-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JGSzf6p1S87MPacyboSGkFffZMwXzycBly3mmUoWznMDHAbG0X2uU4Dn7a+OH02y xJsXemxlQbELk0efxgBvOg== 0000950137-99-004686.txt : 19991230 0000950137-99-004686.hdr.sgml : 19991230 ACCESSION NUMBER: 0000950137-99-004686 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER BLUE CHIP FUND CENTRAL INDEX KEY: 0000823342 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363542349 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05357 FILM NUMBER: 99782535 BUSINESS ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 N-30D 1 ANNUAL REPORT DATED 10/31/99 1 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1999 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) [LOGO] Seeking Growth of Capital and of Income KEMPER BLUE CHIP FUND "... The gains of the recent period were earned against the backdrop of a rotational and challenging market climate. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 ECONOMIC OVERVIEW 5 PERFORMANCE UPDATE 9 INDUSTRY SECTORS 10 LARGEST HOLDINGS 11 PORTFOLIO OF INVESTMENTS 15 FINANCIAL STATEMENTS 17 NOTES TO FINANCIAL STATEMENTS 22 FINANCIAL HIGHLIGHTS 25 REPORT OF INDEPENDENT AUDITORS At A GLANCE TERMS TO KNOW KEMPER BLUE CHIP FUND TOTAL RETURNS FOR THE YEAR ENDED OCTOBER 31, 1999 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH]
KEMPER BLUE CHIP FUND KEMPER BLUE CHIP FUND LIPPER MULTI-CAP CORE KEMPER BLUE CHIP FUND CLASS A CLASS B CLASS C FUNDS CATEGORY AVERAGE* - ----------------------------- --------------------- --------------------- ----------------------- 27.96% 26.83% 26.91% 23.12%
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE 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; IF SALES CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE. NET ASSET VALUE
AS OF AS OF 10/31/99 10/31/98 ......................................................... KEMPER BLUE CHIP FUND CLASS A $20.76 $16.61 ......................................................... KEMPER BLUE CHIP FUND CLASS B $20.50 $16.55 ......................................................... KEMPER BLUE CHIP FUND CLASS C $20.64 $16.65 .........................................................
KEMPER BLUE CHIP FUND RANKINGS AS OF 10/31/99 COMPARED WITH ALL OTHER FUNDS IN THE LIPPER MULTI-CAP CORE FUNDS CATEGORY*
CLASS A CLASS B CLASS C ......................................................... 1-YEAR #84 of #95 of #94 of 348 funds 348 funds 348 funds ......................................................... 5-YEAR #30 of #49 of #45 of 139 funds 139 funds 139 funds ......................................................... 10-YEAR #27 of 68 N/A N/A funds .........................................................
DIVIDEND REVIEW DURING THE YEAR ENDED OCTOBER 31, 1999, KEMPER BLUE CHIP FUND MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
CLASS A CLASS B CLASS C ........................................................... LONG-TERM CAPITAL GAIN $0.42 $0.42 $0.42 ...........................................................
YOUR FUND'S STYLE MORNINGSTAR EQUITY STYLE BOX [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 BLUE CHIP FUND IN THE LARGE BLEND CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
BALANCE SHEET A condensed financial statement showing what a company owns, what it owes and the ownership interest in the company of its stockholders, at a certain time. BENCHMARK A gauge of relative performance, often a broad market index. A fund may evaluate its performance against how well its benchmark performed. Kemper Blue Chip Fund's benchmark is the S&P 500 index. A fund may also benchmark its performance against funds of a similar style -- for instance, large-cap growth funds. 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 STOCK A stock in a company that is 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. 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 were 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 -- 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 released in late October: The Bureau of Economic Analysis 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 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. Nevertheless, the Federal Reserve Board raised the federal funds rate and the discount rate by one quarter of a point (0.25%) each at its Nov. 16 meeting. Do we think the Fed made a bad decision? Actually, no. First, the Fed has to guard against the possibility that the old relationship between growth and inflation will soon reassert itself. Even if the Fed shared our belief that 3 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]
NOW (11/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO -------------- ------------ ---------- ----------- 10-year Treasury rate(1) 6.00 5.50 4.80 5.90 Prime rate(2) 8.50 7.75 8.00 8.50 Inflation rate(3)* 2.60 2.30 1.50 2.00 The U.S. dollar(4) -0.7 -0.9 1.20 9.40 Capital goods orders(5)* 12.60 2.50 -0.6 6.40 Industrial production(5)* 3.30 2.90 3.50 6.90 Employment growth(6)* 2.10 2.10 2.30 2.70
(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 10/30/99. SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC. strong consumer demand and low unemployment isn't igniting wage-driven inflation, the organization wouldn't be doing its job if it didn't act in the face of any possibility that inflation might reassert itself. More important, the Fed has to be concerned about the explosion in credit we've seen during the last year. Almost everyone but Uncle Sam has been loading up on debt. Companies have borrowed heavily to fund mergers, share buybacks and new investments. Homeowners have taken out bigger mortgages on their houses and new home equity loans. Equity shareholders have ramped up their margin debt. Financial institutions have issued record amounts of new paper to fund their aggressive growth. The Fed's decision to raise interest rates, thereby making borrowing costlier, should take the frenzy out of this borrowing binge. That is a good thing for future financial stability. Indeed, the early positive market reaction to the Fed's move suggests that the markets share our views that the Fed made the right decision. 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 November 18, 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 5 PERFORMANCE UPDATE [MCCORMICK PHOTO] TRACY MCCORMICK JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND SERVES AS A MANAGING DIRECTOR. MCCORMICK RECEIVED BOTH HER BACHELOR OF ARTS AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY. SHE CONTRIBUTES MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE. PORTFOLIO MANAGER GARY LANGBAUM, CFA, ALSO PROVIDES INVESTMENT MANAGEMENT EXPERTISE. MCCORMICK'S TEAM DRAWS ON THE RESOURCES OF SCUDDER KEMPER INVESTMENTS' LARGE STAFF OF ANALYSTS, RESEARCHERS, TRADERS AND ECONOMISTS. 