<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
Seeking growth of capital and of income
KEMPER
BLUE CHIP FUND
"... our intensive stock selection process leads
us to some of the most attractive blue-chip stocks
from a wide variety of market sectors. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
11
INDUSTRY SECTORS
12
LARGEST HOLDINGS
13
PORTFOLIO OF INVESTMENTS
17
FINANCIAL STATEMENTS
20
FINANCIAL HIGHLIGHTS
22
NOTES TO FINANCIAL STATEMENTS
27
REPORT OF INDEPENDENT AUDITORS
KEMPER BLUE CHIP FUND TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND KEMPER BLUE CHIP FUND LIPPER LARGE-CAP VALUE
KEMPER BLUE CHIP FUND CLASS A CLASS B CLASS C FUNDS CATEGORY AVERAGE*
----------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
8.51 7.62 7.72 7.11
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
*LIPPER, 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; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
...........................................................
<S> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS A $21.76 $20.76
...........................................................
KEMPER BLUE CHIP FUND CLASS B $21.30 $20.50
...........................................................
KEMPER BLUE CHIP FUND CLASS C $21.47 $20.64
...........................................................
</TABLE>
KEMPER BLUE CHIP FUND
RANKINGS AS OF 10/31/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP VALUE FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C>
1-YEAR #142 of 366 funds #171 of 366 funds #166 of 366 funds
....................................................................................
5-YEAR #41 of 166 funds #71 of 166 funds #69 of 166 funds
....................................................................................
10-YEAR #31 of 56 funds N/A N/A
....................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 2000, KEMPER BLUE CHIP FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B C
.........................................................
<S> <C> <C> <C> <C>
LONG-TERM
CAPITAL GAIN $0.75 $0.75 $0.75
.........................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL (312)
BOX] 696-6000. The Morningstar Equity Style Box(TM)
placement is based on two variables: a fund's
market capitalization relative to the movements
of the market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES
FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS
OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED
KEMPER BLUE CHIP FUND IN THE LARGE BLEND
CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
BALANCE SHEET A listing of assets and net worth showing the position of a
company at a certain time.
BENCHMARK A point of comparison for gauging relative performance. A fund's
benchmark may be the overall stock market, an index or a peer-group average. To
use a given benchmark effectively, it's essential to consider any differences
between the benchmark and the fund.
GROWTH STOCK A stock in a company that is expected to experience rapid growth
resulting from strong sales, talented management and dominant market position.
Because growth stocks are typically in demand, they tend to carry relatively
high price tags and can also be volatile, based on changing perceptions of the
companies' growth.
PRICE-TO-EARNINGS (P/E) RATIO The P/E ratio indicates about how much investors
are paying for a company's earning power. The higher the P/E ratio, the more
investors are paying and the more earnings growth they are expecting.
VALUATION A stock's price relative to an underlying measure of worth.
28
TAX INFORMATION
AT A GLANCE
TERMS TO KNOW
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</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 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE> 5
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE
OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, AND MAY NOT ACTUALLY COME TO
PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS
INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE> 6
ECONOMIC OVERVIEW
[THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
PERFORMANCE UPDATE
[LASTNAME PHOTO]
PORTFOLIO MANAGER TRACY MCCORMICK IS A MANAGING DIRECTOR OF SCUDDER KEMPER
INVESTMENTS, INC., AND LEAD PORTFOLIO MANAGER OF KEMPER BLUE CHIP FUND.
MCCORMICK BRINGS MORE THAN 20 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE
FUND.
[LASTNAME PHOTO]
PORTFOLIO MANAGER GARY A. LANGBAUM, CFA, CONTRIBUTES MORE THAN 30 YEARS OF
INVESTMENT INDUSTRY EXPERIENCE TO THE FUND. THE MANAGEMENT TEAM IS SUPPORTED BY
SCUDDER KEMPER INVESTMENTS' LARGE STAFF OF ANALYSTS, RESEARCHERS, TRADERS AND
ECONOMISTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY PARTICULAR
SECURITY.
STRONG STOCK SELECTION AND A DIVERSIFIED PORTFOLIO
LED TO SOLID RETURNS FOR THE ONE-YEAR PERIOD ENDING
OCTOBER 31, 2000. BELOW, LEAD PORTFOLIO MANAGER
TRACY MCCORMICK DISCUSSES HOW SHE GUIDED KEMPER
BLUE CHIP FUND THROUGH THIS CHALLENGING AND
VOLATILE TIME.
Q BEFORE YOU DETAIL KEMPER BLUE CHIP FUND'S PERFORMANCE, WILL YOU PROVIDE US
WITH AN OVERVIEW OF THE MARKET DURING THE ANNUAL PERIOD?
A This has been a unique period characterized by increased volatility. The
market ended 1999 on a positive note as high-flying technology issues fueled
strong returns. Advances in the tech sector -- specifically semiconductors and
wireless communications -- along with an active initial public offering (IPO)
market, drove this favorable performance. As Y2K came and went without incident,
the technology-dominated market continued its upward momentum even as the
Federal Reserve Board continued to raise interest rates.
After reaching new highs in February, equity markets made a sharp correction.
This downturn was driven by investors retreating from high-P/E technology and
Internet-related stocks, and moving into areas with more reasonable valuations.
