<PAGE> 1
KEMPER
VALUE+GROWTH FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1996
Seeking growth of capital through professional management of a
portfolio of growth and value stocks.
" . . . it has clearly been a good year
for stocks in general. The fund's strong
performance is the result of disciplined
adherence to our growth and value
investment styles."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
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 VALUE+GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 29.24%
CLASS B 28.04%
CLASS C 28.27%
LIPPER GROWTH
& INCOME FUNDS
CATEGORY AVERAGE* 23.79%
- --------------------------------------------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
* 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. If they had, results may have been less favorable.
Returns and rankings are historical and do not reflect future performance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/96 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER VALUE+GROWTH FUND
CLASS A $12.95 $10.02
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
CLASS B $12.83 $10.02
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
CLASS C $12.84 $10.01
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
LIPPER RANKINGS*
- --------------------------------------------------------------------------------
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 #53 OF 515 FUNDS #88 OF 515 FUNDS #79 OF 515 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
CORRECTION A reverse movement, usually downward, in the price of a group of
stocks or the overall market. Corrections are to be expected over a long term.
FUNDAMENTAL RESEARCH This research includes analysis of the balance sheets and
income statements of companies used to forecast their future stock price
movements. Fundamental analysis considers past records of assets, earnings,
sales, products, management and markets in helping predict future trends in
these indicators and of a company's success or failure. By appraising a firm's
prospects, this analysis may be used to help assess whether a particular stock
or group of stocks is undervalued or overvalued at its current market price.
GROWTH STOCK The stock of a company whose earnings growth has consistently
exceeded the growth rate of the overall market and whose growth is expected to
continue or accelerate.
INDEX An unmanaged group of stocks that is considered representative of the
stock or bond markets. An index does not take into account any fees or expenses
related to the individual securities that it tracks. However, for performance
comparisons, the index is adjusted to reflect reinvestment of dividends of the
securities in the index.
P/E RATIO The price of a stock divided by its earnings per share. The P/E ratio,
also known as the MULTIPLE, is a measure of how much an investor is paying for a
company's earning power.
VALUE STOCK The stock of a company that is out of favor with investors because
the market underestimates its value or overlooks its potential. Stocks can
become undervalued as a result of overreaction by investors to unfavorable news
about a company, industry or the stock market in general. Or they can become
undervalued as a result of a market decline, poor economic conditions, tax-loss
selling, or actual or anticipated unfavorable developments affecting the
company.
2
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
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 (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations has been as high as 6%. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[BUKOWSKI PHOTO]
DANIEL J. BUKOWSKI IS A SENIOR VICE PRESIDENT AND DIRECTOR OF QUANTITATIVE
RESEARCH FOR ZURICH KEMPER INVESTMENTS, INC. (ZKI). BUKOWSKI ALSO MANAGES KEMPER
VALUE+GROWTH FUND. HE HAS MORE THAN 10 YEARS OF EXPERIENCE IN THE CAPITAL
MARKETS AND HOLDS A BACHELOR'S DEGREE AND AN M.B.A. FROM THE UNIVERSITY OF
CHICAGO.
NOTE: IN DECEMBER, 1996, WILLIAM KNAPP, VICE PRESIDENT OF QUANTITATIVE RESEARCH,
WAS NAMED CO-MANAGER OF THE FUND. A QUANTITATIVE ANALYST WITH KEMPER SINCE 1992,
KNAPP RECEIVED HIS B.S. AND GRADUATED MAGNA CUM LAUDE FROM DRAKE UNIVERSITY AND
HIS M.S. AT THE UNIVERSITY OF WISCONSIN -- MADISON. HE ALSO EARNED HIS PH.D. AT
THE UNIVERSITY OF WISCONSIN -- MADISON WITH AN EMPHASIS ON INDUSTRIAL
ORGANIZATION AND FINANCE.
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.
DETAILED ANALYSIS WITH AN EMPHASIS ON VALUATION HELPED KEMPER VALUE+GROWTH FUND
ACHIEVE EXCEPTIONAL RETURNS DURING 1996. PORTFOLIO MANAGER DAN BUKOWSKI
DISCUSSES THE STRATEGIES THAT BOOSTED PERFORMANCE AND HIS OUTLOOK FOR 1997.
