<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER SMALL CAP
RELATIVE VALUE FUND
"... While we lagged the 19.07 percent of the Russell 2000, a benchmark for
small-cap stocks that includes both value and growth styles, we handily
outperformed the 5.83 percent return of Russell 2000 Value index, the benchmark
for small-cap value stocks and the fund. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
Contents
3
Economic Overview
5
Performance Update
9
Industry Sectors
10
Largest Holdings
11
Portfolio Of Investments
17
Financial Statements
19
Notes To Financial Statements
23
Financial Highlights
24
Reports Of Independent Auditors
At A GLANCE
- ----------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE VALUE
FUND TOTAL RETURNS*
- ----------------------------------------------------------------------------
FOR THE YEAR ENDING SEPTEMBER 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS A 10.45%
CLASS B 9.55%
CLASS C 9.54%
LIPPER SMALL CAP VALUE FUNDS CATEGORY AVERAGE* 12.33%
</TABLE>
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 ARE BASED UPON CHANGES IN NET ASSET
VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES
CHARGES. IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
- -------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AS OF AS OF
9/30/99 9/30/98
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAP RELATIVE
VALUE FUND CLASS A $8.35 $7.57
- ---------------------------------------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE
VALUE FUND CLASS B $8.26 $7.54
- ---------------------------------------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE
VALUE FUND CLASS C $8.27 $7.55
- ---------------------------------------------------------------------------------------------------------
</TABLE>
KEMPER SMALL CAP RELATIVE VALUE FUND
LIPPER RANKINGS AS OF 9/30/99*
COMPARED TO ALL OTHER RELATIVE FUNDS IN THE LIPPER SMALL COMPANY VALUE FUNDS
CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #140 of 295 funds #150 of 295 funds #151 of 295 funds
- ---------------------------------------------------------------------------------------------------------
</TABLE>
INVESTING IN SECURITIES OF SMALL COMPANIES MAY INVOLVE A GREATER RISK OF LOSS
AND MORE ABRUPT FLUCTUATIONS IN THE MARKET PRICE THAN INVESTMENTS IN LARGER
COMPANIES.
TERMS TO KNOW
GROWTH STOCK Growth stocks are those that are expected to experience rapid
growth resulting from strong sales, dominant market positions and talented
management teams. Because these stocks are in demand, they're generally more
expensive than value stocks.
NARROW MARKET A narrow market is a securities market in which most of the gains
are earned by only a small group of companies. In 1998 and most of 1999 a narrow
market existed in which only the largest growth-style stocks enjoyed robust
gains.
PRICE/EARNINGS RATIO A price/earnings ratio (P/E) is a company's stock price
divided by its earnings for the past four quarters. The P/E ratio, also known as
the multiple, is a measure of how much an investor is paying for a company's
earning power.
SECTOR A sector comprises stocks usually found in related industries. Financial,
economic, business and other developments may affect stocks within a market
sector similarly.
VALUE STOCK Value stocks are considered to be bargain stocks because they are
perceived as undervalued and attractively priced relative to a measure of their
true worth, such as earnings potential, book value, cash flow or dividend yield.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers are buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight labor
markets -- i.e., many "help-wanted" signs -- forces companies to pay a premium
for talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data which were
released in late October: The Bureau of Economic Analysis (BEA) released its
third-quarter estimate of gross domestic product (GDP), the value of all goods
and services produced in the United States, and the Bureau of Labor Statistics
(BLS) released its employment cost index (ECI), which measures what employers
pay for their workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
These figures tell us that the Fed won't have inflation as an excuse to raise
interest rates for a third time this year when it meets on Nov. 16 to decide
whether to raise key interest rates for the third time this year.
But more importantly, if these numbers prove anything, it's that conventional
wisdom that growth causes inflation should be turned on its head. The Fed, in
deciding to
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (10/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 6.1 5.2 4.5 6.0
Prime rate 2 8.25 7.75 8.25 8.5
Inflation rate 3* 2.6 1.8 1.4 2.2
The U.S. dollar 4 -0.9 -0.5 1.1 7.6
Capital goods orders 5* 5.25 5.5 8.6 4.6
Industrial production 5* 2.4 2.0 2.65 6.1
Employment growth 6 2.2 2.3 2.4 2.7
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 9/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
target growth itself, wants the country to slow down to prevent an inflation
outbreak. This is a dangerous game. If it succeeds in slowing growth, inflation
could easily disappear or turn into deflation. Real rates that are already high
would turn punitive. Credit quality would deteriorate rudely. Only rapid growth
can ensure that companies and consumers can continue to pay their bills.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 28, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
Performance Update
[EYSENBACH PHOTO]
JAMES (MAC) EYSENBACH IS THE LEAD PORTFOLIO MANAGER FOR KEMPER SMALL CAP
RELATIVE VALUE FUND. EYSENBACH JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1991.
HE IS A CHARTERED FINANCIAL ANALYST. HE HOLDS AN M.B.A. DEGREE IN FINANCE FROM
THE ANDERSON SCHOOL AT UCLA.
[YOUNG PHOTO]
CALVIN YOUNG IS A PORTFOLIO MANAGER OF THE FUND. HE JOINED THE ORGANIZATION IN
1990. YOUNG EARNED AN M.B.A. FROM GOLDEN GATE UNIVERSITY.
THE TEAM IS SUPPORTED BY INVESTMENT PROFESSIONALS INCLUDING ECONOMISTS, RESEARCH
ANALYSTS, TRADERS AND OTHER INVESTMENT SPECIALISTS THROUGHOUT THE UNITED STATES
AND ABROAD.
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 SMALL CAP RELATIVE VALUE FUND'S FISCAL YEAR -- OCTOBER 1, 1998 THROUGH
SEPTEMBER 30, 1999, WAS CHARACTERIZED BY A GREAT DEAL OF VOLATILITY IN A MARKET
LED PRIMARILY BY LARGE-CAP GROWTH STOCKS. LEAD PORTFOLIO MANAGER JAMES (MAC)
EYSENBACH EXPLAINS HOW THE FUND FARED DURING THIS DIFFICULT TIME FOR SMALL-CAP
VALUE INVESTORS.
