<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeking growth of capital through diversification of investment
securities having potential for capital appreciation
KEMPER GROWTH FUND
" ... It's important to keep in mind that the market's
volatility over the past year has been extraordinary ... We
believe that a long-term focus is essential for investors
who are seeking capital growth. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
14
REPORT OF INDEPENDENT AUDITORS
15
FINANCIAL STATEMENTS
17
NOTES TO FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A -11.78%
CLASS B -12.73%
CLASS C -12.50%
LIPPER GROWTH FUNDS CATEGORY AVERAGE* -1.44%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
* LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES
IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE
EFFECT OF SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER GROWTH FUND CLASS A $11.72 $15.47
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B $11.03 $14.83
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C $11.13 $14.91
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND
RANKINGS AS OF 9/30/98
- --------------------------------------------------------------------------------
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 #757 of 934 funds #778 of 934 funds #771 of 934 funds
- --------------------------------------------------------------------------------
5-YEAR #332 of 359 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #130 of 178 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #88 of 113 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #57 of 98 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED SEPTEMBER 30, 1998, 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 $1.26 $1.26 $1.26
- --------------------------------------------------------------------------------
Long-term Capital Gain $0.83 $0.83 $0.83
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Data by Morningstar, Inc. The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book ratios relative to the S&P 500, as
well as the size of the companies in which it invests, or median market
capitalization.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED KEMPER GROWTH FUND IN
THE LARGE-CAP GROWTH CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION
OF INVESTMENT POLICIES.
BULL MARKET A period of generally increasing market prices. Bullishness refers
to the optimistic attitude and investing trends of investors.
GRAY MONDAY On October 27, 1997, concerns about Asia's economic stability
triggered a one-day slide of 7 percent in the U.S. equity markets.
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.
MARKET CORRECTION A reverse movement, usually downward, in the price of the
overall market. Corrections are to be expected over the long term.
PRICE-TO-EARNINGS RATIO A company's stock price, divided by its earnings for
the past four quarters, also referred to as its P/E.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited reduction in interest
rates by the Federal Reserve Board. In September, the Fed reduced the federal
funds rate a modest 1/4 of a percentage point, however, the cut disappointed
some investors who were expecting a more dramatic gesture. In October, the Fed
reduced the rate an additional 1/4 of a percentage point. This was an unexpected
cut that seemed to have a positive effect on Wall Street. Investors were also
pleasantly surprised by better-than-expected corporate earnings reports early in
the fourth quarter. (Other contributors to the good vibrations included Mark
McGwire, Sammy Sosa and John Glenn. While they don't have the market clout of
Alan Greenspan, they may have played a role in elevating the national mood.)
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year.
Other signs of strength this year have included better-than-expected regional
retail sales, as well as robust housing starts and home sales. The nation's
budget surplus for 1998 came in at $60 billion, with another budget surplus
expected for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2 and 3 percent for the second half of 1998 and is anticipated to
hover around 2 percent for the first half of 1999. The consumer price index
(CPI) remains at about 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
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>
OCTOBER 31, 1998 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 4.53 5.64 6.03 6.53
PRIME RATE(2) 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.43 1.38 2.22 3.00
THE U.S. DOLLAR(4)* 0.89 3.92 7.62 4.74
CAPITAL GOODS ORDERS(5)* 10.21 10.47 15.67 4.79
INDUSTRIAL PRODUCTION(5)* 2.45 2.57 2.60 3.18
EMPLOYMENT GROWTH(6)* 2.34 2.57 2.65 2.22
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE
VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE VALUE OF U.S. FIRMS'
FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF SEPTEMBER 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. A threat of impeachment, new acts
of terrorism or any other hints of crisis could help drag our markets downward
again.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ John E. Silvia
JOHN E. SILVIA
November 9, 1998
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF NOVEMBER 9, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[REYNOLDS PHOTO]
STEVEN H. REYNOLDS IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
AND CHIEF INVESTMENT OFFICER FOR KEMPER EQUITY FUNDS. REYNOLDS JOINED SCUDDER
KEMPER INVESTMENTS IN 1996 WITH NEARLY 30 YEARS OF INVESTMENT MANAGEMENT
EXPERIENCE. HE HOLDS A B.A. IN ECONOMICS FROM JOHNS HOPKINS UNIVERSITY AND AN
M.B.A. IN FINANCE FROM THE UNIVERSITY OF VIRGINIA.
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.
THE STOCK MARKET HAS PRESENTED MANY CHALLENGES TO INVESTORS DURING THE PAST
YEAR. BELOW, LEAD PORTFOLIO MANAGER STEVEN REYNOLDS DISCUSSES THE MARKETS'
CONDITIONS, THE FUND'S GROWTH-AT-A-REASONABLE-PRICE STRATEGY, AND WHERE HE'S
FINDING OPPORTUNITIES FOR THE FUTURE.
