<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD SM
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED SEPTEMBER 30, 1997
Seeking growth of capital through diversification of investment
securities having potential for capital appreciation
Kemper Growth Fund
"... The changes we made early in the year
contributed to much-improved performance during
the last six months..."
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world.(SM)
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
INDUSTRY SECTORS
9
LARGEST HOLDINGS
10
PORTFOLIO OF
INVESTMENTS
13
REPORT OF
INDEPENDENT AUDITORS
14
FINANCIAL STATEMENTS
16
NOTES TO
20
FINANCIAL HIGHLIGHTS
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 19.97%
CLASS B 18.68%
CLASS C 18.87%
LIPPER GROWTH FUNDS CATEGORY AVERAGE* 33.52%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings 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. The fund is compared to the Lipper Growth Funds category.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER GROWTH FUND CLASS A $15.47 $17.21
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B $14.83 $16.82
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C $14.91 $16.87
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 #711 of 784 funds #723 of 784 funds #721 of 784 funds
- --------------------------------------------------------------------------------
5-YEAR #278 of 298 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #106 of 179 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #67 of 114 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #42 of 102 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED SEPTEMBER 30, 1997, KEMPER GROWTH FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN $1.38 $1.38 $1.38
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN $2.97 $2.97 $2.97
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MATURITY/QUALITY DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style Box is
based on a portfolio date as of September 30, 1997.) The Equity Style Box
placement is based on a fund's price-to-earnings and price-to-book ratio
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.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $86 BILLION IN ASSETS, INCLUDING $49 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high - as our equity market has
been for most of this year - they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction
was Southeast Asia, where the world's highest growth economies had been
stumbling since the summer. These economies had become overextended, banks ran
into trouble with bad loans and the local governments failed to take prompt
action. The result was a domino effect of competitive devaluations of
currencies, crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in
the U.S. equity market - resulting in a 7 percent loss on October 27 -- the
world quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to
7000 than to 8000, we would have expected that the market would have dropped
only slightly.
But as we have said before, today's markets move very fast. We experienced
in one day the kind of correction that we used to experience over a six-month
period. At this writing, the U.S. equity market remains very volatile. We expect
that condition to continue, as volatility is a factor of higher valued markets.
Despite what the last few years may have suggested, markets do not go in just
one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise.
Investors who got hurt in the October correction were those who had
borrowed the money they invested and were forced to sell at low prices.
Investors who were able to remain invested and did, lost only some of
their above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government
securities investors, for example, found the bond market to be a safe
haven as the bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic
growth, stable interest rates and controlled inflation. While we cannot rule
out the possibility of another market event that would add to the excitement of
equity investing, we would expect the U.S. market to again demonstrate its
resiliency.
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 (10/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.03 6.71 6.2 5.93
PRIME RATE(2) 8.5 8.5 8.25 8.75
INFLATION RATE(3)* 2.15 2.5 2.99 2.74
THE U.S. DOLLAR(4) 7.62 6.55 3.46 -1.57
CAPITAL GOODS ORDERS(5)* 14.97 8.17 7.71 5.13
INDUSTRIAL PRODUCTION(5)* 5.52 4.39 3.27 2.35
EMPLOYMENT GROWTH(6)* 2.23 2.27 2.1 2.19
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commerical 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 September 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary 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 AND CHIEF INVESTMENT OFFICER
Zurich Kemper Investments, Inc.
November 13, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[REYNOLDS PHOTO]
STEVEN H. REYNOLDS IS EXECUTIVE VICE PRESIDENT OF ZURICH KEMPER INVESTMENTS,
INC. (ZKI). HE HAS OVER 30 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE AND HOLDS
AN M.B.A. IN FINANCE FROM THE UNIVERSITY OF VIRGINIA AND A B.A. IN ECONOMICS
FROM JOHNS HOPKINS UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
STEVE REYNOLDS ASSUMED MANAGEMENT OF THE FUND IN JANUARY. HIS EFFORTS
TO RESTRUCTURE THE PORTFOLIO IN THE FIRST QUARTER PAID OFF WITH MARKET-TOPPING
PERFORMANCE BY CLASS A SHARES (UNADJUSTED FOR ANY SALES CHARGE) IN THE LAST SIX
MONTHS OF THE FISCAL YEAR.