Value stocks gained some ground on growth stocks during this time on the
strength of stronger-than-expected corporate earnings, fears about the more
aggressive Fed policy and the continued concerns over high valuations of tech
stocks. Surprisingly, big discount retail names that historically perform well
during this type of market posted disappointing returns on the heels of the
correction. But some growth areas did benefit, such as select pharmaceuticals
and financial services.
Economic data suggest that the Fed has succeeded in slowing the economy. But
the market has shown some signs of rebounding. As the annual period ended, the
market remained volatile, and performance continued to broaden beyond technology
names.
Q HOW DID KEMPER BLUE CHIP FUND PERFORM AGAINST THIS BACKDROP?
A For the one-year period ending October 31, 2000, Kemper Blue Chip Fund
gained 8.51 percent (Class A shares, unadjusted for any sales charge),
outperforming its benchmark, the S&P 500 index, which returned 6.08 percent.
This outperformance can be attributed to our intensive stock selection process,
which leads us to some of the most attractive blue-chip stocks from a wide
variety of market sectors.
Over the long term, we set our sights on beating our benchmark, as well as
outperforming our peers. But when considering the fund's performance relative to
the index, it's important to keep in mind that the S&P 500 is "market-cap
weighted." This means that the returns of the largest stocks are weighted more
heavily than the returns of smaller stocks. Thus, during the period, the large
technology issues drove the direction of index returns. The portfolio is more
diversified than the S&P 500, though, so when the big tech names dropped, the
fund proved more resilient than the index.
Q HOW DID RISING INTEREST RATES AFFECT THE FUND?
A The most notable impact of rising interest rates on the
7
<PAGE> 8
PERFORMANCE UPDATE
portfolio was the beneficial effect on select financial stocks. We focused on
financial subsectors that are less sensitive to commercial credit dynamics, such
as insurance companies, brokerages and diversified financials. Our
top-performing financial holdings included Citigroup, AIG and Hartford.
Prior to the rate hikes, we were underweight in regional banks. These stocks
tend to be more sensitive to higher interest rates, as investors fear that the
banks' loan business will fall off in a higher-rate environment amid concern
over credit risk. So, when bank stock performance slipped, the fund was not
adversely affected, because we had already reduced these issues.
Q HOW DID THE MARKET CORRECTION IN MARCH AFFECT THE FUND'S TECHNOLOGY
HOLDINGS?
A Virtually all technology stocks took a nosedive during the correction.
Fortunately, the fund's focus on quality companies with solid earnings and
proven track records helped mitigate losses. These types of large, established
technology names generally declined less than their smaller, unproven,
Internet-related counterparts. We were not invested in the more speculative
Internet companies that have been slow to recover.
Since March, the technology sector has been quite volatile, and our
semiconductor holdings have struggled. Semiconductor companies make computer
hardware and chips that are the building blocks for cellular and wireless
communications, computers and calculators, as well as a host of other goods. A
significant portion of our technology position was in semiconductors. But
despite the recent downturn, we believe semiconductors still have long-term
growth potential because they are such an integral part of the industry.
In comparison with the S&P 500 benchmark, we are slightly underweighted in the
tech sector. As of October 31, we had 23 percent invested in technology,
compared with the S&P 500 weighting of 28 percent. This is a direct result of
our more conservative approach, which involves intensive stock analysis and a
disciplined selection process. We continue to look for fast-growing technology
companies where we have conviction about their dynamics, business model,
attractive valuation and management. Right now we are seeking the right entry
points.
Q HOW DID THE RECENT LEGAL PROCEEDINGS INVOLVING MICROSOFT, ONE OF THE
FUND'S TOP HOLDINGS, IMPACT PORTFOLIO PERFORMANCE?
A This spring, in an antitrust lawsuit, Microsoft was ordered by a federal
court to break up its operations. Although the case was appealed, the litigation
created anxiety among investors. We saw that anxiety reflected in the volatility
of the company's short-term stock price. We had hoped that the legal proceedings
would not be a major issue and looked forward to a resolution with the
government. When that didn't come, the stock reacted adversely.
We believe the market overreacted, and we took advantage of that by adding to
our position in Microsoft. Since that time, the stock price has rebounded, and
we expect more gains as Microsoft's fundamentals continue to improve. Our
analysis of Microsoft's business prospects shows that the company is well
positioned to expand sales and earnings in the coming months. It is making great
strides in developing products that will help it compete in the new Web-enabled
technology market. We believe Microsoft will win its appeal in court. However,
even if it doesn't win and is split in two, we believe there is enough value to
compensate investors.
Q WHAT HELPED PORTFOLIO PERFORMANCE?
A Besides the previously mentioned technology and financial sectors, both
health care and energy were among the fund's best performing areas.
Pharmaceutical companies boosted fund performance as investors fled
high-priced technology issues for established names with more reasonable
valuations and growth potential. New products and good pipelines helped propel
top holdings, such as Abbott Labs, during the period. Although we're pleased
with the sector's strong performance, we're also cautiously optimistic. We
expect the industry to remain volatile at least until the new president assumes
office. Based on this uncertainty, health care is a sector we will continue to
examine closely. We still like the long-term outlook for this sector, though,
and continue to seek out opportunities in companies with acceptable valuations.
The energy sector came back to life, thanks to higher oil prices. These higher
prices helped the fund's investments in oil service companies to enjoy strong
gains. Companies involved in this subsector of oil benefited as the large,
integrated oil companies such as Exxon Mobil increased their drilling and
exploration operations. Even though oil prices have begun to stabilize, we still
see more growth ahead for these companies.