Q TELL US ABOUT THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS?
A The last 12 months were very difficult for small-cap value stocks. Given
this environment, though, we're very pleased with the fund's gain of 10.45
percent (Class A shares, unadjusted for any sales charge) for the year ended
September 30, 1999.
While we lagged the 19.07 percent of the Russell 2000, a benchmark for
small-cap stocks that includes both value and growth styles, we handily
outperformed the 5.83 percent return of Russell 2000 Value index, the benchmark
for small-cap value stocks and the fund.
The reason for our relative shortfall to the Russell 2000 is best
illustrated in the table below. The 12-month period was clearly led by
growth-style stocks and, for most of the period, by large-cap growth stocks. As
you can see, the segments of the markets in which the fund does not invest --
large- and small-cap growth stocks in particular -- dominated the market during
this period.
-------------------------------------------------------------------------------
LARGE-CAP GROWTH STOCKS
DOMINATED THE MARKET
-------------------------------------------------------------------------------
BENCHMARK RETURNS FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
12-MONTH
TOTAL RETURN
REPRESENTATIVE 10/1/98 -
OF INDEX 9/30/99
- ------------------------------------------------------
<S> <C> <C>
RUSSELL 1000 Large-Cap 34.85%
GROWTH Growth
- ------------------------------------------------------
RUSSELL 2000 Small-Cap 32.63%
GROWTH Growth
- ------------------------------------------------------
RUSSELL 1000 Large-Cap 26.97%
Blend
- ------------------------------------------------------
RUSSELL 2000 Small-Cap 19.07%
Blend
- ------------------------------------------------------
RUSSELL 1000 Large-Cap 18.72%
VALUE Value
- ------------------------------------------------------
RUSSELL 2000 Small-Cap 5.83%
VALUE Value
- ------------------------------------------------------
</TABLE>
The disparity between small value and large growth has been striking. There
appeared to be a change in direction in the second quarter of 1999 as value
stocks rallied, but the performance was unsustained. We are heartened, though,
that we've seen some gains made by small-cap stocks during the last six months.
We do believe that in time the market will broaden its leadership and that both
small-cap stocks and value stocks will gain momentum.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT CAUSED THIS DISPARITY?
A At the start of the fiscal period, there were ongoing fears of a global
financial crisis. Investors largely remained in the market, but shied away from
small-cap stocks and value stocks because they perceived them to be more risky.
Investors instead favored large growth stocks as "safe havens." Internet stocks
also began to capture investors' attention. The market shunned virtually all
other stocks.
In April 1999, it looked as if the tide was turning. Fears of a global economic
crisis had abated and confidence returned to the market. As a result, the market
began to broaden with value stocks and small stocks rallying. Unfortunately, the
rally was short-lived. Amid rising interest rates in the third calendar quarter
of 1999, stock prices fell. Only technology stocks gained, as the market shifted
its focus back towards this favored segment of the market, despite the stocks'
high valuations.
During the last six months of the period, we began to see some gains in the
performance of small-cap stocks. The gains were concentrated in the growth-style
small-cap stocks, but for the first time in more than a year, small-cap stocks
were gaining.
Q DID THE FUND'S INVESTMENT STRATEGY HELP THIS PERIOD?
A Yes, our relative value strategy did help us out. We use a relative value
strategy to select investments from each major sector of the small-cap market as
part of a well-diversified, risk-managed portfolio. We seek attractively priced
stocks in each sector based on sales, earnings, book values and other measures
of firm value, measured in relation to companies within the same economic
sector. Using this approach, we choose only those stocks that we believe
represent the best values within each sector. We don't attempt to forecast which
sectors are going to perform best or forecast the direction of the overall
market. Instead we maintain sector weightings in line with the overall small-cap
market, as measured by the Russell 2000 (excluding real estate investment
trusts).
Our relative value approach helped us during this narrow market as it allowed us
to participate in the better-performing technology and telecommunications
sectors. An absolute value investment approach would typically be underweighted
in these higher-priced sectors. That's the primary reason the fund outperformed
the Russell 2000 Value index over the past 12 months.
Q WHAT WERE THE STRONGEST PERFORMING SECTORS OVER THE LAST 12 MONTHS?
A The fund's strongest performing sectors were transportation and energy.
Our transportation holdings were up 59 percent versus 20 percent for the Russell
2000 for the 12-month period. Early in the year there had been fears of a
slowdown in the economy and transportation companies tend be very susceptible to
economic downturns. By the end of the first quarter, economic numbers were
looking strong again in the U.S. and these stocks rebounded. In particular, the
undervalued transportation stocks held by the fund enjoyed a greater rebound
than the overall sector.
During the year our energy holdings gained 36 percent versus 14 percent for the
Russell 2000. This was an area of the market that had been depressed because of
the falling commodity prices and weaker demand overseas. Energy stocks had been
beaten down to such a low level, that with the first slight improvement in
pricing, the stocks rebounded significantly. We hope to see this same sort of
shift in other areas of the market where value stocks have been badly beaten
down.
Q WHAT SECTORS HINDERED PERFORMANCE?
A Even though we had strong gains in some sectors, such as technology and
telecommunications, they underperformed the gains made in those sectors of the
Russell 2000.
Our telecommunications stocks were up 61 percent. In a normal market, you would
think that gain was terrific, but the Russell 2000 telecommunications sector
gained an even more impressive 84 percent. Additionally telecommunications
represented a small portion of the fund's portfolio -- less than 3 percent. The
fund's technology holdings gained 22 percent, which was well short of the 60
percent return for the index. Our valuation discipline kept us from
participating in the spectacular gains among Internet stocks that drove the
index returns. Since technology is one of the largest sectors in the Russell
2000, this shortfall had a bigger impact on the fund than the strong performance
in other smaller sectors. The fund also lost ground with its commercial services
holdings, which were down more than 14 percent and represent a little more than
10 percent of the portfolio.
