<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING GROWTH OF CAPITAL AND OF INCOME
KEMPER
BLUE CHIP FUND
"... We believe that in a fast-moving, rotational market,
thoroughly researched stock-picking can provide the edge
required to navigate the short-term ebbs and flows...."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Industry Sectors
10
Largest Holdings
11
Portfolio of
Investments
14
Report of
Independent Auditors
15
Financial Statements
17
Notes to
Financial Statements
21
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 7.80
CLASS B 6.96
CLASS C 7.08
LIPPER GROWTH & INCOME FUNDS 9.88
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less
favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/98 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER BLUE CHIP FUND CLASS A $16.61 $17.68
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS B $16.55 $17.61
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS C $16.65 $17.69
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
RANKINGS AS OF 10/31/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH AND INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #476 OF 726 FUNDS #497 OF 726 FUNDS #492 OF 726 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #213 OF 296 FUNDS N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #80 OF 146 FUNDS N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED OCTOBER 31, 1998, KEMPER BLUE CHIP FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $ .1625 $ .0122 $ .0178
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN $1.690 $1.690 $1.690
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $0.500 $0.500 $0.500
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
[DIAGRAM]
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
Source: Data by Morningstar, Inc., Chicago, IL 312-696-6000. The Equity Style
Box placement is based on a fund's price-to-earnings and price-to-book ratios
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. The Fund's portfolio changes from day-to-day.
A longer-term view is represented by the Fund's Morningstar category, which is
based on its actual investment style as measured by its underlying portfolio
holdings over the past three years. Morningstar has placed Kemper Blue Chip Fund
in the large blend category. Please consult the Prospectus for a description of
investment policies.
BLUE CHIP COMPANY Blue chip companies are generally identified by their
substantial capitalization, established history of earnings and dividends, easy
access to credit, good industry position and superior management structure. They
are believed to generally exhibit less investment risk and stock price
volatility than smaller, less seasoned companies.
GRAY MONDAY A term used to describe the event that occurred on October 27, 1997,
when concerns about the stability in Southeast Asian markets triggered a decline
of 7 percent in the U.S. stock market.
REAL ESTATE INVESTMENT TRUST A pool of real estate properties, rather than
stocks or bonds. Similar to mutual funds, investments are made through the
purchase of shares in the trust.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile due to
uncertainty in a company, industry, market or economy.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year. The nation's budget
surplus for 1998 came in at $60 billion, with another budget surplus expected
for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2.5 percent and 3.5 percent for the second half of 1998 and is
anticipated to hover around 2 percent for the first half of 1999. The consumer
price index (CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOV 98 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 4.53 5.64 6.03 6.53
PRIME RATE(2)* 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.49 1.50 2.08 2.99
THE U.S. DOLLAR(4) 0.83 6.86 9.65 3.46
CAPITAL GOODS ORDERS(5)* 2.51 7.47 10.64 9.19
INDUSTRIAL PRODUCTION(5)* 2.12 4.97 6.72 4.93
EMPLOYMENT GROWTH(6) 2.28 2.65 2.70 2.33
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF OCTOBER 31, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. The threat of impeachment, new
acts of terrorism or any other hints of crisis could prompt a downward spike in
our markets in the short run. In the long run, the keys to investment
performance remain moderate growth, low inflation and limited taxation and
regulation.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
MANAGING DIRECTOR
SCUDDER KEMPER INVESTMENTS, INC
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF DECEMBER 2, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[CHESTER PHOTO]
TRACY MCCORMICK CHESTER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND
SERVES AS A MANAGING DIRECTOR. SHE IS ALSO A VICE PRESIDENT AND LEAD PORTFOLIO
MANAGER OF KEMPER BLUE CHIP FUND. MCCORMICK CHESTER RECEIVED BOTH HER BACHELOR
OF ARTS AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
LEAD PORTFOLIO MANAGER TRACY MCCORMICK CHESTER PROVIDES AN OVERVIEW OF THE STOCK
MARKET, HER INVESTMENT APPROACH AND WHERE SHE'S FINDING ATTRACTIVE INVESTMENT
OPPORTUNITIES.
Q HOW DID THE FUND PERFORM?
A For the one-year period ending October 31, 1998, Kemper Blue Chip Fund
returned 7.80 percent (Class A shares, unadjusted for any sales charge). The
fund trailed its peers by a modest amount: the average for the Lipper Growth and
Income category was 9.88 percent. As the fund rounded the semiannual mark back
in April, it was performing a bit ahead of the peer group average, but gave back
some ground during the second half of the year.
We understand that even a small margin of underperformance can be
disheartening for investors. Even in a challenging and volatile market climate,
we're not satisfied when we come up short. While the short-term climate has been
inhospitable, we remain confident that our growth-at-a-reasonable-price approach
to blue-chip investing holds solid potential for the long term. We would
encourage growth-stock investors to maintain a long-term perspective.
