<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING GROWTH OF CAPITAL THROUGH DIVERSIFICATION OF INVESTMENT SECURITIES
HAVING POTENTIAL FOR CAPITAL APPRECIATION
KEMPER GROWTH FUND
"... The healthy, slow-and-steady economic climate favored our large-cap growth
discipline. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
10
Industry Sectors
11
Largest Holdings
12
Portfolio of Investments
14
Financial Statements
16
Notes to Financial Statements
19
Financial Highlights
21
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Kemper Growth Fund Class A 37.26%
Kemper Growth Fund Class B 36.50%
Kemper Growth Fund Class C 36.62%
Lipper Growth Funds Category Average* 28.23%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS 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.
*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
3/31/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER GROWTH FUND CLASS A $16.02 $11.72
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS B $14.99 11.03
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND CLASS C $15.14 11.13
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER GROWTH FUND LIPPER
RANKINGS AS OF 3/31/99*
- --------------------------------------------------------------------------------
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 #727 of 1022 funds #742 of 1022 funds #740 of 1022 funds
- --------------------------------------------------------------------------------
5-YEAR #316 of 384 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #95 of 171 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #75 of 109 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #46 of 89 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE SIX-MONTH PERIOD ENDED MARCH 31, 1999, THE FUND PAID THE FOLLOWING
DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B 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
- --------------------------------------------------------------------------------
Source: Morningstar, Inc. Chicago, IL. (312)696-6000. The Equity 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 recent of the three
market-cap groups.
THE STYLE BOX REPRESENTS A SNAPSHOT OF THE FUND'S PORTFOLIO ON A SINGLE DAY.
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.
BALANCE SHEET A listing of assets and net worth showing the position of a
company at a certain time.
GROWTH STOCKS Shares in companies that are expected to experience rapid growth
resulting from strong sales, talented management and a dominant market position.
Because these stocks are typically in demand, they're generally more expensive.
They can also be volatile, based on changing perceptions of the company's
growth.
LARGE-CAP STOCKS Shares in larger, established corporations. The main advantage
of these stocks is that they can offer relative stability compared to newer,
smaller companies.
They also tend to provide more dividend income. This income may help make them
less volatile during market declines. Overall, investments in large-cap funds
tend to be more conservative than small-cap funds.
MARKET CAP (CAPITALIZATION) Market capitalization refers to the total value of a
company's outstanding stock.
RUSSELL 1000 GROWTH INDEX An unmanaged pool of 1,000 large-cap growth-oriented
stocks. An index is not available for direct investment, but is often used as a
benchmark to gauge the overall performance of a market or of an actively managed
portfolio.
<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 INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
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 $280 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:
Throughout April, investor enthusiasm drove the market to its second milestone
in a year -- the Dow Jones Industrial Average rose to 11,000 just a month after
it broke 10,000 for the first time. But those gains don't tell the whole story
- -- investors in the first four months of the year have endured significant
volatility. What drove the climb to 11,000 and what, at the same time, has led
to investor anxiety?
Driving the market, in part, was consumer confidence. In the first quarter of
1999, consumer spending surged 6.7 percent -- the largest rise in 11 years. The
market's rise seems to have buoyed consumer confidence, which rose for the sixth
consecutive month in April. And, the resilience of the economy has bolstered
more optimistic expectations for the next six months.
Inspiring consumer confidence also were the lowest levels of inflation in a
generation. As measured by the consumer price index (CPI), inflation has been
between 1 1/2 and 2 percent, compared to approximately 4 percent in the
beginning of the 1990s and 10-12 percent in the beginning of the 1980s. Still,
inflation worries have been seeping into the market. The growing conviction that
Asian and Latin American economies are recovering is raising commodity prices,
particularly oil. The price of West Texas Intermediate oil surged from less than
$12 in February to almost $19 in early May. That alone almost guarantees a rise
in the "headline" inflation rate this year, which is the rate of inflation as
measured by the entire CPI. But it's important to note that the Federal Reserve
Board looks primarily at the core inflation rate, which is the CPI minus food
and energy -- and the core inflation rate looks as if it will remain low at
about 2 percent this year.
Also contributing to consumer confidence, short-term and long-term interest
rates remained low over the first quarter, and can be expected to remain so.
Today's Fed policy is reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. Consequently, we expect no changes
in short-term interest rates during May and June, and there's only a small
chance that the Fed will raise interest rates in the second half of the year.
Moreover, the federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially from households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
Such a positive environment is exactly what poses risk for investors, and is
key to understanding recent volatility in the market. A stronger economy has the
potential to feed inflation fears and drive up interest rates. Events on April
30 illustrated the domino effect of investors reacting to positive economic
news, which they consider troubling at this point, more than eight years into
the economic expansion. The steady stream of positive economy's news prompted a
sell-off in the markets based on fears that the strong pace of economic growth
will eventually lead to higher inflation. The benchmark 30-year Treasury bond
fell nearly 2 points (close to $20 for a bond with a $1,000 face amount) as the
yield shot up to 5.657 percent. It was the biggest one-day plunge in bonds in
two months. Bonds, in turn, pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggested continued growth as we moved into the second
quarter of 1999. For example, the gross domestic product (GDP), the value of all
goods and services produced in the U.S., rose at an annual rate of 4.5 percent
in the first quarter, following a tremendous fourth-quarter surge of 6 percent.