Q WHERE ARE YOU FINDING THE BEST VALUE?
A Because we follow a sector-neutral approach, we don't overweight or
underweight particular sectors. Instead we focus on finding companies with
attractive valuations within each sector. Despite the significant gains made
this year in the technology and
6
<PAGE> 7
PERFORMANCE UPDATE
telecommunications sectors, we continue to find promising stocks that have not
fully participated in the market's rise. And beyond these two sectors, the rest
of the small-cap universe is ripe with undervalued stocks. The average stock
this year is actually down -- and in most cases, down fairly significantly from
earlier highs. That provides fertile ground for value managers to find
undervalued stocks across all sectors.
This is reflected in more than just sectors and industries. It is reflected in
the characteristics of the stocks we're buying today in the fund. Our typical
holding is selling at a price of only 13 times earnings, which is much lower
than the Russell 2000, where the average cap-weighted P/E ratio (see Terms To
Know on page 2) is about 36 times earnings, and the S&P, which is at 31 times
earnings. We clearly have a portfolio of stocks that are cheap. More
importantly, we believe it is a portfolio of stocks with great potential to rise
if the market broadens out.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET?
A Our outlook for small-cap stocks is very promising. There has been
somewhat of a shift toward smaller-cap stocks, but it has yet to rotate over the
value side of the equation. The disparity between the performance of growth
stocks and value stocks is at an extreme level. We're confident that market
sentiment will eventually shift, as investors gain a greater recognition of the
existing disparity. If it does, Kemper Small Cap Relative Value Fund is well
positioned relative to the Russell 2000 index. We also continue to believe that
the small-cap value asset class is an important component of a well-balanced,
long-term investment portfolio.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended September 30, 1999 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS A 4.11% -12.55% (since 5/6/98)
............................................................................................................
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS B 6.55 -11.42 (since 5/6/98)
............................................................................................................
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS C 9.54 -9.40 (since 5/6/98)
............................................................................................................
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shows from 05/31/98 to
09/30/99
<TABLE>
<CAPTION>
KEMPER SMALL CAP
RELATIVE VALUE FUND CLASS RUSSELL 2000 VALUE
A(1) RUSSELL 2000 INDEX(+) INDEX(++)
------------------------- ------------------- ------------------
<S> <C> <C> <C>
5/31/98 9424 10000 10000
9311 10021 9943
12/31/98 8787 9307 8907
9209 10171 9375
9/30/99 8582 9528 8642
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 05/31/98 to
09/30/99
<TABLE>
<CAPTION>
KEMPER SMALL CAP
RELATIVE VALUE FUND CLASS RUSSELL 2000 VALUE
B(1) RUSSELL 2000 INDEX(+) INDEX(++)
------------------------- ------------------- ------------------
<S> <C> <C> <C>
5/31/98 10000 10000 10000
9880 10021 9943
12/31/98 9279 9307 8907
9683 10171 9375
9/30/99 8755 9528 8642
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER SMALL CAP RELATIVE VALUE FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 05/31/98 to
09/30/99
<TABLE>
<CAPTION>
KEMPER SMALL CAP
RELATIVE VALUE FUND CLASS RUSSELL 2000 VALUE
C(1) RUSSELL 2000 INDEX(+) INDEX(++)
------------------------- ------------------- ------------------
<S> <C> <C> <C>
5/31/98 10000 10000 10000
9880 10021 9943
12/31/98 9280 9307 8907
9684 10171 9375
9/30/99 9019 9528 8642
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COSTS.
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%, CLASS B SHARES ADJUSTMENT FOR THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3% AND FOR CLASS C SHARES NO ADJUSTMENT FOR SALES CHARGE. THE
MAXIMUM CDSC FOR CLASS B SHARES IS 4%. FOR CLASS C SHARES, THERE IS A 1% CDSC ON
CERTAIN REDEMPTIONS WITHIN THE FIRST YEAR OF PURCHASE. AVERAGE ANNUAL TOTAL
RETURN MEASURES 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 CDSC IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN COMPARING KEMPER SMALL CAP VALUE FUND TO
THE RUSSELL 2000 INDEX+ AND THE CONSUMER PRICE INDEX++, YOU SHOULD NOTE THAT
THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE INDEXES.
+ THE RUSSELL 2000 INDEX IS AN UNMANAGED CAPITALIZATION WEIGHTED PRICE ONLY
INDEX WHICH IS COMPRISED OF 2000 OF THE SMALLEST STOCKS (ON THE BASIS OF
CAPITALIZATION) IN THE RUSSELL 3000 INDEX. SOURCE IS CDA WIESENBERGER.
++ RUSSELL 2000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000
COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH
VALUES. THESE STOCKS ARE SELECTED FROM THE 2,000 SMALLEST COMPANIES IN THE
RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 10% OF THE TOTAL MARKET
CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE STOCKS REPRESENTED BY THIS
INDEX INVOLVE INVESTMENT RISKS WHICH MAY INCLUDE THE LOSS OF PRINCIPAL
INVESTED. SOURCE IS CDA WIESENBERGER.
8
<PAGE> 9
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON SEPTEMBER 30, 1998 AND ON SEPTEMBER 30, 1999.