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. ALTHOUGH THE STOCK MARKET DELIVERED PLENTY OF UPS AND DOWNS DURING THE ANNUAL PERIOD, KEMPER BLUE CHIP FUND ROSE TO THE OCCASION. UNDER THE DIRECTION OF LEAD PORTFOLIO MANAGER TRACY MCCORMICK, THE FUND TOPPED ITS BENCHMARK AS WELL AS ITS PEER-GROUP AVERAGES. IN THIS SECTION, MCCORMICK DISCUSSES THE MARKET CLIMATE, HER INVESTMENT STRATEGY AND THE FACTORS THAT SHAPED THE FUND'S PERFORMANCE. Q TRACY, HOW DID KEMPER BLUE CHIP FUND PERFORM DURING THE ANNUAL PERIOD? A We're very pleased with the fund's performance. For the one-year period ending October 31, 1999, Kemper Blue Chip Fund earned 27.96 percent (Class A shares, unadjusted for any sales charges). The fund surpassed its benchmark, the Standard & Poor's 500 index (S&P 500), which gained 25.66 percent for the one-year period. The fund's return also compares very favorably with its peers. For the one-year period, Kemper Blue Chip Fund lands among the top quartile of the Lipper multi-cap core group. Q BEFORE YOU DISCUSS THE FUND'S PERFORMANCE IN GREATER DETAIL, PLEASE PROVIDE US WITH AN OVERVIEW OF SOME OF THE KEY FACTORS THAT SHAPED THE DOMESTIC STOCK MARKET. A Generally, the fiscal year was a strong period for the U.S. economy and stock market. Let's take a look at the S&P 500, an index frequently cited as a gauge of overall market performance. During the past 20 calendar years, the S&P 500 has returned about 18 percent per year. So, within this longer historical context, we can see that the index's fiscal-year gain of 25.66 percent is quite robust. However, the gains of the recent period were earned against the backdrop of a rotational and challenging market climate. Not all stocks enjoyed equally good fortune. The Russian debt default in August of 1998 and the Asian economic crisis of 1997 continued to serve as uncomfortable reminders about stock-market volatility. For most investors, household-name stocks inspired greater confidence and allayed anxiety. Therefore, during the final months of 1998 through the first months of 1999, investors generally favored large-cap domestic growth stocks over other types of equity investments. Thanks to the explosive growth of the Internet and electronic commerce, technology stocks were leading performers. In a climate of high consumer confidence and low unemployment, media and retail stocks also thrived. The stock market changed directions rapidly in April of 1999, rotating away from growth stocks toward more cyclical issues and smaller-cap stocks. Despite low inflationary and labor-cost pressures, many investors believed that the economy was growing rapidly, a scenario that benefits cyclical stocks. The Federal Reserve's move to raise interest rates in June, as well as increasing oil prices, supported this view. In this climate, traditional growth stocks such as health-care and consumer nondurable stocks yielded to more typical cyclical fare: oil, chemical and industrial stocks. Technology stocks took a tumble, as many investors became concerned about the high valuations of Internet stocks. 5 6 PERFORMANCE UPDATE This cyclical rotation proved to be short-lived. By June, the market rotated again. Concerns of additional interest-rate increases faded, soothing many investors. Low inflation, high consumer confidence, good corporate profits and productivity remained in place, signaling to many investors a continuation of slow and steady economic growth. Large-cap growth stocks then closed the fiscal year on a bright note. Q HOW DO YOU SELECT STOCKS WHEN THE MARKET CLIMATE IS ALWAYS CHANGING? DO YOU HAVE TO ADJUST YOUR STOCK-SELECTION PROCESS? A Regardless of the market climate, we stick to a consistent, research-driven investment philosophy. We don't let the conventional Wall Street buzz guide us. Before we invest, we need to understand a company inside and out. To do this, we'll meet with a company's management, tour their facilities, and scrutinize their balance sheets. It's a rigorous, research-intensive process, but we wouldn't want it any other way. As the fund's name indicates, we invest primarily in blue-chip companies -- established, large-cap domestic companies. Before we buy a stock, we need to see: - - Excellent company fundamentals - - Strong earnings growth prospects - - Catalysts for potential growth, such as new management, products, services or business strategies - - Attractive stock prices We search for blue chips in all corners of the market, from technology to consumer products to energy. Our goal is to uncover stocks in industries that are experiencing favorable secular or cyclical change. Of course, it's not enough to select a good stock; we also have to make sure that the factors that attracted us to it remain intact. We reduce positions when prices approach predetermined targets. Plus, we keep an eye on deteriorating fundamentals, such as changes in management and unexpected shifts in strategic direction. Q TRACY, AS YOU MENTIONED, TECHNOLOGY STOCKS HAVE BEEN STRONG PERFORMERS DURING THE ANNUAL PERIOD. THEY'RE ALSO A SIGNIFICANT COMPONENT OF KEMPER BLUE CHIP FUND. COULD YOU TELL US ABOUT THE TECHNOLOGY SEGMENT OF THE PORTFOLIO? A Technology stocks currently represent about a fifth of the portfolio, roughly in line with the S&P 500 index, our benchmark. Consistent with our blue-chip focus, though, we're not investing in untested ".com" stocks. But, through exposure to established technology leaders, the fund is participating in the tremendous growth potential of the Internet and electronic commerce. During the fiscal year, the fund has reaped considerable gains from many technology stocks, particularly those of semiconductor companies, such as Motorola, Applied Materials, Xilinx and Texas Instruments. As Asian economies began to recover from their 1997 downturn, demand for semiconductors has increased, allowing semiconductor companies to sell their products at better prices. Large positions in Cisco Systems and Microsoft have also contributed positively to performance. Cisco Systems is the leading provider of computer networking, an essential component for the build-out of the Internet's infrastructure, while Microsoft's product line features an extensive array of Internet-oriented software and services, including a well-developed Internet access site. Our analysis suggests that although Microsoft is involved in legal issues, the company continues to offer outstanding growth potential, thanks to a strong product pipeline. In fact, several of our technology stocks provide good examples of our stock-selection process in action. For instance, we purchased Motorola in the summer of 1998, at a point when many investors weren't paying much attention to the company. We got ahead of the crowd and realized that Motorola offered many catalysts for growth, including