<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING LONG-TERM GROWTH OF CAPITAL,
CURRENT INCOME AND GROWTH OF INCOME
KEMPER U.S. GROWTH AND INCOME FUND
"... Some of the fund's largest holdings ... made strong gains. Their relative
size in the portfolio made those gains even more meaningful. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
INDUSTRY SECTORS
8
LARGEST HOLDINGS
9
PORTFOLIO OF INVESTMENTS
12
FINANCIAL STATEMENTS
14
NOTES TO FINANCIAL
STATEMENTS
17
FINANCIAL HIGHLIGHTS
19
SHAREHOLDERS' MEETING
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER U.S. GROWTH AND INCOME
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
KEMPER U.S. GROWTH AND INCOME FUND CLASS A 12.44
KEMPER U.S. GROWTH AND INCOME FUND CLASS B 11.96
KEMPER U.S. GROWTH AND INCOME FUND CLASS C 11.86
LIPPER GROWTH AND INCOME FUNDS CATEGORY AVERAGE* 20.06
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/31/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER U.S. GROWTH AND
INCOME FUND CLASS A $10.18 $9.12
- --------------------------------------------------------------------------------
KEMPER U.S. GROWTH AND
INCOME FUND CLASS B $10.17 $9.12
- --------------------------------------------------------------------------------
KEMPER U.S. GROWTH AND
INCOME FUND CLASS C $10.16 $9.12
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER U.S. GROWTH AND INCOME FUND
LIPPER RANKINGS AS OF 3/31/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH AND INCOME FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #636 of 808 funds #648 of 808 funds #649 of 808 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $.1375 $.0678 $.0697
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
SOURCE: Data provided by Morningstar, Inc. Chicago, IL (312) 696-6000. The
Equity Style Box placement is based on two variables: a fund's market
capitalization relative to the movements of the market, and a fund's valuation,
which is calculation by comparing the stocks in the fund's portfolio with the
most recent of the three market-cap groups.
THE STYLE BOX REPRESENTS A SNAPSHOT OF THE FUND'S PORTFOLIO ON A SINGLE
DAY. PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN ASSET ASSESSMENT OF RISK
AND DO NOT REPRESENT FUTURE PERFORMANCE. THIS FUND'S PORTFOLIO CHANGES FROM
DAY-TO-DAY. A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR
CATEGORY, WHICH IS BASED ON AN ACTUAL INVESTMENT STYLE AS MEASURED BY ITS
UNDERLYING PORTFOLIO HOLDINGS. MORNINGSTAR HAS PLACED KEMPER U.S. GROWTH AND
INCOME FUND IN THE LARGE VALUE CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
VALUE STOCKS 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.
GROWTH STOCKS Growth stocks are expected to experience rapid growth resulting
from strong sales, talented management and a dominant market position. Because
these stocks are in demand, you'll find that they're generally more expensive
than value stocks.
PRICE/EARNINGS RATIO 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 Stocks usually found in related industries. Stocks within a market sector
may be similarly affected by financial, economic, business and other
developments.
MARKET CAPITALIZATION Refers to the total value of a company's outstanding stock
(share price multiplied by the outstanding number of shares).
NARROW MARKET Describes a security market in which most of the gains are earned
by only a small group of companies. In 1998, a narrow market existed in which
only the largest growth-style stocks enjoyed particularly robust gains.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Throughout April, investor enthusiasm drove the market to its second milestone
in a year -- the Dow Jones Industrial Average rose to 11,000 just a month after
it broke 10,000 for the first time. But those gains don't tell the whole story
- -- investors in the first four months of the year have endured significant
volatility. What drove the climb to 11,000 and what, at the same time, has led
to investor anxiety?
Driving the market, in part, was consumer confidence. In the first quarter of
1999, consumer spending surged 6.7 percent -- the largest rise in 11 years. The
market's rise seems to have buoyed consumer confidence, which rose for the sixth
consecutive month in April. And, the resilience of the economy has bolstered
more optimistic expectations for the next six months.