Q KEMPER VALUE+GROWTH FUND HAS POSTED SOME OUTSTANDING RETURNS DURING ITS
FIRST FULL FISCAL YEAR ENDED NOVEMBER 30, 1996, PLACING IN THE TOP 10 PERCENT OF
THE LIPPER GROWTH & INCOME FUND CATEGORY (SEE PAGE 2 FOR FULL RANKING
DISCLOSURE). WHAT CONTRIBUTED TO THIS STRONG PERFORMANCE?
A With the Standard & Poor's 500 Stock Index (S&P) up 25.43% year-to-date
through November, it has clearly been a good year for stocks in general. The
fund's strong performance was the result of disciplined adherence to our growth
and value investment styles.
In building the portfolio, we first evaluated the economy in terms of
corporate earnings, interest rates and relative stock valuations to determine
what we believed to be the optimal mix of growth and value stocks. Based on our
analysis, we maintained a growth-to-value ratio of roughly 60/40. As we
anticipated, growth stocks generally outperformed value stocks through most of
the year.
Of course, our research and stock-picking capabilities played a key role in
the fund's performance as well. The growth component of the portfolio performed
in line with the Russell 1000 Growth Index. Since that index benefited from
stocks the fund doesn't own (companies like Coca Cola and Pepsi) you can see
that our research served us well. On the value side we strongly outperformed the
Russell 1000 Value Index. An overweighting in financials, which did extremely
well this year, was a key factor. With strong relative performance on both
sides, Class A shares (unadjusted for sales charge) outperformed the fund's
overall benchmark -- the Russell 1000 Stock Index -- for the period ended
November 30, 1996, by almost three percentage points and the S&P by almost four
percentage points.
Q ALAN GREENSPAN, CHAIRMAN OF THE FEDERAL RESERVE BOARD, RECENTLY MADE A
COMMENT ABOUT "IRRATIONAL EXUBERANCE" IN THE MARKET. WITH THE DOW JONES
INDUSTRIAL AVERAGE WELL OVER THE 6,000 MARK, DO YOU FIND THAT STOCK VALUES HAVE
BECOME OVEREXTENDED?
A Not necessarily. It's been a great year for large, blue chip companies and
many of those stocks do appear to be fully valued. However, there are still some
compelling valuations in the market, particularly among mid-size growth
companies. In recent months we've increased the fund's mid-cap exposure with
purchases of Auto Zone, Consolidated Stores and Heilig-Meyers. On the value
side, we still like financials, as well as selected energy and retail stocks
that are temporarily out of favor. While a modest correction may occur, our
research indicates that
5
<PAGE> 6
PERFORMANCE UPDATE
fundamentals are still fairly strong and should support additional growth. We're
in a stock picker's market right now, which plays into our strength on the
research end of the process.
Q DO YOU EXPECT THE FUND TO MAINTAIN A TILT TOWARD GROWTH INTO 1997?
A Yes. We're coming off of several years of very strong corporate earnings
growth. While that growth should remain positive during 1997, we expect it to be
somewhat slower than 1995 or 1996. Slower earnings growth, coupled with low
inflation and a benign interest rate environment, should favor growth stocks.
Q ARE THERE ANY PARTICULAR MARKET SECTORS YOU FAVOR?
A On the growth side of the portfolio, technology stocks are our biggest
sector play. This has been a difficult sector in 1996, moving up then down and,
more recently, back up again. Using our valuation models, we turned that
volatility to our advantage, taking profits when stocks reached our established
price targets and purchasing quality companies on temporary setbacks. As of
November 30, 1996, Compaq Computer Corp. is the fund's fifth largest position.
Other holdings include 3Com, Novellus, Linear Technology Corp. and a handful of
other names with solid growth potential.