This is very much in line with what we've grown accustomed to over the past year
- -- over the four quarters of 1998, the U.S. economy expanded by 4.3 percent.
Some people aren't surprised at all by strong GDP growth that once would have
alarmed them. That's partially because we've grown accustomed to a strong
economy in the past three or four years. But it's also because we've been able
to absorb growth without driving up inflation. That's important for investors.
If prices were rising as the economy was growing, the Fed would most likely
raise short-term interest rates, which would change the financial market
outlook. But again, that isn't happening right now.
However, we do see some vulnerability. Trade is a weak spot in the economy
right now. Exports of U.S. goods and services dropped in the first quarter while
imports soared. This reflects the fact that the U.S. is one of the few countries
financially fit enough to buy goods produced elsewhere in the world. But for as
long as less vibrant international economies are unable to buy U.S. goods, the
profitability of U.S. companies trying to export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which will
most likely lead to the central bank lowering interest rates in order to boost
domestic spending. In many countries in Europe, there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down,
mortgages are reduced and homeowners
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]
(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 MARCH 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
spend money elsewhere. This has a huge impact on consumer spending, and will
help European equities in the long term. Additionally, the situation in Japan
remains unchanged. And, problems in the emerging markets haven't had the
negative impact many people expected -- both the Mexican and Brazilian stock
markets have actually risen in the past two months.
But don't forget that international crises have the potential to affect the
U.S. markets drastically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current economic situation and behave
as if no risk exists. But when you see the market soaring and are tempted to
jump in, note that the bull market grew to records on the strength of just a few
dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation -- these are
particularly older investors who are accustomed to inflation accompanying
growth. But we currently just don't see the pressure toward inflation at all, so
there's no reason to want a slowdown. The best approach now, as in any market,
is to diversify and invest for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
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 MAY 5, 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
IS A CO-LEAD PORTFOLIO MANAGER OF KEMPER GROWTH FUND. SHE IS ALSO A CERTIFIED
FINANCIAL ANALYST.
[FRAISE PHOTO]
GEORGE P. FRAISE IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC.
AND IS A CO-LEAD PORTFOLIO MANAGER OF KEMPER GROWTH FUND.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER GROWTH FUND POSTED EXCELLENT RETURNS FOR THE SEMIANNUAL PERIOD. BELOW,
THE NEW PORTFOLIO MANAGEMENT TEAM DISCUSSES THE MARKET CLIMATE AND THEIR
PURE-GROWTH APPROACH TO QUALITY LARGE-CAP STOCKS.
Q DURING THE SEMIANNUAL PERIOD, KEMPER GROWTH FUND EARNED 37.26 PERCENT
(CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGES). HOW DOES THIS RETURN COMPARE
WITH SIMILAR FUNDS AND THE OVERALL MARKET?
A We're very happy with Kemper Growth Fund's performance, both in absolute
and relative terms. The fund's return surpasses the average for the Lipper
Growth Fund category, 28.23 percent. Kemper Growth Fund also outperformed its
benchmark, the Russell 1000 Growth Index, up 34.79 percent for the semiannual
period.
Q BEFORE WE DISCUSS THE FUND IN GREATER DETAIL, COULD YOU PROVIDE US WITH AN
OVERVIEW OF THE GENERAL MARKET CLIMATE DURING THE SEMIANNUAL PERIOD?
A The market has brightened considerably during the past six months. As the
fund began the semiannual period at the end of September 1998, economic
uncertainty cast a shadow across the global marketplace. In August, Russia had
defaulted on its debt, triggering a broad market correction. Investors were
concerned that the U.S. economy would weaken, and that corporate profits would
slow.
However, the domestic economy chugged along at an encouraging pace. Growth
rates were slow and steady. Interest rates, inflation and unemployment remained
extremely low, while consumer confidence remained high. In a continuation of
trends that began in late 1997, investors were reluctant to commit to
smaller-cap and value stocks. Instead, they preferred the greater liquidity of
large-cap "household name" companies. Large companies also posted stronger
earnings than their smaller rivals, further fueling investor interest.
In an optimistic but cautious climate, large-cap, high-quality, domestic
growth stocks -- the mainstays of Kemper Growth Fund -- have led the market.
This recent market rally demonstrates again the importance of a long-term,
rational outlook in the face of short-term market volatility. Stocks -- and the
entire stock market -- will fluctuate, often dramatically. However, investors
who held tight after the last summer's market turbulence had the opportunity to
participate in a period of excellent gains. Keep in mind that past performance
is no guarantee of future results.
Q YOU TOOK THE HELM OF THE FUND DURING THE MIDDLE OF THE SEMIANNUAL PERIOD.
