<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeks growth of capital
KEMPER
VALUE+GROWTH FUND
"... As growth stocks outperformed value stocks
during the semiannual period, we are happy
to report that our decision to build the fund's
growth allocation proved wise. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
INDUSTRY SECTORS
9
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
15
NOTES TO FINANCIAL STATEMENTS
19
FINANCIAL HIGHLIGHTS
21
SHAREHOLDERS' MEETING
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 11.64%
CLASS B 11.13%
CLASS C 10.98%
LIPPER GROWTH & INCOME FUNDS
CATEGORY AVERAGE* 11.91%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee 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 and, if they had, results may have been
less favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
5/31/98 11/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER VALUE+GROWTH FUND
CLASS A $15.76 $14.62
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
CLASS B $15.41 $14.37
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND
CLASS C $15.39 $14.37
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER VALUE+GROWTH FUND RANKINGS
AS OF 5/31/98
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH AND INCOME FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
1-YEAR #393 OF 665 FUNDS #436 OF 665 FUNDS #439 OF 665 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED MAY 31, 1998, THE KEMPER VALUE+GROWTH FUND
MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM
CAPITAL GAIN $0.35 $0.35 $0.35
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $0.15 $0.15 $0.15
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[STYLE/SIZE BOX]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar's Style Box
is based on a portfolio date as of May 31, 1998.) The Equity Style Box
placement is based on a fund's price-to-earnings and price-to-book ratios
relative to the S&P 500, as well as the size of the companies in which it
invests, or median market capitalization.
Please note that style boxes do not represent an exact assessment of risk and
do not represent future performance. Please consult the prospectus for a
description of investment policies.
GROWTH STOCK Growth stocks are those that are expected to experience rapid
growth resulting from strong sales, talented management and dominant market
position. Because these stocks are typically in demand, they tend to carry
relatively high price tags and can also be volatile, based on changing
perceptions of the company's growth.
VALUE STOCK Value stocks are shares in companies that most investors deem
unattractive for some reason. Therefore, they tend to be priced low relative to
some measure of the company's worth, such as earnings, book value or cash flow.
Companies may be undervalued for a variety of reasons, such as an earnings
shortfall, an unfavorable economic outlook, regulatory concerns or simply
investor overreaction.
VOLATILITY Characteristics of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
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 (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</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 May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[FORTUNA PHOTO]
PHILIP FORTUNA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. HE
JOINED THE ORGANIZATION IN 1986 AS AN INSTITUTIONAL PORTFOLIO MANAGER. HE IS A
CO-LEAD PORTFOLIO MANAGER OF KEMPER VALUE + GROWTH FUND AND ALSO A CO-LEAD
PORTFOLIO MANAGER OF KEMPER QUANTITATIVE EQUITY FUND AND KEMPER HORIZON FUND.
FORTUNA RECEIVED A BACHELOR'S DEGREE IN ECONOMICS FROM CARNEGIE MELLON
UNIVERSITY AND AN M.B.A. FROM THE UNIVERSITY OF CHICAGO.
[KNAPP PHOTO]
WILLIAM KNAPP JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1992 AS A QUANTITATIVE
ANALYST. KNAPP IS A CO-LEAD PORTFOLIO MANAGER OF KEMPER VALUE + GROWTH FUND AND
ALSO CO-LEAD PORTFOLIO MANAGER OF KEMPER QUANTITATIVE EQUITY FUND AND KEMPER
HORIZON FUND. HE RECEIVED HIS BACHELOR'S DEGREE AND GRADUATED MAGNA CUM LAUDE
FROM DRAKE UNIVERSITY. KNAPP EARNED A MASTER'S DEGREE AND A PH.D. FROM THE
UNIVERSITY OF WISCONSIN-MADISON.
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.
BY ADHERING TO A DISCIPLINED, RESEARCH-INTENSIVE STRATEGY, CO-LEAD
PORTFOLIO MANAGERS PHILIP FORTUNA AND WILLIAM KNAPP LED KEMPER VALUE + GROWTH
FUND TO A RESPECTABLE SIX-MONTH RETURN, DESPITE AN AT-TIMES INHOSPITABLE MARKET
CLIMATE.
Q LATELY, THE STOCK MARKET HAS TAKEN INVESTORS ON A ROLLER COASTER RIDE
CHARACTERIZED BY RAPID GAINS AND DECLINES. COULD YOU GIVE US AN OVERVIEW OF THE
MARKET ACTIVITY THAT HAS INFLUENCED THE SEMIANNUAL PERIOD?