Q STEVE, BEFORE GIVING US AN OVERVIEW OF THE FUND'S PERFORMANCE AND
STRATEGY, COULD YOU FIRST PROVIDE A BRIEF OVERVIEW OF THE STOCK MARKET'S
PERFORMANCE DURING THE LAST 12 MONTHS?
A Certainly. Overall, it was a great period for stocks, particularly large
company stocks. For the 12-month period ended September 30, 1997, the Standard &
Poor's 500 Stock Index* (S&P 500) was up 40.43 percent. Our benchmark, the
Russell 1000 Growth Index**, was up 36.30 percent. Through most of the year,
stocks benefited from a near idyllic environment -- solid economic growth,
rising corporate profits, flat interest rates and virtually non-existent
inflation. You couldn't ask for a much better climate for business.
* The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market.
** 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.
Q HOW DID KEMPER GROWTH FUND PERFORM IN COMPARISON?
A In absolute terms, Class A shares of the fund did well, posting a 19.97
percent total return (unadjusted for any sales charge) for the year. In
comparison to the market, however, our performance was disappointing. As we
stated in the fund's semiannual report, an overweighting in mid-cap stocks was
largely responsible for a slow start for the fund when compared to the S&P 500,
and we weren't able to make up the difference by September.
However, we're encouraged because the changes we made early in the year
contributed to much-improved performance during the last six months. From March
31 through September 30, the fund's total return was 27.75 percent for Class A
shares (unadjusted for any sales charge). That figure means we outperformed the
S&P 500, which achieved a total return of 26.24 percent for the same period.
Q YOU MENTIONED SOME CHANGES THAT YOU MADE WHEN YOU BEGAN MANAGING THE FUND
IN JANUARY. WHAT WERE THEY?
A The changes were almost entirely the result of our investment philosophy
of "growth at the right price," or "GARP."
As GARP investors, we look for high quality, solidly-managed companies
with projected growth rates that are greater than the overall market, and we
try to buy them as cheaply as possible. Ideally, we seek stocks that are
mispriced due to very short-term fundamental problems or negative market
psychology. In short, we try to identify stocks of high quality companies that
are down for the wrong reasons.
5
<PAGE> 6
PERFORMANCE UPDATE
It's possible to do this because many investors don't care to separate the
good stocks from the bad...if one stock experiences problems, they often sell
every stock in the same group. This behavior is responsible for a lot of the
volatility in the market, but it also presents opportunities if you've done your
homework and can identify good companies that have declined in "sympathy" with
bad news. Once we've identified such opportunities, we're willing to overweight
sectors that we believe are particularly attractive
Q HOW DID THIS GARP PHILOSOPHY GUIDE YOUR BUYING DECISIONS?
A First, we reduced our mid-cap stock exposure in favor of large cap stocks,
which are generally higher-quality companies and offer more predictable earnings
growth. At the same time, we wanted to more broadly diversify the portfolio in
an effort to help reduce risk. So we concentrated on big names in three major
areas: health care, finance and technology. Health care purchases were
concentrated in pharmaceutical companies like Merck, Bristol-Myers Squibb,
American Home Products and Lilly. In finance, we diversified into banks,
insurance companies and financial firms such as Banc One, NationsBank, and
American Express.
In April, technology stocks came under tremendous pressure because of
concern over earnings outlooks. We believed a lot of this was overdone,
so we took a major position in high-quality technology companies. Our tech
weighting helped the fund perform very well through the summer as these stocks
rebounded.
Q DO YOU HAVE A SPECIFIC EXAMPLE OF HOW GARP BOOSTED FUND PERFORMANCE?