Q YOU'VE MENTIONED THAT THE MARKET CLIMATE HAS PRESENTED CHALLENGES. BEFORE
WE DISCUSS THE FUND IN GREATER DETAIL, COULD YOU PROVIDE US WITH AN OVERVIEW OF
KEY FACTORS THAT HAVE DRIVEN THE MARKET THIS YEAR?
A The markets have been extremely volatile. Investors have been grappling
with the consequences and potential consequences of international market
turbulence. The fiscal year began just days after Gray Monday, when concerns
about Southeast Asian economic instability triggered a steep one-day decline in
domestic markets.
Reassured by bailout plans introduced by the International Monetary Fund
and by announcements of stronger-than-anticipated domestic corporate earnings,
investors returned to stocks quickly. The markets rebounded vigorously by
year-end and continued to rally briskly through the first quarter. This rally,
while enthusiastic, was not broad-based. Investors bestowed a disproportionate
amount of favor on an increasingly small group of mega-cap stocks. Meanwhile,
the rest of the market was choppy and rotational, with stocks falling quickly at
any sign of real or perceived shortcomings.
In August, the markets dove. The Russian debt default triggered a panicked
sell-off. Financial services stocks were treated particularly roughly, because
of their potential exposure to the defaulted loans. But, there was really
nowhere to hide in this round of turmoil: Even the large mega-cap names began to
topple. Anxiety about Asia, Russia, and Latin America caused investors to flee
the markets.
Yet, similar to the months following Gray Monday, investors returned to
the markets quickly and with renewed enthusiasm in September and October. The
Federal Reserve's decision to cut interest rates was received favorably.
Investors' anxieties were also soothed when the global powers met to address
ways to shore up potential economic weakness. As the fiscal year ended, the
market climate was more upbeat, though still uncertain.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DO YOU SELECT STOCKS FOR THE PORTFOLIO, PARTICULARLY DURING SUCH A
TURBULENT CLIMATE?
A We apply a growth-at-a-reasonable-price (GARP) discipline to large,
blue-chip companies. We focus on uncovering fundamentally strong stocks that
have excellent growth potential. But that's not enough -- the stocks need to be
trading at attractive valuations. As part of our research-intensive strategy, we
pay close attention to potential catalysts, such as a new product or service, a
new management group, or moves to streamline operations. By monitoring these
catalysts thoroughly, we believe that we provide shareholders with a valuable
edge.
We pair this GARP strategy with discipline. Even when markets are as
volatile as they have been, we're not going to abandon our conviction in order
to chase short-term performance. And while we may not participate in the quick
rise of a trendy, less-tested stock, we won't feel the sting of disappointment
that can occur when that stock topples in a more rational, longer-term climate.
Q COULD YOU HIGHLIGHT SOME STOCKS THAT MEET YOUR STRINGENT CRITERIA?
A I'd be glad to. Motorola is a good example. The stock is attractively
priced, and our research indicates that the necessary catalysts for growth are
in place. The firm's management is streamlining operations. Motorola is getting
out of businesses that don't fit in well with its overall direction, while
taking strides to rationalize and develop its semiconductor area. For the first
time in many quarters, the firm posted its first positive quarter. Motorola is
still not widely followed by Wall Street, so our interest in the stock typifies
our willingness to move ahead of the pack when our analysis supports our
conviction.
Raytheon also highlights many of the hallmarks we like. It's a defense and
aerospace firm with a well-thought-out, rational expansion plan. Raytheon has
bought the defense operations of both GM Hughes Electronics and Texas
Instruments, and has a new chief executive officer leading the organization. In
short, it's a company with a lot of exciting growth potential.
ConAgra is a food manufacturer and distributor with an appealing story.
The stock trades at a reasonable price, given the company's growth potential.
ConAgra has a new chief executive officer in place and is rationalizing its
business segments, potentially spinning off some of its meat operations, while
making some well-thought out acquisitions. Our analysis indicates that the
resulting organization should have good prospects for high earnings growth.
Q DID THE EMOTIONAL MARKET CLIMATE CREATE AN INHOSPITABLE ENVIRONMENT FOR
THE FUND'S GARP ORIENTATION?
A Yes, the market did present some additional challenges to our
growth-at-a-reasonable-price discipline. Our blue chip hunting grounds were
thinned out by investor emotion and high stock prices. I'll elaborate:
Throughout most of the year, investors succumbed to nerves and embarked on a
flight to perceived quality.