[YEAR-TO-YEAR COMPARASON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP RELATIVE KEMPER SMALL CAP RELATIVE
VALUE FUND ON 9/30/99 VALUE FUND ON 9/30/98
<S> <C> <C>
CONSUMER NON-DURABLES 24.5 28.8
CAPITAL GOODS 16.1 23
TECHNOLOGY 14 11.8
FINANCE 13.4 13.4
HEALTH 8.8 8.3
BASIC MATERIALS 7.3 3.5
ENERGY 5.2 3.3
UTILITIES 5.1 4.7
COMMUNICATION SERVICES 4.2 1.9
TRANSPORTATION 1.4 1.3
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER SMALL CAPITALIZATION RELATIVE VALUE FUND REPRESENTED ON SEPTEMBER 30,
1999, COMPARED TO THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE
RUSSELL 2000 INDEX.
[RUSSELL COMPARASON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAP RELATIVE
VALUE FUND ON 9/30/99 RUSSELL 2000 INDEX ON 9/30/99
<S> <C> <C>
CONSUMER NON-DURABLES 24.50 22.70
CAPITAL GOODS 16.10 10.00
TECHNOLOGY 14.00 20.40
FINANCE 13.40 20.40
HEALTH 8.80 8.00
BASIC MATERIALS 7.30 6.10
ENERGY 5.20 3.10
UTILITIES 5.10 4.60
COMMUNICATION SERVICES 4.20 2.10
TRANSPORTATION 1.40 2.60
</TABLE>
9
<PAGE> 10
LARGEST HOLDINGS
KEMPER SMALL CAP RELATIVE VALUE FUND'S 10 LARGEST HOLDINGS*
Representing 13.5 percent of the fund's portfolio on September 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
HOLDINGS DESCRIPTION PERCENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. LONE STAR INDUSTRIES Lone Star Industries produces cement 1.5%
and ready-mixed concrete.
- -------------------------------------------------------------------------------------
2. CEC ENTERTAINMENT CEC Entertainment (formerly ShowBiz 1.5%
Pizza Time) operates and franchises
some 330 Chuck E. Cheese's Pizza
restaurants across the world.
- -------------------------------------------------------------------------------------
3. P.H. GLATFELTER P.H. Glatfelter makes printing, 1.5%
tobacco, and specialty papers.
- -------------------------------------------------------------------------------------
4. MTI TECHNOLOGY MTI Technology is a provider of 1.5%
high-performance data storage
products and services.
- -------------------------------------------------------------------------------------
5. FOREMOST CORPORATION Foremost Corporation of America is 1.4%
the holding company for Foremost
Insurance and other subsidiaries
that sell property and casualty
insurance for mobile homes and
recreational vehicles (RVs), as well
as personal, auto, and homeowners
insurance.
- -------------------------------------------------------------------------------------
6. DEXTER Dexter is a maker of specialty 1.4%
materials for the aerospace,
electronics, food packaging, and
medical industries.
- -------------------------------------------------------------------------------------
7. TNP ENTERPRISES Utility holding company TNP 1.2%
Enterprises has agreed to be bought
by S.W. Acquisition, a private
investor group that includes CIBC
World Markets; the deal would be the
first leveraged buyout of a US
electric utility. TNP's major
subsidiary, Texas
- -------------------------------------------------------------------------------------
8. FLORIDA ROCK INDUSTRIES Florida Rock Industries manufactures 1.2%
concrete block and ready-mixed
concrete, and it mines and sells
construction aggregates -- crushed
stone, gravel, and sand.
- -------------------------------------------------------------------------------------
9. BIO-RAD LABORATORIES Bio-Rad Laboratories makes and sells 1.2%
clinical diagnostics systems,
analytical instruments, and other
products used in life sciences
research.
- -------------------------------------------------------------------------------------
10. EL PASO ELECTRIC El Paso Electric generates and 1.1%
distributes electricity for nearly
300,000 residential, commercial,
industrial, and wholesale customers
in West Texas.
- -------------------------------------------------------------------------------------
</TABLE>
*THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAP RELATIVE VALUE FUND
Portfolio of Investments at September 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
COMMON STOCKS--100% SHARES VALUE($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--4.2%
CELLULAR TELEPHONE--.1%
(a)DSP Communications, Inc. 200 $ 3,800
------------------------------------------------------------------------------
TELEPHONE/
COMMUNICATIONS--4.1%
CFW Communications Co. 800 19,100
(a)Commonwealth Telephone Enterprise 600 26,400
CT Communications, Inc. 100 4,937
(a)General Communication, Inc. 3,500 18,266
(a)IDT Corp. 500 10,469
North Pittsburgh Systems, Inc. 2,600 47,450
(a)Pacific Gateway Exchange, Inc. 900 14,738
(a)STAR Telecommunications, Inc. 1,600 8,650
(a)Xircom, Inc. 600 25,613
-----------------------------------------------------------------------------
175,623
- ------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--7.3%
BUILDING MATERIALS--3.2%
Florida Rock Industries, Inc. 1,500 52,125
Lone Star Industries, Inc. 1,300 64,837
Universal Forest Products, Inc. 1,700 22,206
-----------------------------------------------------------------------------
139,168
BUILDING PRODUCTS--1.3%
(a)NCI Building Systems, Inc. 1,100 18,219
(a)Nortek, Inc. 1,100 37,538
-----------------------------------------------------------------------------
55,757
HOMEBUILDING--2.8%
(a)Del Webb Corp. 600 13,200
(a)NVR, Inc. 800 40,400
Ryland Group, Inc. 1,500 34,125
Skyline Corp. 800 20,550
(a)U.S. Home Corp. 400 11,125
-----------------------------------------------------------------------------
119,400
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--11.1%
APPAREL & SHOES--1.3%
(a)Genesco, Inc. 1,800 22,500
(a)Tarrant Apparel Group 700 7,875
(a)Timberland Co. "A" 600 23,438
-----------------------------------------------------------------------------
53,813
DEPARTMENT & CHAIN
STORES--1.6%
(a)Ames Department Stores, Inc. 500 15,937
(a)Shopko Stores, Inc. 900 26,100
(a)Syms Corp. 3,300 24,544
-----------------------------------------------------------------------------