A Cisco Systems. This is one of the largest providers of high performance
internetworking systems for computers, and a major player in the explosive
growth of the Internet. In early April, the company's earnings growth slowed
from roughly 50 percent to 35 percent due to product transitions and excess
inventory. Now, keep in mind that average growth rate of the stocks in the S&P
500 is about 10 percent. But even though Cisco's growth rate was 35 percent, its
price went from $75 in January to $50 in April. It then was selling at under 20
times 1998 earnings. That's a prime example of sentiment overwhelming reality.
Q OBVIOUSLY, THERE ARE GARP SUCCESS STORIES. ANY STORIES THAT DIDN'T PAN
OUT?
A One company that has disappointed us is Amgen. A leader in the biotech
industry, it experienced a slowdown in demand for some of its products. The
stock is attractive to us because the rest of the drug sector is selling at very
high multiples, and Amgen -- one of the highest quality biotech firms in the
country -- is selling at a modest 20 times 1998 projected earnings. We feel its
problems are temporary and that a reacceleration in earnings will happen. It
hasn't happened yet, but sometimes you have to be patient and hope the market
sees what you've seen.
Q STOCKS HAVE ENJOYED A BIG RUN IN THE LAST COUPLE OF YEARS. ARE YOU
OPTIMISTIC THAT THE RALLY WILL CONTINUE?
A Currently, there are a number of reasons for continued optimism regarding
stocks. Our economy is solid, we've got good income and employment growth,
consumer sentiment is good and there seems to be little evidence that interest
rates will increase dramatically. So all the things you need for good
consumption are there. That's why we've been focusing on retailers like
Federated Department Stores, May Department Stores, Toys R Us, Home Depot and
Sears.
Domestically, American businesses are experiencing good corporate growth
and profitability. Also, it seems that every Board of Directors in the
U.S. is concerned with adding shareholder value. They're increasing dividends,
buying back shares, spinning off divisions...even the politicians are getting
into the act with a balanced budget agreement and tax reform. It's a very
compelling environment for investors.
The only sticky point is valuations. They are relatively high taken as a
whole, and that may lead to increased volatility as investors look to get the
most potential bang from their investment buck. But as a GARP-ist, volatility
provides opportunities for us to buy good companies at good values and help
control risk by buying high quality companies when their prices are low. What
happened to the technology sector in April is a prime example of how this can
work in our favor. So, while volatility is unsettling, our approach is designed
to make it pay off for investors.
6
<PAGE> 7
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER GROWTH FUND CLASS A 13.07% 12.69% 12.03% 12.89% (since 4/4/66)
- ---------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B 16.04 N/A N/A 17.35 (since 5/31/94)
- ---------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C 18.87 N/A N/A 17.94 (since 5/31/94)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 1/1/79 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/79 12/31/83 12/31/91 9/30/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Growth Fund Class A1 10000 27321 96942 165968
- -----------------------------------------------------------------------------------------------
Russell 1000 Growth Index+ 10000 21421 72895 175542
- -----------------------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index ++ 10000 22203 74980 197009
- -----------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class B shares from 5/31/94 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 9/30/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Growth Fund Class B1 10000 9765 12743 17058
- -----------------------------------------------------------------------------------------------
Russell 1000 Growth Index+ 10000 10529 14445 22857
- -----------------------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index ++ 10000 10284 14135 22515
- -----------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class C shares from 5/31/95 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 8/31/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Growth Fund Class C1 10000 9772 12776 17346
- -----------------------------------------------------------------------------------------------
Russell 1000 Growth Index+ 10000 10529 14445 22857
- -----------------------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index ++ 10000 10284 14135 22515
- -----------------------------------------------------------------------------------------------
</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 percent, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) of 3 percent and for Class C shares no
adjustment for sales charge. The maximum CDSC for Class B shares is 4
percent. For Class C shares, there is a 1 percent CDSC on certain
redemptions within the first year of purchase. During the periods noted,
securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred
sales charge in effect at the end of the period for Class B shares. When
reviewing the performance chart, please note that the inception date for
the Russell 1000 Growth Index is January 1, 1979. As a result, we are not
able to illustrate the life of fund performance (since April 4, 1966) for
Kemper Growth Fund Class A shares. In comparing Kemper Growth Fund Class A
shares 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.
