<PAGE> 1
KEMPER GROWTH FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Seeking growth of capital through diversification of investment securities
having potential for capital appreciation
"...By really working the process, we have the potential to achieve solid,
consistent returns over the long term..."
[Kemper Funds Logo]
<PAGE> 2
Table of
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
15
Report of
Independent Auditors
16
Financial Statements
18
Notes to
Financial Statements
22
Financial Highlights
AT A GLANCE
- ----------------------------------------------------------------------
Kemper Growth Fund
Total Returns
- ----------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(UNADJUSTED FOR ANY SALES CHARGE):
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
CLASS A 19.62%
- ----------------------------------------------------------------------
CLASS B 18.47%
- ---------------------------------------------------------------------
CLASS C 18.65%
- ----------------------------------------------------------------------
LIPPER GROWTH FUNDS CATEGORY
AVERAGE* 15.89%
- ----------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------
NET ASSET VALUE
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
9/30/96 9/30/95
- ----------------------------------------------------------------------
<S> <C> <C>
KEMPER GROWTH FUND CLASS A $17.21 $16.07
- ----------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B $16.82 $15.85
- ----------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C $16.87 $15.87
- ----------------------------------------------------------------------
</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 and, if they had, results may have been less favorable. Returns
and rankings are historical and do not reflect future performance. The fund is
compared to the Lipper Growth Funds category.
- ----------------------------------------------------------------------
KEMPER GROWTH FUND
LIPPER RANKINGS*
- ----------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #175 OF #234 OF #228 OF
633 FUNDS 633 FUNDS 633 FUNDS
- ----------------------------------------------------------------------
5-YEAR #208 OF N/A N/A
247 FUNDS
- ----------------------------------------------------------------------
10-YEAR #39 OF N/A N/A
161 FUNDS
- ----------------------------------------------------------------------
15-YEAR #37 OF 111 FUNDS N/A N/A
- ----------------------------------------------------------------------
20-YEAR #35 OF 102 FUNDS N/A N/A
- ----------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------
DIVIDEND REVIEW
- ----------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER GROWTH FUND PAID THE FOLLOWING
DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.035 -- --
- ----------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $0.42 $0.42 $0.42
- ----------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $1.26 $1.26 $1.26
- ----------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
BLUE CHIP COMPANIES Blue chip companies are generally identified by their
substantial capitalization, established history of earnings and dividends, easy
access to credit, good industry position and superior management structure. They
are believed to generally exhibit less investment risk and less price volatility
than companies lacking these high quality characteristics, such as smaller, less
seasoned companies.
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.
MARKET CAPITALIZATION Capitalization is a measure of the size of a publicly
traded company, as determined by multiplying the current market price by the
number of shares outstanding. The market capitalization of a company has bearing
on its perceived earnings potential and risk.
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.
SECTOR A particular group of stocks, usually found in one industry.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time. A stock may be volatile because
the outlook for the company is particularly uncertain or because of various
other reasons.
<PAGE> 3
GENERAL 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 $76 BILLION IN ASSETS, INCLUDING $42 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 approach the close of 1996, it's remarkable how eventful the year has been
and yet, economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar today to what they
were in 1995. Long-term interest rates are approximately 6.52% compared to 6.29%
in November 1995. The economy is growing at a rate of approximately 2.2%.
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 15% to 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
previous 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, 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 (10/31/96) 6 Months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.53 6.74 6.04 7.74
Prime rate (2) 8.25 8.25 8.75 7.75
Inflation rate (3) 3 2.9 2.6 2.6
The U.S. dollar (4) 4.74 8.94 -1.05 -5.28
Capital goods orders (5) 2.24 7.42 8.57 15.65
Industrial production (5) 3.5 2.56 1.92 6.77
Employment growth (6) 2.01 2.07 1.93 3.3
</TABLE>
1 Falling interest rates in recent years have been a big plus for financial
assets.
2 The interest rate that commercial lenders charge their best borrowers.
3 Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
4 Changes in the exchange value of the dollar impact U.S. exporters and the
value of the 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 September 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.