66,581
HOME FURNISHINGS--1.4%
Haverty Furniture Co., Inc. 2,800 40,600
Oneida Ltd. 800 19,050
-----------------------------------------------------------------------------
59,650
RECREATIONAL PRODUCTS--1.9%
(a)Acclaim Entertainment, Inc. 1,500 11,391
CPI Corp. 700 23,931
(a)National R.V. Holdings, Inc. 800 15,800
(a)THQ, Inc. 700 30,188
-----------------------------------------------------------------------------
81,310
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RESTAURANTS--4.5%
Applebee's International, Inc. 1,100 $ 37,056
(a)CEC Entertainment, Inc. 1,800 64,575
(a)Jack in the Box, Inc. 1,700 42,394
Ruby Tuesday, Inc. 1,400 27,300
(a)Sonic Corp. 750 22,828
-----------------------------------------------------------------------------
194,153
SPECIALTY RETAIL--.4%
(a)Trans World Entertainment Co. 1,300 16,494
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.3%
CONSUMER SPECIALTIES--2.3%
Dexter Corp. 1,600 59,700
(a)Media Arts Group, Inc. 1,400 6,212
Russ Berrie & Co., Inc. 1,500 31,406
-----------------------------------------------------------------------------
97,318
FOOD & BEVERAGE---1.6%
Imperial Sugar Co. 3,500 21,437
Michael Foods, Inc. 1,300 34,166
Pilgrim's Pride Corp. 1,300 11,294
Pilgrim's Pride Corp. "A" 650 3,331
-----------------------------------------------------------------------------
70,228
PACKAGE GOODS/
COSMETICS--.4%
(a)Chattem, Inc. 700 15,444
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
DURABLES--6.5%
AEROSPACE--2.8%
AAR Corp. 1,800 32,400
(a)Aeroflex, Inc. 1,400 17,062
Curtiss-Wright Corp. 100 3,225
(a)Ducommun, Inc. 2,200 24,200
Kaman Corp. "A" 3,200 40,800
----------------------------------------------------------------------------
117,687
AUTOMOBILES--.7%
2,000 31,875
Wynn's International, Inc.
-----------------------------------------------------------------------------
CONSTRUCTION/
AGRICULTURAL--.6%
800 27,300
The Manitowoc Company, Inc.
-----------------------------------------------------------------------------
LEASING COMPANIES--2.3%
Aaron Rents, Inc. 1,500 25,875
(a)Dollar Thrifty Automotive Group, Inc. 1,000 20,687
(a)Electro Rent Corp. 1,900 23,750
McGrath Rentcorp 1,500 27,000
-----------------------------------------------------------------------------
97,312
TELECOMMUNICATIONS
EQUIPMENT--.1%
(a)Plantronics, Inc. 100 4,975
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--5.2%
OIL & GAS PRODUCTION--1.3%
(a)Tesoro Petroleum Corp. 1,900 31,350
(a)UTI Energy Corp. 1,200 23,325
-----------------------------------------------------------------------------
54,675
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OILFIELD SERVICES--2.8%
(a)Oceaneering International, Inc. 1,900 $ 31,944
(a)Patterson Energy, Inc. 800 12,150
(a)Seacor Smit, Inc. 800 41,000
(a)Veritas DGC, Inc. 1,900 36,575
-----------------------------------------------------------------------------
121,669
METALS & MINERALS--1.1%
(a)Armco, Inc. 3,400 23,800
Roanoke Electric Steel Corp. 1,000 17,500
(a)Shiloh Industries, Inc. 400 4,400
-----------------------------------------------------------------------------
45,700
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--13.4%
BANKS--5.3%
Bank United Corp. 200 6,475
(a)Columbia Banking System, Inc. 850 11,156
Dime Community Bancshares 200 4,150
Downey Financial Corp. 1,700 34,212
(a)First Federal Financial Corp. 2,350 40,831
(a)First Republic Bank 1,100 29,150
JSB Financial, Inc. 800 45,800
(a)Silicon Valley Bancshares 800 19,300
The Trust Company of N.J. 1,500 34,500
-----------------------------------------------------------------------------
225,574
INSURANCE--6.8%
Arthur J. Gallagher & Co. 300 15,975
Fidelity National Financial, Inc. 1,350 20,503
First American Financial Co. 600 8,025
Foremost Corporation of America 2,500 60,000
Guarantee Life Companies, Inc. 1,300 39,731
Hilb, Rogal & Hamilton Co. 1,900 47,619
LandAmerica Financial Group, Inc. 1,000 19,750
Presidential Life Corp. 1,600 27,400
RLI Corp. 800 26,400
Stewart Information Services 1,400 25,638
----------------------------------------------------------------------------
291,041
OTHER FINANCIAL COMPANIES--1.3%
Advanta Corp. "A" 700 10,237
Bay View Capital Corp. 1,300 17,225
Phoenix Investment Partners, Ltd. 600 5,025
Resource America, Inc. "A" 1,600 11,900
Resource Bancshares Mortgage Group 2,100 10,434
-----------------------------------------------------------------------------
54,821
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--8.8%
BIOTECHNOLOGY--1.2%
(a)Bio-Rad Laboratories, Inc. "A" 1,800 49,275
-----------------------------------------------------------------------------
HEALTH INDUSTRY SERVICES--2.8%
(a)CareMatrix Corp. 1,200 6,225
(a)DVI, Inc. 500 8,187
(a)Hanger Orthopedic Group, Inc. 1,500 21,750
(a)PAREXEL International Corp. 700 6,388
(a)Prime Medical Services, Inc. 500 4,750
(a)Res-Care, Inc. 1,300 22,100
(a)Syncor International Corp. 800 30,000
(a)US Oncology, Inc. 2,600 23,563
-----------------------------------------------------------------------------
122,963
HOSPITAL MANAGEMENT--.3%
(a)Curative Health Services, Inc. 1,000 4,750
(a)Province Healthcare Co. 700 8,050
-----------------------------------------------------------------------------
12,800
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
<S> <C> <C> <C>
MEDICAL SUPPLY &
SPECIALTY--3.8%
(a)Acuson Corp. 1,400 $ 17,850
(a)Biomatrix, Inc. 400 8,975
Cooper Cos. 800 24,700
(a)Datascope Corp. 600 21,075
(a)Maxxim Medical, Inc. 1,100 26,331
(a)OEC Medical Systems, Inc. 1,200 42,150
Vital Signs, Inc. 1,100 22,413
-----------------------------------------------------------------------------
163,494
PHARMACEUTICALS--.7%
(a)Bio-Technology General Corp. 1,500 14,391
(a)Medicis Pharmaceutical Corp. 500 14,250
-----------------------------------------------------------------------------
28,641
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--9.6%
CHEMICALS--.1%
200 4,563
Stepan Co.
