<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1999
[MORNINGSTAR RATINGS LOGO]
SEEKING GROWTH OF CAPITAL THROUGH DIVERSIFICATION OF INVESTMENT
SECURITIES HAVING POTENTIAL FOR CAPITAL APPRECIATION
KEMPER GROWTH FUND
"... At points during the fiscal year, our strategy fell out of favor, but we
stayed the course. We were glad we did, as the market reversed and rewarded our
discipline. ..."
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
15
FINANCIAL STATEMENTS
17
NOTES TO
FINANCIAL STATEMENTS
21
FINANCIAL HIGHLIGHTS
23
REPORT OF
INDEPENDENT AUDITORS
At A GLANCE
KEMPER GROWTH FUND
TOTAL RETURNS
FOR THE YEAR ENDED SEPTEMBER 30, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
KEMPER GROWTH FUND CLASS A 35.29%
- --------------------------
KEMPER GROWTH FUND CLASS B 33.77%
- --------------------------
KEMPER GROWTH FUND CLASS C 34.19%
- --------------------------
LIPPER LARGE-CAP GROWTH
FUNDS CATEGORY AVERAGE* 37.86%
- --------------------------
</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 SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY
HAVE BEEN LESS FAVORABLE. THE FUND IS COMPARED WITH THE LIPPER LARGE-CAP
GROWTH FUNDS CATEGORY.
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
9/30/99 9/30/98
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER GROWTH FUND CLASS A $15.79 $11.72
- -------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B $14.69 $11.03
- -------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C $14.87 $11.13
- -------------------------------------------------------------------------------
</TABLE>
KEMPER GROWTH FUND
RANKINGS AS OF 9/30/99
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER LARGE-CAP GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #156 of #183 of #174 of
331 funds 331 funds 331 funds
- -------------------------------------------------------------------------------
5-YEAR #128 of #130 of #129 of
130 funds 130 funds 130 funds
- -------------------------------------------------------------------------------
10-YEAR #42 of N/A N/A
45 funds
- -------------------------------------------------------------------------------
15-YEAR #28 of N/A N/A
28 funds
- -------------------------------------------------------------------------------
20-YEAR #15 of N/A N/A
21 funds
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE YEAR ENDED SEPTEMBER 30, 1999, KEMPER GROWTH FUND MADE THE FOLLOWING
DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM CAPITAL GAIN $0.06 $0.06 $0.06
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL (312)
BOX] 696-6000. The Morningstar Style Box placement is
based on two variables: a fund's market
capitalization relative to the movements of the
market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
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.
</TABLE>
BENCHMARK A gauge of relative performance, often a broad market index. A fund
may evaluate its performance against how well its benchmark performed. Kemper
Growth Fund's benchmark is the Russell 1000 Growth Index. A fund may also
benchmark its performance against funds of a similar style -- for instance,
large-cap growth funds.
CAPITALIZATION/MARKET CAPITALIZATION A measure of the size of a company that
offers publicly traded stock, as determined by multiplying the current share
price by the number of shares outstanding.
CYCLICAL STOCK A stock that carries a higher degree of economic sensitivity. In
accelerating economies, cyclical stocks tend to rise quickly; in decelerating
economies, they tend to decline quickly. Cyclical stocks include industrial
machinery, paper and forestry, automobiles and construction.
GROWTH STOCKS Stocks in companies that are expected to experience rapid growth
resulting from strong sales, talented management and dominant market position.
Because growth stocks are typically in demand, they tend to carry relatively
high price tags and can also be volatile, based on changing perceptions of the
companies' growth.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers are buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight labor
markets -- i.e., many "help-wanted" signs -- forces companies to pay a premium
for talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data which were
released in late October: The Bureau of Economic Analysis (BEA) released its
third-quarter estimate of gross domestic product (GDP), the value of all goods
and services produced in the United States, and the Bureau of Labor Statistics
(BLS) released its employment cost index (ECI), which measures what employers
pay for their workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
These figures tell us that the Fed won't have inflation as an excuse to raise
interest rates for a third time this year when it meets on Nov. 16 to decide
whether to raise key interest rates for the third time this year.
But more importantly, if these numbers prove anything, it's that conventional
wisdom that growth causes inflation should be turned on its head. The Fed, in
deciding to
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 (10/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 6.1 5.2 4.5 6.0
Prime rate 2 8.25 7.75 8.25 8.5
Inflation rate 3* 2.6 1.8 1.4 2.2
The U.S. dollar 4 -0.9 -0.5 1.1 7.6
Capital goods orders 5* 5.25 5.5 8.6 4.6
Industrial production 5* 2.4 2.0 2.65 6.1
Employment growth 6 2.2 2.3 2.4 2.7
</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 9/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
target growth itself, wants the country to slow down to prevent an inflation
outbreak. This is a dangerous game. If it succeeds in slowing growth, inflation
could easily disappear or turn into deflation. Real rates that are already high
would turn punitive. Credit quality would deteriorate rudely. Only rapid growth
can ensure that companies and consumers can continue to pay their bills.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 28, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[MALTER PHOTO]
VALERIE F. MALTER IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND
CO-LEAD PORTFOLIO MANAGER OF KEMPER GROWTH FUND. SHE IS A CHARTERED FINANCIAL
ANALYST WITH MORE THAN 10 YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
[FRAISE PHOTO]
GEORGE P. FRAISE IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC.