November 15, 1996
*THE STANDARD & POOR'S 500 IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE
U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[ADAMS PHOTO]
PATRICK ADAMS JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN JUNE 1996 WITH
OVER 11 YEARS OF EXPERIENCE IN PORTFOLIO MANAGEMENT AND STOCK ANALYSIS. HE IS A
SENIOR VICE PRESIDENT OF ZKI AND PORTFOLIO MANAGER OF KEMPER GROWTH FUND. ADAMS
RECEIVED HIS B.S. DEGREE FROM OHIO STATE UNIVERSITY IN FINANCE AND ACCOUNTING
AND HIS M.B.A. IN FINANCE FROM XAVIER UNIVERSITY. HE IS ALSO A CHARTERED
FINANCIAL ANALYST.
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.
AIDED BY CONTINUED STRENGTH IN THE STOCK MARKET AND SELECTIVE ADJUSTMENTS
TO THE PORTFOLIO, KEMPER GROWTH FUND ROSE TO THE TOP THIRD OF ITS PEER GROUP
DURING THE THIRD QUARTER OF 1996 (SEE PAGE 2 FOR FULL RANKING DISCLOSURE). IN
THE FOLLOWING INTERVIEW, PATRICK ADAMS, THE FUND'S NEW PORTFOLIO MANAGER,
DISCUSSES HIS APPROACH TO INVESTING AND HIS OUTLOOK FOR THE MONTHS AHEAD.
Q. DESPITE INCREASING VOLATILITY, IT'S BEEN A GOOD YEAR FOR THE STOCK MARKET.
FOR THE YEAR ENDED SEPTEMBER 30, 1996, THE STANDARD AND POOR'S 500 INDEX ("S&P
500") IS UP 20.32% AND THE DOW JONES INDUSTRIAL AVERAGE IS HOVERING NEAR THE
6,000 MARK. HOW HAS KEMPER GROWTH FUND FARED?
A. The fund is up 19.62% (Class A shares, unadjusted for sales charge) for the
fiscal year ended September 30, 1996. In terms of relative performance, as
measured by the Lipper Growth Fund category, Kemper Growth Fund Class A has
risen from the 50th percentile -- 277 of 550 funds -- at September 30, 1995, to
the top third -- 175 of 633 funds -- at September 30, 1996 (see page 2 for full
ranking disclosure).
Q. SINCE YOU JUST CAME TO KEMPER FUNDS IN JUNE, THIS IS THE FIRST OPPORTUNITY
MOST KEMPER GROWTH FUND INVESTORS HAVE HAD TO BECOME ACQUAINTED WITH YOUR
INVESTMENT STYLE. WOULD YOU EXPLAIN YOUR BASIC PHILOSOPHY?
A. I'm a proponent of the Growth At a Reasonable Price (GARP) approach to
investing. Theoretically, this has been Kemper's style for some time now. But
(chief investment officer for equities) Steve Reynolds, who managed Kemper
Growth Fund for the first eight months of the fiscal year, has really
reinvigorated Kemper's commitment to and, more importantly, the execution of
this philosophy.
The major premise of GARP investing is that earnings growth drives stock
prices. With that as a given, we focus on the sectors of the market that have
the fastest earnings growth: technology and telecommunications, health care,
consumer stocks and financials. Occasionally we'll buy an economically-sensitive
stock, maybe something in the industrial sector, if special circumstances
recommend it. But I prefer companies with a real franchise, that can control
their own destiny and not be dependent on the overall economy. In any sector, I
concentrate on companies that have a dominant market position and are growing
faster than the market as a whole.
While we lean on high quality growth securities that have strong
fundamentals, we also focus on the valuation of the securities. A minimum return
for a new purchase would be the stock's current earnings per share growth rate.
Generally we target at least the earnings per share growth rate and some
multiple (P/E) expansion.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. WITH THAT IN MIND, CAN YOU NAME A FEW OF THE STOCKS YOU'VE ADDED TO THE
PORTFOLIO?
A. Paging Network, the fund's second largest position as of September 30, has
very competitive earnings and a relatively low P/E ratio. This stock hasn't
significantly moved yet, but we know that an important new product will be
introduced soon, which ought to push the stock up. Dole Foods is a company that
we believe can grow earnings at 20% over the next three years, yet its price is
only about 12 times earnings.
Q. WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO SINCE COMING ON BOARD IN JUNE?
A. Generally speaking, I've boosted the fund's average growth rate and lowered
its overall valuation risk. In doing so, about half of the names currently held
by the fund are new. Specifically, I trimmed or eliminated positions where
earnings growth was too low or valuations were too high. These included AT&T and
several large cap drug companies. The assets were redeployed into several
biotech and wireless communications companies that offer greater growth
opportunities.