Inspiring consumer confidence also were the lowest levels of inflation in a
generation. As measured by the consumer price index (CPI), inflation has been
between 1 1/2 and 2 percent, compared to approximately 4 percent in the
beginning of the 1990s and 10-12 percent in the beginning of the 1980s. Still,
inflation worries have been seeping into the market. The growing conviction that
Asian and Latin American economies are recovering is raising commodity prices,
particularly oil. The price of West Texas Intermediate oil surged from less than
$12 in February to almost $19 in early May. That alone almost guarantees a rise
in the "headline" inflation rate this year, which is the rate of inflation as
measured by the entire CPI. But it's important to note that the Federal Reserve
Board looks primarily at the core inflation rate, which is the CPI minus food
and energy -- and the core inflation rate looks as if it will remain low at
about 2 percent this year.
Also contributing to consumer confidence, short-term and long-term interest
rates remained low over the first quarter, and can be expected to remain so.
Today's Fed policy is reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. Consequently, we expect no changes
in short-term interest rates during May and June, and there's only a small
chance that the Fed will raise interest rates in the second half of the year.
Moreover, the federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially from households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
Such a positive environment is exactly what poses risk for investors, and is
key to understanding recent volatility in the market. A stronger economy has the
potential to feed inflation fears and drive up interest rates. Events on April
30 illustrated the domino effect of investors reacting to positive economic
news, which they consider troubling at this point, more than eight years into
the economic expansion. The steady stream of positive economy's news prompted a
sell-off in the markets based on fears that the strong pace of economic growth
will eventually lead to higher inflation. The benchmark 30-year Treasury bond
fell nearly 2 points (close to $20 for a bond with a $1,000 face amount) as the
yield shot up to 5.657 percent. It was the biggest one-day plunge in bonds in
two months. Bonds, in turn, pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggested continued growth as we moved into the second
quarter of 1999. For example, the gross domestic product (GDP), the value of all
goods and services produced in the U.S., rose at an annual rate of 4.5 percent
in the first quarter, following a tremendous fourth-quarter surge of 6 percent.
This is very much in line with what we've grown accustomed to over the past year
- -- over the four quarters of 1998, the U.S. economy expanded by 4.3 percent.
Some people aren't surprised at all by strong GDP growth that once would have
alarmed them. That's partially because we've grown accustomed to a strong
economy in the past three or four years. But it's also because we've been able
to absorb growth without driving up inflation. That's important for investors.
If prices were rising as the economy was growing, the Fed would most likely
raise short-term interest rates, which would change the financial market
outlook. But again, that isn't happening right now.
However, we do see some vulnerability. Trade is a weak spot in the economy
right now. Exports of U.S. goods and services dropped in the first quarter while
imports soared. This reflects the fact that the U.S. is one of the few countries
financially fit enough to buy goods produced elsewhere in the world. But for as
long as less vibrant international economies are unable to buy U.S. goods, the
profitability of U.S. companies trying to export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which will
most likely lead to the central bank lowering interest rates in order to boost
domestic spending. In many countries in Europe, there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down,
mortgages are reduced and homeowners
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF MARCH 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
spend money elsewhere. This has a huge impact on consumer spending, and will
help European equities in the long term. Additionally, the situation in Japan
remains unchanged. And, problems in the emerging markets haven't had the
negative impact many people expected -- both the Mexican and Brazilian stock
markets have actually risen in the past two months.
But don't forget that international crises have the potential to affect the
U.S. markets drastically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current economic situation and behave
as if no risk exists. But when you see the market soaring and are tempted to
jump in, note that the bull market grew to records on the strength of just a few
dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation -- these are
particularly older investors who are accustomed to inflation accompanying
growth. But we currently just don't see the pressure toward inflation at all, so
there's no reason to want a slowdown. The best approach now, as in any market,
is to diversify and invest for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF MAY 5, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[ENSINGER PHOTO]
LORI J. ENSINGER IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC.
SHE HAS OVER 15 YEARS OF INVESTMENT EXPERIENCE, JOINING THE ORGANIZATION IN
1993. SHE IS A CHARTERED FINANCIAL ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
DURING THE FUND'S SEMIANNUAL PERIOD, MARKET RETURNS WERE DOMINATED BY THE
PHENOMENAL PERFORMANCE OF THE LARGEST GROWTH STOCKS. KEMPER U.S. GROWTH AND
INCOME FUND'S LEAD PORTFOLIO MANAGER LORI ENSINGER, REPORTS HOW SHE MANAGED FOR
VALUE AND LED THE FUND TO GAINS IN SUCH A NARROW, GROWTH-ORIE\NTED STOCK MARKET.