AND CO-LEAD PORTFOLIO MANAGER OF KEMPER GROWTH FUND. HE CONTRIBUTES MORE THAN 10
YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
MALTER AND FRAISE ARE SUPPORTED BY SCUDDER KEMPER INVESTMENTS' LARGE STAFF OF
ANALYSTS, RESEARCHERS AND TRADERS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
DURING A CHOPPY AND ROTATIONAL MARKET, KEMPER
GROWTH FUND STAYED ON COURSE. BELOW, CO-LEAD
PORTFOLIO MANAGERS VALERIE MALTER AND GEORGE FRAISE
DISCUSS THE OVERALL MARKET CLIMATE AND HOW THEY
USED THEIR DISCIPLINED, QUALITY-FOCUSED INVESTMENT
PHILOSOPHY TO STEER THE FUND TO A SOLID ONE-YEAR
RETURN.
Q FOR THE ONE-YEAR PERIOD ENDING SEPTEMBER 30, 1999, KEMPER GROWTH FUND
EARNED 35.29 PERCENT (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGES). WILL
YOU PUT THIS RETURN INTO CONTEXT FOR US?
A In absolute terms, we're pleased with the fund's gain. After all, over the
past 20 calendar years, stocks have earned, on average, about 18 percent per
year. Within this longer-term context, the fund's one-year return is very
strong.
The fund also performed a bit better than its benchmark for the one-year
period, the Russell 1000 Growth Index, which gained 34.85 percent during the
same period. In addition, the fund performed closely in line with the Lipper
Large-Cap Growth Funds category average of 37.86 percent.
Q BEFORE YOU TELL US MORE ABOUT THE FUND AND HOW IT PERFORMED DURING THE
FISCAL YEAR, COULD YOU PROVIDE AN OVERVIEW OF THE OVERALL MARKET CLIMATE?
A Volatility continued to be a principal theme. Also, the markets were both
narrow and rotational. By NARROW, we mean that most of the returns were earned
by a handful of stocks. By ROTATIONAL, we mean that the types of stocks that
thrived shifted, at times dramatically. For instance, growth stocks and
cyclically oriented value stocks alternated the lead, as did
large-capitalization and small-capitalization stocks.
The fund's fiscal year began against a backdrop of uncertainty. The Russian
debt default of August 1998 and ensuing market correction were still fresh in
investors' minds. Nonetheless, in short order, the crisis climate abated. The
domestic economy percolated at a slow and steady rate, and the general tone was
one of cautious optimism: consumer confidence was robust, and corporate profits
remained steady. Interest rates, inflationary pressure and unemployment were
low. But, the volatility of the recent months made investors less willing to
invest in value-oriented or small companies. Instead, investors gravitated to
"household-name" companies, and large-cap, domestic growth stocks flourished.
Excitement about the Internet and electronic commerce fueled a rally in
technology stocks, while media and retail stocks also performed briskly.
Although many of the same macroeconomic trends continued, the direction of the
stock market changed in the spring of 1999. Small-cap stocks significantly
outperformed large-cap stocks, and cyclically (see Terms To Know on page 2)
oriented value stocks outperformed growth stocks. Moreover, the market seemed to
turn a blind eye to fundamentals: lower-quality companies were rewarded over
higher-quality ones. And the Federal Reserve's interest-rate hike contributed to
a less hospitable climate for large-cap growth investing.
In the final months of the fiscal year, the market changed course
5
<PAGE> 6
PERFORMANCE UPDATE
once again. Growth stocks rebounded, large-cap stocks outperformed small caps,
and investors began taking a renewed interest in fundamentals. Higher-quality
stocks took the lead, and the momentum of many lower-quality stocks burned out.
In particular, media and technology stocks continued to chug along, while
consumer staples struggled.
Q PLEASE SUMMARIZE YOUR INVESTMENT PHILOSOPHY.
A We apply a pure-growth investment discipline to large-company, domestic
growth stocks. Our investment philosophy is anchored by the conviction that,
over time, companies with strong franchises, skilled management and sustainable,
consistent earnings growth can produce superior long-term returns.
Q THE FUND'S TOP 10 HOLDINGS INCLUDE EIGHT OF THE SAME COMPANIES THAT WERE
INCLUDED AT THE SEMIANNUAL MARK. HOW DOES THIS FACT FIT INTO YOUR OVERALL
INVESTMENT STRATEGY?
A Clearly, we're buy-and-hold investors. We don't take buying and selling
decisions lightly. Before we buy a stock, we must believe in its long-term
merits. To do this, we evaluate each stock, using rigorous proprietary
fundamental research supplemented by quantitative measures. Once we've purchased
a stock, we're not going to sell it because of short-term nonfundamental price
changes.
We don't believe that constantly shifting the portfolio serves our
shareholders. After all, trading incurs costs, and shareholders have every right
to expect us to run a tight ship. We believe it is our job to make thoughtful
decisions that can stand the test of time.
Q AS PART OF YOUR ANALYTICAL PROCESS, YOU CLASSIFY STOCKS INTO THREE GROUPS:
STABLE GROWTH, ACCELERATING GROWTH AND SPECIAL SITUATIONS. COULD YOU TELL US
MORE ABOUT THIS PROCESS, INCLUDING EXAMPLES OF EACH TYPE OF STOCK?
A STABLE GROWTH The majority of the fund's holdings are what we classify as
stable-growth stocks. Currently, these "steady Eddies" make-up about 88 percent
of the portfolio. Stable-growth stocks are characterized by excellent
management, strong franchises, consistent and stable earnings growth and
dominant, growing market shares.