We also like consumer non-durable stocks. However, instead of purchasing
traditional names like Colgate and Procter & Gamble, we've opted for a diverse
selection of leisure (Brunswick), entertainment (Walt Disney Company, Carnival
Corp., Viacom International) and retail (Consolidated Stores, Circuit City
Stores) stocks. During the summer we added a few restaurant stocks (Outback
Steakhouse, Inc. and Lone Star Steakhouse & Saloon) that had been beaten up and
offered compelling valuations.
The value side of the portfolio, as I mentioned, has been heavily
overweighted in financial stocks relative to our benchmarks. This sector has
been strong all year and a real boost for the fund. Two government-chartered
mortgage finance firms -- Federal National Mortgage Association ("Fannie Mae")
and Federal Home Loan Mortgage Corporation ("Freddie Mac") -- were among the
fund's top 10 holdings as of November 30, 1996. We also like banking stocks
such as Nationsbank, First Union, Banc One and KeyCorp. Another sector that is
working well on the value side is energy. The fund owns several of the major
oil companies including Exxon, Amoco, Chevron and Atlantic Richfield Corp., as
well as Columbia Gas Systems, Inc. and Union Texas Petroleum Holdings.
In each of these sectors, there's been some overlap between the value and
growth sides of the portfolio. For example, the mid-summer correction in
technology created some buying opportunities for the value portfolio as well as
the growth portfolio. We found some growth opportunities among financial stocks,
even though that area is well represented on the value side. Among the consumer
non-durables, companies like Philip Morris and UST have appeal for both sides of
the portfolio. Despite these overlaps, the fund still benefits from broad
diversification.
6
<PAGE> 7
PERFORMANCE UPDATE
Q ARE THERE ANY SPECIFIC POSITIONS THAT HAVE BEEN A DRAG ON PERFORMANCE?
A Not consistently. In a volatile market there are bound to be some weak
months for some stocks and sectors. Technology is a good example. In July, when
that sector took a hit, we had some stocks that were directly impacted while
others declined in sympathy. But since then a lot of these stocks have recovered
nicely. Certain drug and health care delivery stocks presented temporary
challenges, along with some of our retail positions. But our research and
valuation models were effective in identifying potential problems before they
affected performance significantly.
In retrospect, it's clear that certain "sins of omission" had more of a
negative impact on performance than any particular holding. For example, Coca
Cola did very well this year. However, the fund never owned that stock, simply
because we thought it was too expensive. In addition, we sold several large
capitalization stocks like Intel and Merck when our research indicated they were
fully valued. Unfortunately, they continued to climb and we missed out on that
appreciation.
Q TOBACCO STOCKS STIR UP STRONG FEELINGS FOR A LOT OF INVESTORS. HAVE YOU
CONSIDERED TRIMMING OR ELIMINATING THE FUND'S POSITIONS IN THESE COMPANIES?
A Not due to the nature of their business. Part of my job as a money manager
is to reduce the emotional and personal biases from the investment process. On a
fundamental basis, these companies have contributed significantly to the fund's
performance and continue to offer outstanding value. In the case of Philip
Morris, the strength of the Kraft Foods and Miller Brewing divisions are reason
enough to own the stock. If we were to see these stocks become fully valued, or
if a problem were to arise regarding the companies' fundamentals, we would
certainly look at selling.
Q WHAT IS YOUR OUTLOOK FOR 1997?
A At this point (mid-December, 1996) we anticipate a slower economy but not a
recession. Industrial production appears to be neutral, inflation should stay in
check and interest rates should remain relatively flat, although we may see a
slight decline. This is a good environment for growth stocks, although we
probably won't see the double-digit returns we've had over the past two years.