ARE THE FUND'S OBJECTIVE AND INVESTMENT FOCUS THE SAME?
A Absolutely. The investment objective remains unchanged. Kemper Growth Fund
remains committed to seeking capital growth through a diversified portfolio. We
continue to invest primarily in large-cap, quality growth stocks issued by U.S.
companies. In fact, the portfolio holds many of the same stocks as it did at the
start of the semiannual period.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT'S YOUR INVESTMENT PHILOSOPHY?
A We follow a pure-growth investment philosophy. We believe that over time,
companies with strong franchises, skilled management, and sustainable,
consistent earnings growth can produce superior long-term returns. We are
dedicated to forward-looking analysis supplemented by quantitative research.
We're buy-and-hold investors. In other words, we have to love a stock
before we'll invest. And, once we've bought it, we're not going to sell it based
on a short-term, nonfundamental price change. We don't believe that we serve
shareholders by getting caught up in the quickly changing and often ill-advised
notions of the Wall Street pack. Instead, we devote ourselves to a longer-term
goal: seeking out the best large-cap growth companies.
Q HOW DO YOU APPLY YOUR PURE-GROWTH PHILOSOPHY TO THE STOCK-SELECTION
PROCESS?
A Our pure-growth approach is grounded in rigorous, bottom-up fundamental
analysis. We consider a company's product line, its management and market
position, and its ability to deliver sustainable, consistent earnings growth. We
seek out companies with strong balance sheets and minimal debt. We want
companies that have the ability to drive the market and withstand its
challenges.
Based on this thorough analysis, we classify growth stocks into one of
three groups that we define as: stable growth stocks, accelerating growth
stocks, and special situations. Our goal is to combine stocks from these groups,
in such a way that provides shareholders with powerful yet conservative growth
exposure.
Q COULD YOU DESCRIBE THESE THREE TYPES OF GROWTH STOCKS AND HOW YOU COMBINE
THEM WITHIN THE PORTFOLIO?*
A We'd be glad to. Let's begin with stable growth:
STABLE GROWTH: As a general parameter, at least 70 percent of the fund's
holdings fall into our stable growth group. Think of these stocks as "Steady
Eddies, " the stocks that you buy and hold for the long-term. Stocks in this
group should have dominant and growing market shares, consistent and sustainable
earnings growth, excellent management and strong franchises. General Electric,
Wal-Mart and Pfizer are prime examples of stable growth stocks, and enjoy
substantial representation in the portfolio. Today, roughly 90 percent of the
portfolio's assets are in stable growth stocks.
ACCELERATING GROWTH: We can invest up to 25 percent of the portfolio in
accelerating growth stocks. In selecting accelerating growth stocks, our goal is
to identify opportunities for earnings breakouts. Here, we look for strong
franchises, earnings momentum, and highly capable management. America Online and
Charles Schwab fit our criteria for accelerating growth. Accelerating growth
stocks currently make up 10 percent of the portfolio.
SPECIAL SITUATIONS: Special growth situations include companies undergoing
restructurings, those that are launching new products, and those with new
management or processes. We can invest up to 15 percent here. These are stocks
that we believe have the potential to evolve into accelerating or stable growth
companies. Whatever the situation, however, we must be able to identify a
catalyst that has the potential to transform the firm into a stable-growth or
accelerating-growth company. Presently, we've found ample opportunities among
stable growth and accelerating growth stocks, and do not hold any special
situation stocks in the portfolio.
* THE FOLLOWING DESCRIPTION OF THE INVESTMENT PHILOSOPHY IS THAT OF THE CURRENT
MANAGEMENT TEAM AND IS SUBJECT TO CHANGE AT ANY TIME.
Q HOW DO YOU INCORPORATE THE FUND'S BENCHMARK, THE RUSSELL 1000 GROWTH
INDEX, AS A TOOL IN YOUR INVESTMENT STRATEGY?
A To make sure our value-added comes from stock selection, we generally try
to keep the fund closely in line with the sector weightings of the Russell 1000
Growth Index -- generally plus or minus 5 percent. We believe that we add more
value to shareholders by focusing our efforts on individual stock selection, not
on trying to guess the next hot sector. While our investment strategy is not
quite sector neutral, it puts the emphasis where we think it belongs -- on first
hand, fundamental research. Also, by utilizing the index weights as we do, we
commit to discipline and diversification. We won't get carried away by emotion
and put all the eggs in one basket. By using the benchmark's sector weightings
as a guide, we maintain good exposure throughout the growth-stock universe.
Q PLEASE EXPLAIN THE ROLE THAT QUANTITATIVE RESEARCH PLAYS IN YOUR
PURE-GROWTH APPROACH.
A In addition to our fundamental research, we also use proprietary
quantitative modeling techniques to scrutinize a variety of growth-oriented
statistics. These
6
<PAGE> 7
PERFORMANCE UPDATE
include factors in four categories: valuation, momentum, expectations and
stability. By thoroughly applying both fundamental and quantitative analysis to
every potential investment, our goal is to winnow out all but the very best
opportunities. Only a few stocks have what it takes, which is fine with us.