Q THE UPS-AND-DOWNS OF THE STOCK MARKET HAVE BEEN IN THE HEADLINES ALL YEAR.
STEVE, BEFORE YOU TALK TO US ABOUT THE FUND, WOULD YOU GIVE US AN OVERVIEW OF
THE PAST YEAR'S MARKET CONDITIONS?
A Certainly. We entered the fall of 1997 on an upbeat note. Investors had
enjoyed three years of uncharacteristically robust performance from the stock
market. In the fourth quarter of 1997, the tides changed, and short-term
volatility returned to the forefront. The markets corrected in the early part of
the fiscal year, rebounded in early 1998, only to face extreme pressure when
global economic problems returned to the forefront of investors' consciousness
in late summer and early fall. Here's a quick overview:
The markets were hit with the onset of the "Asian flu." Although the
domestic economy was enjoying strong growth, low inflation and low interest
rates, concerns about several Southeast Asian countries' economic instability
cast ripples of uncertainty across global markets. Investors began to worry that
exports to Asia would slow, thereby driving down domestic earnings. The crisis
hit the U.S. markets acutely on "Gray Monday," October 27, 1997, triggering a
seven-percent decline in the U.S. market. Technology stocks suffered
particularly, as did smaller company stocks.
The markets recovered quickly and emphatically from the slide, ringing in
the new year with euphoria. Reassured by Asia-bailout plans initiated by the
International Monetary Fund, and strong year-end earnings announcements,
investors returned to the markets in droves. The markets soared, and the rally
continued throughout the first quarter. Volatility, however, remained a dominant
theme, and stocks that fell short of investor expectations were sharply stung.
The market's party became an increasingly exclusive gathering, and a two-tier
effect began to emerge. (I'll discuss this two-tiering in greater detail when we
cover the fund's performance.)
The pendulum soon swung back to turmoil. The Russian debt default,
exacerbated by a return of the Asian economic flu and a newer Latin American
variety, triggered an emotional flight from the market. Stock prices across the
board and across the globe were driven sharply downward, with financial services
stocks among those most punished by the market's mood swings. By the middle of
1998, however, there was an abrupt end to the bullishness (see Terms to Know).
Q HOW DID THE FUND PERFORM?
A Our growth-at-a-reasonable-price (GARP) discipline faced a very
challenging climate, and the fund closed the fiscal year down 11.78 percent
(Class A shares, unadjusted for any sales charge). The Standard & Poor's 500
stock index posted a gain of 9.08 percent and the Russell 1000 Growth index rose
11.11 percent. For the one-year period ended September 30, 1998, the average for
the Lipper growth category was a decline of 1.44 percent.
Certainly, we're never happy when shareholders lose money or when we trail
our benchmarks by a wide margin. We know that losses
5
<PAGE> 6
PERFORMANCE UPDATE
can be hard for shareholders. It's important to keep in mind that the market's
volatility over the past year has been extraordinary -- as has been the market's
irrationality. We believe that a long-term focus is essential for investors who
are seeking capital growth.
And, while never making light of losses, it's good to keep a rational
perspective on the gains posted by the benchmarks. In 1998, only a small number
of the stocks in the S&P 500 index have been responsible for the index's gains.
The index is weighted by market capitalization, which means that the performance
of the largest stocks has more impact on the total than does the performance of
the smaller stocks. The vast majority of stocks have suffered in the market
volatility. In the first three quarters of 1998, for instance, 308 of the
index's 500 stocks posted negative returns, and an equally-weighted average of
the stocks of the S&P 500 had a four percent loss. That stands in marked
contrast to a cap-weighted gain of six percent. Indeed, the overall S&P 500
index return blazoned in the headlines is definitely an instance where you can't
tell the book by its cover.
Q WHAT HAS CREATED THIS DRAMATIC TWO-TIER DIVERGENCE BETWEEN THE HANDFUL OF
TOP-PERFORMING STOCKS AND THE OVERALL MARKET?
A The uncertain market climate and investors' resulting emotions are central
causes of the two-tier effect. In the turmoil, investors have rushed to the
perceived stability of the largest, most predictable companies, driving their
prices up to unreasonable levels. In the meantime, they've fled from any
companies with exposure to Asia, and more recently from Russia and Latin
America. Any potential earnings shortfall has been punished with a vengeance by
jittery investors.
However, we believe that this flight to perceived quality should be
ringing some pretty loud warning sirens. First, no stock is immune to a fall,
particularly if its price reflects emotional exuberance rather than strong
fundamentals. In the wake of the Russian debt crisis, we saw the prices of many
of the mega-cap consumer names begin to correct. Second, we believe that
long-term investing isn't about putting all of your eggs in one basket. A
handful of similar stocks have propelled the gains reflected in the S&P 500's
performance, and historically, a handful of stocks doesn't make a long-term
market.