During the past three months, the market has become increasingly concerned
about the strength of the economy going forward. The result has been a flight to
quality which has driven the prices of high-quality, large cap stocks up. Our
response has been to look toward stocks in the mid cap range ($1 billion - $10
billion) that present more compelling valuations. At this point, the portfolio
is actually positioned rather defensively. The fund's cash position was up to
about 16% at the end of the fiscal year, which is the result of some recent
profit taking in fully valued positions.
Q. ANY OTHER CHANGES?
A. I'd say the other significant change would be a more aggressive effort to
drive the GARP process. For example, when I joined Kemper in June, the fund's
technology position was at 18%. When a technology sell-off occurred in July, we
knew there were some companies that were knocked down with the rest of the group
despite good fundamentals. Using our research and valuation discipline, we found
some attractive opportunities and I increased the fund's technology position to
about 25%. This strategy worked very well for us: We bought Compaq Computer at
$42 and it rose to $64; 3Com rose from $35 to $60 and Analog Devices, purchased
under $20 rose to $27. Essentially we saw a one- to two-year move on some of
these stocks in the span of a couple of months. After those rebounds, we took
profits on a number of our tech positions. The fund's exposure at September 30
was back to about 17%.
This is what I mean by "driving" the GARP process: using our research
capabilities, which are top-notch, to identify and take advantage of
opportunities early, then being disciplined about selling when the stocks hit
our price target instead of holding on and giving the gains back when the stocks
correct. By really working the process, we have the potential to achieve solid,
consistent returns over the long term.
Q. HAVE THERE BEEN ANY SIGNIFICANT SECTOR CHANGES WITHIN THE PORTFOLIO?
A. There haven't been huge changes in terms of sector weightings, but within
each sector I've done a little re-balancing, trimming or eliminating names that
have performed well but now have achieved most of their upside potential, and
deploying some of the assets into new positions or adding to existing ones.
Our health care position, which was about 20 percent when I arrived in June,
was down to about 12 percent as of September 30. This was a defensive move;
after some strong gains, valuations just aren't as attractive as they were.
Meanwhile, I've added to our financial position with names like Chase Manhattan
Corp., and shuffled some of the consumer stocks, adding some casual dining names
like Boston Market and Lone Star Steak House. In retail, we continue to
emphasize companies with dominant market share like Home Depot, Federated
Departments Stores and Lowes, and niche retailers like Intimate Brands, owner of
the Victoria's Secret and Bath & Body Works chains. Again, these are companies
that we're confident can increase market share and provide steady earnings
growth. I've also made some changes in our energy exposure, favoring companies
like Halliburton and Baker Hughes. These companies are benefiting from the trend
of the big oil companies to outsource their technical needs.
6
<PAGE> 7
PERFORMANCE UPDATE
Q. IS THE FUND STILL CONCENTRATED IN LARGE CAP GROWTH STOCKS?
A. Yes. Normally, the fund will be invested only in large cap stocks. However,
the market is paying a very high premium for companies like Johnson & Johnson,
Coca Cola, Pfizer, Microsoft and General Electric. At the end of September,
prices for these companies were, on average, about 25 times earnings with growth
rates of about 18% or less; usually, prices are equal to or less than the growth
rate. Consequently, it's become harder to find situations with a lot of upside
potential among the high-quality, large cap companies. Current valuations don't
justify buying them at these prices. So during the past few months I've
been looking at mid cap stocks where there are some very attractive, quality
growth opportunities. As of September 30, the portfolio's average market cap was
about $6 billion, whereas I'd normally expect the fund to be at about $10
billion. This exposure to mid-cap stocks could make the fund's performance
significantly different from that of the market if measured over a short period
of time.
Q. WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
A. At this point, the market is pretty picked over. I'm putting money into
companies that, based on our research, present low risk on the downside and high
potential on the upside, particularly those where we see a catalyst like a new
product or regulatory developments that should make the stock move.
Although we may see some choppy performance for the short term, our long-term
outlook is still quite positive. In '95 the market (as measured by the Standard
& Poor's 500 Index) was up about 35%; in '96 we've seen an additional gain of
about 20%. Next year it will be much more difficult to achieve these types of
returns. This kind of environment makes research and sector selection all the
more important. Identifying opportunities in a challenging environment will be
an important factor in boosting the fund's performance relative to its peers.