7
<PAGE> 8
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, 1997, and on September 30, 1996.
[EQUITY PORTION BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND KEMPER GROWTH FUND
ON 9/30/97 ON 9/30/96
<S> <C> <C>
TECHNOLOGY 28.9% 20.5%
HEALTH CARE 21.9% 14.7%
FINANCE 18.8% 10.6
CONSUMER NON-DURABLES 15.8% 32.1%
CAPITAL GOODS 8.2% 5.4%
ENERGY 2.3% 2.6%
TRANSPORTATION 2.2% 2.5%
UTILITIES 1.1% 4.8%
BASIC INDUSTRIES 0.7% 3.0%
CONSUMER DURABLES 0.1% 3.8%
</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, 1997, compared to the
industry sectors that make up the fund's benchmark, the Russell 1000 Growth
Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND KEMPER GROWTH FUND
ON 9/30/97 ON 9/30/96
<S> <C> <C>
TECHNOLOGY 28.9% 26.0%
HEALTH CARE 21.9% 19.2%
FINANCE 18.8% 6.5%
CONSUMER NON-DURABLES 15.8% 30.6%
CAPITAL GOODS 8.2% 9.8%
ENERGY 2.3% 2.9%
TRANSPORTATION 2.2% 0.1%
UTILITIES 1.1% 1.5%
BASIC INDUSTRIES 0.7% 2.8%
CONSUMER DURABLES 0.1% 0.6%
</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.
8
<PAGE> 9
THE FUND'S 10 LARGEST HOLDINGS*
Representing 22.2% of the fund's total common stock holdings on September 30,
1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Holdings Percent
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. United Healthcare Corp. Provides health care management services to health 3.1%
maintenance organizations, preferred provider
organizations and other health care providers.
2. Cadence Design Systems Develops, markets and supports computer aided design 2.6%
software products and services that automate, enhance
and accelerate the design and verification of
integrated circuits and electronic systems.
3. Intel Engaged in the design, development, manufacture and 2.2%
sale of advanced microcomputer components, such as
integrated circuits and other related products.
4. Gartner Group Provides subscription-based research and analysis of 2.2%
computer hardware and software, communications and
related technology industries.
5. NationsBank Provides financial services such as checking and 2.1%
savings accounts, loans, investment management,
brokerage, trading, corporate finance and insurance
services.
6. Amgen A global biotechnology company that discovers, 2.0%
develops, manufactures and markets human therapeutics
based on advanced cellular and molecular biology.
7. Perkin-Elmer Develops, manufactures and sells analytic 2.0%
Corp. instrumentation, optics and life science systems.
8. Merck A leading research-driven pharmaceutical products and 2.0%
services company. Merck discovers, develops,
manufactures and markets a broad range of innovative
products to improve human and animal health.
9. Bristol-Myers Squibb Diversified worldwide health and personal care company 2.0%
whose principal businesses include pharmaceuticals,
consumer products and medical devices.