clarified focus, new product initiatives and cost controls. Now Motorola is a well-received and widely followed stock. We're pleased that our early recognition of change placed the fund ahead of the pack and helped us provide the fund's shareholders with solid gains. Q WHAT ELSE WORKED OUT WELL FOR THE FUND DURING THE ANNUAL PERIOD? A Media stocks enhanced performance. Because they derive significant revenues from advertising, media stocks flourished in a climate of high consumer confidence. Consolidation trends within the industry have further bolstered investor approval. Revenue streams also increased due to an Internet-linked pattern: Many young Internet companies are turning to radio advertising as their primary means of establishing name recognition. Companies such as Clear Channel Communications, a leading provider of outdoor advertising and radio broadcasting, have benefited from these trends. Certain other media companies also offer additional exposure to the Internet. For instance, as well as profiting from advertising revenue and the sale of programming content, AT&T - Liberty Media Group has premium bandwidth that can fetch a high price. 6 7 PERFORMANCE UPDATE Other top-performing media stocks include CBS, Infinity Broadcasting and Univision Communications. As with Motorola, Univision Communications also typifies our investment process in action. While Univision may not be a household name today, we believe that it offers tremendous potential. Univision is a leading player in the rapidly growing segment of Spanish-language radio and television broadcasting. It's a well-managed company and has demonstrated an ability to dominate an expanding market niche. Several of our retail stocks, such as Wal-Mart and Dayton Hudson, have also contributed positive performance. Here too, strong consumer confidence has helped these quality retailers. Telecommunications stocks, such as MCI WorldCom, SBC Communications and Bell Atlantic, proved profitable. In addition to traditional telephone service, these companies are involved in a variety of information and networking services. Furthermore, each has displayed a flair in making profitable, well-focused acquisitions. Q YOU MENTIONED THAT TRADITIONAL GROWTH STOCKS FALTERED AT POINTS DURING THE YEAR. HOW DID THE FUND'S HEALTH-CARE SEGMENT PERFORM? A Exposure to large-cap pharmaceuticals -- such as Abbott Laboratories and Pfizer -- hindered the fund's gains, particularly when the markets took a cyclical turn in the springtime. Many pharmaceutical firms grappled with slowing product pipelines and regulatory uncertainty. Litigation concerns surrounding the diet drug fen-phen translated into added struggles for American Home Products. Although we have shifted into some growth-oriented biotechnology companies, we have not altogether abandoned large-cap pharmaceutical stocks. The aging of America is an important demographic factor. Pharmaceutical companies will play an essential role in providing much-needed medical products to an aging populace. In selecting stocks, we're placing a premium on companies with robust product pipelines. And, in the case of American Home Products, our analysis suggests that the market has overreacted to the legislative issues and that the company can continue to post attractive earnings. Q DESPITE THE FUND'S STRONG GAIN, WERE THERE PORTFOLIO INVESTMENTS THAT DID NOT PERFORM AS WELL AS ANTICIPATED? A Until the final weeks of the fiscal year, financial-services stocks produced lackluster returns. That's to be expected in a rising-rate environment. Here, too, however, we've begun to see some changes for the positive, in the wake of the passage of the Gramm-Leach-Bliley Act of 1999, which removes some barriers to industry consolidation. We think financial services, particularly insurance companies, could benefit in the upcoming period. A variety of other stocks also fell short of expectations. Food companies such as ConAgra floundered. Because we no longer felt a high degree of conviction in its earnings growth potential, we eliminated ConAgra from the portfolio. Waste Management also proved to be a disappointing investment. The stock fell short of earnings, and it became apparent that company management was not appropriately addressing accounting issues. Again relying on our proprietary research rather than the conventional buzz, we liquidated our position promptly, avoiding much of the price decline that followed. Q DO YOU ALWAYS SELL STOCKS IF THEY DECLINE? A No, not always. Sometimes, stocks experience short-term declines as a result of an unfounded market reaction. That's why we rely on our own independent analyses. For instance, toward the end of the fiscal year, Tyco International and Hewlett-Packard experienced negative market sentiment, but we feel that the market's concerns are not sufficiently supported. Our analysis tells us that there is good potential for strong internal growth. We also have confidence that Tyco's management is behaving in an open and up-front manner. In the case of Hewlett-Packard, we still believe that the stock offers very attractively priced growth potential. The catalysts that first attracted us to the company -- including a spin-off of a division and a new chief executive officer -- are still in place. Q AS WE ENTER THE NEXT FISCAL YEAR -- AND THE NEXT MILLENNIUM -- DO YOU HAVE ANY CONCLUDING WORDS FOR SHAREHOLDERS? A As we always emphasize, no one can predict what the future will bring. Stock investing is a long-term proposition, and volatility is part and parcel of the process. Recognizing that even modest market fluctuations can be disheartening to some shareholders, we'd also again highlight that it's often the ups and downs that create new investment opportunities. It is in this arena -- the evaluation of individual stock opportunities -- where we will continue to focus our research efforts. While we cannot predict the overall market direction, we feel confident about the long-term potential of the individual stocks in the portfolio of Kemper Blue Chip Fund. 7 8 PERFORMANCE UPDATE AVERAGE ANNUAL TOTAL RETURNS* For periods ended October 31, 1999 (adjusted for the maximum sales charge)
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS - ---------------------------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND CLASS A 20.63% 20.72% 14.41% 13.48% (since 11/23/87) .................................................................................................... KEMPER BLUE CHIP FUND CLASS B 23.83 21.07 N/A 19.37 (since 5/31/94) .................................................................................................... KEMPER BLUE CHIP FUND CLASS C 26.91 21.26 N/A 19.60 (since 5/31/94) ....................................................................................................