Q HAS THE IMPLEMENTATION OF YOUR INVESTMENT STRATEGY CHANGED THE COMPLEXION
OF THE FUND?
A In keeping with our use of the Russell 1000 Growth Index as a guide, we
reduced the fund's financial-services exposure dramatically, while boosting the
fund's commitment to consumer-nondurable stocks.
Also, there are fewer stocks in the portfolio. As we noted, only a few
stocks have what it takes to meet our criteria. We're comfortable backing those
stocks with conviction. When the semiannual period began, the fund held
positions in 76 stocks. Presently, the fund includes 56 stocks. Consistent with
our low-turnover, high-conviction management philosophy, we want to establish a
meaningfully large position in each of our holdings. That way, we don't dilute
return potential. We feel that the fund's current number of holdings provides a
good balance of diversification and concentration.
Q STOCK SALES OFTEN RESULT IN CAPITAL GAINS -- AND CAPITAL GAINS
TAXES -- FOR SHAREHOLDERS. AS YOU RESTRUCTURED THE PORTFOLIO, DID YOU CONSIDER
POTENTIAL TAX LIABILITY?
A First, when it comes to taxes, we caution investors to not let the tail
wag the dog. Capital gains are part-and-parcel of capital appreciation and
long-term growth. That said, we certainly remained attuned to tax considerations
as we pared back holdings, and feel confident that we incurred only modest
capital gains exposure as we brought the portfolio into line with our long-term,
pure-growth approach.
Q COULD YOU PROVIDE US WITH A MORE IN-DEPTH EXAMPLE OF YOUR STOCK-SELECTION
PROCESS?
A Gladly. Let's look at Clear Channel Communications, a Steady Eddie company
with operations in broadcasting, outdoor advertising and television. Clear
Channel has been in the portfolio since the start of the semiannual period.
Based on our analysis of the company, we decided to bolster the fund's stake
considerably.
Clear Channel satisfies our criteria for demonstrated, consistent growth:
The company has increased their cash flow 20 to 30 percent annually for the past
decade. (Cash flow often serves as a good proxy for earnings.) Earnings have met
or exceeded Wall Street expectations. Clear Channel also has a business model
and services that are in-demand and forward-thinking. Web site operators are
gravitating to radio advertising, and Clear Channel has been well positioned to
benefit from this increased demand. Also, outdoor advertising (billboards) is an
area that's going through consolidation and considerable growth. Clear Channel
is the dominant leader. In our view, the management of the company is extremely
talented. Also, as a sign of its personal investment in the company's success,
the management team owns a large block of Clear Channel stock.
Like many other top-notch growth companies, Clear Channel Communications
is not a cheap stock, but we think that its growth potential far surpasses its
cost. We don't want to save a dime today to lose a dollar tomorrow.
Q HOW DO YOU DECIDE WHICH STOCKS TO SELL?
A Because stock trades incur expenses for shareholders, we don't take
trading lightly; but we don't let ourselves grow unreasonably attached, either.
We follow as strict a discipline in selling stocks as in buying them. Here,
again, we look first and foremost to company fundamentals. If our research
indicates that a company's long-term fundamental strength is faltering, we have
a cue to sell. Also, we sell stocks if they become unable to deliver the
consistent, sustainable earnings growth we demand. Because we only want the
cream of the growth stock portfolio, we will also sell a stock if we believe
that more attractive choices are available to us.
Q GIVE US AN EXAMPLE OF YOUR SELL DISCIPLINE IN ACTION.
A Let's take a closer look at how we repositioned the fund's technology
exposure to enhance the portfolio's overall long-term growth potential. Because
technology is a fast-moving and volatile sector, a demonstrated history of
delivering earnings growth in the face of challenges counts for a great deal. We
set our sights on the best and the brightest opportunities. Here, our analysis
led us to Steady Eddies, such as Cisco Systems and Microsoft, and to
accelerating-growth companies like America Online. Because these stocks met our
exacting criteria for quality fundamentals and superior, consistent earnings
potential, we've backed them with conviction.
7
<PAGE> 8
PERFORMANCE UPDATE
Meanwhile, we eliminated a handful of smaller positions, including Cadence
Software, Seagate Technology, Peoplesoft and Xilinx. Our analysis indicated that
these companies fell short of the standard set by the Cisco Systems and America
Onlines.
Q WHAT WORKED OUT PARTICULARLY WELL FOR THE FUND DURING THE SEMIANNUAL
PERIOD?
A Well, as we mentioned, we saw an aligning of the stars for our investment
approach. The healthy, slow-and-steady economic climate favored our large-cap
growth discipline.
In an environment of high consumer confidence, many of our retail holdings
performed exceptionally well. Costco, Dayton Hudson and Wal-Mart exemplified our
criteria for quality growth. Each offers impeccable fundamentals, talented
management and top-notch franchises. These companies have been able to grow
their earnings consistently.