10. Eli Lilly & Co. Producer of pharmaceutical and animal health products. 2.0%
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER GROWTH FUND
Portfolio of Investments at September 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL GOODS--8.0% Boeing Co. 402,400 $ 21,906
Emerson Electric Co. 927,300 53,436
General Electric Co. 632,500 43,050
B.F. Goodrich Co. 386,200 17,476
Honeywell 602,400 40,474
Technip, S.A. 11,462 1,457
United Technologies 614,000 49,734
------------------------------------------------------------------------------
227,533
- ------------------------------------------------------------------------------------------------------------------------
COMPUTER SYSTEMS (a)Cadence Design Systems 1,330,400 71,176
AND SOFTWARE--14.6% (a)Ceridian Corp. 675,000 24,975
(a)Compaq Computer Corp. 216,750 16,202
(a)Gartner Group, "A" 2,009,200 60,276
Hewlett-Packard Co. 530,000 36,868
(a)Microsoft Corp. 99,800 13,205
Murata Manufacturing 32,500 1,405
(a)Oracle Corp. 752,000 27,401
(a)Parametric Technology Corp. 1,000,000 44,125
(a)PeopleSoft, Inc. 511,500 30,562
Reynolds & Reynolds Co. 1,560,000 30,322
(a)Sterling Commerce, Inc. 966,900 34,748
(a)Sun Microsystems 453,000 21,206
------------------------------------------------------------------------------
412,471
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--9.0% (a)AutoZone, Inc. 1,265,000 37,950
(a)Federated Department Stores 791,500 34,133
(a)Tommy Hilfiger Corp. 741,200 37,014
Hilton Hotels Corp. 900,000 30,319
Home Depot 346,900 18,082
Hudson's Bay Co. 134,300 3,582
May Department Stores Co. 504,800 27,512
Sears, Roebuck & Co. 654,000 37,237
(a)Toys R Us 800,000 28,400
------------------------------------------------------------------------------
254,229
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--6.5% Avon Products 727,900 45,130
R.R. Donnelley & Sons Co. 830,500 29,638
Gillette Co. 360,600 31,124
Newell Co. 700,000 28,000
Unilever N.V., ADR 229,500 48,797
------------------------------------------------------------------------------
182,689
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--2.2% Baker Hughes, Inc. 1,161,600 50,820
British Petroleum 107,081 1,618
Halliburton Co. 196,700 10,228
------------------------------------------------------------------------------
62,666
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--18.4% ADVANTA Corp., "B" 1,507,500 $ 41,079
Allstate Corp. 299,000 24,032
American Express Co. 324,000 26,527
American General Corp. 281,000 14,577
Banc One Corp. 899,863 50,224
Banco Santander, S.A. 32,100 1,052
Bank of Ireland 188,433 2,352
CITIC Pacific, Ltd. 223,000 1,265
Cheung Kong Holdings, Ltd. 127,000 1,428
Development Bank of Singapore 86,000 877
Federal Home Loan Mortgage Corp. 1,309,800 46,170
Federal National Mortgage Association 837,200 39,348
First Union Corp. 769,900 38,543
Household International 252,500 28,580
ING Groep, N.V. 49,098 2,256
ITT Hartford Group 404,300 34,795
Morgan Stanley, Dean Witter Discover & Co. 840,000 45,413
NationsBank 935,000 57,853
PNC Bank, N.A. 574,600 28,048
U.S. Bancorp 366,100 35,329
------------------------------------------------------------------------------
519,748
- ------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--21.4% (a)ALZA Corp. 917,800 26,616
American Home Products Corp. 438,800 32,032
(a)Amgen, Inc. 1,190,000 57,046
C.R. Bard 225,000 7,636
(a)Biogen 1,580,000 51,251
(a)Boston Scientific Corp. 491,900 27,147
Bristol-Myers Squibb Co. 663,700 54,921
(a)British Biotech, PLC 294,000 748
Johnson & Johnson 541,200 31,187
Eli Lilly & Co. 454,300 54,828
Medtronic, Inc. 403,600 18,969
Merck & Co. 552,300 55,195
Perkin-Elmer Corp. 773,100 56,485
Pharmacia & Upjohn, Inc. 120,100 4,384
Roche Holding, A.G. 165 1,466
SmithKline Beecham Group PLC, ADR 809,400 39,559
United Healthcare Corp. 1,695,900 84,795
------------------------------------------------------------------------------
604,265
- ------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS AND AMP, Inc. 678,600 36,348
NETWORKING--9.8% (a)Analog Devices 422,700 14,160
(a)Applied Materials, Inc. 222,300 21,174
(a)Cisco Systems 734,800 53,686
Intel Corp. 653,200 60,299
(a)Microchip Technology 566,700 25,590
(a)Teradyne 291,100 15,665
Texas Instruments 145,500 19,661
(a)3Com Corp. 580,600 29,756
------------------------------------------------------------------------------
276,339
</TABLE>
11
<PAGE> 12
Portfolio of INVESTMENTS
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS--3.8% (a)Ascend Communications, Inc. 610,800 $ 19,775
L.M. Ericsson Telephone Co., "B" 40,559 1,950
Lucent Technologies, Inc. 336,500 27,383
Nokia Corp., ADR 315,500 29,598
(a)Tellabs, Inc. 546,500 28,145
------------------------------------------------------------------------------
106,851
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.1% Burlington Northern Sante Fe Corp. 158,900 15,354
CSX Corp. 237,600 13,900
Norfolk Southern Corp. 305,000 31,491
------------------------------------------------------------------------------
60,745
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.0% Telefonica Nacional de Espana, S.A. 51,000 1,603
(a)WorldCom, Inc. 790,500 27,964
------------------------------------------------------------------------------
29,567
- ------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--.8% Cementos Mexicanos, S.A. de C.V. "B" 343,100 2,014
Honda Motor Co., Ltd. 49,000 1,709
Matsushita Electric Industrial Co., Ltd. 84,000 1,517
Praxair, Inc. 266,490 13,641