Q YOU'VE NOTED THAT MANY INVESTORS SUCCUMBED TO AN EMOTIONAL DECISION
PROCESS. IN CONTRAST, HOW DOES YOUR GARP DISCIPLINE GOVERN YOUR STOCK-SELECTION
PROCESS?
A We do extensive quantitative research to identify reasonably priced
companies that show the potential for sustained, above-average growth. Catalysts
for this growth can include innovative products, management changes or a
better-than-expected earnings report. Because investors' confidence plays a
significant factor in driving a stock's price upward, and their disinterest
often keeps a stock's price low, we seek to target overlooked stocks with strong
growth potential. We also rely on our GARP strategy to sell stocks, trimming
exposure to a stock when we believe its price is reaching unsustainably high
levels.
During the past fiscal year, the market's willingness to pay any price for
certain mega-cap names stacked the deck against the GARP discipline. We felt
that these stocks' extremely high price-to-earnings ratios were unreasonable and
unsustainable, and that it was more prudent to steer clear. And, while we may
have missed out on some shorter-term gains, it looks like time has begun to
reward our analysis. In the late summer, many of these Goliaths also began to
topple.
Q YOU'VE NOTED THAT THE RECENT MARKET CLIMATE HAS PRESENTED CHALLENGES TO
THE GARP APPROACH. HOW DO YOU MANAGE THE FUND IN A GARP-UNFRIENDLY ENVIRONMENT?
A Well, we manage the fund according to the same
growth-at-a-reasonable-price discipline regardless of the market climate. We do
this for several reasons. First, we believe that while GARP has underperformed
in this unusually emotional market, it is a sound route to follow in pursuit of
long-term capital growth.
Secondly, we recognize that investors select Kemper Growth Fund to fill a
certain role in their portfolio. We've stated what our objective is, and we are
committed to respecting that. Lastly, we believe that opportunities can emerge
from the volatility. When the stock of an attractive growth company loses its
unattractively high price, we make sure that we're taking a close look.
Q WERE THERE ANY ESPECIALLY BRIGHT SPOTS IN THE PORTFOLIO?
A In the wake of the October market correction, we increased our technology
exposure, focusing on semiconductor and personal computer manufacturers, such as
Compaq Computer. We opted for these sorts of stocks rather than software
companies, because we felt that software names were less reasonably valued given
their growth potential. Throughout the fiscal year, we bolstered our stakes in
quality firms such as Cisco Systems and Sun Microsystems. Our GARP-oriented
analysis of these stocks proved to be on-track, and we saw these stocks lead the
charge of a well-positioned technology stake.
Health care was an important theme in the portfolio. Here, too,
6
<PAGE> 7
PERFORMANCE UPDATE
we took opportunities to build exposure as prices corrected, and many of the
stocks within the fund's health care holding turned in solid performance. Eli
Lilly & Co., and Medtronic, Inc. have posted quite nice gains. We held them
going into the fiscal year, and both are currently top-ten holdings in the fund.
During the year, we also initiated a position in the pharmaceutical firm
Warner-Lambert -- another large holding that has served the fund in good stead.
Q WHAT HASN'T TURNED OUT AS WELL AS YOU EXPECTED?
A The fund's energy stocks did not perform as well as we had anticipated. As
a result of concerns of a slowdown in consumption by Asian companies and by
1997's warm winter, the prices of energy stocks were depressed. We had built a
position in energy, based on the expectation that oil and oil service companies
would bounce back nicely when investor sentiment became more reasonable. In
hindsight, it appears that we moved in too soon, and energy stocks have been
unable to shake the cloud of negative sentiment surrounding them. Holdings such
as Schlumberger, Baker Hughes, and BJ Services dampened performance. At this
time, we feel that more attractive GARP opportunities can be found in other
sectors, and toward the end of the fiscal year, opted to remove energy stocks
from the fund.
More recently, many of our financial services stocks struggled. The
Russian debt default took its toll on money-center banks and brokerages such as
Morgan Stanley Dean Witter Discover & Co., Travelers Group, and NationsBank.
However, our analysis and research indicates that many financial services stocks
offer longer-term GARP opportunities, and we have maintained a large weighting
in the sector.
Concerns surrounding the future of the HMOs knocked the wind out of the
sails of United Healthcare, a top holding at the semiannual mark. We had been
paring the fund's exposure over recent months, however.
Q WHERE ARE YOU FINDING ATTRACTIVE OPPORTUNITIES?
A The fund's largest allocation remains technology, followed by finance and
health care. We've recently added some quality technology names, such as Xerox
and Dell Computer, and continued to increase our stakes in existing positions.