7
<PAGE> 8
PERFORMANCE UPDATE
- -------------------------------------------------------------------------------
Average Annual Total Returns*
- -------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER GROWTH FUND 12.75% 9.84% 14.15% 12.67% (Since 4/4/66)
CLASS A
- -----------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND 15.47 N/A N/A 16.31 (Since 5/31/94)
CLASS B
- -----------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND 18.65 N/A N/A 17.53 (Since 5/31/94)
CLASS C
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[Line Graph]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Growth Fund Class A
from 1/1/79 through 9/30/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
01/1/79 12/31/83 12/31/87 12/31/91 09/30/96
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - KEMPER GROWTH 10,000 27,321 38,606 96,942 138,343
FUND CLASS A(1)
- - RUSSELL 1000 10,000 21,421 34,234 72,895 128,804
GROWTH INDEX+
- - STANDARD & POOR'S 10,000 22,203 38,734 74,980 140,326
500 STOCK INDEX++
</TABLE>
[Line Graph]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Growth Fund Class B
from 5/31/94 through 9/30/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
05/31/94 12/31/94 12/31/95 09/30/96
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - KEMPER GROWTH FUND 10,000 9,765 12,743 14,241
CLASS B(1)
- - RUSSELL 1000 10,000 10,529 14,445 16,771
GROWTH INDEX+
- - STANDARD & POOR'S 10,000 10,284 14,135 16,037
500 STOCK INDEX++
</TABLE>
[Line Graph]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Growth Fund Class C
from 5/31/94 through 9/30/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
05/31/94 12/31/94 12/31/95 09/30/96
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- - KEMPER GROWTH 10,000 9,772 12,776 14,592
FUND CLASS C(1)
- - RUSSELL 1000 10,000 10,529 14,445 16,771
GROWTH INDEX+
- - STANDARD & POOR'S 10,000 10,284 14,135 16,037
500 STOCK INDEX++
</TABLE>
Past performance is not predictive of future performance. Returns and
net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all dividends
and for Class A shares adjustment for the maximum sales charge of 5.75%, 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
B share CDSC is 4%. For Class C shares purchased on or after 4/1/96 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 A shares and the contingent deferred sales charge in effect at
the end of the period for B shares. When reviewing the performance chart, please
note that the inception date for the Russell 1000 Growth Index is 1/1/79. As a
result, we are not able to illustrate the life of fund performance (since
4/4/66) for Kemper Growth Fund Class A shares. In comparing Kemper 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 Growth Index is an unmanaged index comprised of common
stocks of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select.
++ 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 SEPTEMBER 30, 1996, AND ON SEPTEMBER 30, 1995.
<TABLE>
<CAPTION>
KEMPER GROWTH FUND KEMPER GROWTH FUND
ON 9/30/96 ON 9/30/95
- -----------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES 32.1% 31.8%
TECHNOLOGY 20.5% 20.9%
HEALTH CARE 14.7% 16.5%
FINANCE 10.6% 10.6%
CAPITAL GOODS 5.4% 10.1%
UTILITIES 4.8% 0.0%
CONSUMER DURABLES 3.8% 0.0%
BASIC INDUSTRIES 3.0% 6.6%
ENERGY 2.6% 2.5%
TRANSPORTATION 2.5% 1.0%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX*
DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER GROWTH FUND REPRESENTED ON SEPTEMBER 30, 1996, COMPARED TO THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 1000 GROWTH
INDEX.
<TABLE>
<CAPTION>
KEMPER GROWTH FUND RUSSELL 1000 GROWTH
ON 9/30/96 INDEX ON 9/30/96
- -----------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES 32.1% 33.9%
TECHNOLOGY 20.5% 21.8%
HEALTH CARE 14.7% 19.0%
FINANCE 10.6% 4.4%
CAPITAL GOODS 5.4% 10.1%
UTILITIES 4.8% 4.2%
CONSUMER DURABLES 3.8% 0.5%
BASIC INDUSTRIES 3.0% 3.5%
ENERGY 2.6% 2.2%
TRANSPORTATION 2.5% 0.4%
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index comprised of common stocks
of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 21.3% OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON SEPTEMBER 30,
1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Holdings Percent
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 CERIDIAN Provides information services (payroll processing and 2.7%
CORPORATION other human resources services; transportation and
gaming transaction processing; media and market
research) and technology-based services and supplies
in the field of defense electronics.