Because they were jittery about the consequences of international economic
turmoil, investors sought out stocks that they believed could withstand any
maelstrom. Typically, these were large, domestically oriented blue chip
stocks -- the same type of stocks that are the bread-and-butter of Kemper Blue
Chip Fund. The prices of these stocks skyrocketed, far beyond a level that we
believed was sustainable over the long-term. Because of their steep prices, we
were precluded from owning market favorites such as Lucent and Microsoft. Also,
our valuation discipline placed many consumer nondurable and health care stocks
beyond our reach until August, when their prices came under pressure and
corrected.
Q WERE THERE OTHER ELEMENTS THAT IMPEDED THE FUND'S GAINS?
A The portfolio's energy stake hasn't yet performed as well as we would have
liked. The relative yields and cash flows of many energy stocks have been quite
compelling, while their prices were low. With any positive news, we felt that
these stocks could rebound briskly. However, that positive news hasn't yet come,
and energy continues to wait in the wings. Because energy stocks do offer
defensive protection, we feel that it is still prudent to hold a moderate
quantity of energy stocks in the fund.
The fund's small stake in real estate investment trusts (REITs) didn't
work out as well as we had wanted. In hindsight, we were too patient with these.
These REITs began taking an imprudent, aggressive route in bidding for
properties. We had included REITs in the portfolio to enhance income, but feel
now that shareholders will be better served by investments in yield-oriented
stocks such as telecommunications and utilities.
Among individual holdings, Consolidated Stores, a diversified retailer,
and Alcatel, a French telecommunications firm, fell short of
6
<PAGE> 7
PERFORMANCE UPDATE
expectations. Consolidated Stores has struggled with several lackluster
toy-store operations, and hasn't been able to achieve a high earnings growth.
Initially, Alcatel offered an appealing story: It was a conglomerate that had
spun-off its electrical operations to focus on telecommunications. However, the
firm then delivered surprisingly disappointing numbers, and the management no
longer inspired confidence. We've eliminated Alcatel from the portfolio, but
still hold shares of Consolidated Stores. The latter stock was quickly oversold
by the market. As its valuations dipped, it began to emerge as a more compelling
story, on a price-to-growth-potential level.
Q GIVEN THE CHOPPY MARKET CLIMATE, WHERE ARE YOU FINDING ATTRACTIVE VALUES?
A The fund's financial services holdings are a good example of where we're
seeking to use short-term volatility to the fund's longer-term advantage. For
instance, in the wake of the Russian debt default, the prices of most financial
services stocks plummeted. Even stocks with limited international exposure were
hit hard. The prices of many of these stocks are now terrifically low, given
their growth potential. We're leveraging our extensive research resources to
determine which financial service stocks would make good additions to the
portfolio. We've been adding to money-center banks, favoring quality companies
such as Citigroup and Chase Manhattan.
The consumer nondurables sector also holds potential. We began adding more
retail exposure in the late summer, when prices declined from their lofty
heights. Wal-Mart and Home-Depot were among the many additions that we had been
tracking for a long time, and we were pleased when their valuations entered our
range. We're building up a defensive position in food retailers, such as
Albertson's, ConAgra and McCormick & Co.
We've increased the proportion of technology stocks in the portfolio.
Within the technology sector, we're favoring well-tested companies such as Sun
Microsystems and International Business Machines. We're also bolstering exposure
to semiconductor and component-oriented technology, through companies such as
Texas Instruments and Motorola. These commodity-based technology stocks suffered
in the wake of the Asian economic meltdown. Now, however, the horizon looks
brighter for them than for many software and service names.
Telecommunications stocks such as AT&T and US West boast appealing
valuations, and a combination of growth and income potential that we like. We've
also found attractively priced media stocks such as CBS and Tribune. Railroad
stocks show favorable characteristics, too. The valuations are extremely
attractive, and any positive catalyst could set them off and running.
Q WHAT AREAS ARE LESS APPEALING?
A We're not finding many compelling reasons to increase the portfolio's
energy holdings. We're skeptical of most capital goods stocks; plenty of basic
industry stocks are very cheap, but our analysis doesn't indicate numerous
opportunities for price appreciation. Generally, health care seems a bit too
pricey. We're paring back insurance names in favor of money-center banks.
Q WHAT STEPS DO YOU TAKE TO MANAGE POTENTIAL CAPITAL GAINS EXPOSURE?
A We certainly recognize that tax efficiency is an important consideration
for our shareholders. We monitor the portfolio throughout the year to gauge tax
exposure, and whenever possible, strive to offset gains with losses. To some
extent, however, shareholders in an actively managed portfolio should be
comfortable with capital gains. As active portfolio managers, we're striving to
capture profits through our buying and selling of stocks. For instance, a
capital gain can be the result of a well-timed decision to take profits on a
stock.
Q THIS PAST YEAR HAS CERTAINLY OFFERED UP ITS SHARE OF CHALLENGES. DOES
AUTUMN'S MARKET RALLY INDICATE THAT THE WORST IS BEHIND US?