Within the health care allocation, we've also tried to use market volatility to
the fund's advantage, initiating and building sizable stakes in pharmaceuticals,
such as Pfizer. Toward the end of the fiscal year, the market began taking its
hits on some quality consumer nondurable stocks. As prices corrected, we stepped
in to take advantage of opportunities, establishing positions in several retail
and consumer staples stocks, including Wal-Mart, Home Depot, Colgate-Palmolive
and Procter & Gamble.
Q WHAT IS YOUR PERSPECTIVE ON THE ECONOMY AND THE MARKET?
A We remain confident about the long-term prospects for the stock market.
Many key components for a stronger stock market are already in place. Inflation
and interest rates are low; and governments and international monetary
organizations are coming together to address many of the issues that have been
the source of global economic uncertainty. However, investors will have to
maintain discipline and patience, because change won't happen overnight.
We believe that when global growth and a more rational climate returns to
the markets, the fund's GARP approach has the potential to shine more brightly.
7
<PAGE> 8
KEMPER GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR THE PERIODS ENDED SEPTEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES
CHARGE)
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER GROWTH FUND CLASS A -16.84% 6.38% 12.47% 12.04% (since 4/4/66)
......................................................................................................
KEMPER GROWTH FUND CLASS B -14.97 N/A N/A 9.62 (since 5/31/94)
......................................................................................................
KEMPER GROWTH FUND CLASS C -12.50 N/A N/A 10.10 (since 5/31/94)
......................................................................................................
</TABLE>
[LINE GRAPH] KEMPER GROWTH FUND CLASS A
<TABLE>
<CAPTION>
Kemper Russell Standard &
Growth 1000 Poor's 500
Fund Class Growth Stock
A1 Index' Index"
<S> <C> <C> <C>
1/1/79 10000 10000 10000
10205 10647 10710
10645 10949 11002
12813 11849 11844
13277 12389 11861
12444 11737 11368
14064 13432 12901
16499 15530 14349
19130 17292 15710
18581 16831 15927
17339 16050 15561
15536 14077 13968
16930 15333 14937
15237 13688 13845
15363 13577 13767
17443 15228 15353
21840 18470 18155
24271 20218 19973
28400 22816 22191
27377 22018 22161
27321 22063 22250
25718 20287 21717
24710 20050 21159
25783 21596 23210
25368 21853 23646
27607 24047 25817
29054 25592 27711
28139 24359 26576
12/31/85 32197 29031 31148
35994 33564 35541
36734 36315 37636
34715 31877 35011
36514 33496 36962
44608 41562 44854
46828 43153 47106
50230 46066 50213
38606 35270 38902
40484 36363 41114
43237 38318 43851
42621 38155 43997
42782 39244 45341
45359 41973 48552
50281 46199 52832
56516 51947 58483
55940 53344 59685
55356 51369 57890
62326 56367 61530
52918 47949 53083
58100 53205 57838
73928 62748 66228
71756 62146 66073
81563 66487 69601
12/31/91 96942 75100 75426
90299 71389 73524
83393 70610 74919
86090 73718 77280
95431 78860 81164
96091 78202 84708
94573 76987 85116
101243 78126 87312
96967 81148 89333
93652 77575 85951
86770 76790 86312
91737 82691 90528
91253 83310 90510
98594 91238 99316
106150 100215 108786
115650 109316 117425
120337 114296 124491
126446 120431 131172
131752 128091 137053
138343 132701 141293
140005 140710 153063
129920 141459 157175
151055 168213 184595
165968 180854 198416
163527 183598 204114
189761 177641 232573
188137 185687 240248
9/30/98 146412 168814 216388
</TABLE>
[LINE GRAPH] KEMPER GROWTH FUND CLASS B
<TABLE>
<CAPTION>
Kemper Russell Standard &
Growth 1000 Poor's 500
Fund Class Growth Stock
B1 Index' Index"
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9328.25 9705.00 9757.00
9832.06 10451.00 10234.00
9764.79 10529.00 10232.00
10515.90 15730.00 11227.00
11290.30 17278.00 12298.00
12273.80 18847.00 13274.00
12743.10 19705.00 14073.00
13348.20 20763.00 14828.00
13875.60 22084.00 15493.00
14541.30 22878.00 15972.00
12/31/96 14674.30 24259.00 17303.00
14744.10 24369.00 17768.00
15744.90 28001.00 20867.00
17257.70 31181.00 22430.00
12/31/97 16957.90 31654.00 23074.00
19634.10 39627.00 26291.00
19402.00 32014.00 27158.00
9/30/98 14891.50 29105.00 24461.00
</TABLE>
[LINE GRAPH] KEMPER GROWTH FUND CLASS C
<TABLE>
<CAPTION>
Kemper Russell Standard &
Growth 1000 Poor's 500
Fund Class Growth Stock
C1 Index' Index"
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9343 9705 9757
9640 10451 10234
9772 10529 10232
10532 15730 11227
11322 17278 12298
12299 18847 13274
12776 19705 14073
13390 20763 14828
13926 22084 15493
14592 22878 15972
12/31/96 14717 24259 17303
13635 24369 17768
15810 28001 20867
17346 31181 22430
12/31/97 17046 31654 23074
19760 39627 26291
19555 32014 27158
9/30/98 15178 29105 24461
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT
GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL
VALUES WILL FLUCTUATE SO THAT SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN MEASURES
NET INVESTMENT INCOME AND CAPITAL GAIN
OR LOSS FROM PORTFOLIO INVESTMENTS
OVER THE PERIODS SPECIFIED, ASSUMING
REINVESTMENT OF DIVIDENDS AND, WHERE
INDICATED, ADJUSTMENT FOR THE MAXIMUM
SALES CHARGE. THE MAXIMUM SALES CHARGE
FOR CLASS A SHARES IS 5.75%. FOR CLASS
B SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES CHARGE
ADJUSTMENT, BUT REDEMPTIONS WITHIN ONE
YEAR OF PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
TOTAL RETURN REFLECTS ANNUALIZED
CHANGE WHILE TOTAL RETURN REFLECTS
AGGREGATE CHANGE. 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 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 TOWERSDATA.