2 PAGING The world's largest provider of paging and wireless 2.3%
NETWORK, messaging services with a network that reaches 90% of
INC. the U.S. market.
3 GENERAL Operates principally as a property-casualty and life 2.3%
RE CORP. reinsurer.
4 VIACOM Operates four business units: Entertainment (produces 2.2%
INTER- and distributes movies and television shows through
NATIONAL, Paramount studios); Networking and Broadcasting
B (Showtime, Nickelodeon, MTV, VH1 and The Movie
Channel); Publishing (Simon & Schuster); and Video and
Music/Theme Parks (Blockbuster video rentals).
5 ADVANTA, Direct markets consumer financial services. 2.1%
CORP.
6 TELE- Operates cable television systems through its Tele- 2.1%
COMMUNICA- Communications TCI and Tele-Communications Liberty
TIONS, Media units.
INC.
7 LONE Owns 165 domestic and 11 international Lone Star 2.0%
STAR restaurants.
STEAK
HOUSE &
SALOON
8 CISCO Largest, most comprehensive supplier of routing 1.9%
SYSTEMS software and related systems that direct the flow of
data between local area networks.
9 CADENCE Develops, markets and supports electronic design 1.9%
DESIGN automation software products for customers such as
SYSTEMS semiconductor manufacturers, consumer and defense
electronics companies, computer manufacturers and
telecommunication companies.
10 AUTOZONE One of the three largest auto parts and accessories 1.8%
retailers in the U.S.
</TABLE>
*Portfolio composition and holdings are subject to change.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER GROWTH FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--2.6% (b)Cementos Mexicanos, S.A. de C.V. 866,100 $ 3,551
B.F. Goodrich Co. 776,200 35,026
(b)Rentokil Group PLC 470,000 3,072
(b)Sumitomo Metal Industries 1,011,000 2,868
(b)Toray Industries 475,000 3,011
(a)UCAR International 554,000 22,437
-------------------------------------------------------------------------------
69,965
- ----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--4.5% Boeing Co. 259,800 24,551
Fluor Corp. 331,700 20,400
Foster Wheeler Corp. 400,000 17,500
(b)Honda Motor Co., Ltd. 124,000 3,117
(b)Mitsubishi Heavy Industries 378,000 3,078
(b)Technip S.A. 14,481 1,324
Xerox Corporation 480,000 25,740
York International Corp. 586,200 28,357
-------------------------------------------------------------------------------
124,067
- ----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--23.5% (a)AutoZone 1,400,000 40,600
(a)Boston Market 825,000 29,081
(b)Burton Group PLC 1,562,310 3,578
Carnival Corp. 1,224,800 37,969
(a)Circus Circus Enterprises 508,100 17,974
(a)Cox Communications 1,233,900 22,673
(a)Federated Department Stores 1,087,900 36,445
Heilig-Meyers 1,180,000 18,438
Home Depot 473,600 26,936
Intimate Brands 1,500,000 27,375
La Quinta Inns, Inc. 1,500,000 29,250
(a)Liberty Media Group, "A" 945,000 27,051
(a)Lone Star Steakhouse & Saloon 1,477,900 44,984
Lowes Companies, Inc. 720,000 29,430
(a)MFS Communications Company, Inc. 527,600 23,017
(a)Office Depot 653,000 15,427
(a)Outback Steakhouse 457,000 11,025
(a)Staples, Inc. 800,000 17,750
(a)Sunglass Hut International 1,500,000 23,906
(a)Tele-Communications, Inc. 3,220,000 48,099
(a)Viacom International, "B" 1,450,000 51,475
Warnaco Group 1,558,200 37,007
Wendy's International 1,100,000 23,650
-------------------------------------------------------------------------------
643,140
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--3.2% Duracell International Inc. 425,000 27,253
Magna International Inc., "A" 770,000 37,152
Shaw Industries 1,807,500 24,175
-------------------------------------------------------------------------------
88,580
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--3.5%
Dole Food Co. 952,800 $ 40,018
Kimberly-Clark Corp. 249,000 21,943
Philip Morris Companies 337,900 30,326
(b)Reed International PLC 194,461 3,594
-------------------------------------------------------------------------------
95,881
- ----------------------------------------------------------------------------------------------------------------
ENERGY--2.2% Baker Hughes, Inc. 750,000 22,781
Halliburton Co. 700,000 36,138
-------------------------------------------------------------------------------
58,919
- ----------------------------------------------------------------------------------------------------------------
FINANCE--8.9% ADVANTA Corp. 1,050,000 48,300
Allstate Corp. 390,000 19,207