Q BEFORE WE DISCUSS THE FUND SPECIFICALLY, CAN YOU TELL US ABOUT WHAT'S BEEN
GOING ON IN THE STOCK MARKET?
A On the surface, it may appear that the market as a whole performed quite
well over the last six months. The Standard & Poor's 500 Stock Index, which is
generally considered representative of the overall stock market, gained 27.3
percent from October 1, 1998 through March 31, 1999. But the reality is that,
for most of the six-month period, more stocks lost ground than gained. And
value-style stocks -- those in which the fund invests -- underperformed their
growth counterparts.
Most of the S&P's gains came from a small group of the largest growth
stocks -- primarily from the technology sector and Internet-related industries.
The S&P's return is "cap-weighted" meaning that the larger a company's market
capitalization (see Terms To Know), the greater portion of the index return it
represents. The S&P's return looks much different when a straight average is
taken from the returns of each of its 500 companies. That equal-weighted return
is 18.87 percent for the last six months.
Q WHAT HAS CAUSED THIS DISPARITY IN THE MARKET?
A The divergence between growth stocks and value stocks was sparked, in our
opinion, by the surge in uncertainty that occurred in the wake of last year's
Asian crisis, Russian debt default, hedge fund bailouts and credit crunch.
Investors typically favor growth stocks during times of uncertainty, when fear
and pessimism increase. Why? Because the earnings of large consumer-growth
companies tend to be less volatile than those of other companies such as
industrials. Investors, therefore, perceive the largest growth companies to be
"safer."
Since 1997 the flight to perceived safety has gained momentum. Early in this
cycle, the market's strength was broad. However, as the trend continued and
investors became more interested in the Internet, the leaders dwindled. Nearly
all of the market's leadership came from companies like Microsoft, America
Online, Yahoo and other technology and Internet-related companies. As a result,
the prices of this group of stocks soared to extreme levels, while most other
stocks -- including value stocks lagged.
Q DO YOU BELIEVE THIS TWO-TIERED MARKET DISPARITY REPRESENTS A FUNDAMENTAL
SHIFT?
A No. We believe this divergence is a cyclical, (temporary) phenomenon, and
not a secular paradigm shift. The divergence began in the third quarter of
1997 -- when the first Asian devaluation occurred. The resulting global
uncertainty quickly gained momentum. The sheer magnitude of the gap between the
tiers has clouded the reality that the issues that sparked the disparity in the
first place -- particularly the economic
5
<PAGE> 6
PERFORMANCE UPDATE
crises in Asia -- have begun to abate. We believe that sooner, rather than
later, investors will realize that the global economy is indeed stable, if not
improving. At that point, we expect that market valuations will revert back to
more normal levels, and value stocks will get revalued upward, and growth stocks
will get revalued downward. We began to see signs of this in February and expect
to see more in the coming months.
In our opinion, Asia's economies have bottomed out, which we believe will be
good for value stocks, specifically commodity-cyclical stocks.
Commodity-cyclicals include companies that produce paper, chemicals and metals.
Asia is a big producer of many commodities. Over the last 18 months Asia's
domestic demand for these products stalled, causing Asian manufacturers to flood
the global export market with product, putting severe pressure on prices. As
Asia recovers and internal demand goes up, Asian manufacturers should pull back
their exports, leading to a firming in global pricing.
Q HOW DID THE FUND PERFORM IN THIS NARROW MARKET?
A The fund's Class A shares gained 12.44 percent (unadjusted for any sales
charge) for the six-month period. We were pleased with this
performance -- especially in light of the narrow market. By comparison, the
Lipper Growth And Income Category returned an average of 20.06 percent for the
same period. It's important to remember however, that this category is made up
of both growth and value oriented funds.
Q HOW LONG WILL IT TAKE FOR THE MARKET TO BROADEN?
A It's hard to say. Based on the extremely high P/Es of some growth stocks,
we would have expected the turn before this point. We don't think, however, that
this narrow market can continue much longer, especially in light of the strong
global economy.
Another signpost for value coming back into favor is interest rates. As fears
of deflation have abated we have seen long-term market interest rates begin to
move higher. Expensively-valued growth stocks are the most vulnerable to rising
interest rates. Stable to moderately higher market rates, however, should be
positive for value stocks. Slightly higher rates mean that cyclical
stocks -- those whose fortunes rise and fall with the economy -- will likely do
better as global economic growth improves.