Home Depot is a classic example of a stable-growth company. Management has
demonstrated the ability to steer the company through a variety of economic
environments. Home Depot has delivered consistently strong operating margins and
revenue growth over the past decade. Home Depot's large size gives it pricing
power over its suppliers, and the company has displayed a willingness to pass
along these savings to customers, building market share along the way. It's the
sort of virtuous circle that we like to see. We've also been impressed with Home
Depot's smart e-commerce strategy. In short, the company scores high on all of
our analytical criteria.
ACCELERATING GROWTH Accelerating-growth stocks make up the second component of
the portfolio. We'll invest up to a quarter of the portfolio in accelerating
growers. Currently, the fund holds about nine percent of its assets in these
companies. Here, we're looking for good prospects for earnings breakouts. But
because quality always matters to us, we also must see earnings momentum, highly
capable management and strong franchises.
Qualcomm, a leading provider of cellular handsets, is a good example of an
accelerating-growth company. You may not hear the Qualcomm name frequently, but
the company presents outstanding growth prospects. In addition to accelerating
revenue and an excellent business model, Qualcomm offers a consistent record of
upward earnings surprises. What's more, Qualcomm has locked in patents on a
certain chipset-and-software system that is fast becoming the global standard
for wireless communications. This translates into a steady, repeating revenue
stream -- exactly what we want to see.
Other accelerating-growth companies in the portfolio include America Online
and JDS Uniphase, and health-care stocks VISX, MedImmune and Immunex.
SPECIAL SITUATIONS Special-situation companies make up the final group.
Special situations are companies that may be going through restructurings or
have new management or processes. With special-situation stocks, we must be able
to identify a catalyst that could allow the company to evolve into an
accelerating-growth or stable-growth stock.
We're willing to hold up to 15 percent of assets in special situations, but
right now, we hold just one special-situation stock: Tyco International, a
consolidator of manufacturing, health care and other industries. Tyco's
management has repeatedly displayed an outstanding ability to integrate
disparate areas. Acquisitions can be tough business, but Tyco sets the standard
of how to translate acquisitions into earnings growth. Despite concerns
6
<PAGE> 7
PERFORMANCE UPDATE
surrounding accounting issues, which surfaced after the fiscal year period, we
continue to have conviction in the company's ability to deliver above-average
results.
Q YOU USE THE SECTOR WEIGHTINGS OF THE RUSSELL 1000 GROWTH INDEX AS A GUIDE
IN CRAFTING THE PORTFOLIO. COULD YOU TELL US MORE ABOUT HOW AND WHY YOU DO THIS?
A The Russell 1000 Growth index is a large pool of large-cap growth stocks.
The index includes stocks from a variety of sectors. We use the sector
weightings of the index (generally plus or minus five percent) as a guide for
creating a portfolio that's thoroughly diversified across the growth-stock
universe. What's more, this strategy allows us to focus our efforts on where we
believe we can add the most value: on individual, bottom-up stock selection.
Q VALERIE AND GEORGE, YOU BECAME THE CO-LEAD MANAGERS OF THE FUND IN
FEBRUARY 1999, ABOUT HALFWAY THROUGH THE FUND'S FISCAL YEAR. COULD YOU BRIEFLY
DISCUSS THE TRANSITION PROCESS, HIGHLIGHTING ANY KEY "BEFORE-AND-AFTER" POINTS?
A First, let's talk about what's the same: Kemper Growth Fund continues to
seek long-term growth of capital, investing primarily in a diversified portfolio
of quality, domestic large-cap stocks. Many of the fund's holdings remain
unchanged. For instance, nine of the fund's current top 10 holdings were also in
the portfolio at the end of the previous fiscal year.
There are some differences in the fund. Notably, the fund includes fewer
holdings. At the start of the fiscal year, the fund held 76 stocks; now it holds
60. As we discussed, we believe in investing with conviction. We want to
establish meaningful positions in the stocks that meet our exacting criteria.
Also, our use of the Russell 1000 Growth Index as a guide for creating a well-
diversified portfolio resulted in changes to the overall complexion of the
portfolio. The fund holds fewer financial services stocks and more consumer
staples and consumer discretionary stocks.
Throughout the transition process, we remained very aware of capital-gains
considerations. Capital gains are par for the course when it comes to capital
appreciation and long-term growth, but we recognize that shareholders don't want
to incur undue tax liability.
Q WHAT WORKED OUT WELL FOR THE FUND?
A Our technology stocks and media stocks contributed powerful gains.
Especially when it comes to technology, we believe that the best route is to
target the absolute top-notch companies and leave the rest behind. This guiding
principle led us to Cisco Systems, EMC Corp., Linear Technology, Microsoft,
Intel, Sun Microsystems. These stocks benefited performance tremendously.
Within the media group, we reaped solid gains from Univision Communications
and Clear Channel Communications. Univision is a leading provider of
Spanish-language broadcast and television services, for which there is a
considerable and profitable market. Clear Channel Communications offers
diversified operations that include radio and television stations, as well as
outdoor advertising. While it might not be immediately apparent, Clear Channel
is a beneficiary of the Internet, thanks to the fact that many start-up Internet
companies favor cost-efficient radio advertising over other options.
In more general terms, the market favored our large-cap growth discipline
during the first half of the fiscal year. Also, in the third quarter of 1999, we
were well served by our adherence to our investment style. As we discussed, in
the second quarter, investors flocked to smaller companies, value stocks
and -- quite illogically -- lower-quality companies. We firmly believed that a
rally in fundamentally weak companies was unsustainable, and we chose to batten
the hatches rather than stray from our philosophy. Time affirmed our conviction,
and quality quickly came back.