KEMPER BLUE CHIP FUND CLASS A Growth of an assumed $10,000 investment in Class A shares from 11/30/87 to 10/31/99 [LINE GRAPH]
KEMPER BLUE CHIP FUND STANDARD & POOR'S 500 CLASS A(1) STOCK INDEX+ RUSSELL 1000 INDEX++ --------------------- --------------------- -------------------- 11/30/1987 9424 10000 10000 9518 10729 10733 8886 12059 12582 11308 15345 16410 11581 14339 15727 12/31/1991 16726 18111 20925 16526 18919 22816 17157 20254 25132 16273 19942 25227 12/31/1995 21435 26745 34756 27372 32164 42558 34546 42138 56539 39520 53375 71818 10/31/1999 45252 59181 79851
KEMPER BLUE CHIP FUND CLASS B Growth of an assumed $10,000 investment in Class B shares from 5/31/94 to 10/31/99 [LINE GRAPH]
KEMPER BLUE CHIP FUND STANDARD & POOR'S 500 CLASS B(1) STOCK INDEX+ RUSSELL 1000 INDEX++ --------------------- --------------------- -------------------- 5/31/94 10000 10000 10000 9809 10061 10191 12/31/95 12828 13492 14040 16232 16227 17192 12/31/97 20319 21258 22840 23094 26927 29012 10/31/99 26115 29856 32258
KEMPER BLUE CHIP FUND CLASS C Growth of an assumed $10,000 investment in Class C shares from 5/31/94 to 10/31/99 [LINE GRAPH]
KEMPER BLUE CHIP FUND STANDARD & POOR'S 500 CLASS C(1) STOCK INDEX+ RUSSELL 1000 INDEX++ --------------------- --------------------- -------------------- 5/31/94 10000 10000 10000 9838 10061 10191 12/31/95 12890 13492 14040 16310 16227 17192 12/31/97 20432 21258 22840 23207 26927 29012 10/31/99 26391 29856 32258
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST * AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL DIVIDENDS AND, FOR CLASS A SHARES, ADJUSTMENT FOR THE MAXIMUM SALES CHARGE OF 5.75%, AND FOR CLASS B SHARES, ADJUSTMENT FOR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC). THE MAXIMUM CDSC FOR CLASS B SHARES IS 4%. CLASS C SHARES HAVE NO SALES CHARGE ADJUSTMENT. FOR CLASS C SHARES, THERE IS A 1% CDSC ON CERTAIN REDEMPTIONS WITHIN THE FIRST YEAR OF PURCHASE. 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. IN COMPARING KEMPER BLUE CHIP FUND CLASS A SHARES WITH THE STANDARD & POORS 500 STOCK INDEX, 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 INDEX. (+)THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS WIESENBERGER. (++)THE RUSSELL 1000 INDEX IS AN UNMANAGED CAPITALIZATION WEIGHTED PRICE ONLY INDEX COMPRISED OF THE LARGEST CAPITALIZED U.S. COMPANIES WHOSE COMMON STOCKS ARE TRADED IN THE UNITED STATES. SOURCE IS WIESENBERGER. 8 9 INDUSTRY SECTORS KEMPER BLUE CHIP FUNDS HOLDINGS Data show the percentage of the common stocks in the portfolio that each sector represented on October 31, 1999. [BAR GRAPH]
KEMPER BLUE CHIP FUND ON 10/31/99 --------------------------------- TECHNOLOGY 18.6% FINANCIAL 14.9% HEALTH 12.9% CONSUMER DISCRETIONARY 10.3% MEDIA 9.8% MANUFACTURING 7.2% COMMUNICATIONS 6.3% ENERGY 5.6% CONSUMER STAPLES 5.4% SERVICE INDUSTRIES 3.7% MONEY MARKET INSTRUMENTS 2.9% DURABLES 1.6% TRANSPORTATION 0.8%
KEMPER BLUE CHIP FUND ON 10/31/99 9 10 LARGEST HOLDINGS TOP 10 HOLDINGS* Representing 23.4 percent of the fund's common stock on October 31, 1999
- --------------------------------------------------------------------------------------- HOLDINGS PERCENT - --------------------------------------------------------------------------------------- 1. GENERAL ELECTRIC A broadly diversified company with 3.2% major businesses in power generators, appliances, lighting, plastics, medical systems, aircraft engines, financial services and broadcasting. - --------------------------------------------------------------------------------------- 2. INTEL Engaged in the design, development, 2.9% manufacture and sale of advanced microcomputer components, including semiconductors and other related products. - --------------------------------------------------------------------------------------- 3. MICROSOFT Develops, markets and supports a 2.8% variety of software, operating systems, and language and application programs. - --------------------------------------------------------------------------------------- 4. WAL-MART Large, global retailer with 2.3% 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. - --------------------------------------------------------------------------------------- 5. CISCO SYSTEMS Large, comprehensive supplier of 2.2% routing software and related systems that direct the flow of data between local networks. - --------------------------------------------------------------------------------------- 6. MOTOROLA Manufactures components, notably 2.1% semiconductors, and electronic communications equipment. - --------------------------------------------------------------------------------------- 7. SBC COMMUNICATIONS Regional Bell operating company, 2.1% formerly Southwestern Bell and Ameritech. - --------------------------------------------------------------------------------------- 8. TANDY Major retailer of electronics, 2.0% cellular phones, security systems and accessories under the Radio Shack name. - --------------------------------------------------------------------------------------- 9. BELL ATLANTIC Provider of information and 1.9% telecommunications services. Subsidiaries provide telephone services to the mid-Atlantic region, cellular telecommunications, software, network support and computer maintenance. - --------------------------------------------------------------------------------------- 10. CITIGROUP Leading global financial-services 1.9% provider. Operations include a wide variety of insurance products and banking services, managed health-care programs, asset management, investment services and credit-card services. - ---------------------------------------------------------------------------------------
*Portfolio composition and holdings are subject to change. 10 11 PORTFOLIO OF INVESTMENTS KEMPER BLUE CHIP FUND PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1999 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--9.5% DEPARTMENT & CHAIN STORES--6.2% Dayton Hudson Corp. 240,000 $ 15,510 (a) Federated Department Store, Inc. 175,000 7,470 Home Depot, Inc. 178,000 13,439 Wal-Mart Stores, Inc. 360,600 20,442 ------------------------------------------------------------------------ 56,861 RESTAURANTS--1.4% McDonald's Corp. 305,000 12,581 ------------------------------------------------------------------------ SPECIALTY RETAIL--1.9% Tandy Corp. 285,000 17,937 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--5.4% FOOD & BEVERAGE--3.8% Bestfoods 127,000 7,461 Dean Foods Co. 120,000 5,550 H.J. Heinz Co. 200,000 9,550 PepsiCo, Inc. 360,000 12,488 ------------------------------------------------------------------------ 35,049 PACKAGE GOODS/COSMETICS--1.6% Procter & Gamble Co. 142,000 14,892 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- HEALTH--12.9% BIOTECHNOLOGY--1.2% (a) Biogen, Inc. 85,000 6,300 (a) Genentech, Inc. 33,000 4,810 ------------------------------------------------------------------------ 11,110 MEDICAL SUPPLY & SPECIALTY--1.6% Baxter International, Inc. 145,000 9,407 Medtronic, Inc. 164,254 5,687 ------------------------------------------------------------------------ 15,094 PHARMACEUTICALS--10.1% Abbott Laboratories 175,000 7,066 Allergan, Inc. 101,300 10,877 American Home Products Corp. 233,400 12,195 Bristol-Myers Squibb Co. 194,000 14,902 Johnson & Johnson 105,000 10,999 Merck & Co., Inc. 80,000 6,365 Pfizer, Inc. 205,000 8,097 Schering-Plough Corp. 184,400 9,128 Warner-Lambert Co. 160,000 12,770 ------------------------------------------------------------------------ 92,399 - ------------------------------------------------------------------------------------------------------------------------- COMMUNICATIONS--6.3% TELEPHONE/COMMUNICATIONS AT&T Corp. 112,500 5,259 Bell Atlantic Corp. 265,000 17,208 (a) Global Crossing Ltd. 138,375 4,791 (a) MCI WorldCom, Inc. 137,700 11,816 SBC Communications, Inc. 372,818 18,990 ------------------------------------------------------------------------ 58,064 - ------------------------------------------------------------------------------------------------------------------------- FINANCIAL--14.9% BANKS--4.5% Chase Manhattan Corp. 73,600 6,431 Compass Bancshares, Inc. 206,300 5,506 First Tennessee National Corp. 209,000 7,106 J.P. Morgan & Co., Inc. 55,000 7,198 US Bancorp 150,000 5,559 Wells Fargo Co. 195,000 9,336 ------------------------------------------------------------------------ 41,136