Essentially, this means continuing with our established strategy. We'll continue
to manage risk through diversification with an emphasis on valuation. If we were
to see the economy pick up significantly, which we don't anticipate at this
point, we would be compelled to shift the portfolio toward value stocks. Right
now, we intend to remain fully invested and stay the course.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED NOVEMBER 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR CLASS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER VALUE+GROWTH FUND CLASS A 21.82% 24.82% (since 10/16/95)
- ---------------------------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND CLASS B 25.04% 27.90% (since 10/16/95)
- ---------------------------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND CLASS C 28.27% 30.55% (since 10/16/95)
- ---------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Value+Growth Fund Class A FROM 10/31/95 THROUGH 11/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10/31/95 6/30/96 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Value+Growth Fund Class A(1) 10000 11034 12759
Russell 1000 Index+ 10000 11654 13196
Standard & Poor's 500 Stock Index++ 10000 11727 13312
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Value+Growth Fund Class B FROM 10/31/95 THROUGH 11/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10/31/95 6/30/96 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Value+Growth Fund Class B(1) 10000 11641 13106
Russell 1000 Index+ 10000 11645 13196
Standard & Poor's 500 Stock Index++ 10000 11727 13312
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Value+Growth Fund Class C FROM 10/31/95 THROUGH 11/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10/31/95 6/30/96 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Value+Growth Fund Class c(1) 10000 11651 13417
Russell 1000 Index+ 10000 11727 13196
Standard & Poor's 500 Stock Index++ 10000 11645 13312
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all
dividends and for Class A shares adjustment for the maximum sales charge
of 5.75%, for Class B shares adjustment for the applicable
contingent deferred sales charge (CDSC) of 3% and for Class C shares no
adjustment for sales charge. The maximum Class B share CDSC is 4%. For
Class C shares purchased on or after April 1, 1996, there is a 1% CDSC on
certain redemptions within the first year of purchase. 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 Value+Growth Fund to the indices, you should also note
that the fund's performance reflects the maximum sales charge, while no
such charges are reflected in the performance of the indices.
+ The Russell 1000 Index is an unmanaged index comprised of 1000 of the
largest capitalized U.S. companies whose common stocks trade in the U.S.
on the New York Stock Exchange, American Stock Exchange and NASDAQ. This
large cap 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 Towers Data Systems.
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 November 30, 1996, and November 30, 1995.
[YEAR-TO-YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE+GROWTH FUND KEMPER VALUE+GROWTH FUND
AS OF 11/30/96 AS OF 11/30/95
<S> <C> <C>
CONSUMER NONDURABLES 27.0% 24.7%
FINANCE 20.4% 19.7%
TECHNOLOGY 18.3% 17.0%
HEALTH CARE 11.1% 5.5%
ENERGY 5.8% 9.8%
CAPITAL GOODS 5.2% 17.9%
CONSUMER DURABLES 4.0% 0.0%
UTILITIES 3.9% 0.0%
BASIC INDUSTRIES 3.1% 5.4%
TRANSPORTATION 1.2% 0.0%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of the Kemper Value+Growth Fund represented on November 30, 1996, compared to
the industry sectors that make up the fund's benchmark, the Russell 1000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE+GROWTH FUND RUSSELL 1000 INDEX
AS OF 11/30/96 AS OF 11/30/96
<S> <C> <C>
CONSUMER NONDURABLES 27.0% 20.6%
FINANCE 20.4% 16.8%
TECHNOLOGY 18.3% 14.5%
HEALTH CARE 11.1% 10.9%
ENERGY 5.8% 8.0%
CAPITAL GOODS 5.2% 9.5%
CONSUMER DURABLES 4.0% 2.9%
UTILITIES 3.9% 9.9%
BASIC INDUSTRIES 3.1% 5.3%
TRANSPORTATION 1.2% 1.6%
</TABLE>
* The Russell 1000 Index is an unmanaged index comprised of 1000 of the largest
capitalized U.S. companies whose common stocks trade in the U.S. on the New
York Stock Exchange, American Stock Exchange and NASDAQ. This large cap
market-oriented index is highly correlated with the S&P 500 Index.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 18.3% OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP The largest cigarette maker in the U.S. Through its 2.8%
MORRIS Miller Brewing subsidiary, it is also the country's
COMPANIES second-largest brewer. This company is also a major
branded food producer through its Kraft and General
Foods subsidiaries.
2. GENERAL A broadly diversified company with major businesses 2.7%
ELECTRIC in power generators, appliances, lighting, plastics,
CO. medical systems, aircraft engines, financial services
and broadcasting.
3. UST, Manufactures and sells moist snuff, wine and other 2.3%
INC. products.