-----------------------------------------------------------------------------
CONTAINERS & PAPER--1.5%
3,800 62,462
P.H. Glatfelter Co.
-----------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--2.0%
(a)Esterline Technologies Corp. 2,100 33,075
(a)SPS Technologies, Inc. 900 34,144
(a)Salton, Inc. 650 19,622
-----------------------------------------------------------------------------
86,841
ELECTRICAL PRODUCTS--.3%
(a)Windmere-Durable Holdings, Inc. 1,000 12,063
-----------------------------------------------------------------------------
HAND TOOLS--.1%
100 2,488
L.S. Starrett Corp.
-----------------------------------------------------------------------------
INDUSTRIAL SPECIALTY--3.1%
(a)Cable Design Technologies Corp. 400 9,125
(a)Gardner Denver, Inc. 1,300 19,662
(a)NBTY, Inc. 2,500 19,063
(a)Polymer Group, Inc. 2,200 32,450
(a)Sola International, Inc. 1,600 24,700
(a)Twinlab Corp. 1,300 11,538
(a)UNOVA, Inc. 1,200 16,050
-----------------------------------------------------------------------------
132,588
MACHINERY/
COMPONENTS--2.5%
Gleason Corp. 1,300 21,856
Intermet Corp. 2,200 18,631
Reliance Steel & Aluminum Co. 1,800 37,800
(a)Shaw Group, Inc. 400 8,975
(a)Thermo Optek Corp. 2,500 21,094
-----------------------------------------------------------------------------
108,356
- ------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--9.1%
EDP SERVICES--.7%
(a)Computer Horizons Corp. 800 9,300
(a)Cotelligent, Inc. 1,900 6,769
(a)Pomeroy Computer Resources, Inc. 1,300 14,381
-----------------------------------------------------------------------------
30,450
INVESTMENT--1.6%
1,700 31,025
Advest Group, Inc.
1,320 35,640
Southwest Securities Group, Inc.
-----------------------------------------------------------------------------
66,665
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MISCELLANEOUS
COMMERCIAL--5.5%
ABM Industries, Inc. 1,000 $25,375
(a)Bell & Howell Holdings Co. 900 33,019
(a)Burns International Services Corp. 600 9,675
(a)Century Business Services, Inc. 900 10,462
Computer Task Group, Inc. 1,300 19,175
(a)CORT Business Services Corp. 900 20,812
(a)Dycom Industries, Inc. 900 37,969
(a)Franklin Covey Co. 1,100 8,456
(a)Interim Services, Inc. 900 14,737
(a)Personnel Group of America, Inc. 2,600 16,250
(a)Staff Leasing, Inc. 1,200 12,000
(a)Volt Information Sciences, Inc. 1,200 29,100
-----------------------------------------------------------------------------
237,030
MISCELLANEOUS
CONSUMER--.7%
(a)CDI Corp. 900 24,581
(a)Westaff, Inc. 1,200 7,200
-----------------------------------------------------------------------------
31,781
PRINTING/PUBLISHING--.6%
1,200 23,925
Merrill Corp.
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--14.0%
COMPUTER SOFTWARE--4.9%
(a)3Dfx Interactive, Inc. 1,100 9,075
(a)Activision, Inc. 800 14,100
(a)Epicor Software Corp. 3,100 17,825
(a)IMRglobal Corp. 700 5,775
(a)InfoCure Corp. 700 13,212
(a)MAPICS, Inc. 1,500 13,031
(a)MTI Technology Corp. 2,700 62,269
MTS Systems Corp. 2,700 28,012
(a)Metro Information Services, Inc. 400 5,125
(a)Santa Cruz Operations, Inc. 1,800 21,488
(a)Structural Dynamics Research Corp. 1,400 21,044
-----------------------------------------------------------------------------
210,956
EDP PERIPHERALS--1.0%
(a)Black Box Corp. 400 21,000
Gerber Scientific, Inc. 400 8,950 f
(a)NeoMagic Corp. 1,600 12,400
-----------------------------------------------------------------------------
42,350
ELECTRONIC
COMPONENTS--4.1%
(a)Aavid Thermal Technologies, Inc. 800 18,050
(a)Benchmark Electronics, Inc. 900 31,781
Harmon Industries, Inc. 1,000 12,562
(a)InaCom Corp. 800 7,350
Methode Electronics, Inc. "A" 200 3,775
Park Electrochemical Corp. 300 9,863
Pioneer-Standard Electronics, Inc. 3,000 43,313
(a)Smart Modular Technologies 900 30,656
Technitrol, Inc. 500 17,625
-----------------------------------------------------------------------------
174,975
ELECTRONIC DATA
PROCESSING--.8%
(a)Computer Network Technology Corp. 900 8,381
(a)SAGA Systems, Inc. 1,200 17,325
(a)Sunquest Information Systems, Inc. 600 9,675
-----------------------------------------------------------------------------
35,381
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKET
SHARES VALUE($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OFFICE/PLANT
AUTOMATION--1.5%
(a)CACI International, Inc. 1,100 $ 23,444
(a)Kronos, Inc. 600 22,012
National Computer Corp. 400 15,338
(a)Radiant Systems, Inc. 300 4,856
-----------------------------------------------------------------------------
65,650
PRECISION INSTRUMENTS--.8%
Innovex, Inc. 1,100 9,900
(a)Moog, Inc. 900 25,988
-----------------------------------------------------------------------------
35,888
SEMICONDUCTORS--.9%
(a)Actel Corp. 700 13,300
(a)Alpha Industries 200 11,281
(a)Siliconix, Inc. 300 14,100
-----------------------------------------------------------------------------
38,681
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.4%
AIRLINES--.6%
(a)America West Holdings Corp. "B" 1,400 24,237
-----------------------------------------------------------------------------
TRUCKING--.8%
1,700 34,319
Roadway Express, Inc.