11 12 PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- INSURANCE--4.4% American International Group, Inc. 137,375 $ 14,141 Cigna Corp. 121,900 9,112 Hartford Financial Service Group, Inc. 4,200 218 Jefferson Pilot Corp. 113,150 8,493 St. Paul Companies, Inc. 271,000 8,672 ------------------------------------------------------------------------ 40,636 CONSUMER FINANCE--6.0% American Express Credit Corp. 87,000 13,398 Capital One Finance Corp. 220,000 11,660 Citigroup, Inc. 305,000 16,508 Household International, Inc. 303,916 13,562 ------------------------------------------------------------------------ 55,128 - ------------------------------------------------------------------------------------------------------------------------- MEDIA--9.8% ADVERTISING--.8% Young & Rubicam, Inc. 170,300 7,791 ------------------------------------------------------------------------ BROADCASTING & ENTERTAINMENT--5.0% (a) CBS Corp. 219,400 10,709 (a) Clear Channel Communication, Inc. 101,012 8,119 (a) Infinity Broadcasting Corp. 283,800 9,809 Time Warner, Inc. 116,000 8,084 (a) Univision Communication, Inc. 106,900 9,093 ------------------------------------------------------------------------ 45,814 CABLE TELEVISION--2.8% (a) AT&T Corp -- Liberty Media Group 240,000 9,525 Comcast Corp. "A" 190,000 8,004 (a) Media One Group, Inc. 110,000 7,817 ------------------------------------------------------------------------ 25,346 PRINT MEDIA--1.2% Tribune Co. 180,000 10,800 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- SERVICE INDUSTRIES--3.7% EDP SERVICES--2.5% Automatic Data Processing, Inc. 200,000 9,638 Electronic Data Systems Corp. 220,000 12,870 ------------------------------------------------------------------------ 22,508 INVESTMENT--.6% Merrill Lynch & Co., Inc. 65,000 5,103 ------------------------------------------------------------------------ PRINTING/PUBLISHING--.6% McGraw-Hill, Inc. 98,700 5,885 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- DURABLES--1.6% AEROSPACE--.8% United Technologies Corp. 115,000 6,958 ------------------------------------------------------------------------ TELECOMMUNICATIONS EQUIPMENT--.8% Lucent Technologies, Inc. 120,000 7,710 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- MANUFACTURING--7.2% DIVERSIFIED MANUFACTURING--4.8% General Electric Co. 212,800 28,848 Tyco International Ltd. (New) 384,744 15,366 ------------------------------------------------------------------------ 44,214 ELECTRICAL PRODUCTS--.7% Emerson Electric Co. 105,900 6,361 ------------------------------------------------------------------------ INDUSTRIAL SPECIALTY--.9% Corning, Inc. 100,000 7,863 ------------------------------------------------------------------------ MACHINERY/COMPONENTS/CONTROLS--.8% Parker-Hannifin Corp. 165,000 7,559 ------------------------------------------------------------------------
12 13 PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--18.6% COMPUTER SOFTWARE--3.9% (a) Microsoft Corp. 270,000 $ 24,992 (a) Oracle Corp. 233,150 11,089 ------------------------------------------------------------------------ 36,081 DIVERSE ELECTRONIC PRODUCTS--5.6% (a) Applied Materials, Inc. 136,800 12,286 Motorola, Inc. 195,000 19,000 (a) Solectron Corp. 167,000 12,567 (a) Teradyne, Inc. 192,000 7,392 ------------------------------------------------------------------------ 51,245 ELECTRONIC COMPONENTS/ DISTRIBUTORS--2.7% (a) Altera Corp. 105,000 5,106 (a) Cisco Systems, Inc. 261,200 19,329 ------------------------------------------------------------------------ 24,435 ELECTRONIC DATA PROCESSING--2.7% Hewlett-Packard Co. 117,000 8,665 International Business Machines Corp. 69,200 6,808 (a) Sun Microsystems, Inc. 87,000 9,206 ------------------------------------------------------------------------ 24,679 SEMICONDUCTORS--3.7% Intel Corp. 328,400 25,430 Texas Instruments, Inc. 31,000 2,782 (a) Xilinx, Inc. 76,800 6,038 ------------------------------------------------------------------------ 34,250 - ------------------------------------------------------------------------------------------------------------------------- ENERGY--5.6% OIL & GAS PRODUCTION--2.4% Coastal Corp. 150,000 6,319 Conoco, Inc. "A" 191,800 5,263 Royal Dutch Petroleum Co. (New York shares) 180,000 10,789 ------------------------------------------------------------------------ 22,371 OIL COMPANIES--2.4% Exxon Corp. 100,000 7,406 Mobil Corp. 77,600 7,488 Texaco, Inc. 110,800 6,800 ------------------------------------------------------------------------ 21,694 OILFIELD SERVICES/EQUIPMENT--.8% Schlumberger Ltd. 123,000 7,449 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION--.8% RAILROADS Canadian National Railway Co. 239,000 7,253 ------------------------------------------------------------------------ TOTAL COMMON STOCKS--96.3% (Cost: $697,666) 884,256 ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK - ------------------------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--.8% DEPARTMENT & CHAIN STORES CVS Corp. 93,600 7,242 ------------------------------------------------------------------------ TOTAL CONVERTIBLE PREFERRED STOCK--.8% (Cost: $6,948) 7,242 ------------------------------------------------------------------------
13 14 PORTFOLIO OF INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS--2.9% (b) Repurchase agreement-- State Street Bank and Trust Company dated 10/29/99, 5.20%, due 11/1/99 $ 124 $ 124 Other Yield--5.32% to 5.40% Due--November 1999 27,000 26,984 ------------------------------------------------------------------------ TOTAL MONEY MARKET INSTRUMENTS--2.9% (Cost: $27,108) 27,108 ------------------------------------------------------------------------ TOTAL INVESTMENT PORTFOLIO--100% (Cost: $731,722) 918,606 ------------------------------------------------------------------------