A Certainly. Overall, the market posted brisk returns, but investors have
had to hold tight through a period of ups and downs. For the semiannual period
ending May 31, 1998, the S&P 500 Index gained 15.07 percent, and the fund's
benchmark, the Russell 1000 Index gained 14.33 percent. However, these gains
were earned against a backdrop of uncertainty and short-term volatility. We
entered the semiannual period in the wake of the October 27, 1997's Gray Monday
market correction. The markets dipped in November, and global governmental
efforts were underway to try to counteract the turmoil in Asian markets.
Concerns abated as we moved into 1998, with the U.S. stock market rallying
briskly in February. However, the markets then hit turbulent water again, and it
became clear that the effects of the economic crisis in Asia were continuing to
unfold. Earnings disappointments took a toll on many stocks, particularly those
of technology firms and smaller companies. Concerns that the Federal Reserve
would increase interest rates also stirred the waters throughout this period.
Generally, growth outperformed value, domestic stocks were more attractive
than international ones, and large company stocks fared better than smaller
ones. The changing tides of the market were often unpredictable, making sector-
based forecasts particularly unwise. During this fast-paced time, we steered the
fund by focusing on individual stock selection.
Q HOW DID THE FUND PERFORM DURING THIS PERIOD?
A For the semiannual period, Kemper Value + Growth Fund has been holding its
own. From December 1, 1997 through May 31, 1998, the fund returned 11.64 percent
(Class A shares, unadjusted for any sales charge), versus 11.91 percent for the
Lipper Growth and Income Fund category. For the one-year period, the fund earned
24.59 percent (Class A shares, unadjusted for any sales charge), performing
closely in line with the peer group average of 25.47 percent. Given the
challenges of the preceding six months, we're satisfied with these returns on an
absolute basis. That said, we certainly don't want to trail the fund's peer
group average or benchmark over the long haul. However, the short-term market
climate has not afforded as many opportunities as we would have liked it to.
Q HOW WERE GROWTH AND VALUE STOCKS COMBINED IN THE PORTFOLIO, AND WHAT
CRITERIA DO YOU USE TO DETERMINE THIS ALLOCATION?
A Throughout the semiannual period, we allocated the lion's share of assets
to growth stocks, totaling 65 percent of common stock. Value stocks account for
the
5
<PAGE> 6
PERFORMANCE UPDATE
remaining 35 percent. As we discussed in the November 1997 annual report, toward
the end of the year, we moved the growth allocation up from 60 percent, based on
our evaluation of macroeconomic factors. As growth outperformed value during the
semiannual period, we are happy to report that our decision to build the fund's
growth allocation proved wise.
To determine the overall allocation for the fund, we rely on our extensive
research. We consider inflationary trends, economic strength, earnings growth,
and stock price trends.
To mitigate risk, we keep a significant amount of assets in both types of
stocks. For both growth and value stocks, we follow a disciplined approach. We
focus on fundamental statistics such as historic earnings, growth rates, book
values and cash flow. We seek stocks that we believe are reasonably priced
relative to their fundamentals and growth potential. It's important to us to not
get ourselves carried away by the emotion of the market. When the rest of the
market may be using clouded judgement, we want to be able to evaluate the true
merits of a stock. We believe this is how we best serve shareholders. During the
short term, the market's vicissitudes didn't support our strategy to the degree
to which we would have liked, but we do remain confident of the long-term
benefits of our approach.
Q DID THE TURMOIL OF RECENT MONTHS POSE ANY SPECIAL CHALLENGES TO THIS
STRATEGY?
A In an environment of uncertainty, it wasn't surprising to see many
investors succumb to emotion. Technology and small-company stocks took the brunt
of the Asian meltdown. Many investors reacted to the turmoil in the market by
fleeing to the safe haven of larger companies, which are often perceived to
offer greater shelter. We saw this as a continuation of the Nifty Fifty effect,
wherein the largest stocks of the S&P 500 get pushed up higher than the overall
market. We avoided many of these stocks, which were trading beyond a level we
felt was sustainable or reasonable, given the company's underlying fundamentals.
Our valuation discipline caused us to miss some short-term gains earned by the
market's current darlings, but we still believe that while the highflying stocks
may be the life of the party now, they also could be the ones suffering a
hangover when the market evaluates them more logically.
In our most recent quarterly evaluation of the portfolio, the average
price-to-earnings ratio was 25.0, less than that of the S&P 500 Index's 27.1.