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
UTILITIES--5.1%
ELECTRIC UTILITIES--4.1%
Black Hills Corp. 1,700 39,631
(a)El Paso Electric Co. 5,300 47,700
Northwestern Corp. 1,600 36,400
TNP Enterprises, Inc. 1,350 52,566
-----------------------------------------------------------------------------
176,297
NATURAL GAS DISTRIBUTION--1.0%
NUI Corp. 1,800 44,550
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100% $4,281,037
(Cost: $4,153,325)
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $4,153,789 for federal income tax purposes
at September 30, 1999, the gross unrealized appreciation was $634,178, the gross
unrealized depreciation was $506,930 and the net unrealized appreciation on
investments was $127,248.
The accompanying Notes are an integral part of the Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investment securities, at value
(cost $4,153,325) $4,281,037
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 34,105
- --------------------------------------------------------------------------
Investments sold 244,380
- --------------------------------------------------------------------------
Dividends 2,649
- --------------------------------------------------------------------------
Deferred organization expense 7,859
- --------------------------------------------------------------------------
Other assets 82,050
- --------------------------------------------------------------------------
TOTAL ASSETS 4,652,080
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Due to custodian bank 5,130
- --------------------------------------------------------------------------
Payable for:
Fund shares redeemed 42,651
- --------------------------------------------------------------------------
Investments purchased 110,679
- --------------------------------------------------------------------------
Accrued management fee 6,605
- --------------------------------------------------------------------------
Other accrued expenses 48,069
- --------------------------------------------------------------------------
Total liabilities 213,134
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $4,438,946
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Net unrealized appreciation on investments $ 127,712
- --------------------------------------------------------------------------
Accumulated net realized loss (43,946)
- --------------------------------------------------------------------------
Paid-in capital 4,355,180
- --------------------------------------------------------------------------
NET ASSETS, AT VALUE $4,438,946
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($2,450,292
/ 293,283 shares outstanding) $8.35
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $8.86
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($1,357,803 / 164,434 shares outstanding) $8.26
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($630,851 / 76,315 shares outstanding) $8.27
- --------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of the Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the year ended September 30, 1999
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Income:
Dividends $ 38,750
- ------------------------------------------------------------------------
Interest 7,015
- ------------------------------------------------------------------------
Total investment income 45,765
- ------------------------------------------------------------------------
Expenses:
Management fee 28,780
- ------------------------------------------------------------------------
Administrative services fee 9,559
- ------------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 52,449
- ------------------------------------------------------------------------
Trustees' fees 569
- ------------------------------------------------------------------------
Reports to shareholders 10,000
- ------------------------------------------------------------------------
Auditing 11,000
- ------------------------------------------------------------------------
Legal 5,000
- ------------------------------------------------------------------------
Amortization of organization expenses 2,229
- ------------------------------------------------------------------------
Distribution services fees 13,567
- ------------------------------------------------------------------------
Total expenses before expense waiver 133,153
- ------------------------------------------------------------------------
Less expenses waived by investment manager (58,258)
- ------------------------------------------------------------------------
Total expenses after expenses waiver 74,895
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (29,130)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain (loss)
on sale of investments (43,484)
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 376,204
- ------------------------------------------------------------------------
Net gain on investments 332,720
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $303,590
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 6, 1998
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
OPERATION AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
Net investment loss $ (29,130) (1,923)
- --------------------------------------------------------------------------------------------------------
Net realized loss (43,484) 885
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 376,204 (248,492)
- --------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations 303,590 (249,530)
- --------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 2,377,971 2,005,715
- --------------------------------------------------------------------------------------------------------
Total increase in net assets 2,681,561 1,756,185
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of period 1,757,385 1,200
- --------------------------------------------------------------------------------------------------------
END OF PERIOD $4,438,946 1,757,385
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE
FUND
Kemper Small Cap Relative Value Fund (the "fund")
is a diversified series of Kemper Securities Trust
(the Trust) which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company organized as a Massachusetts business
trust. The fund commenced operations on May 6,
1998.
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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the fund have
equal rights with respect to voting subject to
class specific arrangements.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2. SIGNIFICANT
ACCOUNTING POLICIES
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
be maintained at such a level that the market value
is equal to at least the principal amount of the
repurchase price plus accrued interest.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
In addition, from November 1, 1998 through
September 30, 1999, the fund incurred approximately
$43,000 of net realized capital losses. As
permitted by tax regulations, the fund intends to
elect to defer these losses and treat them as
arising in the fiscal year ended September 30,
2000.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
Trust expenses are allocated between the funds in
proportion to their relative net assets.
ORGANIZATION COSTS. Costs incurred by the fund in
connection with its organization have been deferred
and are being amortized on a straight-line basis
over a five-year period.
- --------------------------------------------------------------------------------
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 .75%
of the first $250 million of average daily net
assets declining to .62% of average daily net
assets in excess of $12.5 billion. The fund
incurred a management fee of $19,219 for the year
ended September 30, 1999, after an expense waiver
by Scudder Kemper. In addition, certain affiliates
agreed to temporarily waive their fees. Under these
arrangements, Scudder Kemper and its affiliates
waived expenses of $58,258 for the year ended
September 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI).