Many of the fund's technology stocks also served the fund's shareholders
well. Consistent with our focus on consistently demonstrated earnings growth,
we've steered clear of many of the untested Internet companies. We have
participated in the growth of the Internet through established quality
companies. Shareholders reaped gains from the fund's position in America Online,
which we purchased in February, 1999. Also, Ascend Communications, a
communications equipment giant, Applied Materials, a
semiconductor-and-components leader, and Cisco Systems, a networking powerhouse,
were three other briskly performing stocks. The fund held these three throughout
the semiannual period.
Q DESPITE THE FUND'S STRONG PERFORMANCE, WERE THERE STOCKS THAT FELL SHORT?
A Yes, some stocks did come up short. The fund's position in Rite Aid
dampened gains. We thought that this pharmacy franchise offered a good earnings
opportunity. However, management lost control of the business, expanding
operations too rapidly and expensively. Questions about management's use of
company funds dragged the stock down further. Then, Rite Aid pre-announced
disappointing earnings. All-in-all, the stock hasn't worked out at all as we had
anticipated.
Food maker H.J. Heinz was another poor performer. Food companies have
suffered in recent months, and Heinz wasn't able to buck the trend. Philip
Morris also clipped returns, as the litigation concerns surrounding the tobacco
industry continue to plague the stock. As long-term investors, we're keeping
focused on the larger picture. Philip Morris is about more than tobacco: its
subsidiaries include Kraft General Foods and Miller Brewing. Despite the
domestic litigation concerns surrounding its tobacco operations, the stock
continues to achieve earnings growth.
Compared to the pace of many other holdings within the portfolio,
Medtronic and Warner-Lambert have also been less successful. Both were among the
fund's largest positions at the start of the fiscal year. We've trimmed them
back a bit, but continue to hold them because our analysis indicates that the
long-term fundamentals remain intact. Medtronic continues to offer the hallmarks
we demand, including superior management and products. The FDA's delayed
approval of Medtronic's new generation of coronary stents has slowed the
company's product pipeline, but we don't feel that this alone is cause to walk
away from the stock. Warner Lambert, meanwhile, came under pressure due to
continued concern about negative side effects of Rezulin, the company's diabetes
drug. It's important to note, however, that Lipitor, a cholesterol-lowering
agent, continues to grow rapidly and is the most significant component of
Warner-Lambert's growth.
Q FROM THE ASIAN MARKET MELTDOWN IN 1997 TO THE RUSSIAN DEBT DEFAULT LAST
SUMMER, INTERNATIONAL EVENTS HAVE EXERTED A MARKED AND OFTEN NEGATIVE IMPACT ON
DOMESTIC STOCKS. WHAT SORT OF INTERNATIONAL EXPOSURE DOES THE FUND HAVE?
A Although Kemper Growth Fund invests almost exclusively in domestic stocks,
we do have exposure to international markets. (The fund can invest up to 25
percent directly in international markets and without limit in American
Depository Receipts.) That's because the large-cap growth stocks we favor are
typically multinational companies, with global business plans and strategies.
Tremendous opportunities exist for companies that can tap into the potential of
foreign economies, particularly those of emerging markets. Of course, we
scrutinize a company's international operations with the same rigor that we
apply to domestic operations.
Multinational companies such as Coca-Cola and Procter & Gamble also offer
an additional level of diversification. Because they have global operations,
they are able to offset potential losses from one market segment with gains from
another.
8
<PAGE> 9
PERFORMANCE UPDATE
Q THE FISCAL YEAR HAS GOTTEN OFF TO A GOOD START. HOW DO YOU FEEL ABOUT THE
UPCOMING MONTHS?
A We are optimistic about the general economic climate. Continued low
inflation, low interest rates and employment, combined with modest and steady
corporate earnings growth are all factors that would support large-cap growth
stocks. But, no one can predict with certainty what the economy and stock market
will do, especially during the short term. When it comes to growth stocks,
investors should always be prepared for fluctuations.
That said, we have a high degree of confidence in the long-term merits of
our pure-growth investment philosophy. We're looking forward to applying this
strategy on behalf of the shareholders of Kemper Growth Fund.