Q DESPITE THE FUND'S GAINS, WERE THERE FACTORS THAT HINDERED PERFORMANCE?
A The fund did slow its pace during the second quarter of 1999. In addition
to the market's shift to value and smaller-cap names, our quality-focused
approach was at odds with the overall market sentiment. Many of our holdings
met -- or exceeded -- earnings expectations, only to see their prices decline.
Consumer-staple stocks, such as Colgate-Palmolive and PepsiCo, hindered
performance during the year. These companies, while fundamentally strong,
continue to grapple with their emerging-markets exposure.
There were also stocks that fell short of the confidence they initially
inspired. These include Consolidated Stores, Kroger and Rite-Aid. Their earnings
shortfalls alerted us to longer-term problems, and we've sold them out of the
portfolio. Also, exposure to Philip Morris Companies clipped overall gains. We
just don't have the conviction
7
<PAGE> 8
PERFORMANCE UPDATE
that its management will be able to turn things around in a reasonable time, and
we've eliminated it from the fund.
Q THE FEDERAL RESERVE BOARD HAS INCREASED INTEREST RATES TWICE THIS YEAR.
HOW HAS THE RISING-RATE ENVIRONMENT IMPACTED THE FUND? HAVE YOU MADE CHANGES TO
THE PORTFOLIO BECAUSE OF INTEREST RATES?
A A rising-rate climate typically takes a toll on growth stocks. That's
because rising rates often signal an accelerating economy, a scenario that
usually drives investors toward more-cyclical stocks. The current rate
uncertainty has caused the portfolio to struggle during points of the fiscal
year.
While we're certainly closely monitoring and researching how economic trends
could impact individual companies, we're not going to let short-term
macroeconomic fluctuations drive our investment discipline. Regardless of
changes in the interest-rate environment, we believe our job is the same: seek
growth stocks with top-notch fundamentals and earnings potential.
Let's look at an example: Recently, we eliminated two mortgage lenders, Fannie
Mae and Freddie Mac, from the portfolio. We didn't get rid of them because they
were financial service companies. We looked at each company's fundamentals and
determined that it would be unlikely that these companies would sustain their
momentum. But, in keeping with our theme of disciplined diversification, we
increased our exposure to American Express and Capital One Financial, two
companies offering more attractive long-term growth rates.
Q EVERYONE'S TALKING ABOUT THE INTERNET, AND INTERNET COMPANIES. IS THE FUND
PARTICIPATING IN THE GROWTH OF THE INTERNET AND E-COMMERCE?
A The fund is participating in the Internet revolution, but in a manner that
is consistent with our investment discipline. We're not investing in the
untested, trendy ".com" stocks. Instead, we've invested in leading technology
companies, such as America Online (the dominant franchise in consumer Internet
access), Sun Microsystems (computer hardware giant), Cisco Systems (networking
leader) and Intel (semiconductor pioneer). Also, we've invested in established
companies that are using innovative e-commerce and Internet strategies. These
include Charles Schwab, Circuit City, The Gap, and Home Depot.
Q DO YOU HAVE ANY CLOSING THOUGHTS FOR THE SHAREHOLDERS?
A This past year has affirmed the importance of style consistency. At points
during the fiscal year, our strategy fell out of favor, but we stayed the
course. We were glad we did, as the market reversed and rewarded our discipline.
We believe that in an investment climate characterized by short-term
volatility, a long-term outlook is essential. We encourage shareholders to take
such a long-term view. We continue to believe that quality large-cap domestic
growth stocks offer excellent prospects.
8
<PAGE> 9
PERFORMANCE UPDATE
KEMPER GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended September 30, 1999 (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 27.46% 15.27% 12.69% 12.67% (since 4/4/66)
- ---------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B 30.77 15.32 N/A 13.92 (since 5/31/94)
- ---------------------------------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C 34.19 15.66 N/A 14.26 (since 5/31/94)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
KEMPER GROWTH FUND CLASS A
Growth of an assumed $10,000 investment in Class A shares from 12/31/78 to
9/30/99
<TABLE>
<CAPTION>
KEMPER GROWTH FUND STANDARD & POOR'S 500
CLASS A (1) RUSSELL 1000 GROWTH+ STOCK INDEX++
------------------ -------------------- ---------------------
<S> <C> <C> <C>
12/31/78 9429 10000 10000
13277 13538 11820
19130 16974 15634
16930 19492 14850
21840 25059 18034
27321 29064 22072
25368 28787 23418
12/31/85 32197 38245 30825
36514 44121 36547
38606 46462 38410
42782 51697 44644
55940 70268 58647
58100 70085 56728
96942 98935 74015
12/31/92 95431 103881 79649
96987 106898 87632
91253 109737 88789
120337 150543 122144
140005 185352 150194
163527 241860 200316
186784 335470 257077
9/30/99 198074 356938 268238
</TABLE>
[LINE GRAPH]
KEMPER GROWTH FUND CLASS B
Growth of an assumed $10,000 investment in Class B shares from 5/31/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER GROWTH FUND STANDARD & POOR'S 500
CLASS B(1) RUSSELL 1000 GROWTH+ STOCK INDEX++
------------------ -------------------- ---------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9765 10529 10229
12/31/95 12743 14444 14072
14674 17784 17304
12/31/97 16958 23206 23078
19159 32188 29618
9/30/99 20047 34248 30904
</TABLE>
[LINE GRAPH]
KEMPER GROWTH FUND CLASS C
Growth of an assumed $10,000 investment in Class C shares from 5/31/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER GROWTH FUND STANDARD & POOR'S 500
CLASS C(1) RUSSELL 1000 GROWTH+ STOCK INDEX++
------------------ -------------------- ---------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9772 10529 10229
12/31/95 12776 14444 14072
14717 17784 17304
12/31/97 17046 23206 23078
19326 32188 29618
9/30/99 20367 34248 30904
</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 AND TOTAL RETURN MEASURE 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% AND FOR CLASS B SHARES, ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 3%, CLASS C SHARES
HAVE NO ADJUSTMENT FOR SALES CHARGE. THE MAXIMUM CDSC FOR CLASS B SHARES
IS 4%. FOR CLASS C SHARES, THERE IS A 1% CDSC ON CERTAIN REDEMPTIONS
WITHIN THE FIRST YEAR OF PURCHASE. 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 WITH
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. SOURCE IS CDA
WIESENBERGER.
++THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS CDA WIESENBERGER.
9
<PAGE> 10
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on September 30, 1999, and on September 30, 1998.
[YEAR-TO-YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND ON KEMPER GROWTH FUND ON
9/30/99 9/30/98
--------------------- ---------------------
<S> <C> <C>
Technology 31.20 35.00
Consumer non-durables 23.20 15.50
Health care 16.70 18.90
Capital goods 11.60 5.90
Communication services 11.30 0.00
Finance 5.00 19.10
Energy 1.00 0.00
Transportation 0.00 1.00
Basic materials 0.00 0.50
Utilities 0.00 4.10
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper Growth Fund represented on September 30, 1999, compared with 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
9/30/99 9/30/99
--------------------- ----------------------------
<S> <C> <C>
Technology 31.20 39.50
Consumer non-durables 23.20 24.80
Health care 16.70 17.50
Capital goods 11.60 9.00
Communication services 11.30 3.50
Finance 5.00 3.80
Energy 1.00 0.40
Transportation 0.00 0.10
Basic materials 0.00 1.00
Utilities 0.00 0.40
</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.
10
<PAGE> 11
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 36.5 percent of the fund's portfolio on September 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. MICROSOFT Develops, markets and supports a 5.8%
variety of software, operating
systems, language and application
programs.
- --------------------------------------------------------------------------------------
2. INTEL Engaged in the design, 4.9%
development, manufacture and sale
of advanced semiconductors and
integrated circuits.
- --------------------------------------------------------------------------------------
3. CISCO SYSTEMS Large, comprehensive supplier of 4.7%
routing software and related
systems that direct the flow of
data between local networks.
- --------------------------------------------------------------------------------------
4. GENERAL ELECTRIC A broadly diversified company with 4.6%
major businesses in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting.
- --------------------------------------------------------------------------------------
5. PFIZER Global diversified research-based 3.3%
health-care company that develops,
manufactures and markets a wide
variety of products for human and
animal health care.
- --------------------------------------------------------------------------------------
6. SUN MICROSYSTEMS A provider of high-performance 3.0%
workstations, servers and
networking software for the
engineering, scientific,
commercial and technical
industries.
- --------------------------------------------------------------------------------------
7. CLEAR CHANNEL Owns and operates television and 2.7%
COMMUNICATIONS radio stations with a variety of
formats.
- --------------------------------------------------------------------------------------
8. HOME DEPOT Operates retail stores carrying 2.6%
building supplies and home-
improvement products.
- --------------------------------------------------------------------------------------
9. WAL-MART Large, global retailer with 2.5%
operations in the United States,
Asia and Latin America. Wal-Mart
operates Wal-Marts, Wal-Mart
Supercenters, and Sam's Clubs.
Sells branded merchandise under
the Popular Mechanics, Better
Homes & Gardens and Sam's American
Choice labels.
- --------------------------------------------------------------------------------------
10. AMERICA ONLINE Global leader in consumer on-line 2.4%
services, including Internet
access, e-mail, software, computer
support and electronic
periodicals. Owns Netscape
Communications.
- --------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER GROWTH FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE
AGREEMENTS--1.7%
(b)Lehman Bros.