- ------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS - ------------------------------------------------------------------------------- (a) Non-income producing security. (b) Repurchase agreement is fully collateralized by U.S. Treasury or Government agency securities. Based on the cost of investments of $731,983 for federal income tax purposes at October 31, 1999, the gross unrealized appreciation was $191,120, the gross unrealized depreciation was $4,497 and the net unrealized appreciation on investments was $186,623. See accompanying Notes to Financial Statements. 14 15 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1999 (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments at value (Cost: $731,722) $918,606 - ------------------------------------------------------------------------ Receivable for: Investments sold 4,118 - ------------------------------------------------------------------------ Fund shares sold 2,730 - ------------------------------------------------------------------------ Dividends and interest 548 - ------------------------------------------------------------------------ Foreign taxes recoverable 42 - ------------------------------------------------------------------------ TOTAL ASSETS 926,044 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES - ------------------------------------------------------------------------ Due to custodian bank 5 - ------------------------------------------------------------------------ Payable for: Investments purchased 7,963 - ------------------------------------------------------------------------ Fund shares redeemed 1,723 - ------------------------------------------------------------------------ Management fee 420 - ------------------------------------------------------------------------ Other accrued expenses 925 - ------------------------------------------------------------------------ Total liabilities 11,036 - ------------------------------------------------------------------------ NET ASSETS $915,008 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET ASSETS - ------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investments $186,884 - ------------------------------------------------------------------------ Undistributed net realized gain (loss) on investments 33,696 - ------------------------------------------------------------------------ Paid-in capital 694,428 - ------------------------------------------------------------------------ NET ASSETS, AT MARKET VALUE $915,008 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET ASSET VALUE - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($547,027 / 26,352 shares outstanding) $20.76 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $22.03 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($314,154 / 15,327 shares outstanding) $20.50 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($44,158 / 2,139 shares outstanding) $20.64 - ------------------------------------------------------------------------ CLASS I SHARES Net asset value and redemption price per share ($9,669 / 461 shares outstanding) $20.99 - ------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 15 16 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1999 (IN THOUSANDS) - ------------------------------------------------------------------------ NET INVESTMENT INCOME - ------------------------------------------------------------------------ Dividends (net of foreign taxes withheld of $76) $ 8,368 - ------------------------------------------------------------------------ Interest 1,391 - ------------------------------------------------------------------------ Total investment income 9,759 - ------------------------------------------------------------------------ Expenses: Management fee 4,172 - ------------------------------------------------------------------------ Distribution services fee 1,993 - ------------------------------------------------------------------------ Administrative services fee 1,830 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 2,793 - ------------------------------------------------------------------------ Audit 33 - ------------------------------------------------------------------------ Legal 25 - ------------------------------------------------------------------------ Reports to shareholders 210 - ------------------------------------------------------------------------ Trustees' fees 17 - ------------------------------------------------------------------------ Registration fees 31 - ------------------------------------------------------------------------ Other 24 - ------------------------------------------------------------------------ Expenses, before expense reductions 11,128 - ------------------------------------------------------------------------ Expense reductions (20) - ------------------------------------------------------------------------ Expenses, net 11,108 - ------------------------------------------------------------------------ NET INVESTMENT LOSS (1,349) - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS - ------------------------------------------------------------------------ Net realized gain (loss) on investments 35,073 - ------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) on investments 138,413 - ------------------------------------------------------------------------ Net gain (loss) on investments 173,486 - ------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $172,137 - ------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
YEAR ENDED OCTOBER 31, --------------------------- 1999 1998 - ------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS - ------------------------------------------------------------------------------------------- Net investment income (loss) $ (1,349) 2,046 - ------------------------------------------------------------------------------------------- Net realized gain 35,073 14,402 - ------------------------------------------------------------------------------------------- Change in net unrealized appreciation 138,413 14,596 - ------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 172,137 31,044 - ------------------------------------------------------------------------------------------- Distribution from net investment income -- (3,360) - ------------------------------------------------------------------------------------------- Distribution from net realized gain (14,610) (57,273) - ------------------------------------------------------------------------------------------- Total dividends to shareholders (14,610) (60,633) - ------------------------------------------------------------------------------------------- Net increase from capital share transactions 175,711 164,468 - ------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 333,238 134,879 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- NET ASSETS - ------------------------------------------------------------------------------------------- Beginning of period 581,770 446,891 - ------------------------------------------------------------------------------------------- END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $0 AND $100, RESPECTIVELY) $915,008 581,770 - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 16 17 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper Blue Chip 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. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. If there are no such bid and asked quotations, the most recent bid quotation shall be used. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board of Trustees. FOREIGN CURRENCY TRANSLATIONS. The books and records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities 17 18 NOTES TO FINANCIAL STATEMENTS denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions. Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities. 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 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. At October 31, 1999, the fund had a net tax basis capital loss carryforward of approximately $656,000, which may be applied with certain limitations against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2004, the expiration date, whichever occurs first. DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income, if any, are made semiannually. 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. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the fund is informed of such dividends. 