Rentokil Initial PLC 372,000 1,544
Sony Corp. 14,100 1,331
Toray Industries 188,000 1,110
------------------------------------------------------------------------------
22,866
------------------------------------------------------------------------------
TOTAL COMMON STOCKS--97.6%
(Cost: $2,424,112) 2,759,969
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.52% to 5.71% $ 62,400 62,279
INSTRUMENTS--2.2% Due--October 1997
(Cost: $62,279)
------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(Cost: $2,486,391) 2,822,248
------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.2% 5,317
------------------------------------------------------------------------------
NET ASSETS--100.0% $2,827,565
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
Based on the cost of investments of $2,486,391,000 for federal income tax
purposes at September 30, 1997, the gross unrealized appreciation was
$398,636,000, the gross unrealized depreciation was $62,779,000 and the net
unrealized appreciation on investments was $335,857,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
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, 1997, 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 1993. 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, 1997, by correspondence with the custodians 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,486,391) $2,822,248
- --------------------------------------------------------------------------
Cash 1,511
- --------------------------------------------------------------------------
Receivable for:
Investments sold 62,623
- --------------------------------------------------------------------------
Fund shares sold 1,033
- --------------------------------------------------------------------------
Dividends 1,891
- --------------------------------------------------------------------------
TOTAL ASSETS 2,889,306
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 35,707
- --------------------------------------------------------------------------
Fund shares redeemed 22,605
- --------------------------------------------------------------------------
Management fee 1,272
- --------------------------------------------------------------------------
Distribution services fee 558
- --------------------------------------------------------------------------
Administrative services fee 490
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 999
- --------------------------------------------------------------------------
Trustees' fees 110
- --------------------------------------------------------------------------
Total liabilities 61,741
- --------------------------------------------------------------------------
NET ASSETS $2,827,565
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $2,144,014
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 327,187
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 335,814
- --------------------------------------------------------------------------
Undistributed net investment income 20,550
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,827,565
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,907,904 / 123,310 shares outstanding) $15.47
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $16.41
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($874,293 / 58,946 shares outstanding) $14.83
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($18,128 / 1,216 shares outstanding) $14.91
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($27,240 / 1,747 shares outstanding) $15.60
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 19,018
- ------------------------------------------------------------------------
Interest 11,401
- ------------------------------------------------------------------------
Total investment income 30,419
- ------------------------------------------------------------------------
Expenses:
Management fee 14,576
- ------------------------------------------------------------------------
Distribution services fee 6,536
- ------------------------------------------------------------------------
Administrative services fee 6,129
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,719
- ------------------------------------------------------------------------
Reports to shareholders 706
- ------------------------------------------------------------------------
Professional fees 78
- ------------------------------------------------------------------------
Trustees' fees and other 101
- ------------------------------------------------------------------------
Total expenses 37,845
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (7,426)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 404,960
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 88,101
- ------------------------------------------------------------------------
Net gain on investments 493,061
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $485,635
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ (7,426) 8,893
- -----------------------------------------------------------------------------------------------
Net realized gain 404,960 748,123
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 88,101 (299,539)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 485,635 457,477
- -----------------------------------------------------------------------------------------------
Net equalization credits 2,732 5,974
- -----------------------------------------------------------------------------------------------
Distribution from net investment income -- (10,741)