4. FEDERAL Often referred to as "Fannie Mae", this is a private 1.7%
NATIONAL corporation federally chartered to provide financial
MORTGAGE products and services that increase the availability
ASSOCIA- and affordability of housing to low, moderate and
TION middle-income Americans.
5. COMPAQ Designs, develops, manufactures and markets personal 1.6%
COMPUTER computers for business and professional users.
CORP.
6. FIRST A multi-bank holding company with subsidiaries engaged 1.6%
CHICAGO in consumer banking, commercial banking, trust and
NBD investment services, investment management, real
estate operations, lease financing and international
banking.
7. WALT Develops and produces family entertainment such as 1.5%
DISNEY theme parks and resorts, film, television and consumer
COMPANY products.
8. FEDERAL Provides for the transfer of capital between mortgage 1.5%
HOME lenders and mortgage securities investors, enabling
LOAN mortgage lenders to provide a continuous flow of funds
MORTGAGE to borrowers.
CORPORATION
9. 3COM Established in 1979, 3Com pioneered the data 1.3%
CORPORA- networking industry. Today, 3Com offers a broad range
TION of global data networking solutions that include
routers, hubs, LAN switches and adapters.
10. NATIONS
BANK Provides financial services such as checking and 1.3%
savings accounts, loans, investment management,
brokerage, trading, corporate finance and insurance
services.
</TABLE>
* The fund's holdings are subject to change.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER VALUE+GROWTH FUND
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--2.7% AMP, Inc. 2,000 $ 77
Champion International Corporation 1,000 43
Dow Chemical Co. 1,000 84
(a)FMC Corp. 5,500 425
B.F. Goodrich Co. 8,000 359
Union Camp Corp. 1,500 74
-----------------------------------------------------------------------------
1,062
- ----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--4.5% Emerson Electric Co. 3,500 343
General Electric Co. 10,200 1,061
York International Corp. 5,000 263
Xerox Corporation 2,000 98
-----------------------------------------------------------------------------
1,765
- ----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--17.1% (a)AutoZone 15,000 369
Brunswick Corp. 18,000 459
(a)Burlington Coat Factory 2,900 35
Carnival Corp. 15,000 474
Circuit City Stores 9,000 300
Liz Claiborne 2,300 97
(a)Consolidated Stores Corp. 8,300 307
(a)Cox Communications Inc. 10,000 205
Dayton Hudson Corp. 3,300 128
Dillard Department Stores 2,300 70
Walt Disney Company 7,800 575
(a)Fruit of the Loom 2,400 86
(a)Liberty Media Group, "A" 4,000 100
(a)Lone Star Steakhouse & Saloon 16,300 467
(a)MGM Grand 4,000 154
Manpower, Inc. 6,000 196
Mattel, Inc. 16,000 494
(a)Outback Steakhouse 10,600 306
J.C. Penney Co. 3,000 161
Philips N.V., ADR 4,900 198
(a)Tele-Communications, Inc. 22,000 297
(a)Toys R Us 10,000 345
V.F. Corp. 1,700 115
(a)Viacom International
"A" shares 1,100 41
"B" shares 11,600 438
Wendy's International 13,000 278
-----------------------------------------------------------------------------
6,695
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--3.5% Ford Motor Co. 4,200 138
Heilig-Meyers 31,000 430
Leggett & Platt Incorporated 7,000 214
Magna International Inc., "A" 4,200 230
Singer Company N.V. 15,400 343
-----------------------------------------------------------------------------
1,355
- ----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--6.4% American Greetings Corp. 15,300 432
Philip Morris Companies 10,500 1,083
UST, Inc. 27,100 884
Unilever N.V., ADR 500 87
-----------------------------------------------------------------------------
2,486
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--5.1% AMOCO Corp. 3,000 $ 233
Amerada Hess Corp. 7,500 442
Atlantic Richfield Co. 1,500 209
Columbia Gas System 3,300 213
Exxon Corp. 2,500 236
Louisiana-Pacific Corp. 7,300 165
Union Texas Petroleum Holdings 22,100 492
-------------------------------------------------------------------------------
1,990
- ------------------------------------------------------------------------------------------------------------------
FINANCE--17.7% ADVANTA Corp. 3,000 133
H.F. Ahmanson & Co. 1,600 53
American General Corp. 2,200 90
American International Group, Inc. 1,200 138
Banc One Corporation 4,200 200
Bank of New York Co. 1,400 50
BankAmerica Corp. 2,600 268
Bankers Trust New York Corp. 1,800 157
Barnett Banks 4,600 202
Boatmen's Bancshares 2,000 133
Crestar Financial Corp. 600 42
Federal Home Loan Mortgage Corp. 5,000 571
Federal National Mortgage Association 16,500 681
First Chicago NBD Corp. 10,700 629
First USA 8,500 279
First Union Corp. 2,100 160
Fleet Financial Group, Inc. 2,300 127
General Re Corp. 1,900 321
Great Western Financial Corp. 2,300 72
Jefferson-Pilot Corp. 6,000 350
KeyCorp 3,400 178
MGIC Investment Corp. 3,000 225
Merrill Lynch & Co. 3,500 281
J.P. Morgan & Company 1,400 132
NationsBank 4,800 497
Norwest Corp. 600 28
PNC Bank, N.A. 8,000 316
Signet Banking Corp. 4,300 130
Transamerica Corp. 2,000 159