8
<PAGE> 9
PERFORMANCE UPDATE
Another area that produced positive returns, at least during the first half of
the period, was media stocks. CBS, which merged with Viacom, was among our best
performers. Some of our biggest names in this sector have "buried" Internet
holdings -- subsidiaries or divisions directly involved in the Internet
business -- that had previously enhanced portfolio performance. But our media
stocks took a downward turn late in the period. This was a direct result of
investor concern over the business plans of some of the spin-off companies in
the "buried" Internet start-ups, as well as concern that advertising would
weaken in a rising-interest-rate environment. We view this as a temporary
setback and believe Viacom will regain its momentum.
Q WHAT WERE SOME AREAS THAT WERE DISAPPOINTING FOR KEMPER BLUE CHIP FUND?
A Some of our retail holdings have been a disappointment. These types of
consumer stocks were hurt by rising interest rates as investors became
increasingly concerned about the slowing economy. We're invested in discount
retailers such as Target and Wal-Mart, which typically fare better than other
retailers as interest rates rise because of the value they represent for
consumers. However, these holdings have struggled amid concerns of an increased
economic slowdown. We believe this underperformance is just a temporary
situation. Looking ahead, we see demographics continuing to favor growth in the
labor force, which would create more income and likely result in increased
consumer discretionary spending. We believe rates have peaked and expect to see
improved performance from these retailers, which are quality companies with
strong long-term earnings track records. In fact, we believe we'll see continued
growth in the labor force, which would create more income and increased
discretionary spending. Dominant retailers, such as those we hold in the fund,
should do well.
The communication services sector also did not perform as well as we had
anticipated. Some of the top names posted disappointing returns, which were
mainly the result of increased competition. Our holdings in Communication
Services were reduced by approximately 50 percent from last year. This
represents a 50 percent slash in our position since last year. Thus, even though
this area hurt fund performance, our decision to reduce exposure to
communication service names helped limit the impact.
Q CAN YOU TELL US ABOUT YOUR BUY AND SELL PROCESS?
A Successful stock selection is about the quality of information, and about
using the most relevant facts in the most appropriate way. We use a rigorous,
"growth-at-a-reasonable-price" discipline. We seek to uncover quality large-cap
stocks that are trading at attractive prices relative to their growth potential.
Intensive, proprietary research is key to our process. We don't make our
decisions based on the Wall Street crowd, unsubstantiated rumors or wishful
thinking. We evaluate companies' balance sheets, management and product lines,
as well as industry trends and competitive positioning. Here, our goal is to
find a catalyst for excellent long-term growth. These catalysts come from a
variety of sources, including innovative product development, cost-cutting
strategies and management changes, to name just a few.
Our investment process is grounded in discipline. That's true for both our buy
and sell strategies. We begin to put an exit strategy into play when a stock
reaches our preestablished price targets or when we see signs of potential
deterioration in fundamentals or earnings growth.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A The market may indeed be poised for a rally -- inflation is in check, the
Fed appears to be done raising rates, and despite the slowdown, the economy is
still strong overall. We believe this economic slowdown has been fundamentally
sound and good for the market as a whole. But if the slowdown continues, fears
of a recession could cause additional weakness in equity markets.
Despite volatility in the technology sector, these issues are becoming more
attractive as their prices drop down to more reasonable levels and growth rates
look good. Overall, however, the market lacks notable trends, and investors are
looking ahead for signs of where to move next. We will continue to enhance the
quality of the portfolio by adding growth companies that have excellent
long-term potential and superior fundamentals.
9
<PAGE> 10
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER BLUE CHIP FUND CLASS A 2.26% 17.77% 15.71% 13.08% (since 11/23/87)
..............................................................................................
KEMPER BLUE CHIP FUND CLASS B 4.62 18.09 n/a 17.52 (since 5/31/94)
..............................................................................................
KEMPER BLUE CHIP FUND CLASS C 7.72 18.26 n/a 17.66 (since 5/31/94)
..............................................................................................
</TABLE>
KEMPER BLUE CHIP FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 11/30/87 to 10/31/2000
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND CLASS A1 S&P 500 STOCK INDEX+
------------------------------ --------------------
<S> <C> <C>
11/30/87 9424 10000
9518 10729
8886 12059
11308 15345
12/31/90 11581 14339
16726 18111
16526 18919
17157 20254
16273 19942
12/31/95 21435 26745
27372 32164
34546 42138
39520 53375
49827 63797
10/31/00 49105 62067
</TABLE>
KEMPER BLUE CHIP FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 05/31/94 to 10/31/2000
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND CLASS B1 S&P 500 STOCK INDEX+
------------------------------ --------------------
<S> <C> <C>
5/31/94 10000 10000
9576 9732
9928 10136
9809 10061
10591 10968
11444 11933
12219 12802
12828 13492
3/31/96 13799 14140
14349 14691
15303 15057
16232 16227
16374 16585
18666 19390
20323 20751
20319 21258
3/31/98 22505 24135
22317 24838
19370 22278
23094 26927
24066 28179
26150 30070
24488 28099
28820 32185
29257 32828
28489 31864
28569 31468
10/31/00 28211 31312
</TABLE>
KEMPER BLUE CHIP FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 05/31/94 to 10/31/2000
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND CLASS C1 S&P 500 STOCK INDEX+
------------------------------ --------------------
<S> <C> <C>
5/31/94 10000 10000
9577 9732
9944 10136
9838 10061
10637 10968
11493 11933
12277 12802
12890 13492
3/31/96 13853 14140
14404 14691
15376 15057
16310 16227
16464 16585
18762 19390
20430 20751
20432 21258
3/31/98 22630 24135
22443 24838
19496 22278
23207 26927
24191 28179
26314 30070
24703 28099
29036 32185
29460 32828
28705 31864
28771 31468
10/31/00 28427 31312
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
*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. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
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 WITH THE STANDARD &
POOR'S 500 STOCK INDEX, 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 INDEX.
