestment of dividends of the
securities in the index.
MARKET CAPITALIZATION Capitalization is a measure of the size of a publicly
traded company, as determined by multiplying the current price by the number of
shares outstanding. The market value of a company has bearing on its perceived
earnings potential and risk. Small cap companies (less than $1 billion) may
present the potential for greater growth than larger, more established
companies. On the other hand, the stock of small cap companies may be expected
to be more volatile and therefore greater risk to capital.
SECTOR A specific industry group.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes
the reinvestment of all dividends and it represents the aggregate percentage or
dollar value change over the period.
8
<PAGE> 9
Performance Update
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
For periods ended October 31, 1995 (adjusted for the applicable sales charge)
[line graph]
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR CLASS
------ ------ -------
<S> <C> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS A 15.71% 12.35% 9.41% (Since 11/23/87)
KEMPER BLUE CHIP FUND CLASS B 18.76% N/A% 13.22% (Since 5/31/94)
KEMPER BLUE CHIP FUND CLASS C 22.04% N/A% 15.60% (Since 5/31/94)
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Blue Chip Fund Class A from 12/1/87 through 10/31/95
- --------------------------------------------------------------------------------
[line graph]
<TABLE>
<CAPTION>
12/1/87 12/31/89 12/31/91 12/31/93 10/31/95
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS A(1) $10,000 $16,594 $20,954 $24,811 $32,445
RUSSELL 1000 GROWTH INDEX** 10,000 16,945 24,930 26,267 35,940
WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 10,915 16,508 23,241 33,854
STANDARD & POOR'S 500 STOCK INDEX++ 10,000 11,308 16,726 17,157 20,420
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Blue Chip Fund Class B from 5/31/94 through 10/31/95
- --------------------------------------------------------------------------------
[line graph]
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
------- -------- --------
<S> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS B(1) $10,000 $10,284 $ 13,269
RUSSELL 1000 GROWTH INDEX** 10,000 10,492 13,941
WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 10,529 13,825
STANDARD & POOR'S 500 STOCK INDEX++ 10,000 9,809 11,927
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Blue Chip Fund Class C from 5/31/94 through 10/31/95
- --------------------------------------------------------------------------------
[line graph]
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
------- -------- --------
<S> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS C(1) $10,000 $10,284 $13,269
RUSSELL 1000 GROWTH INDEX** 10,000 10,492 13,941
WILSHIRE LARGE COMPANY GROWTH INDEX+ 10,000 10,529 13,825
STANDARD & POOR'S 500 STOCK INDEX++ 10,000 9,838 12,286
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for Class A Shares adjustment for the maximum sales charge of 5.75% and for
Class B Shares adjustment for the applicable contingent deferred sales charge
of 3%. The maximum contingent deferred sales charge is 4%. There is no sales
charge for Class C Shares. Average annual returns reflect annualized 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 A Shares and the contingent deferred sales charge
in effect at the end of the period for B Shares. In comparing the Kemper
Blue Chip Fund to the two 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.
Beginning with the next annual report, we will stop showing the Wilshire
Large Company Growth Index and will show the Russell 1000 Growth Index, a
more readily available index.
** 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 Lipper
Analytical Services, Inc.
+ The Wilshire Large Company Growth Index is an unmanaged index, which
generally represents the market for stocks of larger companies (selected
on the basis of sales growth, return on equity, and dividend payout).
Source is Wilshire Associates Incorporated.
++ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is Towers Data Systems.
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 OCTOBER 31, 1995, AND ON OCTOBER 31, 1994.
<TABLE>
<CAPTION>
KEMPER BLUE CHIP KEMPER BLUE CHIP
FUND AS OF 10/31/95 FUND AS OF 10/31/94
<S> <C> <C>
BASIC INDUSTRIES 5.9% 5.2%
CAPITAL GOODS 21.0% 8.3%
TECHNOLOGY 15.3% 20.9%
CONSUMER DURABLES 0.0% 1.2%
CONSUMER NONDURABLES 27.1% 28.6%
HEALTH CARE 16.6% 15.5%
FINANCE 7.6% 10.7%
TRANSPORTATION 1.6% 2.5%
ENERGY 4.9% 5.0%
UTILITIES 0.0% 1.7%
OTHER 0.0% 0.4%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH
SECTOR OF THE KEMPER BLUE CHIP FUND REPRESENTED ON OCTOBER 31, 1995, COMPARED
TO THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 1000
GROWTH INDEX.