8
Performance UPDATE
<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, 1998, and on September 30, 1997.
[COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND ON KEMPER GROWTH FUND ON
9/30/98 9/30/97
<S> <C> <C>
TECHNOLOGY 35.0% 28.9%
FINANCE 19.1% 18.8%
HEALTH CARE 18.9% 21.9%
CONSUMER NON-DURABLES 15.5% 15.8%
CAPITAL GOODS 5.9% 8.2%
UTILITIES 4.1% 1.1%
TRANSPORTATION 1.0% 2.2%
BASIC INDUSTRIES 0.5% 0.7%
CONSUMER DURABLES 0.0% 0.1%
ENERGY 0.0% 2.3%
</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, 1998, 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 ON RUSSELL 1000 GROWTH INDEX ON
9/30/98 9/30/98
<S> <C> <C>
TECHNOLOGY 35.5% 26.0%
FINANCE 19.1% 6.9%
HEALTH CARE 18.9% 23.2%
CONSUMER NON-DURABLES 15.5% 28.5%
CAPITAL GOODS 5.9% 9.0%
UTILITIES 4.1% 3.0%
TRANSPORTATION 1.0% 0.1%
BASIC INDUSTRIES 0.5% 1.8%
CONSUMER DURABLES 0.0% 0.6%
ENERGY 0.0% 1.0%
</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 28.1 percent of the fund's total net assets on September 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. SUN MICROSYSTEMS Provides high performance workstations, servers and 3.2%
networking software for the engineering, scientific,
commercial and technical industries.
2. CADENCE DESIGN SYSTEMS Develops, markets and supports computer aided design 3.1%
software products and services that automate, enhance
and accelerate the design and verification of
integrated circuits and other related products.
3. WARNER-LAMBERT Engaged in development, manufacturing and selling of 3.1%
health care and consumer products.
4. ELI LILLY Discovers, develops, manufactures and sells 3.0%
pharmaceutical and animal health products.
5. GENERAL ELECTRIC A broadly diversified company with major businesses in 3.0%
power generators, appliances, lighting, plastics,
medical systems, aircraft engines, financial services
and broadcasting.
6. CISCO SYSTEMS Largest, most comprehensive supplier of routing 2.7%
software and related systems that direct the flow of
data between local area networks.
7. PFIZER Global, diversified research--based health care company 2.7%
that develops, manufactures and markets a variety of
products relating to health care, consumer health care
and animal health.
8. CIGNA A leading global provider of insurance and related 2.5%
financial services.
9. MEDTRONIC Developer, manufacturer and marketer of therapeutic 2.4%
medical devices designed to improve cardiovascular and
neurological health.
10. INTEL Engaged in the design, development, manufacture and 2.4%
sale of advanced microcomputer components such as
integrated circuits and other related products.