++THE STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS WIESENBERGER.
10
<PAGE> 11
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, 2000, and on October 31, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND ON KEMPER BLUE CHIP FUND ON
10/31/00 10/31/99
------------------------ ------------------------
<S> <C> <C>
Technology 24.10 18.60
Finance 19.90 14.90
Health care 17.80 12.90
Consumer non-durables 12.30 19.40
Communication services 8.60 16.10
Capital goods 7.90 8.80
Energy 6.20 5.60
Basic materials 3.20 2.90
Transportation 0.00 0.80
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Blue Chip Fund represented on October 31, 2000, compared with the
industry sectors that make up the fund's benchmark, the S&P 500 Stock index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND ON S&P 500 STOCK INDEX ON
10/31/00 10/31/00
------------------------ ----------------------
<S> <C> <C>
Technology 24.1 29.5
Finance 19.9 15.7
Health care 17.8 11.4
Consumer non-durables 12.3 17.1
Communication services 8.6 6.3
Capital goods 7.9 8.6
Energy 6.2 5.9
Basic materials 3.2 1.7
Transportation 0 0.5
Utilities 0 3.3
</TABLE>
* THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
11
<PAGE> 12
LARGEST HOLDINGS
LARGEST EQUITY HOLDINGS
Representing 24.8 percent of Kemper Blue Chip Fund's total net assets on October
31, 2000
<TABLE>
<CAPTION>
COMPANY DESCRIPTION %
<S> <C> <C> <C>
------------------------------------------------------------------------------------
1. GENERAL ELECTRIC A broadly diversified company with 3.6%
major business in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting
------------------------------------------------------------------------------------
2. CISCO SYSTEMS Large, comprehensive supplier of 2.8%
routing software and related
systems that direct the flow of
data between local networks
------------------------------------------------------------------------------------
3. PEPSICO One of the largest international 2.8%
soft drink and snack food
producers
------------------------------------------------------------------------------------
4. PFIZER A research-based pharmaceutical 2.6%
company involved in the discovery,
development, manufacturing and
marketing of medicines for humans
and animals
------------------------------------------------------------------------------------
5. MICROSOFT Develops, markets and supports a 2.4%
variety of microcomputer software,
operating systems, language and
application programs, related
books and peripheral devices
------------------------------------------------------------------------------------
6. AMERICAN A holding company engaged in 2.2%
INTERNATIONAL insurance and insurance-related
GROUP activities in the U.S. and abroad.
AIG's primary activities are
general insurance and life
insurance operations
------------------------------------------------------------------------------------
7. INTEL Engaged in the design, 2.2%
development, manufacture and sale
of advanced microcomputer
components
------------------------------------------------------------------------------------
8. ABBOTT Develops, manufactures and markets 2.1%
LABORATORIES pharmaceutical and nutritional
products and services that improve
diagnostic, therapeutic and
nutritional practices
------------------------------------------------------------------------------------
9. BAXTER An international market-leader in 2.1%
INTERNATIONAL health care that develops,
manufactures and distributes a
diversified line of products,
systems and services for
hospitals, clinical and medical
research laboratories, blood and
dialysis centers, rehabilitation
centers and nursing homes
------------------------------------------------------------------------------------
10. EXXON MOBIL Engaged in the exploration, 2.0%
production, manufacture,
transportation and sale of crude
oil, natural gas and petroleum
products
------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
KEMPER BLUE CHIP FUND
Portfolio of Investments at October 31, 2000
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT--0.1% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
State Street Bank and Trust Company,
6.550% to be repurchased at
$100,018 on 11/01/200 (a)
(Cost $100,000) $ 100,000 $ 100,000
----------------------------------------------------------------------------
<CAPTION>
COMMERCIAL PAPER--4.9%
<S> <C> <C> <C> <C>
COMMUNICATIONS--2.2%
TELEPHONE/COMMUNICATIONS
AT&T Corp., 6.560%, 11/10/2000 14,000,000 13,977,040
Lucent Technologies, Inc., 6.480%,
11/01/2000 12,000,000 12,000,000
----------------------------------------------------------------------------
25,977,040
FINANCIAL--0.3%
OTHER FINANCIAL COMPANIES
Merrill Lynch & Co., Inc., 6.480%,
11/13/2000 3,500,000 3,492,417
----------------------------------------------------------------------------
ENERGY--1.2%
OIL & GAS PRODUCTION
Enron Corp., 6.600%, 11/06/2000 15,000,000 14,986,250
----------------------------------------------------------------------------
MISCELLANEOUS--1.2%
MISCELLANEOUS
Countrywide Home Loan, 6.540%,
11/02/2000 14,000,000 13,997,464
----------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $58,453,171) 58,453,171
----------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--95.0% SHARES
<S> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--4.6%
DEPARTMENT & CHAIN STORES
Home Depot, Inc. 337,000 14,491,000
Kohl's Corp.* 230,000 12,463,125
Target Corp. 360,000 9,945,000
Wal-Mart Stores, Inc. 390,600 17,723,475
----------------------------------------------------------------------------
54,622,600
-------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.7%
FOOD & BEVERAGE--4.8%
Coca-Cola Co. 150,000 9,056,250
H.J. Heinz Co. 376,700 15,797,856
PepsiCo, Inc. 680,000 32,937,500
----------------------------------------------------------------------------
57,791,606
PACKAGE GOODS/COSMETICS--2.9%
Clorox Co. 248,500 11,089,312
Colgate-Palmolive Co. 220,000 12,927,200
Procter & Gamble Co. 150,000 10,715,625
----------------------------------------------------------------------------
34,732,137
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C>
HEALTH--17.8%
BIOTECHNOLOGY--2.5%
Genzyme Corporation-General Division* 100,000 $ 7,100,000
Immunex Corp.* 130,000 5,533,125
PE Corp-PE Biosystems Group 145,000 16,965,000
----------------------------------------------------------------------------
29,598,125
HOSPITAL MANAGEMENT--0.5%
Tenet Healthcare Corp. 150,000 5,896,875
----------------------------------------------------------------------------
MEDICAL SUPPLY & SPECIALTY--4.2%
Baxter International, Inc. 300,000 24,656,250
Becton, Dickinson & Co. 464,000 15,544,000
Guidant Corp.* 190,000 10,058,125