<TABLE>
<CAPTION> RUSSELL 1000
KEMPER BLUE CHIP GROWTH INDEX
FUND AS OF 10/31/95 AS OF 10/31/95
<S> <C> <C>
BASIC INDUSTRIES 5.9% 4.3%
CAPITAL GOODS 21.0% 10.2%
TECHNOLOGY 15.3% 22.1%
CONSUMER DURABLES 0.0% 0.8%
CONSUMER NONDURABLES 27.1% 34.0%
HEALTH CARE 16.6% 15.4%
FINANCE 7.6% 6.0%
TRANSPORTATION 1.6% 0.3%
ENERGY 4.9% 2.0%
UTILITIES 0.0% 4.3%
OTHER 0.0% 0.6%
</TABLE>
10
<PAGE> 11
Largest Holdings
THE FUND'S 20 LARGEST HOLDINGS
REPRESENTING 35% OF THE FUND'S TOTAL NET ASSETS ON OCTOBER 31, 1995
<TABLE>
<CAPTION>
Holdings Percent
<S> <C> <C> <C>
1. Intel Dominant producer of microprocessor chips 2.6%
2. General Electric Consumer/industrial products, broadcasting 2.0%
3. Compaq Computer Dominant manufacturer of personal computers 1.9%
4. Emerson Electric Diversified manufacturer of electrical equipment 1.9%
5. AT&T Telecommunications equipment and long-distance service
provider 1.9%
6. Walt Disney Amusement parks, film, TV 1.8%
7. Monsanto Agricultural chemicals, food additives,
Searle Pharmaceuticals 1.8%
8. Mobil International oil/gas exploration, development 1.8%
9. GM Hughes Defense electronics, satellite communications, direct
broadcast provider 1.7%
10. May Department Stores Department store chain 1.7%
11. PepsiCo Soft drink, snack food, food services 1.7%
12. Xerox Corp. Document and image processing 1.7%
13. Philip Morris Cigarettes, food products, brewing 1.7%
14. GM Electronic Computer service, major outsourcing contractor
Data Systems 1.6%
15. SmithKline Beecham Ethical drugs, health care products 1.5%
16. B.F. Goodrich Aerospace provider (brakes), specialty chemicals 1.5%
17. Air Touch Communications Wireless telecommunication services 1.5%
18. Baxter International Hospital supply and medical technology 1.5%
19. Cincinnati Bell Regional telephone, cellular billing services, direct marketing
services 1.5%
20. Sun Microsystems Networked workstations, major Internet provider 1.4%
</TABLE>
11
<PAGE> 12
KEMPER BLUE CHIP FUND
Portfolio of Investments at October 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
U.S. TREASURY NOTES--6.0%
9.375%, 1996
(Cost: $10,825) $10,000 $ 10,167
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF SHARES VALUE
COMMON STOCKS
- ----------------------------------------------------------------------------------------------------------
CHEMICALS--4.7%
Air Products & Chemicals 31,600 1,631
E.I. DuPont de Nemours & Co. 15,000 936
(a)FMC Corp. 20,000 1,432
Monsanto Co. 29,200 3,059
Praxair, Inc. 28,500 770
---------------------------------------------------------------------------
7,828
- ----------------------------------------------------------------------------------------------------------
COMMUNICATIONS
AND MEDIA--6.9%
(a)AirTouch Communications 90,000 2,565
AT&T 49,000 3,136
Cincinnati Bell 84,300 2,476
(a)Liberty Media Group, "A" 65,000 1,601
SBC Communications, Inc. 32,000 1,788
---------------------------------------------------------------------------
11,566
- ----------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE
AND ELECTRONIC
COMPONENTS--13.7%
Automatic Data Processing 30,000 2,145
(a)Bay Networks 12,000 795
(a)Cisco Systems, Inc. 10,000 775
(a)Compaq Computer Corp. 58,000 3,233
GM Electronic Data Systems, convertible
preferred 40,000 2,680
Hewlett-Packard Co. 19,000 1,760
Intel Corp. 62,000 4,332
(a)LSI Logic Corp. 33,000 1,555
(a)Microsoft Corp. 17,000 1,700
(a)Silicon Graphics Inc. 50,000 1,663
(a)Sun Microsystems 31,000 2,418
---------------------------------------------------------------------------
23,056
- ----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND
SERVICES--11.2%
Walt Disney Co. 54,000 3,112
Gillette Co. 36,000 1,741
McDonald's Corporation 35,000 1,435
PepsiCo 53,000 2,796
Philip Morris Companies 33,000 2,789
Pioneer Hi-Bred International 40,000 1,985
Procter & Gamble Co. 20,000 1,620
Sara Lee Corp. 61,000 1,792
Warnaco Group 70,000 1,628
---------------------------------------------------------------------------
18,898
- ----------------------------------------------------------------------------------------------------------
</TABLE>
12
Portfolio of Investments
<PAGE> 13
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF SHARES VALUE
DRUGS AND HEALTH
CARE--13.1%
Abbott Laboratories 40,000 $ 1,590
Baxter International 65,000 2,511
Columbia/HCA Healthcare Corp. 41,000 2,014
Guidant Corp. 41,063 1,314
Johnson & Johnson 25,000 2,038
Eli Lilly & Co. 7,234 699
Medtronic, Inc. 30,000 1,732
Merck & Co., Inc. 20,000 1,150
Pfizer Inc. 22,000 1,262
SmithKline Beecham PLC 50,000 2,594
Stryker Corp. 20,000 903
Upjohn Company 45,000 2,284
U.S. Healthcare 50,000 1,925
---------------------------------------------------------------------------
22,016
- ----------------------------------------------------------------------------------------------------------
ENERGY AND
TRANSPORTATION--5.2%
Enron Corp. 40,000 1,375
Mobil Corp. 30,000 3,022
Schlumberger Ltd. 34,000 2,116
Union Pacific Corp. 33,000 2,157
---------------------------------------------------------------------------
8,670
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES AND
REAL ESTATE--7.3%
Banc One Corp., convertible preferred 36,000 2,174