(b)Bank of Ireland 460,997 3,644
(b)CITIC Pacific Ltd. 561,000 2,539
Chase Manhattan Corp. 300,000 24,038
(b)Cheung Kong Holdings Ltd. 320,000 2,462
(b)Development Bank of Singapore 218,000 2,678
Federal National Mortgage Association 670,000 23,366
First USA 600,000 33,225
General Re Corp. 375,000 53,156
(b)Internationale Nederlanden Groep 121,866 3,804
(b)Krung Thai Bank Public Co. Ltd. 444,800 1,907
MGIC Investment Corp. 352,500 23,750
(b)Swire Pacific Limited, "A" 276,000 2,472
-------------------------------------------------------------------------------
244,548
- ----------------------------------------------------------------------------------------------------------------
HEALTH CARE--12.4% (a)ALZA Corp. 567,000 15,238
(b)Astra AB 73,316 3,099
Baxter International 690,000 32,258
(a)Biogen 105,000 7,980
(a)Centocor, Inc. 799,200 28,372
Columbia/HCA Healthcare Corp. 460,000 26,163
Guidant Corporation 538,879 29,773
(a)IDEXX Laboratories 236,700 10,711
Eli Lilly & Co. 400,000 25,800
Medtronic, Inc. 281,000 18,019
(a)Nellcor Puritan Bennett Incorporated 1,000,000 22,000
Omnicare 1,000,000 30,500
(a)Oxford Health Plans, Inc. 500,000 24,875
(b)Roche Holding AG 830 3,067
(a)St. Jude Medical 300,000 12,113
(b)Sandoz, Ltd. 400,000 23,900
United Healthcare Corp. 608,500 25,329
-------------------------------------------------------------------------------
339,197
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--17.2% (a)Analog Devices 1,260,000 $ 34,178
(a)Atmel Corporation 894,100 27,605
(a)Cadence Design Systems 1,231,900 44,040
(a)Ceridian Corporation 1,234,000 61,700
(a)Cisco Systems 722,400 44,834
(a)Compaq Computer Corp. 365,000 23,406
(a)Computer Sciences Corp. 276,800 21,279
Electronic Data Systems 260,000 15,958
(b)LM Ericsson Telephone Co., "B" 102,059 2,573
(a)General Instrument Corp. 600,000 14,850
(a)Glenayre Technologies, Inc. 600,000 13,800
Intel Corp. 243,600 23,249
(b)Kyocera Corp. 30,000 2,141
(a)LSI Logic Corp. 500,000 11,625
(b)Matsushita Electric Industrial Co., Ltd. 189,000 3,173
(a)Maxim Integrated Products 491,600 17,390
(b)Murata Manufacturing 93,500 3,341
(a)Parametric Technology Corp. 282,400 13,944
(a)Silicon Graphics 1,050,000 23,231
(a)Sun Microsystems 320,000 19,880
(a)3Com Corporation 607,900 36,512
(a)US Robotics 200,000 12,925
-------------------------------------------------------------------------------
471,634
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.1% (b)Canadian National Railway Company 177,305 3,635
(b)Nippon Express 326,300 2,989
Ryder System Inc. 1,345,800 39,869
Southwest Airlines Co. 458,850 10,496
-------------------------------------------------------------------------------
56,989
- ----------------------------------------------------------------------------------------------------------------
UTILITIES--4.0% (a)AirTouch Communications 1,090,000 30,111
Frontier Corporation 750,000 19,968
(b)Iberdrola, S.A. 280,000 2,715
(a)Paging Network, Inc. 2,658,000 53,160
(b)Telefonica del Peru, ADS 150,000 3,431
-------------------------------------------------------------------------------
109,385
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS--84.1%
(Cost: $2,054,591) 2,302,305
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--17.0%
Yield--5.29% to 5.63%
Due--October through December 1996
CIT Group Holdings, Inc. $ 19,000 $ 18,961
CSW Credit, Inc. 15,000 14,982
ConAgra, Inc. 42,300 42,127
Countrywide Home Loans 32,000 31,960
Dean Witter, Discover & Co. 15,000 14,998
Dynamic Funding Corp. 29,000 28,919
ENSERCH Corporation 24,000 23,978
FINOVA Capital Corporation 15,000 14,961
Goldman Sachs Group, L.P. 32,000 31,955
IBM Credit Corporation 18,600 18,600
Mid-Atlantic Fuel Company 15,000 14,965
Preferred Receivables Funding Corp. 19,700 19,700
Sanwa Business Credit Corp. 41,800 41,760
Xerox Corporation 20,000 19,973
Other 129,300 128,753
-------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--17.0%
(Cost: $466,593) 466,592
-------------------------------------------------------------------------------
TOTAL INVESTMENTS--101.1%
(Cost: $2,521,184) 2,768,897
-------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(1.1)% (30,594)
-------------------------------------------------------------------------------
NET ASSETS--100% $2,738,303
-------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Security of entity domiciled outside of the U.S.