----------------------------------------------------------------------------
50,258,375
PHARMACEUTICALS--10.6%
Abbott Laboratories 470,000 24,821,875
Allergan, Inc. 147,800 12,424,437
Alza Corp. 200,000 16,187,500
American Home Products Corp. 240,000 15,240,000
Eli Lilly & Co. 125,000 11,171,875
Merck & Co., Inc. 175,000 15,739,063
Pfizer, Inc. 722,500 31,202,969
----------------------------------------------------------------------------
126,787,719
-------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.7%
TELEPHONE/COMMUNICATIONS
BroadWing, Inc.* 456,600 12,898,950
Qwest Communications International,
Inc.* 300,000 14,587,500
SBC Communications, Inc. 300,000 17,306,250
----------------------------------------------------------------------------
44,792,700
-------------------------------------------------------------------------------------------------------------------------
FINANCIAL--18.4%
BANKS--4.7%
Citigroup, Inc. 406,666 21,400,798
FleetBoston Financial Corp. 330,000 12,540,000
Washington Mutual, Inc. 220,000 9,680,000
Wells Fargo Co. 265,000 12,272,813
----------------------------------------------------------------------------
55,893,611
INSURANCE--8.5%
Allstate Corp. 150,000 6,037,500
American International Group, Inc. 268,562 26,319,076
Aon Corp. 282,900 11,722,668
Cigna Corp. 107,900 13,158,405
Hartford Financial Services Group,
Inc. 244,200 18,177,638
Jefferson Pilot Corp. 148,150 10,185,313
St. Paul Companies, Inc. 306,000 15,682,500
----------------------------------------------------------------------------
101,283,100
CONSUMER FINANCE--3.9%
American Express Co. 296,000 17,760,000
Capital One Finance Corp. 185,000 11,678,125
Household International, Inc. 358,916 18,057,961
----------------------------------------------------------------------------
47,496,086
OTHER FINANCIAL COMPANIES--1.3%
Marsh & McLennan Companies, Inc. 120,000 15,690,000
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
MEDIA--3.5%
BROADCASTING & ENTERTAINMENT--2.7%
Infinity Broadcasting Corp. "A"* 198,801 6,610,160
The Walt Disney Co. 340,000 12,176,250
Viacom, Inc "B"* 239,749 13,635,724
----------------------------------------------------------------------------
32,422,134
CABLE TELEVISION--0.8%
AT&T Corp.--Liberty Media Group "A"* 545,000 9,810,000
----------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
SERVICE INDUSTRIES--3.2%
ENVIRONMENTAL SERVICES--0.9%
Transocean Sedo Forex, Inc. 204,460 $ 10,836,380
----------------------------------------------------------------------------
INVESTMENT--1.1%
Merrill Lynch & Co., Inc. 180,000 12,600,000
----------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL--0.5%
Siebel Systems, Inc.* 65,000 6,820,938
----------------------------------------------------------------------------
PRINTING/PUBLISHING--0.7%
McGraw-Hill, Inc. 128,700 8,260,931
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
DURABLES--3.3%
AEROSPACE
Boeing Co. 255,000 17,292,187
United Technologies Corp. 320,000 22,340,000
----------------------------------------------------------------------------
39,632,187
-------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.6%
DIVERSIFIED MANUFACTURING
General Electric Co. 778,400 42,666,050
Tyco International Ltd. 209,744 11,889,863
----------------------------------------------------------------------------
54,555,913
-------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--23.3%
COMPUTER SOFTWARE--5.7%
America Online, Inc.* 230,000 11,598,900
Intuit, Inc.* 165,000 10,137,188
Microsoft Corp.* 405,000 27,894,375
Oracle Corp.* 582,600 19,225,800
----------------------------------------------------------------------------
68,856,263
DIVERSE ELECTRONIC PRODUCTS--4.3%
Applied Materials, Inc.* 153,600 8,160,000
General Motors Corp. "H" (New)* 470,000 15,228,000
Motorola Inc. 470,000 11,720,625
Solectron Corp.* 364,000 16,016,000
----------------------------------------------------------------------------
51,124,625
EDP PERIPHERALS--1.5%
EMC Corp.* 100,000 8,906,250
VERITAS Software Corp.* 67,000 9,448,047
----------------------------------------------------------------------------
18,354,297
ELECTRONIC COMPONENTS--3.7%
Analog Devices, Inc.* 95,000 6,175,000
Cisco Systems, Inc.* 612,400 32,993,050
Juniper Networks, Inc.* 27,000 5,265,000
----------------------------------------------------------------------------
44,433,050
ELECTRONIC DATA PROCESSING--4.2%
International Business Machines Corp. 170,000 16,745,000
Radioshack Corp 215,000 12,819,375
Sun Microsystems, Inc.* 184,000 20,401,000
----------------------------------------------------------------------------
49,965,375
SEMICONDUCTORS--3.9%
Intel Corp. 566,800 25,506,000
Texas Instruments, Inc. 275,000 13,492,188
Xilinx, Inc.* 102,600 7,432,088
----------------------------------------------------------------------------
46,430,276
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
ENERGY--4.9%
OIL & GAS PRODUCTION--3.6%
Exxon Mobil Corp. 267,443 $ 23,852,572
Nabors Industries, Inc. 125,000 6,362,500
Royal Dutch Petroleum Co. (New York
shares) 210,000 12,468,750
----------------------------------------------------------------------------
42,683,822
OILFIELD SERVICES--1.3%
Schlumberger Ltd. 213,000 16,214,625
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $897,527,496) 1,137,843,750
----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $956,080,667)(b) $1,196,396,921
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security
(a) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(b) The cost for federal income tax purposes was $959,237,713. At October 31,
2000, the net unrealized appreciation for all securities based on tax cost
was $237,159,208. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess market value over tax cost
of $263,205,351 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$26,046,143.
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value,
(cost $956,080,667) $1,196,396,921
------------------------------------------------------------------------------
Cash 629
------------------------------------------------------------------------------
Receivable for investments sold 4,657,504
------------------------------------------------------------------------------
Dividends receivable 535,256
------------------------------------------------------------------------------
Interest receivable 18
------------------------------------------------------------------------------
Receivable for Fund shares sold 2,383,758
------------------------------------------------------------------------------
TOTAL ASSETS 1,203,974,086
------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 10,587,895
------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,590,414