Boatmen's Bancshares 30,000 1,140
Dean Witter Discover 48,000 2,388
Marsh & McLennan Companies 20,000 1,638
MBIA Inc. 25,000 1,741
Merrill Lynch & Co. 20,000 1,110
J.P. Morgan & Company 28,000 2,159
---------------------------------------------------------------------------
12,350
- ----------------------------------------------------------------------------------------------------------
MANUFACTURING--16.6%
Allied-Signal 50,000 2,125
Armstrong World Industries 20,000 1,187
Boeing Co. 33,000 2,166
Emerson Electric Co. 45,000 3,206
Fluor Corp. 36,000 2,034
General Electric Co. 52,000 3,289
GM Hughes Electronics Corp. 70,000 2,940
B.F. Goodrich Co. 39,000 2,569
Goodyear Tire & Rubber Co. 25,000 950
Leggett & Platt Incorporated 60,000 1,440
Textron 35,000 2,406
Xerox Corporation 21,500 2,790
York International Corp. 17,900 783
---------------------------------------------------------------------------
27,885
- ----------------------------------------------------------------------------------------------------------
RETAILING--3.3%
(a)Federated Department Stores 40,000 1,015
May Department Stores Co. 74,000 2,904
(a)Office Depot 60,000 1,717
---------------------------------------------------------------------------
5,636
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--82.0%
(Cost: $115,153) 137,905
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
13
Portfolio of Investments
<PAGE> 14
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
CONVERTIBLE CORPORATE OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------
COMMUNICATIONS AND
MEDIA--1.0%
Interpublic Group of Companies, 5.75%, 2002 $ 800 $ 700
LDDS Metromedia Communications, 5.00%, 2001 1,000 1,015
---------------------------------------------------------------------------
1,715
- ------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND
SERVICES--1.5%
Federated Department Stores, 9.72%, 2004 1,000 1,000
Genzyme Corp., 6.75%, 2001 500 593
Wendy's International, 7.00%, 2006 500 820
---------------------------------------------------------------------------
2,413
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING--1.8%
Magna International, 5.25%, 2005 1,533 1,560
Thermo Electron Corp., 5.00%, 2001 1,000 1,510
---------------------------------------------------------------------------
3,070
- ------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.0%
First Financial Management Corporation, 5.00%,
2001 1,000 1,536
General Instruments Corp., 5.00%, 2000 500 505
SynOptics Communications, 5.25%, 2003 500 560
3Com Corporation, 10.25%, 2001 500 790
---------------------------------------------------------------------------
3,391
---------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS--6.3%
(Cost: $9,872) 10,589
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--3.6%
Yield--5.94%
Due--November 1995
Potomac Capital Investment Corporation
(Cost: $5,995) 6,000 5,995
---------------------------------------------------------------------------
TOTAL INVESTMENTS--97.9%
(Cost: $141,845) 164,656
---------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--2.1% 3,610
---------------------------------------------------------------------------
NET ASSETS--100% $168,266
---------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $141,845,000 for federal income tax purposes
at October 31, 1995, the aggregate gross unrealized appreciation was
$24,663,000, the aggregate gross unrealized depreciation was $1,852,000 and the
net unrealized appreciation on investments was $22,811,000.
See accompanying Notes to Financial Statements.
14
Portfolio of Investments
<PAGE> 15
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER BLUE CHIP FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Blue Chip Fund as of October
31, 1995, 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 1991. 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
October 31, 1995 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
Blue Chip Fund at October 31, 1995, 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 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1995
15
Report of Independent Auditors
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
(in thousands)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $141,845) $164,656
- -------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 212
- -------------------------------------------------------------------------------------------------
Investments sold 6,747
- -------------------------------------------------------------------------------------------------
Dividends and interest 313
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 171,928
- -------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Cash overdraft 627
- -------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 202
- -------------------------------------------------------------------------------------------------
Investments purchased 2,591
- -------------------------------------------------------------------------------------------------
Management fee 81
- -------------------------------------------------------------------------------------------------