9
<PAGE> 10
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON MARCH 31, 1999, AND ON SEPTEMBER 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND ON KEMPER GROWTH FUND ON
3/31/99 9/30/98
<S> <C> <C>
TECHNOLOGY 32.40% 35.00%
CONSUMER NON-DURABLES 30.70% 15.50%
HEALTH CARE 17.50% 18.90%
CAPITAL GOODS 7.00% 5.90%
FINANCE 6.90% 19.10%
MEDIA 5.50% 0.00%
UTILITIES 0.00% 4.10%
TRANSPORTATION 0.00% 1.00%
BASIC INDUSTRIES 0.00% 0.50%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF THE KEMPER GROWTH FUND REPRESENTED ON MARCH 31, 1999, COMPARED TO THE
INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 1000 GROWTH
INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER GROWTH FUND ON RUSSELL 1000 GROWTH INDEX ON
3/31/99 3/31/99
<S> <C> <C>
TECHNOLOGY 32.40% 30.70%
CONSUMER NON-DURABLES 30.70% 26.90%
HEALTH CARE 17.50% 20.60%
CAPITAL GOODS 7.00% 8.90%
FINANCE 6.90% 6.90%
MEDIA 5.50% 0.00%
UTILITIES 0.00% 3.30%
TRANSPORTATION 0.00% 0.10%
BASIC INDUSTRIES 0.00% 1.30%
ENERGY 0.00% 0.80%
CONSUMER DURABLES 0.00% 0.50%
</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 37.6 PERCENT OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON MARCH 31,
1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
HOLDINGS PERCENT
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
1. MICROSOFT Develops, markets and supports a 6.3%
variety of microcomputer
software, operating systems,
language and application
programs, related books and
peripheral devices.
2. GENERAL ELECTRIC A broadly diversified company 4.2%
with major businesses in power
generators, appliances,
lighting, plastics, medical
systems, aircraft engines,
financial services and
broadcasting.
3. INTEL Engaged in the design, 4.1%
development, manufacture and
sale of advanced microcomputer
components, such as integrated
circuits and other related
products.
4. PFIZER Global, diversified 4.1%
research-based health care
company that develops,
manufactures, and markets a wide
variety of products for human
and animal health care.
5. CISCO SYSTEMS Large, comprehensive supplier of 3.9%
routing software and related
systems that direct the flow of
data between local networks.
6. HOME DEPOT Operates retail stores carrying 3.7%
building supplies and home
improvement products.
7. AMERICA ONLINE Global leader in consumer online 3.3%
services, including Internet
access, e-mail, software,
computer support, and electronic
periodicals. Owns Netscape
Communications.
8. MERCK & CO. A leading, research-driven 2.9%
pharmaceutical products and
services company. Merck
discovers, develops,
manufactures and markets a broad
range of products for human and
animal health.
9. WAL-MART Large, global retailer, with 2.7%
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. AMERICAN INTERNATIONAL GROUP The leading U.S.-based 2.4%
international insurance
organization and among the
largest underwriters of
commercial and industrial
coverage in the United States.
</TABLE>
* Portfolio composition and holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER GROWTH FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL GOODS--6.9%
General Electric Co. 1,046,300 $ 115,747
Textron, Inc. 504,600 39,043
Tyco International Ltd. 546,060 39,180
---------------------------------------------------------------------------
193,970
- -------------------------------------------------------------------------------------------------------------------------
COMPUTER SYSTEMS
AND SOFTWARE--13.4%
Computer Associates International 587,100 20,879
(a) Dell Computer Corp. 612,900 25,052
(a) EMC Corp. 418,200 53,425
(a) Electronic Arts 657,700 31,241
(a) Microsoft Corp. 1,929,800 172,958
(a) Momentum Business Applications, Inc. 15,880 142
(a) Oracle Corp. 603,150. 15,908
(a) Sun Microsystems 458,900 57,334
---------------------------------------------------------------------------
376,939
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--22.3%
Albertson's Inc. 221,600 12,036
(a) America Online Inc. 624,700 91,206
(a) Consolidated Stores Corp. 1,528,200 46,324
(a) Costco Companies, Inc. 515,300 47,182
Dayton Hudson Corp. 972,200 64,773
Estee Lauder Companies "A" 475,000 44,888
Home Depot 1,623,000 101,032
Interpublic Group of Companies 279,300 21,751
(a) Kroger Co. 444,400 26,608
Omnicom Group, Inc. 295,600 23,630
(a) Outdoor Systems, Inc. 1,616,100 48,483
Rite Aid Corp. 958,100 23,953
Wal-Mart Stores Inc. 807,000 74,395
---------------------------------------------------------------------------
626,261
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.0%
Coca-Cola Co. 867,800 53,261
Colgate-Palmolive Co. 571,200 52,550
H.J. Heinz Co. 800,100 37,905
Philip Morris Companies 683,600 24,054
Procter & Gamble Co. 576,000 56,412
---------------------------------------------------------------------------
224,182
- -------------------------------------------------------------------------------------------------------------------------
FINANCE--6.8%
American International Group, Inc. 546,400 65,910
Federal Home Loan Mortgage Corp. 449,000 25,649
Federal National Mortgage Association 572,300 39,632
Morgan Stanley, Dean Witter & Co. 300,500 30,031
Charles Schwab Corp. 321,300 30,885
---------------------------------------------------------------------------
192,107
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE--17.2% Eli Lilly & Co. 561,100 $ 47,623
IMS Health Inc. 737,500 24,430
Johnson & Johnson 306,500 28,715
Medtronic Inc. 894,160 64,156
Merck & Co. 994,100 79,714
Pfizer, Inc. 815,800 113,192
Schering-Plough Corp. 735,900 40,704
SmithKline Beecham Group PLC, ADR 576,500 41,220
Warner-Lambert Co. 659,700 43,664
---------------------------------------------------------------------------
483,418
- -------------------------------------------------------------------------------------------------------------------------
MEDIA/BROADCASTING--5.4% (a) Clear Channel Communications, Inc. 919,900 61,690
(a) Infinity Broadcasting Corp. 1,082,400 27,872
Time Warner, Inc. 179,000 12,720
(a) Univision Communication, Inc. 979,100 48,955
---------------------------------------------------------------------------
151,237
- -------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS AND (a) Ascend Communications, Inc. 695,000 58,163
NETWORKING--15.3% (a) Applied Materials, Inc. 654,500 40,374