Travelers Group 6,400 288
Wells Fargo & Co. 100 28
-------------------------------------------------------------------------------
6,918
- ------------------------------------------------------------------------------------------------------------------
HEALTH CARE--9.6% Abbott Laboratories 6,000 334
Astra AB, ADR 7,200 347
C.R. Bard 1,500 42
(a)Forest Laboratories 10,000 388
(a)Foundation Health Corp. 12,800 374
Glaxo Wellcome, ADR 900 30
(a)Humana, Inc. 9,900 187
Mallinckrodt Group 6,000 264
Merck & Co., Inc. 5,000 415
Pharmacia & Upjohn 1,700 66
(a)St. Jude Medical 7,000 292
Sandoz, Ltd. 6,000 347
(a)Tenet Healthcare Corporation 5,200 116
United Healthcare Corp. 9,000 388
(a)Value Health 10,000 181
------------------------------------------------------------------------------
3,771
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--15.9% (a)Applied Materials, Inc. 4,000 $ 153
(a)Atmel Corporation 10,000 329
(a)Bay Networks 7,000 187
(a)Cabletron Systems 8,000 323
(a)Cisco Systems 6,000 407
(a)Compaq Computer Corp. 8,000 634
(a)DSC Communications Corp. 12,500 225
(a)EMC Corp. 14,500 468
(a)Gateway 2000 2,800 150
Hewlett-Packard 500 27
International Business Machines 2,000 319
(a)Learning Company 20,300 345
Linear Technology Corp. 8,500 401
(a)Maxim Integrated Products 5,000 232
(a)Novellus Systems 8,200 472
Raytheon Co. 500 26
(a)Seagate Technology 4,500 178
(a)Silicon Graphics Inc. 10,000 199
Texas Instruments 4,600 293
(a)3Com Corporation 7,000 526
(a)U.S. Robotics 4,000 315
-----------------------------------------------------------------------------
6,209
- ------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.1% (a)Lear Corporation 5,000 179
Ryder System Inc. 7,700 234
-----------------------------------------------------------------------------
413
- ------------------------------------------------------------------------------------------------------------------
UTILITIES--3.4% (a)AirTouch Communications 14,000 359
(a)Paging Network, Inc. 20,000 325
SBC Communications Inc. 5,500 289
(a)WorldCom 15,000 347
-----------------------------------------------------------------------------
1,320
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--87.0%
(Cost: $29,758) 33,984
-----------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.08% to 5.25%
INSTRUMENTS--14.2% Due--December 1996 and February 1997
Federal Farm Credit Banks $2,000 1,993
Federal Home Loan Mortgage Corp. 2,485 2,478
Other 1,100 1,098
-------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--14.2%
(Cost: $5,570) 5,569
-------------------------------------------------------------------------------
TOTAL INVESTMENTS--101.2%
(Cost: $35,328) 39,553
-------------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(1.2)% (461)
-------------------------------------------------------------------------------
NET ASSETS--100% $39,092
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $35,328,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $4,931,000, the
gross unrealized depreciation was $706,000 and the net unrealized appreciation
on investments was $4,225,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER VALUE+GROWTH FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Value+Growth Fund as of
November 30, 1996, the related statement of operations for the year then ended
and the statement of changes in net assets and the financial highlights for the
year then ended and for the period from October 16, 1995 (commencement of
operations) to November 30, 1995. 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
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Value+Growth Fund at November 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the periods referred
to above in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 20, 1996
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $35,328) $39,553
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 199
- -------------------------------------------------------------------------------------------------------
Investments sold 12
- -------------------------------------------------------------------------------------------------------
Dividends 33
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 39,797
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft 187
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 14
- -------------------------------------------------------------------------------------------------------
Investments purchased 411
- -------------------------------------------------------------------------------------------------------
Management fee 18
- -------------------------------------------------------------------------------------------------------
Distribution services fee 9
- -------------------------------------------------------------------------------------------------------
Administrative services fee 6
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 31
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 29
- -------------------------------------------------------------------------------------------------------