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER GROWTH FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--.5% Monsanto Co. 176,400 $ 9,945
-------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.8% Federal-Mogul Corp. 569,200 26,610
General Electric Co. 840,000 66,833
Magna International, Inc. 609,600 35,433
-------------------------------------------------------------------------------
128,876
- -------------------------------------------------------------------------------------------------------------------------
COMPUTER SYSTEMS (a)Cadence Design Systems 2,716,800 69,449
AND SOFTWARE--20.4% Compaq Computer Corp. 425,600 13,460
Computer Associates International 523,300 19,362
(a)Dell Computer Corp. 85,400 5,615
(a)Gartner Group, "A" 2,005,000 41,854
(a)Microsoft Corp. 450,000 49,528
(a)Parametric Technology Corp. 1,709,300 17,200
(a)PeopleSoft, Inc. 794,000 25,904
(a)Seagate Technology 1,331,900 33,381
(a)Solectron Corp. 525,000 25,200
(a)Sterling Commerce, Inc. 1,114,700 38,596
(a)Sun Microsystems 1,415,300 70,500
Xerox Corp. 275,000 23,306
(a)Xilinx, Inc. 500,000 17,500
-------------------------------------------------------------------------------
450,855
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--8.8% (a)Consolidated Stores Corp. 1,045,000 20,508
Dayton Hudson Corp. 835,000 29,851
Federated Department Stores 934,300 33,985
Home Depot 570,000 22,515
Interpublic Group of Companies 498,600 26,893
May Department Stores Co. 683,100 35,180
Wal-Mart Stores 470,000 25,674
-------------------------------------------------------------------------------
194,606
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--6.6% Avon Products 638,400 17,915
Coca Cola Co. 485,000 27,948
Colgate-Palmolive Co. 308,800 21,153
Gillette Co. 635,200 24,296
H.J. Heinz Co. 110,000 5,624
(a)Liberty Media Group 400,000 14,675
Procter & Gamble Co. 370,000 26,247
Wm. Wrigley Jr. Co. 110,400 8,383
-------------------------------------------------------------------------------
146,241
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--18.9% American Express Co. 264,000 $ 20,493
Banc One Corp. 487,899 20,797
BankAmerica Corp. 55,500 3,337
CIGNA Corp. 825,000 54,553
Chase Manhattan Corp. 400,000 17,300
Citicorp 107,000 9,944
Federal Home Loan Mortgage Corp. 224,200 11,084
Hartford Financial Services 1,108,600 52,589
Household International 1,375,700 51,589
MBIA, Inc. 400,000 21,475
MGIC Investment Corp. 795,100 29,319
Merrill Lynch & Co. 334,300 15,837
Morgan Stanley, Dean Witter & Co. 546,700 23,542
NationsBank 786,400 42,072
Travelers Group 738,700 27,701
UNUM Life Insurance Co. 330,000 16,397
-------------------------------------------------------------------------------
418,029
- -------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--18.7% American Home Products Corp. 920,800 48,227
Bristol-Myers Squibb Co. 263,700 27,392
Eli Lilly & Co. 858,600 67,239
(a)HEALTHSOUTH Corp. 1,256,700 13,274
Medtronic, Inc. 923,600 53,453
Pfizer, Inc. 556,500 58,954
Schering-Plough Corp. 290,000 30,033
United Healthcare Corp. 830,000 29,050
U.S. Surgical Corp. 3,761 157
Warner-Lambert Co. 900,900 68,018
(a)Wellpoint Health Networks 306,400 17,178
-------------------------------------------------------------------------------
412,975
- -------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS AND (a)Analog Devices 323,100 5,056
NETWORKING--9.5% (a)Applied Materials, Inc. 944,600 23,851
(a)Cisco Systems 970,125 59,966
Intel Corp. 622,700 53,397
Linear Technology Corp. 456,600 22,830
Texas Instruments, Inc. 330,000 17,453
(a)3Com Corp. 925,000 27,808
-------------------------------------------------------------------------------
210,361
- -------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--4.7% (a)Ascend Communications, Inc. 655,800 29,839
(a)Chancellor Media Corp. 913,700 30,495
(a)Clear Channel Communications, Inc. 310,900 14,768
Nokia Corp., ADR 201,000 15,766
(a)Tellabs, Inc. 334,800 13,329
-------------------------------------------------------------------------------
104,197
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.0% (a)USAir Group 421,600 21,344
-------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--4.1% (a)AirTouch Communications 300,000 $ 17,100
Frontier Corp. 850,000 23,269
(a)MCI Worldcom, Inc. 1,030,900 50,385
-------------------------------------------------------------------------------
90,754
-------------------------------------------------------------------------------
TOTAL COMMON STOCKS--99.0%
(Cost: $2,207,360) 2,188,183
-------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.40%
INSTRUMENTS--.2%
Due--October 1998
(Cost: $3,498) $ 3,500 3,498
-------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.2%
(Cost: $2,210,858) 2,191,681
-------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.8% 17,840
-------------------------------------------------------------------------------
NET ASSETS--100% $2,209,521
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
Based on the cost of investments of $2,210,858,000 for federal income tax
purpose at September 30, 1998, the aggregate gross unrealized appreciation was
$257,436,000, the aggregate gross unrealized depreciation was $276,613,000 and
the net unrealized depreciation on investments was $19,177,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
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, 1998, 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 1994. 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, 1998, 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, 1998, 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 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 13, 1998
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,210,858) $2,191,681
- --------------------------------------------------------------------------
Cash 64
- --------------------------------------------------------------------------
Receivable for:
Investments sold 31,585