Q WHAT WORKED WELL IN THE PORTFOLIO DURING THE PERIOD?
A There were three positive factors.
1. The fund's telecommunications holdings performed extremely well. These core
holdings benefited from increased Internet usage. Companies like Corning,
Frontier and Sprint are what we call the "toll takers" of the Internet.
They provide critical services (such as bandwidth) that make hook-ups to
the Internet possible.
2. Our consumer staples and health care companies buoyed the fund. We enjoyed
strong performance from companies like Avon and American Home Products and
Bristol-Myers Squibb.
3. Finally some of the fund's largest holdings -- Ford, Xerox and
BankAmerica -- made strong gains. Their relative size in the portfolio made
those gains even more meaningful.
Q WHAT ABOUT DISAPPOINTMENTS?
A At the fund's inception -- January 30, 1998 -- we positioned the
portfolio with an overweight in cyclical stocks. We believed the valuations of
these stocks already discounted a recessionary scenario. However, the depth of
the Asian crisis was more severe than we anticipated and these stocks didn't
hold up. Although we were a little early to the party, we are gratified by the
significant gains these stocks have made in the last two months.
Secondly, our financial stocks did not perform as strongly as we would have
liked. We had reduced our position in banks after the Russian devaluation last
summer, which was beneficial for the fund. However, money-center banks rallied
sharply in late 1998, and our exposure was still limited, not enabling us to
take full advantage of the rebound.
Finally we had added to our Real Estate Investment Trusts (REITs), last year.
We believed they offered the potential for capital appreciation and, because of
their high dividend yields, some downside protection for the fund. There was a
credit crunch last fall that hurt the REIT market as lenders slowed down their
financing. As money became more difficult to come by, the planned expansion of
many REITs tapered off.
Q WHAT'S YOUR OUTLOOK FOR KEMPER U.S. GROWTH AND INCOME FUND?
A We don't believe the volatility in the market is over yet, but we do
believe the fund is well positioned to benefit if the market broadens. We expect
that the first beneficiaries of a market turn will be cyclical stocks followed
by the broader value market.
6
<PAGE> 7
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data shows the percentage of the common stocks in the portfolio that each sector
represented on March 31, 1999, and on September 30, 1998.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GROWTH AND KEMPER U.S. GROWTH AND
INCOME FUND ON 3/31/99 INCOME FUND ON 9/30/98
---------------------- ----------------------
<S> <C> <C>
Utilities 16.40 22.30
Finance 15.40 22.60
Basic industries 14.10 15.50
Capital goods 12.80 1.70
Energy 10.60 10.90
Consumer non-durables 10.30 8.50
Health care 7.50 7.00
Transportation 4.70 3.30
Technology 4.60 2.00
Consumer durables 3.60 6.20
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
Data shows the percentage of the common stocks in the portfolio that each sector
of Kemper U.S. Growth And Income Fund represented on March 31, 1999, compared to
the industry sectors that make up the fund's benchmark, the Standard & Poor's
500 Stock Index.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GROWTH AND STANDARD & POORS 500 STOCK
INCOME FUND ON 3/31/99 INDEX ON 3/31/99
---------------------- --------------------------
<S> <C> <C>
Utilities 16.40 10.00
Finance 15.40 16.20
Basic industries 14.10 3.20
Capital goods 12.80 8.10
Energy 10.60 6.50
Consumer non-durables 10.30 21.10
Health care 7.50 12.50
Transportation 4.70 1.00
Technology 4.60 19.50
Consumer durables 3.60 1.90
</TABLE>
* The Standard & Poor's 500 Stock Index is an unmanaged index generally
representative of the U.S. stock market. Source is TowersData.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 35.8 percent of the fund's common stock holdings on March 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. CORNING Engaged in the fiber-optics 5.4%
business and the manufacture and
sales of products made from
specialty glasses and related
inorganic materials for the
specialty materials,
communications and consumer
product markets.
2. XEROX CORP. Develops, manufactures, markets, 4.5%
services and finances a complete
range of documents processing
products and services.
3. AMERICAN HOME Manufactures and markets health 4.3%
PRODUCTS care products, including
pharmaceuticals, consumer health
care products and medical
supplies.