Total liabilities 705
- -------------------------------------------------------------------------------------------------------
NET ASSETS $39,092
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $32,299
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 2,488
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 4,225
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 80
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $39,092
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($20,432,000 / 1,578,000 shares outstanding) $12.95
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $13.74
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($17,617,000 / 1,373,000 shares outstanding) $12.83
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,043,000 / 81,200 shares outstanding) $12.84
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Dividends $ 292
- -------------------------------------------------------------------------------------------------------
Interest 122
- -------------------------------------------------------------------------------------------------------
Total investment income 414
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 157
- -------------------------------------------------------------------------------------------------------
Distribution services fee 80
- -------------------------------------------------------------------------------------------------------
Administrative services fee 49
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 94
- -------------------------------------------------------------------------------------------------------
Professional fees 48
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 5
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 12
- -------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 445
- -------------------------------------------------------------------------------------------------------
Less expenses waived by investment manager 39
- -------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 406
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 2,036
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 452
- -------------------------------------------------------------------------------------------------------
Net realized gain 2,488
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 4,101
- -------------------------------------------------------------------------------------------------------
Net gain on investments 6,589
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,597
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 16 TO
NOVEMBER 30, NOVEMBER 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
OPERATIONS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 8 5
- ---------------------------------------------------------------------------------------------------------
Net realized gain 2,488 --
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 4,101 124
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,597 129
- ---------------------------------------------------------------------------------------------------------
Net equalization credits 61 6
- ---------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 26,583 5,616
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 33,241 5,751
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 5,851 100
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$80,000 and $11,000, respectively) $ 39,092 5,851
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Value+Growth 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, for shares sold on or after April 1,
1996, a contingent deferred sales charge payable
upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares (none sold through
November 30, 1996) 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. 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 INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on money market instruments. 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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the 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 has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income 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. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .72% of the first $250 million of average daily
net assets declining to .54% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $131,000 for the year
ended November 30, 1996, after the expense waiver
discussed below. Dreman Value Advisors, Inc., a
wholly owned subsidiary of ZKI, is the sub-adviser
for the value portion of the Fund.
ZKI has agreed to temporarily reduce its management
fee and reimburse or pay certain operating expenses
to the extent necessary to limit the Fund's
operating expenses to the following percentages of
average daily net assets: Class A, 1.50%, Class B,
2.28% and Class C, 2.25%. Under this arrangement,
ZKI waived expenses of $39,000 for the year ended
November 30, 1996.