Distribution services fee 9
- -------------------------------------------------------------------------------------------------
Administrative services fee 34
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent
fees and related expenses 104
- -------------------------------------------------------------------------------------------------
Other 14
- -------------------------------------------------------------------------------------------------
Total liabilities 3,662
- -------------------------------------------------------------------------------------------------
NET ASSETS $168,266
- -------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $130,375
- -------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 13,818
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 22,811
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 1,262
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $168,266
- -------------------------------------------------------------------------------------------------
</TABLE>
THE PRICING OF SHARES
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($153,392 / 10,318 shares outstanding) $14.87
- -------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $15.78
- --------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($14,010 / 946 shares outstanding) $14.82
- --------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($864 / 58 shares outstanding) $14.88
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
Financial Statements
<PAGE> 17
STATEMENT OF OPERATIONS
Year ended October 31, 1995
(in thousands)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Dividends $ 2,589
- ---------------------------------------------------------------------------------------------
Interest 1,729
- ---------------------------------------------------------------------------------------------
Total investment income 4,318
- ---------------------------------------------------------------------------------------------
Expenses:
Management fee 903
- ---------------------------------------------------------------------------------------------
Distribution services fee 64
- ---------------------------------------------------------------------------------------------
Administrative services fee 382
- ---------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 632
- ---------------------------------------------------------------------------------------------
Professional fees 41
- ---------------------------------------------------------------------------------------------
Reports to shareholders 54
- ---------------------------------------------------------------------------------------------
Trustees' fees and other 16
- ---------------------------------------------------------------------------------------------
Total expenses 2,092
- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,226
- ---------------------------------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments 13,899
- ---------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 15,753
- ---------------------------------------------------------------------------------------------
Net gain on investments 29,652
- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $31,878
- ---------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 2,226 2,565
- ----------------------------------------------------------------------------------------------
Net realized gain 13,899 239
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 15,753 (9,930)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 31,878 (7,126)
- ----------------------------------------------------------------------------------------------
Net equalization charges (252) (296)
- ----------------------------------------------------------------------------------------------
Distribution from net investment income (2,340) (2,582)
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain (244) (11,578)
- ----------------------------------------------------------------------------------------------
Total dividends to shareholders (2,584) (14,160)
- ----------------------------------------------------------------------------------------------
Net decrease from capital share transactions (13,948) (21,573)
- ----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 15,094 (43,155)
- ----------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 153,172 196,327
- ----------------------------------------------------------------------------------------------
END OF YEAR (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,262 AND $1,629, RESPECTIVELY) $168,266 153,172
- ---------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
Financial Statements
<PAGE> 18
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Blue Chip Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial or a contingent
deferred sales charge but are subject to higher
ongoing expenses than Class A shares and do not
convert into another class. Class I shares (none
sold through October 31, 1995) are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Each share represents an identical interest in the
investments of the Fund and has the same rights.