4. FORD MOTOR Manufactures, assembles and sells 3.7%
cars, trucks, and related parts
and accessories, and is one of the
largest financial providers in the
U.S.
5. BANKAMERICA Holding company with subsidiaries 3.2%
engaged in full service retail and
corporate banking, corporate
finance, capital markets,
investment advisory and trust, and
other financial service
activities.
6. MOBIL CORP. Produces, transports, refines and 3.2%
markets petroleum and natural gas
and related products.
7. BRISTOL-MYERS A diversified worldwide health and 3.1%
SQUIBB CO personal care company whose
principal businesses are
pharmaceuticals, consumer
products, nutritional and medical
devices.
8. FNMA Often referred to as "Fannie Mae," 3.0%
this is a private corporation
federally chartered to provide
financial products and services
that increase the availability and
affordability of housing to low,
moderate and middle-income
Americans.
9. CSX Transportation company providing 2.7%
rail, intermodal, ocean
container-shipping, barging,
trucking and contract logistics
services worldwide.
10. BELL ATLANTIC The premier provider of local 2.7%
telecommunications and advanced
services in the mid-Atlantic
region.
</TABLE>
*Portfolio holdings and composition are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER U.S. GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
CONVERTIBLE BONDS--3.7% NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--1.4%
Home Depot, Inc., 3.25%, 2001 $ 155 $ 420
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.3%
EMC Corp., 3.25%, 2002 122 689
-------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS--3.7%
(Cost: $915) 1,109
-------------------------------------------------------------------------------
PREFERRED STOCKS--2.6%
COMMUNICATIONS--2.0%
Qwest Trends Trust 9,450shs. 600
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
HEALTH--.6%
Monsanto Co. 3,700 172
-------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS--2.6%
(Cost: $572) 772
-------------------------------------------------------------------------------
COMMON STOCKS--93.4%
CONSTRUCTION--4.2%
Georgia Pacific Group 8,100 602
Georgia Pacific Timber Group 6,200 139
Weyerhaeuser Co. 9,350 519
-------------------------------------------------------------------------------
1,260
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--1.0%
Rite Aid Corp. 12,400 310
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.5%
Avon Products, Inc. 15,700 739
Colgate-Palmolive Co. 8,000 736
H.J. Heinz Co. 8,700 412
Philip Morris Cos. 19,650 691
-------------------------------------------------------------------------------
2,578
- --------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--13.3%
Alltel Corp. 6,950 434
Ameritech Corp. 3,200 185
Bell Atlantic Corp. 14,950 773
BellSouth Corp. 15,900 637
Frontier Corp. 11,525 598
GTE Corp. 9,500 575
SBC Communications, Inc. 6,500 306
Sprint Corp. 5,300 520
-------------------------------------------------------------------------------
4,028
- --------------------------------------------------------------------------------------------------------------------------
DURABLES--6.9%
Ford Motor Co. 18,525 1,051
Lockheed Martin Corp. 15,700 592
Northrop Grumman Corp. 7,600 455
-------------------------------------------------------------------------------
2,098
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--8.4%
Burlington Resources, Inc. 4,200 $ 168
Chevron Corp. 5,175 458
Conoco, Inc. 8,400 206
Mobil Corp. 10,200 898
Texaco, Inc. 7,425 421
Williams Cos., Inc. 10,100 399
-------------------------------------------------------------------------------
2,550
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL--14.2%
Banc One Corp. 7,125 392
BankAmerica Corp. 12,866 909
Boston Properties, Inc. 5,700 180
Chase Manhattan Corp. 7,150 581
Equity Office Properties Trust 7,150 182
Federal National Mortgage Association 12,175 843
First Union Corp. 13,715 733
Spieker Properties, Inc. 6,900 243
US Bancorp 7,425 253
-------------------------------------------------------------------------------
4,316
- --------------------------------------------------------------------------------------------------------------------------
HEALTH--6.9%
American Home Products Corp. 18,700 1,220
Bristol-Myers Squibb Co. 13,750 884
-------------------------------------------------------------------------------
2,104
- --------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--19.1%
(a) Boise Cascade Corp. 3,750 121
Corning, Inc. 25,575 1,535
Dow Chemical Co. 3,600 335
E.I. du Pont de Nemours & Co. 11,100 645
Eastman Chemical Co. 3,400 143
Emerson Electric Co. 3,000 159
General Electric Co. 5,000 553
Lyondell Petrochemical Co. 31,625 433
Parker-Hannifin Corp. 9,000 308
Temple-Inland, Inc. 4,725 296
Xerox Corp. 24,050 1,284
-------------------------------------------------------------------------------
5,812
- --------------------------------------------------------------------------------------------------------------------------
METALS AND MINERALS--3.2%
Allegheny Teledyne, Inc. 20,825 394
Oregon Steel Mills, Inc. 24,000 251
Reynolds Metals Co. 1,900 92
USX-US Steel Group, Inc. 10,300 242