------------------------------------------------------------------------------
Accrued management fee 544,254
------------------------------------------------------------------------------
Other payables and accrued expenses 1,351,250
------------------------------------------------------------------------------
Total liabilities 14,073,813
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $1,189,900,273
------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Net unrealized appreciation (depreciation) on investment
securities $ 240,316,254
------------------------------------------------------------------------------
Accumulated net realized gain (loss) 29,596,268
------------------------------------------------------------------------------
Paid-in capital 919,987,751
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $1,189,900,273
------------------------------------------------------------------------------
NET ASSETS VALUE
CLASS A SHARES
Net asset value and redemption price per share
($650,881,347 / 29,909,730 shares outstanding of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $21.76
------------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $21.76) $23.09
------------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share
($453,924,087 / 21,310,597 shares outstanding of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $21.30
------------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($75,076,436 /
3,496,444 shares outstanding of beneficial interest, $.01
par value, unlimited number of shares authorized) $21.47
------------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price
($10,018,403 / 453,031 shares outstanding of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $22.11
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $64,531) $ 8,418,900
---------------------------------------------------------------------------
Interest 3,102,232
---------------------------------------------------------------------------
Total income 11,521,132
---------------------------------------------------------------------------
Expenses:
Management fee 6,221,014
---------------------------------------------------------------------------
Services to shareholders 3,623,508
---------------------------------------------------------------------------
Custodian fees 40,962
---------------------------------------------------------------------------
Distribution services fees 3,651,963
---------------------------------------------------------------------------
Administrative service fees 2,714,425
---------------------------------------------------------------------------
Auditing 36,074
---------------------------------------------------------------------------
Legal 17,424
---------------------------------------------------------------------------
Trustees' fees and expenses 21,799
---------------------------------------------------------------------------
Reports to shareholders 530,172
---------------------------------------------------------------------------
Registration fees 163,217
---------------------------------------------------------------------------
Other 31,426
---------------------------------------------------------------------------
Total expenses before expense reductions 17,051,984
---------------------------------------------------------------------------
Expense reductions (81,003)
---------------------------------------------------------------------------
Total expenses, after expense reductions 16,970,981
---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (5,449,849)
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 30,909,429
---------------------------------------------------------------------------
Foreign currency related transactions 346
---------------------------------------------------------------------------
30,909,775
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 53,432,133
---------------------------------------------------------------------------
Net gain (loss) on investment transactions 84,341,908
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $78,892,059
---------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations: Net investment income (loss) $ (5,449,849) (1,348,906)
------------------------------------------------------------------------------------------------------
Net realized gain (loss) 30,909,775 35,072,714
------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period 53,432,133 138,413,121
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 78,892,059 172,136,929
------------------------------------------------------------------------------------------------------
Distributions to shareholders: From net investment income
------------------------------------------------------------------------------------------------------
From net realized gains Class A (20,180,311) (9,482,133)
------------------------------------------------------------------------------------------------------
Class B (12,653,899) (4,421,632)
------------------------------------------------------------------------------------------------------
Class C (1,821,374) (590,807)
------------------------------------------------------------------------------------------------------
Class I (354,023) (115,367)
------------------------------------------------------------------------------------------------------
Fund share transactions: Proceeds from shares sold 780,761,798 508,285,929
------------------------------------------------------------------------------------------------------
Reinvestment of distributions 33,068,135 13,913,535
------------------------------------------------------------------------------------------------------
Cost of shares redeemed (582,820,955) (346,488,611)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 231,008,978 175,710,853
------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 274,891,430 333,237,843
------------------------------------------------------------------------------------------------------
Net assets at beginning of period 915,008,843 581,771,000
------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $1,189,900,273 915,008,843
------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
YEARS ENDED OCTOBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $20.76 16.61 17.68 17.14 14.87
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.03) .02 .11 .18 .22
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 1.78 4.55 1.17 3.70 3.45
---------------------------------------------------------------------------------------------------
Total from investment operations 1.75 4.57 1.28 3.88 3.67
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.16) (.21) (.20)