A Well, we do think that volatility will continue, despite the recent rally.
In a global economy, it's reasonable to expect that uncertainty will always be
present. What really counts is how we respond to the uncertainty. As we have
discussed, we believe that a thoughtful, long-term investment discipline has the
potential to translate some volatility into opportunity.
Experience shows that it's very difficult to "call" the market. Instead,
we prefer to focus on selecting the strongest stocks. We believe that in a
fast-moving, rotational market, thoroughly researched stock picking can provide
the edge required to navigate the short-term ebbs and flows. Through discipline,
in-depth analysis of stocks and the careful tracking of companies, we strive to
offer shareholders that edge.
7
<PAGE> 8
PERFORMANCE UPDATE
KEMPER BLUE CHIP FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS A 1.59% 14.01% 14.05% 12.24% (since 11/23/87)
- ------------------------------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS B 4.14 N/A N/A 17.59 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS C 7.08 N/A N/A 18.01 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Standard &
Blue Chip Poor's 500
Fund Class Russell Stock
A1 1000 Index+ Index++
<S> <C> <C> <C>
12/1/87 9424 10000 10000
9518 10733 10761
9393 11459 11372
9544 12219 12129
8922 12271 12170
8886 12582 12542
9420 13489 13430
10186 14697 14614
11352 16217 16177
11308 16409 16509
11197 15868 16013
12499 16813 17020
10772 14358 14683
11581 15726 15998
13708 18169 18319
13494 18088 18276
14590 19206 19252
12/31/91 16726 20924 20863
15880 20471 20337
15071 20757 20723
15490 21437 21376
16526 22815 22450
16972 23766 23431
16961 23930 23544
17709 24705 24151
17157 25137 24710
16460 24143 23775
15800 24097 23874
16434 25328 25040
16273 25228 25036
17598 27630 27471
19047 30235 30091
20393 32928 32480
12/31/95 21435 34759 34435
23088 36675 36283
24065 38168 37910
25741 39410 39082
27372 42553 42338
27649 43211 43475
31581 50471 51060
34475 54873 54883
34546 56524 56459
38342 64077 64331
38111 65682 66454
33150 58906 59854
10/31/98 35364 63560 64744
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Standard &
Blue Chip Poor's 500
Fund Class Russell Stock
B1 1000 Index+ Index++
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9576.49 9733.00 9757.00
9927.85 10230.00 10234.00
9808.55 10190.00 10232.00
10590.90 11160.00 11227.00
11443.50 12212.00 12298.00
12219.10 13300.00 13274.00
12827.50 14040.00 14073.00
13799.00 14814.00 14828.00
14348.60 15417.00 15493.00
15302.80 15918.00 15972.00
12/31/96 16231.80 17188.00 17303.00
16374.40 17454.00 17768.00
18666.20 20386.00 20867.00
20323.20 22164.00 22430.00
12/31/97 20319.20 22831.00 23074.00
22504.80 25881.00 26291.00
22317.40 26530.00 27158.00
19370.10 23793.00 24461.00
10/31/98 20469.00 25673.00 26459.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Standard &
Blue Chip Poor's 500
Fund Class Russell Stock
C1 1000 Index+ Index++
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9577 9733 9757
9944 10230 10234
9838 10190 10232
10637 11160 11227
11493 12212 12298
12277 13300 13274
12890 14040 14073
13853 14814 14828
14404 15417 15493
15376 15918 15972
12/31/96 16310 17188 17303
16464 17454 17768
18762 20386 20867
20430 22164 22430
12/31/97 20432 22831 23074
22630 25881 26291
22443 26530 27158
19496 23793 24461
10/31/98 20794 25673 26459
</TABLE>
Past performance is not a guarantee of future results. Investment returns and
principal values will fluctuate so that shares, when redeemed, may be worth more
or less than original cost.
* Average annual total return and total return measure 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
return reflects aggregate change. During the periods noted, securities
prices fluctuated. For additional information, see the Prospectus and
Statement of Additional Information and the Financial Highlights at the end
of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred sales
charge in effect at the end of the period for Class B shares. In comparing
Kemper Blue Chip Fund Class A shares 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.
+ The Russell 1000 Index is an unmanaged capitalization weighted price only
index comprised of the largest capitalized U.S. companies whose common
stocks are traded in the United States. this large capitalization market
oriented index is highly correlated with the S&P 500 Stock Index.
++ The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. Stock Market. Source is Towersdata.
8
<PAGE> 9
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on October 31, 1998, and on October 31, 1997.
[COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND KEMPER BLUE CHIP FUND
ON 10/31/98 ON 10/31/97
<S> <C> <C>
CONSUMER NON-DURABLES 25.90 24.60
TECHNOLOGY 17.20 13.10
FINANCE 14.30 20.80
HEALTH CARE 12.20 12.10
UTILITIES 9.80 4.80
ENERGY 9.70 8.20
CAPITAL GOODS 7.40 7.30
TRANSPORTATION 2.50 4.90
CONSUMER DURABLES 1.00 1.50
BASIC INDUSTRIES 0.00 3.00
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of Kemper Blue Chip Fund represented on October 31, 1998, compared to the
industry sectors that make up the fund's benchmark, the Russell 1000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND ON RUSSELL 1000 INDEX
10/31/98 ON 10/31/98
<S> <C> <C>
CONSUMER NON-DURABLES 25.90 29.90
TECHNOLOGY 17.20 25.30
FINANCE 14.30 7.20
HEALTH CARE 12.20 22.20
UTILITIES 9.80 2.90
ENERGY 9.70 1.10
CAPITAL GOODS 7.40 9.20
TRANSPORTATION 2.50 0.10
CONSUMER DURABLES 1.00 0.53
BASIC INDUSTRIES 0.00 1.60
</TABLE>
* The Russell 1000 Index is an unmanaged capitalization weighted price only
index comprised of the largest capitalized U.S. companies whose common stocks
are traded in the United States. This large capitalization market oriented
index is highly correlated with the S&P 500 Stock Index.
9
<PAGE> 10
LARGEST HOLDINGS
TOP 10 HOLDINGS*
REPRESENTING 18.2 PERCENT OF THE FUND'S TOTAL NET ASSETS ON OCTOBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Holdings Percent
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Abbott Laboratories Engaged in the discovery, development, manufacture and 2.3%
sales of a broad and diversified line of health care
products and services.
2. Eli Lilly Producer of pharmaceutical and animal health products. 2.2%
3. Raytheon A diversified technology-based company active in 2.0%
electronics, aircraft products, and energy and
environmental services.
4. International Business Manufactures computers and computer-related products. 1.9%
Machines
5. Chevron Engaged in worldwide integrated petroleum operations, 1.7%
including exploration, development, transportation,
refining and marketing of crude oil and natural gas.
6. ConAgra A diversified food company with operations in meat and 1.7%
poultry products, grocery products, agricultural
products, and international trading and processing.
7. Torchmark Provider of insurance and financial services, including 1.6%
direct response marketing for banks.
8. Motorola Manufactures electronic communications equipment and 1.6%
components.
9. AT&T Provides products, services and systems for the 1.6%
movement and management of information. AT&T markets
select AT&T products, systems and services in the
United States and abroad.
10. H.J. Heinz Manufactures and markets processed food products, 1.6%
including canned food, sauces and condiments, frozen
meats, candy, pet food and baby food.
</TABLE>
* Portfolio composition and holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--9.0%
Ameritech Corp. 119,000 $ 6,419
AT&T 150,000 9,337
Cincinnati Bell Inc. 200,000 5,187
Frontier Corp. 252,000 7,576
(a)MCI WorldCom, Inc. 110,000 6,078
SBC Communications, Inc. 152,000 7,039
Sprint Corp. 50,000 3,837
US West, Inc. 120,000 6,885
------------------------------------------------------------------------
52,358
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.6%
(a)Consolidated Stores Corp. 105,000 1,726
Home Depot, Inc. 152,500 6,634
May Department Stores 141,700 8,644
(a)Mirage Resorts, Inc. 290,000 4,912
(a)Newell Companies Inc. 130,000 5,720
Rite Aid Corp. 130,000 5,159
Wal-Mart Stores Inc. 80,000 5,520
------------------------------------------------------------------------
38,315
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--10.8%
Albertson's Inc. 130,000 7,223
Coca-Cola Co., Inc. 90,000 6,086
ConAgra Inc. 316,800 9,643
Dial Corp. 336,500 9,275
H.J. Heinz Co. 160,000 9,300
McCormick & Company, Inc. 290,000 9,008
PepsiCo Inc. 155,000 5,231
Procter & Gamble Co. 79,000 7,021
------------------------------------------------------------------------
62,787
- ---------------------------------------------------------------------------------------------------------------------
DURABLES--.5%
Sundstrand Corp. 60,000 2,816
----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--8.9%
Anadarko Petroleum Corp. 75,000 2,541
Chevron Corp. 120,000 9,780
(a)Conoco Inc. 71,800 1,786
Exxon Corp. 100,000 7,125
Mobil Corp. 122,600 9,279
Royal Dutch Petroleum Co. 160,000 7,880
Texaco Inc. 150,000 8,897
Unocal Corp. 140,000 4,751
------------------------------------------------------------------------
52,039
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL--13.1%
Allstate Corp. 100,000 4,306
American Express Company 52,000 4,595
American General Corp. 30,000 2,055
Bank One Corporation 65,000 3,177
BankAmerica Corp. 82,502 4,739
Chase Manhattan Corp. 60,000 3,409
Cigna Corp. 98,600 7,192
CitiGroup Inc. 90,000 4,236
Compass Bancshares Inc. 144,200 5,308
Federal National Mortgage Association 65,000 4,603
First Security Corp. 260,000 5,314
First Tennessee National Corp. 100,000 3,169
General Growth Properties, Inc. 64,800 2,304
Household International, Inc. 88,916 3,251
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jefferson Pilot Corp. 105,000 $ 6,379
Lincoln National Corp. 35,000 2,656
Torchmark Corp. 220,000 9,625
------------------------------------------------------------------------