(a) Cisco Systems 977,825 107,133
Intel Corp. 958,400 114,169
Linear Technology Corp. 671,200 34,399
Lucent Technologies, Inc. 417,000 44,932
Nokia Corp., ADR 197,900 30,823
---------------------------------------------------------------------------
429,993
- -------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--3.1% Frontier Corp. 543,900 28,215
(a) MCI WorldCom, Inc. 677,500 60,001
---------------------------------------------------------------------------
88,216
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--98.4%
(Cost: $2,196,393) 2,766,323
---------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--4.83% to 4.86%
INSTRUMENTS--1.6% Due--April 1999
(Cost: $43,433) $ 43,500 43,433
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $2,239,826) $2,809,756
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $2,239,826,000 for federal income tax
purposes at March 31, 1999, the aggregate gross unrealized appreciation was
$630,984,000, the aggregate gross unrealized depreciation was $61,054,000 and
the net unrealized appreciation on investments was $569,930,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,239,826) $2,809,756
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 346
- --------------------------------------------------------------------------
Dividends 2,048
- --------------------------------------------------------------------------
TOTAL ASSETS 2,812,150
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Cash overdraft 2,000
- --------------------------------------------------------------------------
Payable for: Fund shares redeemed 2,075
- --------------------------------------------------------------------------
Management fee 1,212
- --------------------------------------------------------------------------
Distribution services fee 381
- --------------------------------------------------------------------------
Administrative services fee 406
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 881
- --------------------------------------------------------------------------
Trustees' fees and other 115
- --------------------------------------------------------------------------
Total liabilities 7,070
- --------------------------------------------------------------------------
NET ASSETS $2,805,080
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $2,009,720
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 225,430
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 569,930
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,805,080
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,167,117 / 135,289 shares outstanding) $16.02
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $17.00
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($591,234 / 39,434 shares outstanding) $14.99
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($26,449 / 1,747 shares outstanding) $15.14
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($20,280 / 1,246 shares outstanding) $16.27
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 9,453
- ------------------------------------------------------------------------
Interest 968
- ------------------------------------------------------------------------
Total investment income 10,421
- ------------------------------------------------------------------------
Expenses:
Management fee 7,067
- ------------------------------------------------------------------------
Distribution services fee 2,295
- ------------------------------------------------------------------------
Administrative services fee 2,971
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 3,535
- ------------------------------------------------------------------------
Reports to shareholders 122
- ------------------------------------------------------------------------
Professional fees 68
- ------------------------------------------------------------------------
Trustees' fees and other 89
- ------------------------------------------------------------------------
Total expenses 16,147
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (5,726)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 221,957
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 589,107
- ------------------------------------------------------------------------
Net gain on investments 811,064
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $805,338
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30,
(UNAUDITED) 1998
- ----------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (5,726) (11,043)
- ----------------------------------------------------------------------------------------------------
Net realized gain 221,957 74,710
- ----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 589,107 (354,991)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 805,338 (291,324)
- ----------------------------------------------------------------------------------------------------
Distribution from net realized gain (11,250) (376,132)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (198,529) 49,412
- ----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 595,559 (618,044)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Beginning of period 2,209,521 2,827,565
- ----------------------------------------------------------------------------------------------------
END OF PERIOD $2,805,080 2,209,521
- ----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Growth Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and generally
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
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. 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. 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 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. 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.
16
<PAGE> 17
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.
- --------------------------------------------------------------------------------
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 $7,067,000 for the six
months ended March 31, 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 six months ended March 31, 1999 are
$116,000 of which $1,000 was paid by KDI to
affiliates.
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 six months ended March 31, 1999 are
$2,962,000.