---------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (.75) (.42) (2.19) (3.13) (1.20)
---------------------------------------------------------------------------------------------------
Total distributions (.75) (.42) (2.35) (3.34) (1.40)
---------------------------------------------------------------------------------------------------
Net asset value, end of year $21.76 20.76 16.61 17.68 17.14
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 8.51 27.96 7.80 26.78 26.72
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 650,881 547,027 378,450 307,726 198,968
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.17 1.19 1.29 1.19 1.26
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.16 1.19 1.29 1.19 1.26
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.14) .13 .62 1.07 1.40
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 75 157 183 166
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEARS ENDED OCTOBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $20.50 16.55 17.61 17.09 14.82
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.20) (.14) (.03) .04 .10
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 1.75 4.51 1.17 3.67 3.45
---------------------------------------------------------------------------------------------------
Total from investment operations 1.55 4.37 1.14 3.71 3.55
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.01) (.06) (.08)
---------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (.75) (.42) (2.19) (3.13) (1.20)
---------------------------------------------------------------------------------------------------
Total distributions (.75) (.42) (2.20) (3.19) (1.28)
---------------------------------------------------------------------------------------------------
Net asset value, end of year $21.30 20.50 16.55 17.61 17.09
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 7.62 26.83 6.96 25.62 25.82
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 453,924 314,154 174,475 123,449 54,085
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.98 2.07 2.10 2.06 2.08
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.97 2.07 2.10 2.06 2.08
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.95) (.75) (.19) .20 .58
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 75 157 183 166
---------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEARS ENDED OCTOBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $20.64 16.65 17.69 17.15 14.88
--------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.20) (.13) (.01) .03 .10
--------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.78 4.54 1.18 3.71 3.45
--------------------------------------------------------------------------------------------------------
Total from investment operations 1.58 4.41 1.17 3.74 3.55
--------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.02) (.07) (.08)
--------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (.75) (.42) (2.19) (3.13) (1.20)
--------------------------------------------------------------------------------------------------------
Total distributions (.75) (.42) (2.21) (3.20) (1.28)
--------------------------------------------------------------------------------------------------------
Net asset value, end of year $21.47 20.64 16.65 17.69 17.15
--------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 7.72 26.91 7.08 25.71 25.75
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 75,076 44,158 22,745 10,609 3,105
--------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.93 1.98 2.03 2.00 2.05
--------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.93 1.97 2.03 2.00 2.05
--------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.91) (.65) (.12) .26 .61
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 75 157 183 166
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
NOVEMBER 22
YEARS ENDED OCTOBER 31, 1995 TO
------------------------------ OCTOBER 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $20.99 16.68 17.72 17.18 15.30
---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) .08 .13 .21 .32 .36
---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions 1.79 4.60 1.19 3.58 2.96
---------------------------------------------------------------------------------------------------------
Total from investment operations 1.87 4.73 1.40 3.90 3.32
---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income -- -- (.25) (.23) (.24)
---------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions (.75) (.42) (2.19) (3.13) (1.20)
---------------------------------------------------------------------------------------------------------
Total distributions (.75) (.42) (2.44) (3.36) (1.44)
---------------------------------------------------------------------------------------------------------
Net asset value, end of year $22.11 20.99 16.68 17.72 17.18
---------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 9.01 28.81 8.53 26.89 21.89*
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 10,018 9,669 5,600 5,107 14
---------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .69 .72 .68 .70 1.31**
---------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .68 .72 .68 .70 1.31**
---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .34 .60 1.23 1.56 1.33**
---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 75 157 183 166
---------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized
** Annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charge.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper Blue Chip Fund (the "Fund") is registered
under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Money market instruments purchased with an original
maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
prevailing exchange rates at period end. Purchases
and sales of investment securities, income and
expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates
of the transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made
semiannually. Net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the Fund if not
distributed, and, therefore, will be distributed to
shareholders at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
--------------------------------------------------------------------------------
2
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 0.58%
of the first $250 million of average daily net
assets declining to 0.42% of average daily net
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
assets in excess of $12.5 billion. The Fund
incurred a management fee of $6,221,014 for the
year ended October 31, 2000 which is equivalent to
an annualized effective rate of .55%.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the year ended October 31,
2000 are $190,719.