However, the earnings per share projected five-year median for the fund was
15.3, exceeding the S&P 500's 13.7. That means we're honing in on stocks more
reasonably priced than those of the S&P 500, but with higher projected growth.
Q HOW DID YOU POSITION THE PORTFOLIO?
A Consumer nondurable stocks enjoy the largest portion of the portfolio's
assets, followed by finance, technology and health care. These four sectors also
have the greatest exposure within the Russell 1000 Index. Compared to that
benchmark, the fund is overweighted in technology and health care, and
underweighted in capital goods, energy and utilities.
Given the macroeconomic conditions, we've looked for openings to position
the fund defensively. Several of the fund's consumer nondurable holdings lived
up nicely to that sector's reputation of greater resiliency during times
of turmoil. American Greetings Corp. turned in nice returns, and we also
benefited from our position in food companies such as ConAgra. During the
semiannual period, retail and apparel stocks also contributed to overall
performance.
Within the health care sector, we eschewed many of the highest-priced
stocks, but still ended up with exposure to the sector that we feel is
appropriate and satisfying. We reaped solid gains from several of our health
care holdings, such as ALZA, McKesson, and R.P. Scherer. New health care names
also joined the portfolio's ranks. For instance, when Eli Lilly & Co.
experienced problems with the drug Evista, that stock's valuations declined to
an attractive level. We also added Stryker, a mid-cap manufacturer of
pharmaceutical equipment.
Financial stocks still hold strong appeal for us, and we see signals of
good long-term vitality within the sector. We've seen that the buzz about
rising rates hasn't yet come to pass. In fact, we've seen rates go lower, and
that they could continue to do so. We expect that financial stocks will
continue to benefit in this environment. While the trend towards consolidation
may taper off from its earlier fevered pitch, there are many indications that
synergies will continue to present good opportunities throughout the sector.
Technology was definitely a mixed bag. On the bright side, Compaq
Computer, a significant holding in the portfolio, was one instance where our
strategy worked well. Short-term inventory concerns had turned investors
against this stock, but we held to our guns. We took advantages of declines to
6
<PAGE> 7
PERFORMANCE UPDATE
build our position and, overall, came out ahead as the emotion around the stock
cleared to reveal the company's longer-term merits.
Q WHAT DIDN'T TURN OUT AS WELL AS YOU HAD EXPECTED?
A Our energy stake put a damper on returns. We had bought oil services
stocks, such as Rowan Companies, because we believed that their prices had
bottomed out. However, in hindsight, it appears we were early. The portfolio
also includes AMOCO and Atlantic Richfield, two other energy stocks that have
felt the market's disfavor. Due to low oil prices, oil stocks continue to fall
lower, and haven't been able to shake the bad feeling surrounding them. That
said, we haven't given up entirely on their potential for improved fortunes.
Expectations for oil stocks are low, and any good news could boost them.
The fund's short-term returns have also suffered from its exposure to
tobacco stocks. Based on price weakness, we had built stakes in tobacco firms,
such as UST Inc. and Philip Morris Cos. As we entered the semiannual period,
both of these firms were among our top ten holdings, and Philip Morris remains
our largest holding at the close of the semiannual period. We've also added
Universal Corp., a tobacco services company, to the portfolio. Though the haze
hasn't cleared as soon as we thought it would, we believe that the cloud of
litigation and government regulatory concerns will pass, and that the market
will support our confidence in tobacco stocks. Our approach requires us to take
the short-term situation of these stocks in stride. That's not to say, of
course, that we would hold on to a stock when our research doesn't support its
potential. Rather, the long-term success of a contrarian-influenced approach
depends on patience and a willingness to think apart from the herd.
And while our financial exposure benefited the portfolio overall, thanks
to stocks like NationsBank and Travelers Group, the fund did take a hit from
exposure to Bankers Trust and NorWest.
Q THE FUND HAS A HIGH WEIGHTING IN TECHNOLOGY STOCKS. WHAT IMPACT DID THIS
HAVE ON PERFORMANCE?
A Some of our holdings, such as 3Com Corp. was battered by the fallout from
Asia. However, technology stocks often turn before their earnings do. In the
wake of the technology correction, new opportunities are emerging. For instance,
semiconductors have taken a beating, and now stocks like National Semiconductor
boast tempting prices. It's important to keep in mind that despite the company's
short-term weaknesses there will still be a demand for its semiconductors. Part
of our disciplined strategy means that we're looking beyond the emotion
surrounding semiconductors, always keeping an eye on longer-term opportunities.