- --------------------------------------------------------------------------------
2 SIGNIFICANT ACCOUNTING
POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes amortization of
money market instrument premium and discount.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the
18
Notes to Financial Statements
<PAGE> 19
close of the Exchange. The net asset value per
share is determined separately for each class by
dividing the Fund's net assets attributable to that
class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax provision is required.
The Fund declares and pays dividends on a
semiannual basis. Differences in dividends per
share are due to different class expenses. Net
realized capital gains, if any, will be distributed
at least annually. Dividends payable to its
shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Kemper Financial Services, Inc.
(KFS) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining gradually to .42% of average
daily net assets in excess of $12.5 billion. The
Fund incurred a management fee of $903,000 for the
year ended October 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------- --------------
<S> <C> <C> <C>
Year ended October 31, 1995 $33,000 225,000 29,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to 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 shares. Distribution fees and commissions
paid in connection with the sale of Class B and
Class C shares and the CDSC received in connection
with the redemption of Class B shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC RECEIVED ------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- --------------
<S> <C> <C> <C>
Year ended October 31, 1995 $93,000 188,000 25,000
</TABLE>
19
Notes to Financial Statements
<PAGE> 20
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY --------------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
---------------- -------------- ---------------
<S> <C> <C> <C>
Year ended October 31, 1995 $382,000 386,000 69,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. For the year ended
October 31, 1995, the transfer agent remitted
shareholder services fees to KSvC of $557,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of KFS.
During the year ended October 31, 1995, the Fund
made no payments to its officers and incurred
trustees' fees of $12,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1995, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $170,786
Proceeds from sales 190,626
20
Notes to Financial Statements
<PAGE> 21
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
1995 YEAR ENDED OCTOBER 31, 1994
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------
SHARES SOLD
Class A 1,743 $ 23,136 3,132 $ 39,066
----------------------------------------------------------------------------
Class B 1,447 19,285 256 3,129
----------------------------------------------------------------------------
Class C 102 1,283 14 177
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 198 2,454 1,077 13,488
----------------------------------------------------------------------------
Class B 4 46 -- --
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (3,870) (50,273) (6,127) (76,485)
----------------------------------------------------------------------------
Class B (672) (9,197) (72) (888)
----------------------------------------------------------------------------
Class C (53) (682) (5) (60)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 16 212 1 11
----------------------------------------------------------------------------
Class B (16) (212) (1) (11)
----------------------------------------------------------------------------
NET DECREASE FROM CAPITAL
SHARE TRANSACTIONS $(13,948) $(21,573)
----------------------------------------------------------------------------
</TABLE>
21
Notes to Financial Statements
<PAGE> 22
CLASS A
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $12.33 13.88 12.72 13.24 9.65
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .19 .18 .18 .11
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.57 (.71) 1.13 .41 3.63
- -------------------------------------------------------------------------------------------------------
Total from investment operations 2.76 (.52) 1.31 .59 3.74
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .19 .15 .14 .15
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .02 .84 -- .97 --
- -------------------------------------------------------------------------------------------------------
Total dividends .22 1.03 .15 1.11 .15
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.87 12.33 13.88 12.72 13.24
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN 22.74% (3.82) 10.35 4.76 39.19
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30% 1.48 1.25 1.46 1.66
- -------------------------------------------------------------------------------------------------------
Net investment income 1.47 1.50 1.28 1.63 .88
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
CLASS B CLASS C
<CAPTION>
MAY 31, MAY 31,
1994 TO 1994 TO
YEAR ENDED OCT. YEAR ENDED OCT.