Based on the cost of investments of $2,521,184,000 for federal income tax
purposes at September 30, 1996, the gross unrealized appreciation was
$302,803,000, the gross unrealized depreciation was $55,090,000 and the net
unrealized appreciation on investments was $247,713,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER GROWTH FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Growth Fund as of September
30, 1996, the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal periods since 1992. 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
September 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
Growth Fund at September 30, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the fiscal periods
since 1992, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $2,521,184) $2,768,897
- -------------------------------------------------------------------------------------------------------
Cash 902
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1,985
- -------------------------------------------------------------------------------------------------------
Investments sold 45,708
- -------------------------------------------------------------------------------------------------------
Dividends 1,727
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 2,819,219
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 3,873
- -------------------------------------------------------------------------------------------------------
Investments purchased 73,504
- -------------------------------------------------------------------------------------------------------
Management fee 1,203
- -------------------------------------------------------------------------------------------------------
Distribution services fee 539
- -------------------------------------------------------------------------------------------------------
Administrative services fee 514
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,178
- -------------------------------------------------------------------------------------------------------
Trustees' fees 105
- -------------------------------------------------------------------------------------------------------
Total liabilities 80,916
- -------------------------------------------------------------------------------------------------------
NET ASSETS $2,738,303
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,852,996
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 612,277
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 247,713
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 25,317
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,738,303
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,817,163 / 105,560 shares outstanding) $17.21
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net asset value or
5.75% of offering price) $18.26
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($874,132 / 51,961 shares outstanding) $16.82
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($11,359 / 674 shares outstanding) $16.87
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($35,649 / 2,065 shares outstanding) $17.26
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Dividends $ 24,235
- -------------------------------------------------------------------------------------------------------
Interest 20,536
- -------------------------------------------------------------------------------------------------------
Total investment income 44,771
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 13,994
- -------------------------------------------------------------------------------------------------------
Distribution services fee 6,206
- -------------------------------------------------------------------------------------------------------
Administrative services fee 5,964
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,151
- -------------------------------------------------------------------------------------------------------
Professional fees 97
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 408
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 58
- -------------------------------------------------------------------------------------------------------
Total expenses 35,878
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,893
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 748,123
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (299,539)
- -------------------------------------------------------------------------------------------------------
Net gain on investments 448,584
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $457,477
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 8,893 2,743
- ---------------------------------------------------------------------------------------------------------
Net realized gain 748,123 132,687
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (299,539) 392,371
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 457,477 527,801
- ---------------------------------------------------------------------------------------------------------
Net equalization credits (charges) 5,974 (4,328)
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (10,741) --
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain (258,903) (30,829)
- ---------------------------------------------------------------------------------------------------------
Total dividends to shareholders (269,644) (30,829)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 41,195 (245,320)
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 235,002 247,324
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of year 2,503,301 2,255,977
- ---------------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $25,317 and $20,349, respectively) $2,738,303 2,503,301
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper 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 on
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Class I shares, which are sold to a limited group
of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES 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
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
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 .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $13,994,000 for the
year ended September 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 September 30, 1996 $ 327,000 2,075,000 57,000
</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 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 PAID