Q DO YOU EXPECT THE CURRENT OF THE MARKET TO CONTINUE AS IT HAS?
A Certainly, it will be a challenging investment environment. We expect that
volatility will continue. There haven't been sufficient indications that the
turmoil in Asia is anywhere near to running its course. We can't escape the fact
that we're a part of a global economy, and that international events can exert a
significant impact on our markets. Yet, overall, we continue to believe in the
long-term potential of domestic equity investing. There are good indications
that inflation will be kept in check, which contributes to a healthy environment
for stocks. We should be prepared for domestic corporate earnings to slow down
throughout the rest of the year and possibly into 1999. We hope that this will
set a slower, but saner pace, and allow us to navigate the fund more nimbly.
As we move forward into the second half of the fiscal year, we are
satisfied with the potential of our growth-focused allocation. Economic
factors, such as declining interest rates and slowing earnings growth, suggest
that growth stocks could likely continue to take the lead.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on May 31, 1998, and on November 30, 1997.
[EQUITY PORTION BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE + GROWTH KEMPER VALUE + GROWTH
FUND ON 5/31/98 FUND ON 11/30/97
<S> <C> <C>
CONSUMER NONDURABLES 26.0% 22.7%
FINANCE 19.2% 20.6%
TECHNOLOGY 16.5% 17.3%
HEALTH CARE 16.1% 14.8%
CAPITAL GOODS 6.7% 6.1%
BASIC INDUSTRIES 5.3% 6.8%
ENERGY 5.3% 6.0%
UTILITIES 3.3% 3.1%
CONSUMER DURABLES 1.6% 2.1%
TRANSPORTATION 0.0% 0.5%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of the Kemper Value+Growth Fund represented on May 31, 1998, compared to the
industry sectors that make up the fund's benchmark, the Russell 1000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER VALUE + GROWTH RUSSELL 1000 INDEX
FUND ON 5/31/98 ON 5/31/98
<S> <C> <C>
CONSUMER NONDURABLES 26.0% 26.1%
FINANCE 19.2% 19.3%
TECHNOLOGY 16.5% 13.8%
HEALTH CARE 16.1% 16.0%
CAPITAL GOODS 6.7% 8.4%
BASIC INDUSTRIES 5.3% 4.5%
ENERGY 5.3% 7.2%
UTILITIES 3.3% 9.9%
CONSUMER DURABLES 1.6% 1.6%
TRANSPORTATION 0.0% 1.3%
</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 Stock Index.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 20.8 PERCENT OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS The largest cigarette maker in the U.S. Through its 3.2%
Miller Brewing subsidiary, it is also the country's
second largest brewer. Philip Morris is also a major
branded food producer through its Kraft Foods
subsidiary.
2. GENERAL ELECTRIC Operates in major businesses including power 2.5%
generators, appliances, lighting, plastics, medical
systems, aircraft engines, financial services and
broadcasting.
3. WORLDCOM One of the largest long distance telecommunications 2.1%
companies in the U.S., offering domestic and
international voice, data, and video products and
services.
4. NATIONSBANK A provider of financial services such as checking and 2.0%
savings accounts, loans, investment management,
brokerage, trading, corporate finance and insurance
services.
5. MCDONALD'S Largest, best known global foodservice retailer with 2.0%
more than 21,000 locations in 102 countries.
6. CISCO SYSTEMS Largest, most comprehensive supplier of routing 1.9%
software and related systems that direct the flow of
data between local area networks.
7. FEDERAL NATIONAL MORTGAGE Often referred to as "Fannie Mae," this is a private 1.9%
ASSOCIATION corporation federally chartered to provide financial
products and services that increase the availability
and affordability of housing to low, moderate and
middle-income Americans.
8. AMERICAN HOME PRODUCTS Engaged in the manufacturing and marketing of health 1.9%
care products, including pharmaceuticals, consumer
health products and medical supplies.
9. ALZA Engaged in the development of pharmaceutical products 1.7%
using advanced drug delivery techniques to add medical
and economic value to drug therapies.
10. FEDERAL HOME LOAN MORTGAGE Often referred to as "Freddie Mac," this corporation 1.6%
CORP. provides for the transfer of capital between mortgage
lenders and mortgage security investors, enabling
mortgage lenders to provide a continuous flow of funds
to borrowers.