- --------------------------------------------------------------------------
Fund shares sold 3,694
- --------------------------------------------------------------------------
Dividends 1,836
- --------------------------------------------------------------------------
TOTAL ASSETS 2,228,860
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 11,857
- --------------------------------------------------------------------------
Fund shares redeemed 4,275
- --------------------------------------------------------------------------
Management fee 985
- --------------------------------------------------------------------------
Distribution services fee 354
- --------------------------------------------------------------------------
Administrative services fee 301
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,454
- --------------------------------------------------------------------------
Trustees' fees 113
- --------------------------------------------------------------------------
Total liabilities 19,339
- --------------------------------------------------------------------------
NET ASSETS $2,209,521
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $2,213,975
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 14,723
- --------------------------------------------------------------------------
Net unrealized depreciation on investments (19,177)
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,209,521
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,646,444 / 140,479 shares outstanding) $11.72
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.44
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($526,921 / 47,776 shares outstanding) $11.03
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($15,569 / 1,399 shares outstanding) $11.13
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($20,587 / 1,733 shares outstanding) $11.88
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------
Dividends $ 24,579
- -------------------------------------------------------------------------
Interest 1,953
- -------------------------------------------------------------------------
Total investment income 26,532
- -------------------------------------------------------------------------
Expenses:
Management fee 14,891
- -------------------------------------------------------------------------
Distribution services fee 5,939
- -------------------------------------------------------------------------
Administrative services fee 6,150
- -------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,598
- -------------------------------------------------------------------------
Reports to shareholders 770
- -------------------------------------------------------------------------
Professional fees 66
- -------------------------------------------------------------------------
Trustees' fees and other 161
- -------------------------------------------------------------------------
Total expenses 37,575
- -------------------------------------------------------------------------
NET INVESTMENT LOSS (11,043)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------
Net realized gain on sales of investments 74,710
- -------------------------------------------------------------------------
Change in net unrealized depreciation on investments (354,991)
- -------------------------------------------------------------------------
Net loss on investments (280,281)
- -------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(291,324)
- -------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (11,043) (7,426)
- -----------------------------------------------------------------------------------------------
Net realized gain 74,710 404,960
- -----------------------------------------------------------------------------------------------
Change in net unrealized depreciation (354,991) 88,101
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (291,324) 485,635
- -----------------------------------------------------------------------------------------------
Net equalization credits -- 2,732
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (376,132) (690,123)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 49,412 291,018
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (618,044) 89,262
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of year 2,827,565 2,738,303
- -----------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment
income of $20,550 for 1997) $2,209,521 2,827,565
- -----------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Growth Fund is an open-end management
FUND 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 SECURITY VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Portfolio securities which are traded on
U.S. or foreign stock exchanges are valued at the
most recent sale price reported on the exchange on
which the security is traded most extensively. If
no sale occurred, the security is then valued at
the calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation is
used. Securities quoted on the Nasdaq Stock Market
(Nasdaq), for which there have been sales, are
valued at the most recent sale price reported on
the Nasdaq. If there are no such sales, the value
is the most recent bid quotation. Securities which
are not quoted on the Nasdaq but are traded in
another over-the-counter market are valued at the
most recent sale price on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used. Forward foreign currency contracts
are valued at the prevailing forward exchange rate
of the underlying currencies on that day. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of 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 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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
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. Prior to October 1, 1997,
the Fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of October
1, 1997, the Fund discontinued using equalization.