DISTRIBUTION FEES BY KDI
AND CDSC -----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- -------------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 7,700,000 3,595,000 53,000
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts that 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 September 30, 1996 $ 5,964,000 5,983,000 138,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$7,394,000 for the year ended September 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended September 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $46,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $3,500,221
Proceeds from sales 3,907,582
20
<PAGE> 21
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 SEPTEMBER 30,
1996 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold
Class A 13,560 $ 210,554 17,146 $ 228,060
------------------------------------------------------------------------------
Class B 12,475 197,160 12,710 174,061
------------------------------------------------------------------------------
Class C 435 6,880 287 3,950
------------------------------------------------------------------------------
Class I 758 11,932 2,166 32,293
------------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends
Class A 11,446 167,815 1,651 20,744
------------------------------------------------------------------------------
Class B 5,507 79,478 736 9,188
------------------------------------------------------------------------------
Class C 43 618 2 29
------------------------------------------------------------------------------
Class I 233 3,413 -- --
------------------------------------------------------------------------------
Shares redeemed
Class A (25,770) (400,961) (37,809) (507,033)
------------------------------------------------------------------------------
Class B (13,792) (218,715) (14,880) (203,270)
------------------------------------------------------------------------------
Class C (129) (2,048) (66) (944)
------------------------------------------------------------------------------
Class I (936) (14,931) (156) (2,398)
------------------------------------------------------------------------------
Conversion
of shares
Class A 1,448 21,712 2,001 27,345
------------------------------------------------------------------------------
Class B (1,471) (21,712) (2,018) (27,345)
------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ 41,195 $(245,320)
------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of year $16.07 12.93 15.33 13.09 13.14
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .12 .05 .01 .01 .03
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.74 3.27 (1.41) 2.29 .71
- --------------------------------------------------------------------------------------------
Total from investment operations 2.86 3.32 (1.40) 2.30 .74
- --------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .04 -- -- .03 .05
- --------------------------------------------------------------------------------------------
Distribution from net realized gain 1.68 .18 1.00 .03 .74
- --------------------------------------------------------------------------------------------
Total dividends 1.72 .18 1.00 .06 .79
- --------------------------------------------------------------------------------------------
Net asset value, end of year $17.21 16.07 12.93 15.33 13.09
- --------------------------------------------------------------------------------------------
TOTAL RETURN 19.62% 26.07 (9.39) 17.60 5.55
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 1.07% 1.17 1.09 1.00 1.03
- --------------------------------------------------------------------------------------------
Net investment income .65% .43 .24 .06 .32
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED MAY 31 TO
SEPTEMBER 30, SEPT. 30,
1996 1995 1994
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.85 12.88 13.10
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.09) (.08) (.03)
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.74 3.23 (.19)
- --------------------------------------------------------------------------------------------
Total from investment operations 2.65 3.15 (.22)
- --------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.68 .18 --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $16.82 15.85 12.88
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.47 % 24.83 (1.68)
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses 2.05 % 2.17 2.11
- --------------------------------------------------------------------------------------------
Net investment loss (.33)% (.57) (.76)
- --------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------- -------------------------
CLASS C CLASS I
--------------------------- -------------------------
YEAR ENDED MAY 31 TO YEAR ENDED JULY 3 TO
SEPTEMBER 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1994 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.87 12.88 13.09 16.09 14.80
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.06) (.07) (.02) .19 .03
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.74 3.24 (.19) 2.74 1.26
- ------------------------------------------------------------------------------------------------------
Total from investment operations 2.68 3.17 (.21) 2.93 1.29
- ------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .08 --
- ------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.68 .18 -- 1.68 --
- ------------------------------------------------------------------------------------------------------
Total dividends 1.68 .18 -- 1.76 --
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.87 15.87 12.88 17.26 16.09
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.65 % 24.99 (1.60) 20.19 8.72
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------
Expenses 1.95 % 2.03 2.09 .64 .59
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) (.23)% (.43) (.67) 1.08 .92
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $2,738,303 2,503,301 2,255,977 1,826,961 1,419,292
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 150% 67 115 139 83
- --------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended September 30, 1996 was $.0560.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS PATRICK S. ADAMS
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
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606
http://www.kemper.com
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