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (690,123) (258,903)
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders (690,123) (269,644)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 291,018 41,195
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 89,262 235,002
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of year 2,738,303 2,503,301
- -----------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $20,550 and $25,317, respectively) $2,827,565 2,738,303
- -----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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 a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES 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. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
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 $14,576,000 for the
year ended September 30, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund, and is paid by ZKI for its
services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI). Underwriting commissions paid in
connection with the distribution of Class A shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS ----------------------------------------------
RETAINED BY ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Year ended September
30, 1997 $296,000 1,523,000 9,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI 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>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY ZKDI BY ZKDI TO FIRMS
----------------- -----------------------
<S> <C> <C>
Year ended September 30, 1997 $7,720,000 3,316,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
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 ZKDI
ASF PAID BY -----------------------------
THE FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------- -------------
<S> <C> <C> <C>
Year ended September 30, 1997 $6,129,000 6,149,000 41,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $7,398,000 for the year ended September 30,
1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended September 30, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $43,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $5,292,583
Proceeds from sales 5,328,098
- --------------------------------------------------------------------------------
5
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
SHARES SOLD
---------------------------------------------------------------------------------
Class A 14,894 $ 201,899 13,560 $ 210,554
---------------------------------------------------------------------------------
Class B 11,567 165,154 12,475 197,160
---------------------------------------------------------------------------------
Class C 644 9,070 435 6,880
---------------------------------------------------------------------------------
Class I 520 7,229 758 11,932
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------------
Class A 33,248 432,249 11,446 167,815
---------------------------------------------------------------------------------
Class B 17,442 219,275 5,507 79,478
---------------------------------------------------------------------------------
Class C 258 3,261 43 618
---------------------------------------------------------------------------------
Class I 634 8,270 233 3,413
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------------
Class A (34,418) (481,224) (25,770) (400,961)
---------------------------------------------------------------------------------
Class B (17,846) (248,421) (13,792) (218,715)
---------------------------------------------------------------------------------
Class C (360) (5,003) (129) (2,048)
---------------------------------------------------------------------------------
Class I (1,472) (20,741) (936) (14,931)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------------
Class A 4,026 56,318 1,448 21,712
---------------------------------------------------------------------------------
Class B (4,178) (56,318) (1,471) (21,712)
---------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 291,018 $ 41,195
---------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to help protect itself against a decline
in the value of particular foreign currencies
against the U.S. Dollar, the Fund has entered into
forward contracts to deliver foreign currency in
exchange for U.S. Dollars as described below. The
Fund bears the market risk that arises from changes
in foreign exchange rates, and accordingly, the net
unrealized gain on these contracts is reflected in
the accompanying financial statements. The Fund
also bears the credit risk (which is limited to
unrealized gain, if any) if the counterparty fails
to perform under the contract. At September 30,
1997, the Fund had the following forward foreign
currency contracts outstanding with settlement
dates in October, 1997:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT
TO BE DELIVERED IN U.S. DOLLARS UNREALIZED LOSS
-------------------------------------------------------------------
<S> <C> <C> <C>
2,150,000 French Francs $ 347,000 $(16,000)
-------------------------------------------------------------------
510,000 German Marks 278,000 (11,000)
-------------------------------------------------------------------
610,000 Swiss Francs 405,000 (16,000)
-------------------------------------------------------------------
NET UNREALIZED LOSS $(43,000)
-------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
CLASS A
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of year $17.21 16.07 12.93 15.33 13.09