</TABLE>
*The fund's holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER VALUE+GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MAY 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NUMBER
OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--5.2% AMP, Inc. 21,700 $ 825
Crown Cork & Seal Co. 8,500 441
Dow Chemical Co. 11,000 1,066
Eastman Chemical Co. 10,100 677
Georgia Pacific Timber Group 5,400 127
Georgia-Pacific Corp. 5,400 347
Louisiana-Pacific Corp. 29,800 594
Lubrizol Corp. 25,000 869
Nucor Corp. 9,000 464
Sonoco Products Co. 28,490 995
Union Camp Corp. 7,900 432
----------------------------------------------------------------------
6,837
- -----------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.5% Emerson Electric Co. 11,100 674
General Electric Co. 39,900 3,327
Minnesota Mining & Manufacturing 10,000 926
Philips Electronics, N.V., ADR 10,000 951
Pitney Bowes, Inc. 12,000 564
Tyco International Ltd. 12,000 665
(a) U.S. Filter Corp. 26,200 797
(a) USA Waste Services 14,417 680
----------------------------------------------------------------------
8,584
- -----------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--10.1% (a) AutoZone 24,000 798
Carnival Corp. 23,000 1,558
(a) Consolidated Stores Corp. 16,500 630
Deluxe Corp. 11,500 386
Dillard Department Stores 19,000 799
Home Depot 11,000 864
(a) MGM Grand 34,000 1,128
May Department Stores Co. 9,000 579
NIKE 25,800 1,187
(a) Nine West Group 46,000 1,297
Sotheby's Holdings 17,500 403
(a) Tommy Hilfiger Corp. 21,800 1,466
V.F. Corp. 6,800 362
Wal-Mart Stores, Inc. 12,000 662
Walt Disney Co. 10,700 1,210
----------------------------------------------------------------------
13,329
- -----------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.6% Ford Motor Co. 16,200 840
Magna International, Inc., "A" 6,800 479
Superior Industries International 25,000 728
----------------------------------------------------------------------
2,047
- -----------------------------------------------------------------------------------------------------
CONSUMER STAPLES--15.2% American Greetings Corp. 29,200 1,387
Avon Products 15,500 1,268
ConAgra, Inc. 36,000 1,053
General Nutrition 20,000 631
Kimberly-Clark Corp. 27,400 1,358
McDonald's Corp. 38,800 2,546
Newell Co. 21,900 1,057
PepsiCo 31,000 1,265
Philip Morris Cos. 110,900 4,145
Procter & Gamble Co. 16,500 1,385
(a) Smithfield Foods, Inc. 11,000 297
UST, Inc. 54,000 1,438
Unilever, N.V., ADR 6,000 474
Universal Corp. 31,000 1,164
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wendy's International 20,900 $ 516
----------------------------------------------------------------------
19,984
- -----------------------------------------------------------------------------------------------------
ENERGY--5.2% AMOCO Corp. 24,600 1,029
Atlantic Richfield Co. 16,300 1,286
Chevron Corp. 8,000 639
Columbia Gas System 4,400 371
Enron Corp. 17,000 852
Exxon Corp. 19,900 1,403
Hussmann International, Inc. 7,500 136
(a)Rowan Companies, Inc. 15,000 383
Royal Dutch Petroleum Co. 4,000 224
Texaco 8,000 462
----------------------------------------------------------------------
6,785
- -----------------------------------------------------------------------------------------------------
FINANCE--18.7% American General Corp. 6,500 436
American International Group, Inc. 3,500 433
Associates First Capital Corp. 4,246 318
BRE Properties, Inc. 20,000 530
Banc One Corp. 10,120 558
BankAmerica Corp. 5,900 488
Bankers Trust New York Corp. 3,000 371
Bear Stearns Cos. 15,000 814
Chase Manhattan Corp. 3,400 462
Federal Home Loan Mortgage Corp. 48,000 2,184
Federal National Mortgage Association 41,800 2,503
First Union Corp. 13,700 758
Fleet Financial Group, Inc. 2,600 213
General Re Corp. 4,300 945
Golden West Financial Corp. 1,200 130
H.F. Ahmanson & Co. 10,800 824
Hibernia Corp. 33,000 693
ITT Hartford Group 6,000 660
Jefferson-Pilot Corp. 19,500 1,116
KeyCorp 6,800 258
MGIC Investment Corp. 16,800 1,007
Meditrust 14,419 406
Merrill Lynch & Co. 11,400 1,020
Morgan Stanley, Dean Witter, Discover & Co. 13,000 1,015
NationsBank 35,347 2,678
Norwest Corp. 13,600 529
PNC Bank Corp., N.A. 6,300 364
Post Properties 14,500 596
Republic NY Corp. 2,000 257
Safeco Corp. 6,500 302
Torchmark Corp. 14,500 622
Travelers Group 18,000 1,098
----------------------------------------------------------------------
24,588
- -----------------------------------------------------------------------------------------------------
HEALTH CARE--15.8%
(a)ALZA Corp. 46,000 2,225
Abbott Laboratories 19,400 1,439
American Home Products Corp. 50,400 2,435
(a)Amgen, Inc. 1,100 67
Astra AB, ADR 69,000 1,397
Baxter International 13,000 743
Bristol-Myers Squibb Co. 16,000 1,720
C.R. Bard 23,400 812
Crescendo Pharmaceuticals Corp. 1,800 23
Eli Lilly & Co. 7,000 430
First Health Group Corp. 21,200 1,204
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
NUMBER
OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Johnson & Johnson 10,700 $ 739
Mallinckrodt Group 12,000 370
McKesson Corp. 7,000 547
Merck & Co. 15,500 1,815
Pfizer Inc. 4,000 419
R.P. Scherer Corp. 11,500 950
Schering-Plough Corp. 13,000 1,088