76,318
- ---------------------------------------------------------------------------------------------------------------------
HEALTH--11.2%
Abbott Laboratories 280,000 13,142
American Home Products Corp. 135,600 6,610
Bausch & Lomb, Inc. 75,000 3,127
Becton, Dickinson & Co. 185,000 7,793
Bristol-Myers Squibb Co. 32,000 3,538
Eli Lilly & Co. 155,000 12,545
Glaxo Wellcome PLC (ADR) 90,000 5,603
Pfizer, Inc. 65,000 6,975
Schering-Plough Corp. 55,200 5,679
------------------------------------------------------------------------
65,012
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING--6.8%
Corning Inc. 120,000 4,358
Emerson Electric Co. 115,900 7,649
(a)Federal-Mogul Corp. 55,000 2,980
General Electric Co. 100,400 8,785
Stanley Works 163,500 4,905
Textron, Inc. 80,000 5,950
Tyco International Ltd. 44 3
Xerox Corp. 50,000 4,844
------------------------------------------------------------------------
39,474
- ---------------------------------------------------------------------------------------------------------------------
MEDIA--5.4%
CBS Corp 312,000 8,717
(a)Tele-Comm Liberty Media Group 160,000 6,090
Time Warner Inc. 58,000 5,383
Tribune Co. 50,000 2,881
(a)Univision Communication Inc. 136,900 4,039
(a)Young & Rubicam Inc. 154,800 4,044
------------------------------------------------------------------------
31,154
- ---------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.1%
R.R. Donnelley & Sons Co. 149,000 6,426
------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--15.8%
AMP Inc. 87,225 3,582
(a)Applied Materials, Inc. 90,000 3,122
(a)Cisco Systems, Inc. 90,000 5,670
Compaq Computer Corp. 188,000 5,945
(a)Computer Sciences Corp. 50,000 2,637
Hewlett-Packard Co. 100,000 6,019
International Business Machines Corp. 75,000 11,133
Motorola Inc. 180,000 9,360
(a)Oracle Systems Corp. 240,000 7,095
Raytheon Co. 204,368 11,445
(a)Seagate Technology, Inc. 220,000 5,802
(a)Sun Microsystems, Inc. 150,400 8,761
Texas Instruments Inc. 118,100 7,551
(a)Xilinx Inc. 80,000 3,572
------------------------------------------------------------------------
91,694
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--2.4%
Canadian National Railway 120,000 $ 5,992
Norfolk Southern Corp. 249,000 8,201
----------------------------------------------------------------------
14,193
----------------------------------------------------------------------
TOTAL COMMON STOCKS--91.6%
(Cost: $486,770) $532,586
----------------------------------------------------------------------
PREFERRED STOCKS
----------------------------------------------------------------------
CONSUMER DISCRETIONARY--1.6%
CVS Corp. 75,000 6,178
Newell Company 62,000 3,410
----------------------------------------------------------------------
9,588
- -------------------------------------------------------------------------------------------------------------------
DURABLES--.8%
Federal Mogul Corp. 80,000 4,840
----------------------------------------------------------------------
TOTAL PREFERRED STOCKS--2.4%
(Cost: $12,541) 14,428
----------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
----------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS
HEALTH--.5%
ALZA Corp., 5.00%, 2006
(Cost: $2,194) $2,200 2,962
----------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--5.0%
Yield--3.50% to 5.41%
Due--November 1998
(Cost: $28,966) 28,966 28,966
----------------------------------------------------------------------
TOTAL INVESTMENTS--99.5%
(Cost: $530,471) 578,942
----------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--.5% 2,828
----------------------------------------------------------------------
NET ASSETS--100% $581,770
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $530,714,000 for federal income tax purposes
at October 31, 1998, the gross unrealized appreciation was $63,296,000, the
gross unrealized depreciation was $15,068,000 and the net unrealized
appreciation on investments was $48,228,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
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, 1998, 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 1994. 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, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Blue Chip Fund at October 31, 1998, 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 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1998
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $530,471) $578,942
- ------------------------------------------------------------------------
Receivable for:
Investments sold 3,226
- ------------------------------------------------------------------------
Fund shares sold 3,059
- ------------------------------------------------------------------------
Dividends and interest 606
- ------------------------------------------------------------------------
TOTAL ASSETS 585,833
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 285
- ------------------------------------------------------------------------
Payable for:
Investments purchased 1,829
- ------------------------------------------------------------------------
Fund shares redeemed 834
- ------------------------------------------------------------------------
Management fee 247
- ------------------------------------------------------------------------