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the year ended September 30, 1999 are $3,000.
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
from redemptions of Class B and Class C shares.
Distribution fees and CDSC received by KDI for the
year ended September 30, 1999 are $16,471, after an
expense waiver of $1,638, of which $10,155 is
unpaid as of September 30, 1999.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to 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. The
fund incurred no administrative services fees for
the year ended September 30, 1999, after an expense
waiver of 9,559.
SHAREHOLDER SERVICES AGREEMENT. Kemper Service
Company, a subsidiary of Scudder Kemper, is the
transfer, dividend paying and shareholder service
agent for the fund. The fund incurred shareholder
services fees of $10,000 for the year ended
September 30, 1999, of which $1,000 is unpaid as of
September 30, 1999.
FUND ACCOUNTING AGENT. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, is
responsible for determining the daily net asset
value per share and maintaining the portfolio and
general accounting records of the fund.
The fund incurred no accounting fees for the year
ended September 30, 1999, after an expense waiver
of $37,500.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the year ended September 30,
1999, the fund made no payments to its officers and
incurred trustees' fees of $569 to independent
trustees, all of which is unpaid.
- --------------------------------------------------------------------------------
4. INVESTMENT
TRANSACTIONS
For the year ended September 30, 1999, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $3,575,740
Proceeds from sales 1,310,732
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 291,573 $ 2,335,431 141,649 $1,224,836
-------------------------------------------------------------------------------
Class B 134,291 1,076,538 84,568 714,490
-------------------------------------------------------------------------------
Class C 112,581 892,189 26,291 233,118
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (139,561) (1,143,222) (1,004) (8,872)
-------------------------------------------------------------------------------
Class B (48,498) (392,828) (5,371) (49,282)
-------------------------------------------------------------------------------
Class C (48,894) (390,137) (13,705) (108,575)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 584 4,625 -- --
-------------------------------------------------------------------------------
Class B (598) (4,625) -- --
-------------------------------------------------------------------------------
INCREASE FROM CAPITAL SHARE
TRANSACTIONS $ 2,377,971 $2,005,715
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6. LINE OF CREDIT
The fund and several Kemper Funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------------------------------------------------------------------
YEAR MAY 6, YEAR MAY 6, YEAR
ENDED TO ENDED TO ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.57 9.50 7.54 9.50 7.55
- --------------------------------------------------------------------- ------------------------------ --------------
Income from investment operations:
Net investment loss (.03) -- (.10) (.03) (.10)
- --------------------------------------------------------------------- ------------------------------ --------------
Net realized and unrealized loss .81 (1.93) .82 (1.93) .82
- --------------------------------------------------------------------- ------------------------------ --------------
Total from investment operations .78 (1.93) .72 (1.96) .72
- --------------------------------------------------------------------- ------------------------------ --------------
Net asset value, end of period $8.35 7.57 8.26 7.54 8.27
- -------------------------------------------------------------- -------------------------- --------------
TOTAL RETURN (NOT ANNUALIZED) 10.45% (20.32) 9.55 (20.63) 9.54
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.52 % 1.52 2.40 2.40 2.37
- --------------------------------------------------------------------- ------------------------------ --------------
Net investment loss (.36)% (.15) (1.24) (1.03) (1.21)
- --------------------------------------------------------------------- ------------------------------ --------------
- ---------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 3.02 % 12.36 4.04 16.91 3.87
- --------------------------------------------------------------------- ------------------------------ --------------
Net investment loss (1.86)% (10.99) (2.88) (15.54) (2.71)
- --------------------------------------------------------------------- ------------------------------ --------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
CLASS C
- -------------------------------------------------
<S> <C>
MAY 6, TO SEPT. 30, 1998
- -------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------
Net asset value, beginning of period 9.50
- -------------------------------------------------
Income from investment operations:
Net investment loss (.03)
- -------------------------------------------------
Net realized and unrealized loss (1.92)
- -------------------------------------------------
Total from investment operations (1.95)
- -------------------------------------------------
Net asset value, end of period 7.55
- -------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (20.53)
- -------------------------------------------------
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------
Expenses 2.37
- -------------------------------------------------
Net investment loss (1.00)
- -------------------------------------------------
- -------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------
Expenses 12.43
- -------------------------------------------------
Net investment loss (11.06)
- -------------------------------------------------
</TABLE>
<TABLE>
YEAR
ENDED MAY 6
SEPT. 30, TO SEPT. 30,
1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
Net assets at end of period $4,438,946 1,757,385
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 36% 7
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The other ratios to average net
assets are computed without this expense waiver or absorption. Per share data
were determined based on average shares outstanding.
23
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER SMALL CAP RELATIVE VALUE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Small Cap Relative Value Fund
as of September 30, 1999, and the related statement of operations for the year
then ended and changes in net assets and financial highlights for the year then
ended and for the period from May 6, 1998 (commencement of operations) to
September 30, 1998. These financial statement and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1999, by correspondence with the custodian. 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
Small Cap Relative Value Fund at September 30, 1999, the results of its
operations, the changes in net assets and the financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 15, 1999
24
<PAGE> 25
NOTES
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
ARTHUR R. GOTTSCHALK CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY BRENDA LYONS
Trustee LORI J. ENSINGER Assistant Treasurer
Vice President
THOMAS W. LITTAUER
Trustee and JAMES M. EYSENBACH
Vice President Vice President
KATHRYN L. QUIRK ANN M. MCCREARY
Trustee and Vice President
Vice President
CORNELIA SMALL
FRED B. RENWICK Vice President
Trustee
JOHN G. WEITHERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
TRANSFER AGENT AND KEMPER SERVICE COMPANY
SHAREHOLDER SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
.............................................................................................
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
</TABLE>
[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 Style/Value Style prospectus.
KSRVF - 2 (11/22/99) 1094240
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