(held at Chase Manhattan Bank)
dated 9/29/99, 5.13%, due 10/06/99 $ 30,000 $ 30,000
(b)State Street Bank & Trust Co., dated
9/30/99, 5.26%, due 10/01/99 13,482 13,482
----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS--1.7%
(Cost $43,482) 43,482
----------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--14.5%
DEPARTMENT & CHAIN STORES--8.5%
CostCo Wholesale Corp. 495,200 35,654
Dayton Hudson Corp. 540,300 32,452
Gap Inc. 631,800 20,218
Home Depot, Inc. 985,800 67,651
Wal-Mart Stores Inc. 1,369,100 65,118
----------------------------------------------------------------------------
221,093
RECREATIONAL PRODUCTS--3.3%
(a)Electronic Arts Inc. 631,900 45,734
Hasbro, Inc. 811,000 17,386
(a)Premier Parks, Inc. 764,900 22,182
----------------------------------------------------------------------------
85,302
RESTAURANTS--1.5%
McDonald's Corp. 897,600 38,597
----------------------------------------------------------------------------
SPECIALTY RETAIL--1.2%
Circuit City Stores Inc. 722,100 30,463
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.5%
FOOD & BEVERAGE--2.9%
Coca-Cola Co., Inc. 1,052,400 50,581
PepsiCo Inc. 843,200 25,507
----------------------------------------------------------------------------
76,088
PACKAGE GOODS/
COSMETICS--4.6%
Colgate-Palmolive Co. 992,800 45,421
Estee Lauder Companies "A" 520,700 20,340
Procter & Gamble Co. 553,300 51,872
----------------------------------------------------------------------------
117,633
- -----------------------------------------------------------------------------------------------------------------------
HEALTH--16.4%
BIOTECHNOLOGY--1.3%
(a)Immunex Corp. 248,200 10,766
(a)MedImmune, Inc. 233,300 23,250
----------------------------------------------------------------------------
34,016
HEALTH INDUSTRY SERVICES--.6%
IMS Health Inc. 708,600 16,165
----------------------------------------------------------------------------
MEDICAL SUPPLY &
SPECIALTY--2.8%
Medtronic Inc. 1,717,920 60,986
(a)VISX Inc. 150,100 11,872
----------------------------------------------------------------------------
72,858
PHARMACEUTICALS--11.7%
Bristol-Myers Squibb Co. 468,900 31,651
Johnson & Johnson. 538,900 49,511
Merck & Co., Inc. 955,000 61,896
Pfizer, Inc. 2,351,300 84,500
Schering-Plough Corp. 707,100 30,847
Warner-Lambert Co. 633,800 42,068
----------------------------------------------------------------------------
300,473
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--2.1%
TELEPHONE/
COMMUNICATIONS
(a)JDS Uniphase Corp. 133,600 $ 15,205
(a)MCI WorldCom, Inc. 533,100 38,317
----------------------------------------------------------------------------
53,522
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL--4.9%
INSURANCE--2.1%
American International Group, Inc. 624,100 54,258
----------------------------------------------------------------------------
CONSUMER FINANCE--1.8%
American Express Credit Corp. 183,700 24,731
Capital One Finance Corp. 562,800 21,949
----------------------------------------------------------------------------
46,680
OTHER FINANCIAL
COMPANIES--1.0%
Morgan Stanley, Dean Witter & Co. 288,700 25,748
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MEDIA--9.0%
ADVERTISING--2.1%
Omnicom Group, Inc. 517,300 40,964
(a)Outdoor Systems, Inc. 409,000 14,622
----------------------------------------------------------------------------
55,586
BROADCASTING &
ENTERTAINMENT--5.8%
(a)Clear Channel Communications, Inc. 883,800 70,593
(a)Infinity Broadcasting Corp. 1,039,900 30,482
Time Warner Inc. 172,000 10,449
(a)Univision Communication Inc. 469,800 38,230
----------------------------------------------------------------------------
149,754
CABLE TELEVISION--1.1%
(a)AT&T Corp - Liberty Media Group 753,400 27,970
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--4.9%
EDP SERVICES--4.1%
(a)America Online Inc. 600,200 62,421
Electronic Data Systems Corp. 422,100 22,345
(a)PSINet, Inc. 570,600 20,524
----------------------------------------------------------------------------
105,290
INVESTMENT--.8%
Charles Schwab Corp. 617,300 20,795
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
DURABLES--1.9%
TELECOMMUNICATIONS
EQUIPMENT
Lucent Technologies Inc. 740,200 48,020
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--9.6%
DIVERSIFIED MANUFACTURING--8.2%
General Electric Co. 1,005,200 119,179
Textron, Inc. 484,800 37,511
Tyco International Ltd. (New) 524,560 54,161
----------------------------------------------------------------------------
210,851
INDUSTRIAL SPECIALTY--1.4%
(a)QUALCOMM Inc. 189,810 35,910
----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--26.5%
COMPUTER SOFTWARE--5.8%
(a)Microsoft Corp. 1,637,200 $ 148,269
(a)Momentum Business Applications, Inc. 15,880 143
----------------------------------------------------------------------------
148,412
DIVERSE ELECTRONIC
PRODUCTS--3.8%
(a)Applied Materials, Inc. 569,700 44,365
Motorola Inc. 278,700 24,526
(a)Teradyne Inc. 787,900 27,773
----------------------------------------------------------------------------
96,664
EDP PERIPHERALS--2.0%
(a)EMC Corp. 730,900 52,214
----------------------------------------------------------------------------
ELECTRONIC COMPONENTS/
DISTRIBUTORS--4.7%
(a)Cisco Systems, Inc. 1,785,050 122,387
----------------------------------------------------------------------------
ELECTRONIC DATA
PROCESSING--4.4%
International Business Machines Corp. 304,200 36,922
(a)Sun Microsystems, Inc. 823,100 76,548
----------------------------------------------------------------------------
113,470
SEMICONDUCTORS--5.8%
Intel Corp. 1,705,000 126,703
Linear Technology Corp. 396,900 23,330
----------------------------------------------------------------------------
150,033
- -----------------------------------------------------------------------------------------------------------------------
ENERGY--1.0%
OILFIELD SERVICES/
EQUIPMENT
Schlumberger Ltd. 418,700 26,090
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--98.3%
(Cost $2,057,293) 2,536,342
----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $2,100,775) $2,579,824
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security
(b) Repurchase agreements are fully collateralized by U.S. Treasury or U.S.
Government agency securities. All collateral is held at the fund's custodian
bank, State Street Bank, or at subcustodian banks, as indicated. The
collateral is monitored daily by the fund so that its market value exceeds
the carrying value of the repurchase agreement.