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 six months ended March 31, 1999
are $2,971,000, of which $14,000 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
$3,420,000 for the six months ended March 31, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the six months ended March
31, 1999, the fund made no payments to its officers
and incurred trustees' fees of $34,000 to
independent trustees.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $1,783,289
Proceeds from sales 2,016,212
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 25,908 $ 367,614 35,139 $ 492,843
-------------------------------------------------------------------------------
Class B 7,908 105,708 10,501 151,947
-------------------------------------------------------------------------------
Class C 5,038 66,193 6,397 84,426
-------------------------------------------------------------------------------
Class I 175 2,622 377 5,200
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 554 8,016 18,558 235,870
-------------------------------------------------------------------------------
Class B 192 2,606 9,480 114,326
-------------------------------------------------------------------------------
Class C 7 100 202 2,457
-------------------------------------------------------------------------------
Class I 7 99 264 3,387
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (37,460) (539,483) (50,438) (722,521)
-------------------------------------------------------------------------------
Class B (10,252) (139,811) (16,452) (224,449)
-------------------------------------------------------------------------------
Class C (4,697) (61,996) (6,416) (85,108)
-------------------------------------------------------------------------------
Class I (669) (10,201) (655) (8,966)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 5,808 82,319 13,910 209,783
-------------------------------------------------------------------------------
Class B (6,190) (82,315) (14,699) (209,783)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARES
TRANSACTIONS $(198,529) $ 49,412
-------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS A
-----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ----------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.72 15.47 17.21 16.07 12.93
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02) (.01) -- .12 .05
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.38 (1.65) 2.61 2.74 3.27
- ------------------------------------------------------------------------------------------
Total from investment operations 4.36 (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 period $16.02 11.72 15.47 17.21 16.07
- ------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 37.26% (11.78) 19.97 19.62 26.07
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.01% 1.04 1.06 1.07 1.17
- ------------------------------------------------------------------------------------------
Net investment income (loss) (.22)% (.09) .07 .65 .43
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
CLASS B
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -----------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.03 14.83 16.82 15.85 12.88
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.08) (.16) (.16) (.09) (.08)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.10 (1.55) 2.52 2.74 3.23
- -------------------------------------------------------------------------------------------
Total from investment operations 4.02 (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 period $14.99 11.03 14.83 16.82 15.85
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 36.50% (12.73) 18.68 18.47 24.83
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 1.96% 2.14 2.13 2.05 2.17
- -------------------------------------------------------------------------------------------
Net investment loss (1.17)% (1.19) (1.00) (.33) (.57)
- -------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS C
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -----------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.13 14.91 16.87 15.87 12.88
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.07) (.14) (.13) (.06) (.07)
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.14 (1.55) 2.52 2.74 3.24
- -------------------------------------------------------------------------------------------
Total from investment operations 4.07 (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 period $15.14 11.13 14.91 16.87 15.87
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 36.62% (12.50) 18.87 18.65 24.99
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------
Expenses 1.87% 1.98 1.99 1.95 2.03
- -------------------------------------------------------------------------------------------
Net investment loss (1.08)% (1.03) (.86) (.23) (.43)
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS I
-----------------------------------------------
SIX MONTHS YEAR ENDED SEPTEMBER JULY 3
ENDED 30, TO
MARCH 31, ---------------------- SEPT. 30,
1999 1998 1997 1996 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 .01 .05 .08 .19 .03
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 4.44 (1.68) 2.61 2.74 1.26
- ---------------------------------------------------------------------------------------------------
Total from investment operations 4.45 (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 $16.27 11.88 15.60 17.26 16.09
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 37.51% (11.45) 20.51 20.19 8.72
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses .59% .65 .70 .64 .59
- ---------------------------------------------------------------------------------------------------
Net investment income .20% .30 .43 1.08 .92
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $2,805,080 2,209,521 2,827,565 2,738,303 2,503,301
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 138% 122 201 150 67
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Data for
the period ended March 31, 1999 is unaudited. Per share data for the periods
ended March 31, 1999 and September 30, 1998 were determined based on average
shares outstanding.
20
<PAGE> 21
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper Growth
Fund shareholders were asked to vote on two separate issues: approval of the new
Investment Management Agreement between the fund and Scudder Kemper Investments,
Inc., and to modify or eliminate certain policies and to eliminate the
shareholder approval requirements as to certain other matters. The following are
the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
104,754,143 3,114,811 5,306,010
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,399,718 5,651,337 9,040,452 22,083,456
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,337,131 5,665,856 9,088,521 22,083,456
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,408,787 5,594,199 9,088,521 22,083,456
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,317,542 5,686,065 9,087,901 22,083,456
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,424,829 5,578,272 9,088,407 22,083,456
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,430,510 5,569,707 9,091,291 22,083,456
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,411,338 5,591,763 9,088,407 22,083,456
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,388,667 5,614,434 9,088,407 22,083,456
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,329,774 5,673,832 9,087,901 22,083,456
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,312,130 5,687,951 9,091,426 22,083,456
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,174,795 5,828,306 9,088,407 22,083,456
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,026,527 5,975,072 9,089,908 22,083,456
</TABLE>
Purchases of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,344,707 5,653,049 9,093,752 22,083,456
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
76,292,971 5,704,785 9,093,752 22,083,456
</TABLE>
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY LINDA J. WONDRACK
Chairman and Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President Assistant Secretary
and Secretary
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
ROBERT B. HOFFMAN ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee KATHRYN L. QUIRK Assistant Treasurer
Vice President
THOMAS W. LITTAUER
Trustee and Vice President CORNELIA SMALL
Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
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 STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02109
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
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 - 3 (5/24/99) 1073990