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. 18 19 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 $4,172,000 for the year ended October 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 year ended October 31, 1999 are $159,000. For services under the distribution services agreement, the fund pays KDI a fee of .75% of average daily net assets of the Class B and Class C shares pursuant to 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 October 31, 1999 are $2,642,000, of which $485,000 is unpaid. 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 October 31, 1999 is $1,830,000 of which $217,000 is unpaid. SHAREHOLDER SERVICE 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 $2,067,000 for the year ended October 31, 1999. OFFICERS AND TRUSTEES. Certain officers or trustees of the fund are also officers or directors of Scudder Kemper. For the year ended October 31, 1999, the fund made no payments to its officers and incurred trustees fees of $17,000 to independent trustees. - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the year ended October 31, 1999, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $701,678 Proceeds from sales 533,641 19 20 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the fund (in thousands):
YEAR ENDED YEAR ENDED OCTOBER 31, 1999 OCTOBER 31, 1998 ----------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------- SHARES SOLD Class A 14,129 $ 272,091 11,964 $ 209,520 -------------------------------------------------------------------------------- Class B 9,083 173,987 5,871 100,251 -------------------------------------------------------------------------------- Class C 1,551 29,890 1,127 19,586 -------------------------------------------------------------------------------- Class I 243 4,718 618 5,130 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SHARES ISSUED IN REINVESTMENT OF DIVIDENDS Class A 513 9,053 2,455 39,357 -------------------------------------------------------------------------------- Class B 238 4,181 977 16,436 -------------------------------------------------------------------------------- Class C 32 564 88 1,411 -------------------------------------------------------------------------------- Class I 6 115 50 799 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SHARES REDEEMED Class A (12,065) (232,506) (9,419) (162,406) -------------------------------------------------------------------------------- Class B (4,169) (79,248) (2,905) (52,942) -------------------------------------------------------------------------------- Class C (894) (17,299) (449) (7,602) -------------------------------------------------------------------------------- Class I (240) (4,557) (620) (5,072) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CONVERSION OF SHARES Class A 670 12,878 378 6,592 -------------------------------------------------------------------------------- Class B (677) (12,878) (379) (6,592) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SHARES ISSUED IN ACQUISITION (SEE NOTE 8) Class A 324 5,950 -- -- -------------------------------------------------------------------------------- Class B 277 5,074 -- -- -------------------------------------------------------------------------------- Class C 84 1,540 -- -- -------------------------------------------------------------------------------- Class I 116 2,158 -- -- -------------------------------------------------------------------------------- NET INCREASE FROM CAPITAL SHARE TRANSACTIONS $ 175,711 $ 164,468 --------------------------------------------------------------------------------
20 21 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 7 EXPENSE OFF-SET ARRANGEMENTS The fund has entered into arrangements with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. During the period, the fund's custodian fees were reduced by $20,000 under these arrangements. - -------------------------------------------------------------------------------- 8 ACQUISITION OF ASSETS On February 5, 1999, the fund acquired all the net assets of Kemper Quantitative Equity Fund pursuant to a plan of reorganization approved by shareholders on September 18, 1998. The acquisition was accomplished by a tax-free exchanges of 324,000, 277,000, 84,000, and 116,000 shares of Class A, Class B, Class C, and Class I respectively, of the fund (valued at $5,950,000, $5,074,000, $1,540,000 and $2,158,000) for 430,000, 376,000, 114,000, and 155,000 shares of Class A, Class B, Class C and Class I, respectively, of Kemper Quantitative Equity Fund outstanding on February 5, 1999. Kemper Quantitative Equity Fund's net assets at the date ($14,722,000), including $3,618,000 of unrealized appreciation, were combined with those of the fund. The aggregate net assets of the fund immediately before the acquisition were $666,287,000. The combined net assets of the fund immediately following the acquisition were $681,009,000. 21 22 FINANCIAL HIGHLIGHTS
----------------------------------------------- CLASS A ----------------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------- Net asset value, beginning of year $16.61 17.68 17.14 14.87 12.33 - --------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) .02 .11 .18 .22 .19 - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 4.55 1.17 3.70 3.45 2.57 - --------------------------------------------------------------------------------------------------- Total from investment operations 4.57 1.28 3.88 3.67 2.76 - --------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- .16 .21 .20 .20 - --------------------------------------------------------------------------------------------------- Net realized gain .42 2.19 3.13 1.20 .02 - --------------------------------------------------------------------------------------------------- Total distributions .42 2.35 3.34 1.40 .22 - --------------------------------------------------------------------------------------------------- Net asset value, end of year $20.76 16.61 17.68 17.14 14.87 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 27.96% 7.80 26.78 26.72 22.74 - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------------------------------- Expenses, before expense reductions 1.19% 1.29 1.19 1.26 1.30 - --------------------------------------------------------------------------------------------------- Expenses, net 1.19% 1.29 1.19 1.26 1.30 - --------------------------------------------------------------------------------------------------- Net investment income (loss) .13% .62 1.07 1.40 1.47 - ---------------------------------------------------------------------------------------------------
----------------------------------------------- CLASS B ----------------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------------------- Net asset value, beginning of year $16.55 17.61 17.09 14.82 12.29 - --------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.14) (.03) .04 .10 .09 - --------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 4.51 1.17 3.67 3.45 2.56 - --------------------------------------------------------------------------------------------------- Total from investment operations 4.37 1.14 3.71 3.55 2.65 - --------------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- .01 .06 .08 .10 - --------------------------------------------------------------------------------------------------- Net realized gain .42 2.19 3.13 1.20 .02 - --------------------------------------------------------------------------------------------------- Total distributions .42 2.20 3.19 1.28 .12 - --------------------------------------------------------------------------------------------------- Net asset value, end of year $20.50 16.55 17.61 17.09 14.82 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 26.83% 6.96 25.62 25.82 21.76 - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------------------------------------- Expenses, before expense reductions 2.07% 2.10 2.06 2.08 2.06 - --------------------------------------------------------------------------------------------------- Expenses, net 2.07% 2.10 2.06 2.08 2.06 - --------------------------------------------------------------------------------------------------- Net investment income (loss) (.75)% (.19) .20 .58 .71 - ---------------------------------------------------------------------------------------------------