For services under the distribution services
agreement, the Fund pays KDI a fee of 0.75% 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 and CDSC received by KDI
for the year ended October 31, 2000 are $4,790,071
of which $328,345 is unpaid at October 31, 2000.
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
0.25% 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 paid by
the Fund to KDI for the year ended October 31, 2000
are $2,714,425 of which $243,655 was unpaid at
October 31, 2000, and of which $3,847 was paid to
KDI affiliates.
SHAREHOLDER SERVICE 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
$2,811,568 for the year ended October 31, 2000 of
which $523,213 is unpaid at October 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended October 31,
2000, the Fund made no payments to its officers and
incurred trustees fees of $21,799 to independent
trustees.
--------------------------------------------------------------------------------
3
INVESTMENT
TRANSACTIONS For the year ended October 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $1,116,699,301
Proceeds from sales 954,709,066
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 20,925,009 $ 453,359,979 14,128,703 $ 272,091,695
-----------------------------------------------------------------------------------------
Class B 12,084,997 256,660,809 9,082,693 173,986,763
-----------------------------------------------------------------------------------------
Class C 2,571,117 54,940,426 1,551,314 29,889,535
-----------------------------------------------------------------------------------------
Class I 245,812 5,443,016 242,600 4,717,775
-----------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 903,118 19,209,226 513,215 9,053,120
-----------------------------------------------------------------------------------------
Class B 562,070 11,786,584 237,981 4,181,337
-----------------------------------------------------------------------------------------
Class C 81,359 1,718,306 31,920 563,712
-----------------------------------------------------------------------------------------
Class I 16,443 354,019 6,474 115,366
-----------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (18,749,225) (407,630,597) (12,065,224) (232,506,262)
-----------------------------------------------------------------------------------------
Class B (6,176,446) (131,261,047) (4,168,565) (79,247,862)
-----------------------------------------------------------------------------------------
Class C (1,295,015) (27,656,672) (894,470) (17,299,123)
-----------------------------------------------------------------------------------------
Class I (269,884) (5,915,071) (240,192) (4,557,203)
-----------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 478,806 10,357,568 670,452 12,878,161
-----------------------------------------------------------------------------------------
Class B (487,010) (10,357,568) (677,251) (12,878,161)
-----------------------------------------------------------------------------------------
SHARES ISSUED IN ACQUISITION (SEE NOTE 8)
Class A -- -- 324,000 5,950,000
-----------------------------------------------------------------------------------------
Class B -- -- 277,000 5,074,000
-----------------------------------------------------------------------------------------
Class C -- -- 84,000 1,540,000
-----------------------------------------------------------------------------------------
Class I -- -- 116,000 2,158,000
-----------------------------------------------------------------------------------------
NET INCREASE
(DECREASE)
FROM CAPITAL
SHARE TRANSACTIONS $ 231,008,978 $ 175,710,853
-----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the year ended, the Fund's
custodian fees and transfer agent fees were reduced
by $3,541 and $77,462, respectively, under these
arrangements.
--------------------------------------------------------------------------------
6
LINE OF
CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank, for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated pro rata among each of the
Participants. Interest is calculated based on the
market rates at the time of the borrowing. The Fund
may borrow up to a maximum of 33 percent of its net
assets under the agreement.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7
ACQUISITION OF ASSETS On February 5, 1999, the Fund acquired all the net
assets of Kemper Quantitative Equity Fund pursuant
to a plan of reorganization approved by
shareholders on September 18, 1998. The acquisition
was accomplished by tax-free exchanges of 324,000,
277,000, 84,000 and 116,000 shares of Class A,
Class B, Class C and Class I respectively, of the
Fund (valued at $5,950,000, $5,074,000, $1,540,000
and $2,158,000) for 430,000, 376,000, 114,000 and
155,000 shares of Class A, Class B, Class C and
Class I, respectively, of Kemper Quantitative
Equity Fund outstanding on February 5, 1999. Kemper
Quantitative Equity Fund's net assets at the date
($14,722,000), including $3,618,000 of unrealized
appreciation, were combined with those of the Fund.
The aggregate net assets of the Fund immediately
before the acquisition were $666,287,000. The
combined net assets of the Fund immediately
following the acquisition were $681,009,000.
26
<PAGE> 27
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, 2000, 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 1996. 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 auditing standards generally
accepted in the United States. 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, 2000, by correspondence with the custodian or other
auditing procedures. 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, 2000, 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 1996, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LOGO
Chicago, Illinois
December 15, 2000
27
<PAGE> 28
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $0.75 per share from net long-term capital gains
during its year ended 10/31/2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$34,886,000 as capital gain dividends for its year ended 10/31/2000, of which
100% represents 20% rate gains.
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 account, please call 1-800-621-1048.
28
<PAGE> 29
NOTES
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
ROBERT B. HOFFMAN BRENDA LYONS
Trustee TRACY MCCORMICK Assistant Treasurer
Vice President
DONALD R. JONES
Trustee KATHRYN L. QUIRK
Vice President
THOMAS W. LITTAUER
Chairman, Trustee and WILLIAM F. TRUSCOTT
Vice President Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM T. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
TRUSTEES&OFFICERS
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Fund/Growth Style prospectus.
KBCF - 2 (12/22/00) 4793
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