Stryker Coporation 21,000 856
United Healthcare Corp. 23,000 1,472
----------------------------------------------------------------------
20,751
- -----------------------------------------------------------------------------------------------------
TECHNOLOGY--16.1% (a)Applied Materials, Inc. 38,000 1,216
Cadence Design Systems 17,500 617
(a)Cisco Systems 33,600 2,541
Compaq Computer Corp. 68,100 1,860
(a)Computer Sciences Corp. 32,400 1,683
Intel Corp. 29,200 2,086
International Business Machines 4,000 470
Linear Technology Corp. 14,000 979
(a)Microchip Technology 29,200 715
National Semiconductor Corp. 38,500 626
Parametric Technology Corp. 25,200 773
(a)Quantum Corp. 60,900 1,332
Raytheon Co. 16,500 902
Reynolds & Reynolds Co. 47,000 984
(a)Seagate Technology 8,000 185
(a)Sun Microsystems 35,900 1,438
Teradyne, Inc. 33,500 1,030
(a)3Com Corp. 35,000 888
Xerox Corp. 8,000 822
----------------------------------------------------------------------
21,147
- -----------------------------------------------------------------------------------------------------
UTILITIES--3.2% AirTouch Communications 10,000 476
GTE Corp. 17,000 991
(a)WorldCom, Inc. 61,700 2,807
----------------------------------------------------------------------
4,274
----------------------------------------------------------------------
TOTAL COMMON STOCKS--97.6%
(COST: $104,322) 128,326
----------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
MONEY MARKET PRINCIPAL
INSTRUMENTS--4.0% AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
Yield--4.74% to 5.75%
Due--June and July 1998
(Cost: $5,292) $5,300 5,292
----------------------------------------------------------------------
TOTAL INVESTMENTS--101.6%
(Cost: $109,614) 133,618
----------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(1.6)% (2,165)
----------------------------------------------------------------------
NET ASSETS--100% $131,453
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
Based on the cost of investments of $109,614,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $26,699,000, the gross
unrealized depreciation was $2,695,000 and the net unrealized appreciation on
investments was $24,004,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------
ASSETS
- --------------------------------------------------
Investments, at value
(Cost: $109,614) $133,618
- --------------------------------------------------
Cash 200
- --------------------------------------------------
Receivable for:
Investments sold 1,189
- --------------------------------------------------
Fund shares sold 155
- --------------------------------------------------
Dividends 188
- --------------------------------------------------
TOTAL ASSETS 135,350
- --------------------------------------------------
- --------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------
Payable for:
Investments purchased 3,667
- --------------------------------------------------
Fund shares redeemed 7
- --------------------------------------------------
Management fee 76
- --------------------------------------------------
Distribution services fee 41
- --------------------------------------------------
Administrative services fee 24
- --------------------------------------------------
Custodian and transfer agent fees and
related expenses 70
- --------------------------------------------------
Trustees' fees and other 12
- --------------------------------------------------
Total liabilities 3,897
- --------------------------------------------------
NET ASSETS $131,453
- --------------------------------------------------
- --------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------
Paid-in capital $107,225
- --------------------------------------------------
Undistributed net realized gain on
investments 224
- --------------------------------------------------
Net unrealized appreciation on
investments 24,004
- --------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $131,453
- --------------------------------------------------
- --------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share ($70,673/4,485 shares
outstanding) $15.76
- --------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net
asset value or 5.75% of offering price) $16.72
- --------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($56,409/3,661 shares
outstanding) $15.41
- --------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($4,371/284 shares
outstanding) $15.39
- --------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------
Dividends $ 878
- -------------------------------------------------
Interest 55
- -------------------------------------------------
Total investment income 933
- -------------------------------------------------
Expenses:
Management fee 418
- -------------------------------------------------
Distribution services fee 202
- -------------------------------------------------
Administrative services fee 131
- -------------------------------------------------
Custodian and transfer agent fees and
related expenses 259
- -------------------------------------------------
Professional fees 9
- -------------------------------------------------