OCT. 31, 31, OCT. 31, 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.29 12.30 12.32 12.30
- --------------------------------------------------------------- ---------------------------
Income from investment operations:
Net investment income .09 .06 .07 .09
- --------------------------------------------------------------- ---------------------------
Net realized and unrealized gain (loss) 2.56 (.01) 2.62 (.01)
- --------------------------------------------------------------- ---------------------------
Total from investment operations 2.65 .05 2.69 .08
- --------------------------------------------------------------- ---------------------------
Less dividends:
Distribution from net investment income .10 .06 .11 .06
- --------------------------------------------------------------- ---------------------------
Distribution from net realized gain .02 -- .02 --
- --------------------------------------------------------------- ---------------------------
Total dividends .12 .06 .13 .06
- --------------------------------------------------------------- ---------------------------
Net asset value, end of period $14.82 12.29 14.88 12.32
- --------------------------------------------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 21.76% .42 22.04 .67
- --------------------------------------------------------------- ---------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
Expenses 2.06% 2.43 2.01 2.33
- --------------------------------------------------------------- ---------------------------
Net investment income .71 .33 .76 .43
- --------------------------------------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA FOR ALL CLASSES
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $168,266 153,172 196,327 182,553 61,146
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 117% 131 222 178 162
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
22
Financial Highlights
<PAGE> 23
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995 a joint special shareholders' meeting was held. Kemper
Blue Chip Fund shareholders were asked to vote on four separate issues:
election of nine Trustees to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors, approval of a new investment management
agreement with Kemper Financial Services, Inc. or its successor on the same
terms as the current agreement and for Class B and Class C shareholders only,
approval of a new 12b-1 distribution plan with Kemper Distributors, Inc. or its
successor on the same terms as the current plan. We are pleased to report that
all nominees were elected and all other items were approved. Following are the
results for each issue:
- - Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 6,348,462 234,348
Lewis A. Burnham 6,348,462 234,348
Donald L. Dunaway 6,351,095 231,715
Robert B. Hoffman 6,351,095 231,715
Donald R. Jones 6,351,095 231,715
David B. Mathis 6,341,879 240,931
Shirley D. Peterson 6,345,829 236,981
William P. Sommers 6,342,537 240,273
Stephen B. Timbers 6,351,095 231,715
</TABLE>
- - Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
For Against Abstain
6,288,643 90,943 203,224
- - Approval of new investment management agreement
For Against Abstain
6,164,397 124,310 294,103
- - Approval of new 12b-1 distribution plan
For Against Abstain
Class B
Shares 330,248 12,760 19,633
Class C
Shares 26,280 253 2,652
23
<PAGE> 24
Trustees and Officers
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. PETERS
President and Trustee Vice President
DAVID W. BELIN TRACY M. CHESTER
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President
ROBERT B. HOFFMAN and Secretary
Trustee CHARLES F. CUSTER
DONALD R. JONES Vice President and
Trustee Assistant Secretary
DAVID B. MATHIS JEROME L. DUFFY
Trustee Treasurer
SHIRLEY D. PETERSON ELIZABETH C. WERTH
Trustee Assistant Secretary
WILLIAM P. SOMMERS
Trustee
- ---------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ---------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
- ---------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- ---------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- ---------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
- ---------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
[LOGO]
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a [KEMPER LOGO]
Kemper Equity Funds prospectus. 1006800
KBCF - 2(12/95) printed in U.S.A.