This change has no effect on the Fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in-capital previously reported
through September 30, 1997 by $25,172,000.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the 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 $14,891,000 for the
year ended September 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the Fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination. The
Board of Trustees of the Fund will seek shareholder
approval of the new investment management agreement
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
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, 1998 $326,000 1,998,000 5,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate 12b-1 plans for the
Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended September 30, 1998 $7,122,000 2,767,000
</TABLE>
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 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, 1998 $6,150,000 6,179,000 37,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$7,105,000 for the year ended September 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended September 30,
1998, the Fund made no payments to its officers and
incurred trustees' fees of $45,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended September 30, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $3,290,326
Proceeds from sales 3,581,890
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 35,139 $ 492,843 14,894 $ 201,899
--------------------------------------------------------------------------------
Class B 10,501 151,947 11,567 165,154
--------------------------------------------------------------------------------
Class C 6,397 84,426 644 9,070
--------------------------------------------------------------------------------
Class I 377 5,200 520 7,229
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 18,558 235,870 33,248 432,249
--------------------------------------------------------------------------------
Class B 9,480 114,326 17,442 219,275
--------------------------------------------------------------------------------
Class C 202 2,457 258 3,261
--------------------------------------------------------------------------------
Class I 264 3,387 634 8,270
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (50,438) (722,521) (34,418) (481,224)
--------------------------------------------------------------------------------
Class B (16,452) (224,449) (17,846) (248,421)
--------------------------------------------------------------------------------
Class C (6,416) (85,108) (360) (5,003)
--------------------------------------------------------------------------------
Class I (655) (8,966) (1,472) (20,741)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 13,910 209,783 4,026 56,318
--------------------------------------------------------------------------------
Class B (14,699) (209,783) (4,178) (56,318)
--------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 49,412 $ 291,018
--------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 15.47 17.21 16.07 12.93 15.33
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) -- .12 .05 .01
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.65) 2.61 2.74 3.27 (1.41)
- -----------------------------------------------------------------------------------------------
Total from investment operations (1.66) 2.61 2.86 3.32 (1.40)
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .04 -- --
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain 2.09 4.35 1.68 .18 1.00
- -----------------------------------------------------------------------------------------------
Total dividends 2.09 4.35 1.72 .18 1.00
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $ 11.72 15.47 17.21 16.07 12.93
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (11.78)% 19.97 19.62 26.07 (9.39)
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 1.04% 1.06 1.07 1.17 1.09
- -----------------------------------------------------------------------------------------------
Net investment income (loss) (.09)% .07 .65 .43 .24
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS B
--------------------------------------------------
MAY 31
YEAR ENDED SEPTEMBER 30, TO SEPT. 30,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.83 16.82 15.85 12.88 13.10
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.16) (.16) (.09) (.08) (.03)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.55) 2.52 2.74 3.23 (.19)
- ------------------------------------------------------------------------------------------------------
Total from investment operations (1.71) 2.36 2.65 3.15 (.22)
- ------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.09 4.35 1.68 .18 --
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.03 14.83 16.82 15.85 12.88
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (12.73)% 18.68 18.47 24.83 (1.68)
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------
Expenses 2.14% 2.13 2.05 2.17 2.11
- ------------------------------------------------------------------------------------------------------
Net investment loss (1.19)% (1.00) (.33) (.57) (.76)
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS C
----------------------------------------------
MAY 31 TO
YEAR ENDED SEPTEMBER 30, SEPT. 30,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.91 16.87 15.87 12.88 13.09
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.14) (.13) (.06) (.07) (.02)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.55) 2.52 2.74 3.24 (.19)
- --------------------------------------------------------------------------------------------------
Total from investment operations (1.69) 2.39 2.68 3.17 (.21)
- --------------------------------------------------------------------------------------------------
Less distribution from net realized gain 2.09 4.35 1.68 .18 --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.13 14.91 16.87 15.87 12.88
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (12.50)% 18.87 18.65 24.99 (1.60)
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 1.98% 1.99 1.95 2.03 2.09
- --------------------------------------------------------------------------------------------------
Net investment loss (1.03)% (.86) (.23) (.43) (.67)
- --------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS I
-----------------------------------
JULY 3 TO
YEAR ENDED SEPTEMBER 30, SEPT. 30,
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.60 17.26 16.09 14.80
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .08 .19 .03
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1.68) 2.61 2.74 1.26
- ---------------------------------------------------------------------------------------
Total from investment operations (1.63) 2.69 2.93 1.29
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- .08 --
- ---------------------------------------------------------------------------------------
Distribution from net realized gain 2.09 4.35 1.68 --
- ---------------------------------------------------------------------------------------
Total dividends 2.09 4.35 1.76 --
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 11.88 15.60 17.26 16.09
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (11.45)% 20.51 20.19 8.72
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses .65% .70 .64 .59
- ---------------------------------------------------------------------------------------
Net investment income .30% .43 1.08 .92
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $2,209,521 2,827,565 2,738,303 2,503,301 2,255,977
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 122% 201 150 67 115
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for year ended September 30, 1998 were determined based on average
shares outstanding.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund paid distributions of $.83 per share from net long-term capital gains
during the year ended September 30, 1998, of which 49% represent 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$57,185,000, as capital gain dividends for the year ended September 30, 1998, of
which 100% represent 20% rate gains.
For corporate shareholders, 100% of the income dividends paid during the year
ended September 30, 1998 qualified for the dividends received deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY LINDA J. WONDRACK
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President Assistant Secretary
and Secretary
LEWIS A. BURNHAM CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY ELIZABETH C. WERTH
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN BRENDA LYONS
Trustee THOMAS W. LITTAUER Assistant Treasurer
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
WILLIAM P. SOMMERS
Trustee STEVEN H. REYNOLDS
Vice President
EDMOND D. VILLANI
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
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 (11/98) 1059670
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