Reports to shareholders 16
- -------------------------------------------------
Registration fees 15
- -------------------------------------------------
Trustees' fees and other 10
- -------------------------------------------------
Total expenses 1,060
- -------------------------------------------------
NET INVESTMENT LOSS (127)
- -------------------------------------------------
- -------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------
Net realized gain on sales of
investments 154
- -------------------------------------------------
Net realized gain from futures
transactions 90
- -------------------------------------------------
Net realized gain 244
- -------------------------------------------------
Change in net unrealized appreciation
on investments 11,725
- -------------------------------------------------
Net gain on investments 11,969
- -------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $11,842
- -------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
- ------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (127) (42)
- ------------------------------------------------------------------------
Net realized gain 244 3,499
- ------------------------------------------------------------------------
Change in net unrealized appreciation 11,725 8,054
- ------------------------------------------------------------------------
Net increase in net assets resulting
from operations 11,842 11,511
- ------------------------------------------------------------------------
Net equation charges -- (30)
- ------------------------------------------------------------------------
Distribution from net realized gain (3,454) (2,553)
- ------------------------------------------------------------------------
Net increase from capital share
transactions 25,324 49,721
- ------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 33,712 58,649
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Beginning of period 97,741 39,092
- ------------------------------------------------------------------------
END OF PERIOD $ 131,469 97,741
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 15
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 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
May 31, 1998) 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 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.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
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 during the six
months ended May 31, 1998.
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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) 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
$418,000 for the six months ended May 31, 1998.
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 COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 43,000 334,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended May 31, 1998 $ 243,000 433,000
</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 ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Six months ended May 31, 1998 $ 131,000 144,000
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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 $230,000
for the six months ended May 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the six months ended May 31,
1998, the Fund made no payments to its officers and
incurred trustees' fees of $3,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $39,902
Proceeds from sales 19,869
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED NOVEMBER 30,
MAY 31, 1998 1997
---------------- ----------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
---------------------------------------------------------------------------
Class A 1,077 $16,564 2,303 $31,312
---------------------------------------------------------------------------
Class B 969 14,565 1,959 26,054
---------------------------------------------------------------------------
Class C 119 1,778 179 2,342
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------
Class A 126 1,770 109 1,290
---------------------------------------------------------------------------
Class B 105 1,448 94 1,108
---------------------------------------------------------------------------
Class C 7 101 6 65
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------
Class A (394) (6,104) (504) (6,722)
---------------------------------------------------------------------------
Class B (280) (4,231) (367) (4,802)
---------------------------------------------------------------------------
Class C (36) (567) (72) (926)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------
Class A 116 1,745 74 1,032
---------------------------------------------------------------------------
Class B (118) (1,745) (75) (1,032)
---------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $25,324 $49,721
---------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 fluctuates. At May 31,
1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $199,000. The Fund also had liquid
assets in excess of the face amount of open futures
contracts. At May 31, 1998, the following futures
contracts were owned by the Fund.