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income -- .12 .05 .01 .01
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.61 2.74 3.27 (1.41) 2.29
- ----------------------------------------------------------------------------------------------
Total from investment operations 2.61 2.86 3.32 (1.40) 2.30
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- .04 -- -- .03
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain 4.35 1.68 .18 1.00 .03
- ----------------------------------------------------------------------------------------------
Total dividends 4.35 1.72 .18 1.00 .06
- ----------------------------------------------------------------------------------------------
Net asset value, end of year $15.47 17.21 16.07 12.93 15.33
- ----------------------------------------------------------------------------------------------
TOTAL RETURN 19.97% 19.62 26.07 (9.39) 17.60
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.06% 1.07 1.17 1.09 1.00
- ----------------------------------------------------------------------------------------------
Net investment income .07% .65 .43 .24 .06
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
CLASS B
-----------------------------------------
YEAR ENDED MAY 31 TO
SEPTEMBER 30, SEPT. 30,
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $16.82 15.85 12.88 13.10
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.16) (.09) (.08) (.03)
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2.52 2.74 3.23 (.19)
- ---------------------------------------------------------------------------------------
Total from investment operations 2.36 2.65 3.15 (.22)
- ---------------------------------------------------------------------------------------
Less distribution from net realized gain 4.35 1.68 .18 --
- ---------------------------------------------------------------------------------------
Net asset value, end of period $14.83 16.82 15.85 12.88
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.68% 18.47 24.83 (1.68)
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses 2.13% 2.05 2.17 2.11
- ---------------------------------------------------------------------------------------
Net investment loss (1.00)% (.33) (.57) (.76)
- ---------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------- ----------------------------------
CLASS C CLASS I
------------------------------------------- ----------------------------------
MAY 31 TO YEAR ENDED JULY 3 TO
YEAR ENDED SEPTEMBER 30, SEPT. 30, SEPTEMBER 30, SEPT. 30,
1997 1996 1995 1994 1997 1996 1995
- ------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------ ----------------------------------
Net asset value, beginning of period $16.87 15.87 12.88 13.09 17.26 16.09 14.80
- ------------------------------------------------------------------------------------ ----------------------------------
Income from investment operations:
Net investment income (loss) (.13) (.06) (.07) (.02) .08 .19 .03
- ------------------------------------------------------------------------------------ ----------------------------------
Net realized and unrealized gain
(loss) 2.52 2.74 3.24 (.19) 2.61 2.74 1.26
- ------------------------------------------------------------------------------------ ----------------------------------
Total from investment operations 2.39 2.68 3.17 (.21) 2.69 2.93 1.29
- ------------------------------------------------------------------------------------ ----------------------------------
Less dividends:
Distribution from net investment
income -- -- -- -- -- .08 --
- ------------------------------------------------------------------------------------ ----------------------------------
Distribution from net realized gain 4.35 1.68 .18 -- 4.35 1.68 --
- ------------------------------------------------------------------------------------ ----------------------------------
Total dividends 4.35 1.68 .18 -- 4.35 1.76 --
- ------------------------------------------------------------------------------------ ----------------------------------
Net asset value, end of period $14.91 16.87 15.87 12.88 15.60 17.26 16.09
- ------------------------------------------------------------------------------------ ----------------------------------
TOTAL RETURN (NOT ANNUALIZED) 18.87% 18.65 24.99 (1.60) 20.51 20.19 8.72
- ------------------------------------------------------------------------------------ ----------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------ ----------------------------------
Expenses 1.99% 1.95 2.03 2.09 .70 .64 .59
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (.86)% (.23) (.43) (.67) .43 1.08 .92
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $2,827,565 2,738,303 2,503,301 2,255,977 1,826,961
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 201% 150 67 115 139
- --------------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended September 30, 1997 and 1996 were
$.0569 and $.0560, respectively.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President and
Secretary
ROBERT B. HOFFMAN
Trustee JEROME L. DUFFY
Treasurer
DONALD R. JONES
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 ZURICH 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
- --------------------------------------------------------------------------------
INDEPENDENT ADVISORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
Printed on recycled paper in the U.S.A
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style prospectus.
KGF - 2 (11/97) 1039810