Distribution services fee 211
- ------------------------------------------------------------------------
Administrative services fee 158
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 466
- ------------------------------------------------------------------------
Trustees' fees 33
- ------------------------------------------------------------------------
Total liabilities 4,063
- ------------------------------------------------------------------------
NET ASSETS $581,770
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $518,963
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 14,236
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 48,471
- ------------------------------------------------------------------------
Undistributed net investment income 100
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $581,770
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($378,450 / 22,781 shares outstanding) $16.61
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $17.62
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($174,975 / 10,575 shares outstanding) $16.55
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($22,745 / 1,366 shares outstanding) $16.65
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($5,600 / 336 shares outstanding) $16.68
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 9,071
- -----------------------------------------------------------------------
Interest 1,563
- -----------------------------------------------------------------------
Total investment income 10,634
- -----------------------------------------------------------------------
Expenses:
Management fee 3,104
- -----------------------------------------------------------------------
Distribution services fee 1,332
- -----------------------------------------------------------------------
Administrative services fee 1,317
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,421
- -----------------------------------------------------------------------
Professional fees 38
- -----------------------------------------------------------------------
Reports to shareholders 210
- -----------------------------------------------------------------------
Trustees' fees and other 166
- -----------------------------------------------------------------------
Total expenses 8,588
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 2,046
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 14,402
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 14,596
- -----------------------------------------------------------------------
Net gain on investments 28,998
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $31,044
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 2,046 2,978
- -------------------------------------------------------------------------------------------
Net realized gain 14,402 56,879
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 14,596 14,551
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 31,044 74,408
- -------------------------------------------------------------------------------------------
Net equalization credits -- 209
- -------------------------------------------------------------------------------------------
Distribution from net investment income (3,360) (2,968)
- -------------------------------------------------------------------------------------------
Distribution from net realized gain (57,273) (48,419)
- -------------------------------------------------------------------------------------------
Total dividends to shareholders (60,633) (51,387)
- -------------------------------------------------------------------------------------------
Net increase from capital share transactions 164,468 167,489
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 134,879 190,719
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 446,891 256,172
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$100 and $1,880, respectively) $581,770 446,891
- -------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. 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 the Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the fund, which quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market investments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Dividend income is recorded on the ex-
dividend date, and interest income is recorded on
the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
is determined as of the close of the Exchange. The
net asset value per share is determined separately
for each class by dividing the fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated 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.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income
semi-annually and net realized capital gains
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. Prior to November 1, 1997,
the fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a per share portion of the proceeds from
sales and the cost of redemptions of fund shares to
undistributed net investment income. As of November
1, 1997, the fund discontinued using equalization.
This change has no effect on the fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of book
equalization will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in-capital previously reported
through October 31, 1997 by $466,000.