22 23 FINANCIAL HIGHLIGHTS
------------------------------------------- CLASS C ------------------------------------------- YEAR ENDED OCTOBER 31, 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------- Net asset value, beginning of year $16.65 17.69 17.15 14.88 12.32 - -------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.13) (.01) .03 .10 .07 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 4.54 1.18 3.71 3.45 2.62 - -------------------------------------------------------------------------------------- Total from investment operations 4.41 1.17 3.74 3.55 2.69 - -------------------------------------------------------------------------------------- Less distributions from: Net investment income -- .02 .07 .08 .11 - -------------------------------------------------------------------------------------- Net realized gain .42 2.19 3.13 1.20 .02 - -------------------------------------------------------------------------------------- Total distributions .42 2.21 3.20 1.28 .13 - -------------------------------------------------------------------------------------- Net asset value, end of year $20.64 16.65 17.69 17.15 14.88 - -------------------------------------------------------------------------------------- TOTAL RETURN 26.91% 7.08 25.71 25.75 22.04 - -------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------------------- Expenses, before expense reductions 1.98% 2.03 2.00 2.05 2.01 - -------------------------------------------------------------------------------------- Expenses, net 1.97% 2.03 2.00 2.05 2.01 - -------------------------------------------------------------------------------------- Net investment income (loss) (.65)% (.12) .26 .61 .76 - --------------------------------------------------------------------------------------
------------------------------------------ CLASS I ------------------------------------------ NOVEMBER 22, YEAR ENDED OCTOBER 31, 1995 TO --------------------------- OCTOBER 31, 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $16.68 17.72 17.18 15.30 - ---------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .13 .21 .32 .36 - ---------------------------------------------------------------------------------------------- Net realized and unrealized gain 4.60 1.19 3.58 2.96 - ---------------------------------------------------------------------------------------------- Total from investment operations 4.73 1.40 3.90 3.32 - ---------------------------------------------------------------------------------------------- Less distributions from: Net investment income -- .25 .23 .24 - ---------------------------------------------------------------------------------------------- Net realized gain .42 2.19 3.13 1.20 - ---------------------------------------------------------------------------------------------- Total dividends .42 2.44 3.36 1.44 - ---------------------------------------------------------------------------------------------- Net asset value, end of period $20.99 16.68 17.72 17.18 - ---------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 28.81% 8.53 26.89 21.89 - ---------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------------------------------------------- Expenses, before expense reductions .72% .68 .70 1.31 - ---------------------------------------------------------------------------------------------- Expenses, net .72% .68 .70 1.31 - ---------------------------------------------------------------------------------------------- Net investment income (loss) .60% 1.23 1.56 1.33 - ----------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES - ---------------------------------------------------------------------------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------------------------ 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Net assets at end of period (in thousands) $915,008 581,770 446,891 256,172 168,266 - ---------------------------------------------------------------------------------------------------------- Portfolio turnover rate (annualized) 75% 157 183 166 117 - ----------------------------------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share data for the year ended October 31, 1999 was determined based on average shares outstanding. 23 24 FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- TAX INFORMATION - ------------------------------------------------------------------------------- The fund paid distributions of $.42 per share from net long-term capital gains during the year ended October 31, 1999, of which 100% represents 20% rate gains. Pursuant to Section 852 of the Internal Revenue Code, the fund designates $38,700,000, as capital gain dividends for the year ended October 31, 1999, of which 100% represent 20% rate gains. For corporate shareholders 100% of the income dividends paid during the year ended October 31, 1999 qualified for the dividends received deduction. Please consult a tax adviser if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your Kemper Fund account, please call 1-800-621-1048. 24 25 REPORT OF INDEPENDENT AUDITORS THE BOARD OF TRUSTEES AND SHAREHOLDERS KEMPER BLUE CHIP FUND We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Kemper Blue Chip Fund as of October 31, 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 October 31, 1999, by correspondence with the custodian. 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 Blue Chip Fund at October 31, 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 LOGO Chicago, Illinois December 20, 1999 25 26 NOTES 26 27 NOTES 27 28 TRUSTEES & OFFICERS TRUSTEES OFFICERS JOHN W. BALLANTINE MARK S. CASADY LINDA J. WONDRACK Trustee President Vice President LEWIS A. BURNHAM PHILIP J. COLLORA MAUREEN E. KANE Trustee Vice President and Assistant Secretary Secretary DONALD L. DUNAWAY CAROLINE PEARSON Trustee JOHN R. HEBBLE Assistant Secretary Treasurer ROBERT B. HOFFMAN BRENDA LYONS Trustee TRACY MCCORMICK Assistant Treasurer Vice President DONALD R. JONES Trustee ANN M. MCCREARY Vice President THOMAS W. LITTAUER Trustee and Vice President KATHRYN L. QUIRK Vice President SHIRLEY D. PETERSON Trustee CORNELIA SMALL Trustee and Vice President 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 219557 Kansas City, MO 64121 - -------------------------------------------------------------------------------- CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street Boston, MA 02110 - -------------------------------------------------------------------------------- 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 DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606 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 Fund/Growth Style prospectus. KBCF - 2 (12/23/99) 1096630 -----END PRIVACY-ENHANCED MESSAGE-----