-------------------------------------------------------------------------------
979
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--4.4%
CSX Corp. 19,900 775
Norfolk Southern Corp. 20,700 546
-------------------------------------------------------------------------------
1,321
- --------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.9%
Duke Energy Corp. 2,550 139
PacifiCorp 9,400 162
TNP Enterprises, Inc. 4,800 138
Unicom Corp. 4,025 147
-------------------------------------------------------------------------------
586
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
OR PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C>
MISCELLANEOUS--1.4%
Standard & Poor's 500 Depository Receipt
Trust Series I 3,300 $ 424
-------------------------------------------------------------------------------
TOTAL COMMON STOCK--93.4%
(Cost: $27,184) 28,366
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--.3%
(b) Repurchase Agreement State Street Bank and
Trust Company dated 3/31/99, 4.88%, due
4/1/99 (Cost: $103) $ 103 103
-------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $28,774) $30,350
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing securities.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government securities. The collateral is monitored daily by the fund so that
its market value exceeds the carrying value of the repurchase agreement.
Based on the cost of investments of $28,774,000 for federal income tax purposes
at March 31, 1999, the gross unrealized appreciation was $3,030,000, the gross
unrealized depreciation was $1,454,000 and the net unrealized appreciation on
investments was $1,576,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $28,774) $30,350
- -----------------------------------------------------------------------
Cash 1
- -----------------------------------------------------------------------
Deferred organization expense 10
- -----------------------------------------------------------------------
Receivable for:
Investments sold 221
- -----------------------------------------------------------------------
Fund shares sold 84
- -----------------------------------------------------------------------
Dividends 54
- -----------------------------------------------------------------------
TOTAL ASSETS 30,720
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Payable for:
Fund shares redeemed 32
- -----------------------------------------------------------------------
Other payables and accrued expenses 21
- -----------------------------------------------------------------------
Total liabilities 53
- -----------------------------------------------------------------------
NET ASSETS $30,667
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $30,153
- -----------------------------------------------------------------------
Accumulated net realized loss on investments (1,058)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 1,576
- -----------------------------------------------------------------------
Accumulated net investment loss (4)
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $30,667
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
THIS PRICING OF SHARES
- -----------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($14,172 /
1,393 shares outstanding) $10.18
- -----------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of net asset value or 5.75% of offering price) $10.80
- -----------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($11,780 /
1,158 shares outstanding) $10.17
- -----------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($4,715 / 464
shares outstanding) $10.16
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the six months ending March 31, 1999 (unaudited)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
NET INVESTMENT INCOME
- ----------------------------------------------------------------------
Dividends $ 340
- ----------------------------------------------------------------------
Interest 17
- ----------------------------------------------------------------------
Total investment income 357
- ----------------------------------------------------------------------
Expenses:
Management fee 77
- ----------------------------------------------------------------------
Distribution services fee 52
- ----------------------------------------------------------------------
Administrative services fee 32
- ----------------------------------------------------------------------
Custodian, accounting and transfer agent fees and related
expenses 86
- ----------------------------------------------------------------------
Professional fees 41
- ----------------------------------------------------------------------
Reports to shareholders 25
- ----------------------------------------------------------------------
Registration fee 6
- ----------------------------------------------------------------------
Amortization of organization expenses 1
- ----------------------------------------------------------------------
Trustees' fees and other 8
- ----------------------------------------------------------------------
Total expenses before expense waiver 328
- ----------------------------------------------------------------------