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 November 30, 1996 $33,000 238,000 15,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
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 commissions paid in
connection with the sale of Class B and Class C
shares and the CDSC received in connection with the
redemption of such shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES DISTRIBUTION FEES
(AFTER EXPENSE WAIVER) PAID BY KDI
AND CDSC RECEIVED BY ------------------------------
KDI TO ALL FIRMS TO AFFILIATES
----------------------- ------------- --------------
<S> <C> <C> <C>
Year ended
November 30, 1996 $71,000 327,000 15,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. 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
November 30, 1996 $ 49,000 57,000 2,000
</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 $52,000
for the year ended November 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended November 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $2,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $39,151
Proceeds from sales 16,711
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 16 TO
NOVEMBER 30, 1996 NOVEMBER 30, 1995
-------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,525 $16,513 266 $2,609
----------------------------------------------------------------------------
Class B 1,264 13,722 267 2,619
----------------------------------------------------------------------------
Class C 115 1,244 40 393
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (230) (2,482) (1) (5)
----------------------------------------------------------------------------
Class B (148) (1,617) -- --
----------------------------------------------------------------------------
Class C (78) (797) -- --
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 14 160 -- --
----------------------------------------------------------------------------
Class B (14) (160) -- --
----------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $26,583 $5,616
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract changes. At November 30,
1996, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $199,000 for the following financial
futures contracts owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 11/30/96
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $3,791,000 Long Dec. 96 $295,000
---------------------------------------------------------------------------
S&P 500/BARRA Growth Index 944,000 Long Dec. 96 90,000
---------------------------------------------------------------------------
S&P 500/BARRA Growth Index 191,000 Long Mar. 97 3,000
---------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------- --------------------------- ---------------------------
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
OCTOBER 16 OCTOBER 16 OCTOBER 16
YEAR ENDED TO YEAR ENDED TO YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1995 1996 1995 1996 1995
- ------------------------------------------------------- --------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.02 9.50 10.02 9.50 10.01 9.50
- ------------------------------------------------------- --------------------------- ---------------------------
Income from investment
operations:
Net investment
income (loss) .05 .02 (.04) .02 (.04) .01
- ------------------------------------------------------- --------------------------- ---------------------------
Net realized and
unrealized gain 2.88 .50 2.85 .50 2.87 .50
- ------------------------------------------------------- --------------------------- ---------------------------
Total from investment
operations 2.93 .52 2.81 .52 2.83 .51
- ------------------------------------------------------- --------------------------- ---------------------------
Net asset value, end of
period $12.95 10.02 12.83 10.02 12.84 10.01
- ------------------------------------------------------- --------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 29.24% 5.47 28.04 5.47 28.27 5.37
- ------------------------------------------------------- --------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------- --------------------------- ---------------------------
Expenses absorbed by the
Fund 1.47% 1.35 2.27 2.10 2.22 2.07
- ------------------------------------------------------- --------------------------- ---------------------------
Net investment income (loss) .43% 2.25 (.37) 1.50 (.32) 1.53
- ------------------------------------------------------- --------------------------- ---------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------- --------------------------- ---------------------------
Expenses 1.59% -- 2.44 -- 2.35 --
- ------------------------------------------------------- --------------------------- ---------------------------
Net investment income (loss) .31 -- (.54) -- (.45) --
- ------------------------------------------------------- --------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------------
OCTOBER 16
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period (in thousands) $39,092 5,851
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 82% --
- -------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended November 30, 1996 was $.0571.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. The
investment manager agreed to temporarily waive its management fee and absorb
certain operating expenses of the Fund. The Other Ratios to Average Net Assets
are computed without this expense waiver or absorption.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS DANIEL J. BUKOWSKI
President and Trustee Vice President
DAVID W. BELIN CHARLES R. MANZONI, JR.
Trustee Vice President
LEWIS A. BURNHAM JOHN E. NEAL
Trustee Vice President
DONALD L. DUNAWAY STEVEN H. REYNOLDS
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President
and Secretary
DONALD R. JONES
Trustee JEROME L. DUFFY
Treasurer
DOMINIQUE P. MORAX
Trustee ELIZABETH C. WERTH
Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
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CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
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INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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INVESTMENT MANAGERS ZURICH KEMPER INVESTMENTS, INC.
Dreman Value Advisors, Inc.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed unless preceded
or accompanied by a Kemper Equity
Fund prospectus.
KVGF - 2 (1/97) 1027540
Printed in the U.S.A. [KEMPER FUNDS LOGO]