- --------------------------------------------------------------------------------
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 .58%
of the first $250 million of average daily net
assets declining to .42% of average daily net
assets in excess of $12.5 billion. The fund
incurred a management fee of $3,104,000 for the
year ended October 31, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions 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, 1998 $183,000 1,286,000 6,000
</TABLE>
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended October 31, 1998 $1,631,000 2,422,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY -----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended October 31, 1998 $1,317,000 1,311,000 5,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$1,790,000 for the year ended October 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended October 31,
1998, the fund made no payments to its officers and
incurred trustees' fees of $20,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $943,702
Proceeds from sales 843,263
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 11,964 $ 209,520 6,618 $ 112,272
---------------------------------------------------------------------------------
Class B 5,871 100,251 5,184 87,500
---------------------------------------------------------------------------------
Class C 1,127 19,586 580 9,803
---------------------------------------------------------------------------------
Class I 618 5,130 407 7,030
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,455 39,357 2,615 38,297
---------------------------------------------------------------------------------
Class B 977 16,436 716 10,448
---------------------------------------------------------------------------------
Class C 88 1,411 40 586
---------------------------------------------------------------------------------
Class I 50 799 1 23
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
Class A (9,419) (162,406) (3,646) (61,114)
---------------------------------------------------------------------------------
Class B (2,905) (52,942) (1,845) (31,843)
---------------------------------------------------------------------------------
Class C (449) (7,602) (201) (3,375)
---------------------------------------------------------------------------------
Class I (620) (5,072) (121) (2,138)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 378 6,592 209 3,585
---------------------------------------------------------------------------------
Class B (379) (6,592) (210) (3,585)
---------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 164,468 $ 167,489
---------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS A
------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of year $17.68 17.14 14.87 12.33 13.88
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .18 .22 .19 .19
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.17 3.70 3.45 2.57 (.71)
- -------------------------------------------------------------------------------------------
Total from investment operations 1.28 3.88 3.67 2.76 (.52)
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .16 .21 .20 .20 .19
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 .84
- -------------------------------------------------------------------------------------------
Total dividends 2.35 3.34 1.40 .22 1.03
- -------------------------------------------------------------------------------------------
Net asset value, end of year $16.61 17.68 17.14 14.87 12.33
- -------------------------------------------------------------------------------------------
TOTAL RETURN 7.80% 26.78 26.72 22.74 (3.82)
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 1.29% 1.19 1.26 1.30 1.48
- -------------------------------------------------------------------------------------------
Net investment income .62% 1.07 1.40 1.47 1.50
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
CLASS B
------------------------------------------------
YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.61 17.09 14.82 12.29 12.30
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.03) .04 .10 .09 .06
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.17 3.67 3.45 2.56 (.01)
- -------------------------------------------------------------------------------------------
Total from investment operations 1.14 3.71 3.55 2.65 .05
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .01 .06 .08 .10 .06
- -------------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 --
- -------------------------------------------------------------------------------------------
Total dividends 2.20 3.19 1.28 .12 .06
- -------------------------------------------------------------------------------------------
Net asset value, end of period $16.55 17.61 17.09 14.82 12.29
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.96% 25.62 25.82 21.76 .42
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 2.10% 2.06 2.08 2.06 2.43
- -------------------------------------------------------------------------------------------
Net investment income (loss) (.19)% .20 .58 .71 .33
- -------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS C
-------------------------------------------
YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $17.69 17.15 14.88 12.32 12.30
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) .03 .10 .07 .09
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.18 3.71 3.45 2.62 (.01)
- ---------------------------------------------------------------------------------------
Total from investment operations 1.17 3.74 3.55 2.69 .08
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .02 .07 .08 .11 .06
- ---------------------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20 .02 --
- ---------------------------------------------------------------------------------------
Total dividends 2.21 3.20 1.28 .13 .06
- ---------------------------------------------------------------------------------------
Net asset value, end of period $16.65 17.69 17.15 14.88 12.32
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.08% 25.71 25.75 22.04 .67
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 2.03% 2.00 2.05 2.01 2.33
- ---------------------------------------------------------------------------------------
Net investment income (loss) (.12)% .26 .61 .76 .43
- ---------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------
CLASS I
-----------------------------
NOVEMBER 22,
YEAR ENDED 1995 TO
OCTOBER 31, OCTOBER 31,
-----------------------------
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------
Net asset value, beginning of period $17.72 17.18 15.30
- ------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .32 .36
- ------------------------------------------------------------------------
Net realized and unrealized gain 1.19 3.58 2.96
- ------------------------------------------------------------------------
Total from investment operations 1.40 3.90 3.32
- ------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .25 .23 .24
- ------------------------------------------------------------------------
Distribution from net realized gain 2.19 3.13 1.20
- ------------------------------------------------------------------------
Total dividends 2.44 3.36 1.44
- ------------------------------------------------------------------------
Net asset value, end of period $16.68 17.72 17.18
- ------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 8.53% 26.89 21.89
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------
Expenses .68% .70 1.31
- ------------------------------------------------------------------------
Net investment income 1.23% 1.56 1.33
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $581,770 446,891 256,172 168,266 153,172
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 183 166 117 131
- -----------------------------------------------------------------------------------------------
</TABLE>
Note: Total return does not reflect the effect of any sales charges.
TAX INFORMATION
The fund paid distributions of $.50 per share from net long-term capital gains
during the year ended October 31, 1998, of which 44% represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$14,645,000, as capital gain dividends for the year ended October 31, 1998, of
which 100% represent 20% rate gains.
For corporate shareholders 100% of the income dividends paid during the year
ended October 31, 1998 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY STEVEN H. REYNOLDS
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
LEWIS A. BURNHAM MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee TRACY MCCORMICK CHESTER Assistant Secretary
Vice President
ROBERT B. HOFFMAN ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
WILLIAM P. SOMMERS
Trustee
EDMOND D. VILLANI
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
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Printed on recycled paper in the U.S.A.
This report is not to be distributed unless preceded
or accompanied by a Kemper Equity
Funds/Growth Style prospectus.
KBCF - 2(12/98) 1061660