<TABLE>
<CAPTION>
CONTRACT EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 5/31/98
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index $2,764,000 Long June '98 $37,000
-------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------
CLASS A
-----------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 16
ENDED NOVEMBER 30, TO
MAY 31, ------------- NOVEMBER 30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.62 12.95 10.02 9.50
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .01 .02 .05 .02
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.63 2.48 2.88 .50
- --------------------------------------------------------------------------------------------
Total from investment operations 1.64 2.50 2.93 .52
- --------------------------------------------------------------------------------------------
Less distribution from net realized
gain .50 .83 -- --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.76 14.62 12.95 10.02
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.64% 20.83 29.24 5.47
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(A)
- --------------------------------------------------------------------------------------------
Expenses 1.37% 1.41 1.47 1.56
- --------------------------------------------------------------------------------------------
Net investment income .22% .35 .43 .34
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
CLASS B
---------------------------------------
YEAR ENDED
SIX MONTHS NOVEMBER OCTOBER 16
ENDED 30, TO
MAY 31, ------------ NOVEMBER 30,
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.37 12.83 10.02 9.50
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (.04) (.07) (.04) .02
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.58 2.44 2.85 .50
- ------------------------------------------------------------------------------------------
Total from investment operations 1.54 2.37 2.81 .52
- ------------------------------------------------------------------------------------------
Less distribution from net realized
gain .50 .83 -- --
- ------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.41 14.37 12.83 10.02
- ------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.13% 19.96 28.04 5.47
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------
Expenses 2.33% 2.27 2.27 2.10
- ------------------------------------------------------------------------------------------
Net investment income (.74)% (.51) (.37) 1.50
- ------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------
CLASS C
--------------------------
SIX MONTHS YEAR ENDED OCTOBER 16
ENDED NOVEMBER 30, TO
MAY 31, ------------- NOVEMBER 30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.37 12.84 10.01 9.50
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.03) (.05) (.04) .01
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain 1.55 2.41 2.87 .50
- --------------------------------------------------------------------------------------------
Total from investment operations 1.52 2.36 2.83 .51
- --------------------------------------------------------------------------------------------
Less distribution from net realized
gain .50 .83 -- --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.39 14.37 12.84 10.01
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.98% 19.86 28.27 5.37
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(a)
- --------------------------------------------------------------------------------------------
Expenses 2.34% 2.15 2.22 2.07
- --------------------------------------------------------------------------------------------
Net investment loss (.75)% (.39) (.32) 1.53
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 16
ENDED NOVEMBER 30, TO
MAY 31, --------------- NOVEMBER 30,
1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $ 131,453 97,741 39,092 5,851
- ------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 33% 56 82 --
- ------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges.
(a) The investment manager agreed to temporarily waive certain operating
expenses of the Fund during the fiscal years ended November 30, 1997 and
1996. Absent this waiver, the ratios of expenses to average net assets would
have increased and the ratios of net investment income to average net assets
would have decreased by the following amounts: for the year ended November
30, 1997, 0.05% for Class B and 0.01% for Class C; for the year ended
November 30, 1996, 0.12% for Class A, 0.17% for Class B and 0.13% for Class
C.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Value + Growth Fund shareholders were asked to vote on five
separate issues: election of the nine members to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors, approval of a new
investment management agreement with Scudder Kemper Investments, Inc. approval
of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure and approval of a new rule 12b-1 distribution plan
with Kemper Distributors, Inc. for Class B shares and Class C shares. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 3,115,500 40,397
Lewis A. Burnham 3,115,716 40,182
Donald L. Dunaway 3,120,509 35,389
Robert B. Hoffman 3,119,873 36,024
Donald R. Jones 3,121,436 34,461
Shirley D. Peterson 3,120,259 35,638
Daniel Pierce 3,119,794 36,103
William P. Sommers 3,121,436 34,461
Edmond D. Villani 3,116,257 39,640
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
3,091,575 15,880 48,442
</TABLE>
3) Approval of new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
2,960,620 30,309 62,648 102,321
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
2,981,969 99,254 141,586
</TABLE>
5) To approve a new rule 12b-1 distribution plan with Kemper Distributors, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 1,320,096 22,981 40,665 15,306
Class C 91,816 693 335 4,983
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA STEVEN H. REYNOLDS
Trustee Vice President and Vice President
Secretary
LEWIS A. BURNHAM LINDA J. WONDRACK
Trustee JOHN R. HEBBLE Vice President
Treasurer
DONALD L. DUNAWAY MAUREEN E. KANE
Trustee PHILIP FORTUNA Assistant Secretary
Vice President
ROBERT B. HOFFMAN CAROLINE PEARSON
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
DONALD R. JONES ELIZABETH C. WERTH
Trustee WILLIAM KNAPP Assistant Secretary
Vice President
SHIRLEY D. PETERSON
Trustee THOMAS W. LITTAUER
Vice President
WILLIAM P. SOMMERS
Trustee ANN M. MCCREARY
Vice President
EDMOND D. VILLANI
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[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 Funds/Growth Style prospectus.
KVGF-3 (7/98) 1050250