Based on the cost of investments of $2,105,857,000 for federal income tax
purposes at September 30, 1999, the aggregate gross unrealized appreciation was
$587,497,000, the aggregate gross unrealized depreciation was $113,530,000 and
the net unrealized appreciation on investments was $473,967,000.
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,100,775) $2,579,824
- --------------------------------------------------------------------------
Cash 2
- --------------------------------------------------------------------------
Receivable for:
Investments sold 10,215
- --------------------------------------------------------------------------
Dividends and interest 1,387
- --------------------------------------------------------------------------
Fund shares sold 7,052
- --------------------------------------------------------------------------
Other assets 59
- --------------------------------------------------------------------------
TOTAL ASSETS 2,598,539
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 7,109
- --------------------------------------------------------------------------
Fund shares redeemed 9,212
- --------------------------------------------------------------------------
Accrued management fee 1,195
- --------------------------------------------------------------------------
Other accrued expenses 2,779
- --------------------------------------------------------------------------
Total liabilities 20,295
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,578,244
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Net unrealized appreciation on investments $ 479,049
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 281,199
- --------------------------------------------------------------------------
Paid-in capital 1,817,996
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,578,244
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,054,353 / 130,065 shares outstanding) $15.79
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $16.75
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($479,151 / 32,620 shares outstanding) $14.69
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($25,838 / 1,738 shares outstanding) $14.87
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($18,902 / 1,177 shares outstanding) $16.07
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $134) $ 15,990
- ------------------------------------------------------------------------
Interest 2,542
- ------------------------------------------------------------------------
18,532
- ------------------------------------------------------------------------
Expenses:
Management fee 14,408
- ------------------------------------------------------------------------
Distribution services fees 4,423
- ------------------------------------------------------------------------
Administrative services fees 5,978
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 8,730
- ------------------------------------------------------------------------
Reports to shareholders 771
- ------------------------------------------------------------------------
Auditing 70
- ------------------------------------------------------------------------
Legal 20
- ------------------------------------------------------------------------
Trustees' fees and expenses 52
- ------------------------------------------------------------------------
Other 33
- ------------------------------------------------------------------------
Total expenses 34,485
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (15,953)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments: 282,343
- ------------------------------------------------------------------------
Foreign currency related transactions 1
- ------------------------------------------------------------------------
282,344
- ------------------------------------------------------------------------
Net unrealized appreciation during the period on:
Investment securities 498,226
- ------------------------------------------------------------------------
Net gain on investment transactions 780,570
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $764,617
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (15,953) (11,043)
- ------------------------------------------------------------------------------------------------
Net realized gain 282,344 74,710
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 498,226 (354,991)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 764,617 (291,324)
- ------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net realized gains (11,258) (376,132)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital share
transactions (384,636) 49,412
- ------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 368,723 (618,044)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------
Beginning of year 2,209,521 2,827,565
- ------------------------------------------------------------------------------------------------
END OF YEAR $2,578,244 2,209,521
- ------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Growth Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open end diversified management
investment company organized as a Massachusetts
business trust.
The fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains
and losses, and certain fund level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the fund have
equal rights with respect to voting subject to
class specific arrangements.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. 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. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
REPURCHASE AGREEMENTS. The fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
be maintained at such a level that the market value
is equal to at least the principal amount of the
repurchase price plus accrued interest.
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.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
Trust expenses are allocated between the funds in
proportion to their relative net assets.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
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 $14,408,000 for the
year ended September 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the year ended September 30, 1999 are $238,000.
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 Rule 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 and CDSC received by KDI
for the year ended September 30, 1999 are
$5,854,000, of which $339,000 was unpaid at
September 30, 1999.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees paid by the
fund to KDI for the year ended September 30, 1999
are $5,978,000, of which $792,000 was unpaid at
September 30, 1999. In addition $26,000 was paid by
KDI to affiliates.
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
$6,283,000 for the year ended September 30, 1999,
of which $1,506,000 was unpaid at September 30,
1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended September 30,
1999, the fund made no payments to its officers and
incurred trustees' fees of $52,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $2,512,150
Proceeds from sales 2,944,560
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
SHARES SOLD
Class A 45,110 $ 674,754 35,139 $ 492,843
--------------------------------------------------------------------------------
Class B 14,097 198,183 10,501 151,947
--------------------------------------------------------------------------------
Class C 8,918 124,349 6,397 84,426
--------------------------------------------------------------------------------
Class I 306 4,766 377 5,200
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 546 7,904 18,558 235,870
--------------------------------------------------------------------------------
Class B 188 2,549 9,480 114,326
--------------------------------------------------------------------------------
Class C 7 99 202 2,457
--------------------------------------------------------------------------------
Class I 7 99 264 3,387
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (66,869) (1,009,462) (50,438) (722,521)
--------------------------------------------------------------------------------
Class B (17,907) (254,202) (16,452) (224,449)
--------------------------------------------------------------------------------
Class C (8,586) (120,182) (6,416) (85,108)
--------------------------------------------------------------------------------
Class I (869) (13,493) (655) (8,966)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 10,799 162,773 13,910 209,783
--------------------------------------------------------------------------------
Class B (11,534) (162,773) (14,699) (209,783)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARES
TRANSACTIONS $ (384,636) $ 49,412
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 LINE OF CREDIT The fund and several Kemper Funds (the
"Participants") share in a $750 million
revolving credit facility for temporary
or emergency purposes, including the
meeting of redemption requests that
otherwise might require the untimely
disposition of securities. The
Participants are charged an annual
commitment fee which is allocated pro
rata among each of the Participants.