Less expenses waived and absorbed by investment manager (115)
- ----------------------------------------------------------------------
Total expenses after expense waiver 213
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 144
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized loss on sales of investments (621)
- ----------------------------------------------------------------------
Change in net unrealized appreciation on investments 3,100
- ----------------------------------------------------------------------
Net gain on investments 2,479
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,623
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended March 31, 1999 (unaudited) and for the period
ended September 30, 1998
<TABLE>
<CAPTION>
1999 1998(A)
<S> <C> <C>
- ------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------
Net investment income $ 144 82
- ------------------------------------------------------------------------------------------
Net realized loss (621) (437)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation 3,100 (1,524)
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,623 (1,879)
- ------------------------------------------------------------------------------------------
Distribution from net investment income (154) (76)
- ------------------------------------------------------------------------------------------
Net increase from capital share transactions 9,635 20,418
- ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 12,104 18,463
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of period 18,563 100
- ------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $6 for 1998) $30,667 18,563
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced operations on January 30, 1998.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper U.S. Growth And Income Fund (the fund) is a
diversified series of Kemper Securities Trust (the
trust), an open-end management investment company
organized as a business trust under the laws of
Massachusetts. The fund currently offers three
classes of shares. Class A shares are sold to
investors subject to an initial sales charge. Class
B shares are sold without an initial sales charge
but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales
charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares six
years after issuance. Class C shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio securities which are traded on
U.S. 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 on such market. If no sale
occurred, the security is then valued at the
calculated mean between the most recent bid and
asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation
shall be used.
Portfolio debt securities other than money market
securities with an original maturity over sixty
days are valued by pricing agents approved by the
officers of the fund, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is
recorded on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
per share is determined as of the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the fund's net assets attributable to that class by
the number of shares of the class outstanding.
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 September 30, 1998, the fund had a tax basis net
loss carryforward of approximately $407,000 which
may be applied against any realized net taxable
gains of each succeeding year until fully utilized
or it will expire in the period ended 2006.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income quarterly
and any net realized capital gains annually, which
are recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
ORGANIZATIONAL COSTS. Costs incurred by the fund in
connection with its organization and initial
registration of shares 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 .60%
of the first $250 million of average daily net
assets declining to .53% of average daily net
assets in excess of $2.5 billion. However, the fund
incurred no management fee for the six months ended
March 31, 1999, after an expense waiver by Scudder
Kemper.
In addition, Scudder Kemper has agreed to
temporarily absorb certain operating expenses of
the fund. Under these arrangements, Scudder Kemper
waived and absorbed expenses of $115,000 for the
six months ended March 31, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the six months ended March 31, 1999 are $2,000.
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 six months ended March 31, 1999 are
$47,000, after an expense waiver by Scudder Kemper.
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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
financial services firms that provide these
services and pays these firms based on assets of
fund accounts the firms service. The fund incurred
administrative services fees for the six months
ended March 31, 1999, of $5,000 after an expense
waiver by Scudder Kemper.
SHAREHOLDER SERVICES AGREEMENT. Kemper Service
Company (KSvC) is the transfer, dividend paying and
shareholder service agent for the fund. The fund
incurred shareholder services fees of $60,000 for
the six months ended March 31, 1999.