Interest is calculated based on the
market rates at the time of the
borrowing. The fund may borrow up to a
maximum of 33 percent of its net assets
under the agreement.
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------
CLASS A
---------------------------------------
YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995
---------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------
Net asset value, beginning of year $11.72 15.47 17.21 16.07 12.93
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.05) (.01) -- .12 .05
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.18 (1.65) 2.61 2.74 3.27
- ---------------------------------------------------------------------------------
Total from investment operations 4.13 (1.66) 2.61 2.86 3.32
- ---------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .04 --
- ---------------------------------------------------------------------------------
Distribution from net realized gain .06 2.09 4.35 1.68 .18
- ---------------------------------------------------------------------------------
Total dividends .06 2.09 4.35 1.72 .18
- ---------------------------------------------------------------------------------
Net asset value, end of year 15.79 11.72 15.47 17.21 16.07
- ---------------------------------------------------------------------------------
TOTAL RETURN 35.29% (11.78) 19.97 19.62 26.07
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 1.04 1.06 1.07 1.17
- ---------------------------------------------------------------------------------
Net investment income (loss) (.36)% (.09) .07 .65 .43
- ---------------------------------------------------------------------------------
<CAPTION>
----------------------------------------
CLASS B
----------------------------------------
YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of year $11.03 14.83 16.82 15.85 12.88
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.21) (.16) (.16) (.09) (.08)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.93 (1.55) 2.52 2.74 3.23
- ----------------------------------------------------------------------------------
Total from investment operations 3.72 (1.71) 2.36 2.65 3.15
- ----------------------------------------------------------------------------------
Less distribution from net realized gain .06 2.09 4.35 1.68 .18
- ----------------------------------------------------------------------------------
Net asset value, end of year $14.69 11.03 14.83 16.82 15.85
- ----------------------------------------------------------------------------------
TOTAL RETURN 33.77% (12.73) 18.68 18.47 24.83
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------
Expenses 2.17% 2.14 2.13 2.05 2.17
- ----------------------------------------------------------------------------------
Net investment loss (1.48)% (1.19) (1.00) (.33) (.57)
- ----------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS C
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------
Net asset value, beginning of year
$11.13 14.91 16.87 15.87 12.88
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.18) (.14) (.13) (.06) (.07)
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 3.98 (1.55) 2.52 2.74 3.24
- -------------------------------------------------------------------------------------
Total from investment operations 3.80 (1.69) 2.39 2.68 3.17
- -------------------------------------------------------------------------------------
Less distribution from net realized gain .06 2.09 4.35 1.68 .18
- -------------------------------------------------------------------------------------
Net asset value, end of year $14.87 11.13 14.91 16.87 15.87
- -------------------------------------------------------------------------------------
TOTAL RETURN 34.19% (12.50) 18.87 18.65 24.99
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------
Expenses 1.90% 1.98 1.99 1.95 2.03
- -------------------------------------------------------------------------------------
Net investment loss (1.21)% (1.03) (.86) (.23) (.43)
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
CLASS I
------------------------------------------------
YEAR ENDED SEPTEMBER 30,
JULY 3 TO
1999 1998 1997 1996 SEPT. 30, 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.88 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) 4.25 (1.68) 2.61 2.74 1.26
- ------------------------------------------------------------------------------------------
Total from investment operations 4.25 (1.63) 2.69 2.93 1.29
- ------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .08 --
- ------------------------------------------------------------------------------------------
Distribution from net realized gain .06 2.09 4.35 1.68 --
- ------------------------------------------------------------------------------------------
Total dividends .06 2.09 4.35 1.76 --
- ------------------------------------------------------------------------------------------
Net asset value, end of period $16.07 11.88 15.60 17.26 16.09
- ------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 35.82% (11.45) 20.51 20.19 8.72
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------
Expenses .71% .65 .70 .64 .59
- ------------------------------------------------------------------------------------------
Net investment income (loss) (.02)% .30 .43 1.08 .92
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $2,578,244 2,209,521 2,827,565 2,738,303 2,503,301
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 97% 122 201 150 67
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for years ended September 30, 1999 and September 30, 1998 were determined
based on average shares outstanding.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid distributions of $0.06 per share from net long-term capital gains
during its year ended September 30, 1999, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$316,000,000 as capital gain dividends for its year ended 9/30/99, of which 100%
represents 20% rate gains.
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 account, please call 1-800-621-1048.
22
<PAGE> 23
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, 1999, 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 1995. These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1999, 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, 1999, 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 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1999
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY
Trustee President
LEWIS A. BURNHAM PHILIP J. COLLORA
Trustee Vice President
and Secretary
DONALD L. DUNAWAY
Trustee JOHN R. HEBBLE
Treasurer
ROBERT B. HOFFMAN
Trustee ANN M. MCCREARY
Vice President
DONALD R. JONES
Trustee
KATHRYN L. QUIRK
THOMAS W. LITTAUER Vice President
Trustee and Vice President
SHIRLEY D. PETERSON LINDA J. WONDRACK
Trustee Vice President
CORNELLA SMALL MAUREEN E. KANE
Trustee and Vice President Assistant Secretary
WILLIAM P. SOMMERS CAROLINE PEARSON
Trustee Assistant Secretary
BRENDA LYONS
Assistant Treasurer
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTIONS, INC.
222 South Riverside Plaza Chicago, IL
60606-5808
www.kemper.com
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style prospectus.
KGF - 2 (11/23/99) 1094320