FUND ACCOUNTING AGENT. Scudder fund Accounting
Corporation 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 accounting fees for the six
months ended March 31, 1999, of $19,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended March 31,
1999, the fund made no payments to its officers and
incurred trustees' fees of $3,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS
For the six months ended March 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $21,240
Proceeds from sales 10,962
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
Class A 650 $6,439 1,058 $10,643
------------------------------------------------------------------------------
Class B 525 5,163 753 7,603
------------------------------------------------------------------------------
Class C 277 2,742 376 3,777
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 9 89 5 48
------------------------------------------------------------------------------
Class B 4 38 2 16
------------------------------------------------------------------------------
Class C 2 19 1 7
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (234) (2,331) (104) (1,024)
------------------------------------------------------------------------------
Class B (96) (939) (29) (300)
------------------------------------------------------------------------------
Class C (158) (1,585) (38) (352)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 5 54 -- --
------------------------------------------------------------------------------
Class B (5) (54) -- --
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $9,635 $20,418
------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> ---------------------------
CLASS A
---------------------------
SIX MONTHS PERIOD
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1998(a)
- ---------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------
Net asset value, beginning of period $ 9.12 9.50
- ---------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .07
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.07 (.38)
- ---------------------------------------------------------------------
Total from investment operations 1.20 (.31)
- ---------------------------------------------------------------------
Less distribution from net investment
income .14 .07
- ---------------------------------------------------------------------
Net asset value, end of period $10.18 9.12
- ---------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.44% (3.36)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses .85% 1.36
- ---------------------------------------------------------------------
Net investment income 1.93% 1.56
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses 2.09% 2.59
- ---------------------------------------------------------------------
Net investment income .69% .33
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------
CLASS B
---------------------------
SIX MONTHS PERIOD
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1998(a)
- ---------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------
Net asset value, beginning of period $ 9.12 9.50
- ---------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .03
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.06 (.38)
- ---------------------------------------------------------------------
Total from investment operations 1.12 (.35)
- ---------------------------------------------------------------------
Less distribution from net investment
income .07 .03
- ---------------------------------------------------------------------
Net asset value, end of period $10.17 9.12
- ---------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.96% (3.72)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses 1.08% 2.01
- ---------------------------------------------------------------------
Net investment income 1.70% .91
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses 3.09% 3.49
- ---------------------------------------------------------------------
Net investment loss (.31)% (.57)
- ---------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------
CLASS C
-------------------------
SIX MONTHS PERIOD
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1998(A)
- ---------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------
Net asset value, beginning of period $ 9.12 9.50
- ---------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .03
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.05 (.38)
- ---------------------------------------------------------------------
Total from investment operations 1.11 (.35)
- ---------------------------------------------------------------------
Less distribution from net investment
income .07 .03
- ---------------------------------------------------------------------
Net asset value, end of period $10.16 9.12
- ---------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 11.86% (3.71)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses .61% 1.99
- ---------------------------------------------------------------------
Net investment income 2.17 .93
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------
Expenses 2.60% 3.25
- ---------------------------------------------------------------------
Net investment income (loss) .18 (.33)
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED ENDED
MARCH 31, SEPTEMBER 31,
1999 1998(A)
- ---------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------
Net assets at end of period (in
thousands) $30,667 18,563
- ---------------------------------------------------------------------
Portfolio turnover rate (annualized) 87% 93
- ---------------------------------------------------------------------
</TABLE>
(a) Commenced operations on January 30, 1998.
NOTE: Total return does not reflect the effect of any sales charges. Scudder
Kemper agreed to temporarily waive certain operating expenses of the fund during
the six months ended March 31, 1999. The Other ratios to average net assets are
computed without this waiver. Data for the period ended March 31, 1999 is
unaudited.
18
<PAGE> 19
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper U.S. Growth And Income Fund shareholders were asked to
vote on two separate issues: approval of the new Investment Management Agreement
between the fund and Scudder Kemper Investments, Inc., and to modify or
eliminate certain policies and to eliminate the shareholder approval
requirements as to certain other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,258,596 18,339 41,198
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
956,279 27,888 93,059
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
956,279 27,888 93,059
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
955,965 28,203 93,059
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
956,279 27,888 93,059
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
955,965 28,203 93,059
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
956,279 27,888 93,059
</TABLE>
19
<PAGE> 20
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY CORNELIA SMALL
Trustee President Vice President
ARTHUR R. GOTTSCHALK PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
FREDERICK T. KELSEY MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
KATHRYN L. QUIRK CAROLINE PEARSON
Trustee and Vice President LORI J. ENSINGER Assistant Secretary
Vice President
FRED B. RENWICK ELIZABETH C. WERTH
Trustee JAMES M. EYSENBACH Assistant Secretary
Vice President
JOHN G. WEITHERS BRENDA LYONS
Trustee THOMAS W. LITTAUER Assistant Treasurer
Vice President
ANN M. MCCREARY
Vice President
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
LEGAL COUNSEL DECHERT PRICE & RHOADS
Ten Post Office Square South
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
TRANSFER AGENT AND KEMPER SERVICE COMPANY
SHAREHOLDER SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ----------------------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- ----------------------------------------------------------------------------------------------
PRINCIPAL KEMPER DISTRIBUTORS, INC.
UNDERWRITER 222 South Riverside Plaza Chicago, IL 60602-5808
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 Funds/Value Style prospectus.
KUSGIF - 3 (5/24/99) 1074060
