<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 2000
[LOGO]
Seeking long-term growth of capital,
current income and growth of income
KEMPER U.S. GROWTH AND
INCOME FUND
"... This enhancement [to our investment process] enabled us to increase the
fund's exposure to sectors that are heavily populated by low- or
non-dividend-paying stocks, such as those in the technology sector. This helped
the fund's performance. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
INDUSTRY SECTORS
9
LARGEST HOLDINGS
10
PORTFOLIO OF INVESTMENTS
14
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
19
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER U.S. GROWTH AND INCOME FUND TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GROWTH AND KEMPER U.S. GROWTH AND LIPPER MULTI-CAP VALUE
KEMPER U.S. GROWTH AND INCOME FUND CLASS A INCOME FUND CLASS B INCOME FUND CLASS C FUNDS CATEGORY AVERAGE*
------------------------------------------ ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
8.59 8.19 8.21 7.88
</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; IF SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS
FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
3/31/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER U.S. GROWTH AND INCOME
FUND CLASS A $10.81 $9.99
.........................................................
KEMPER U.S. GROWTH AND INCOME
FUND CLASS B $10.78 $9.98
.........................................................
KEMPER U.S. GROWTH AND INCOME
FUND CLASS C $10.77 $9.97
.........................................................
</TABLE>
KEMPER U. S. GROWTH AND INCOME
FUND LIPPER RANKINGS AS OF 3/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER MULTI-CAP VALUE FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #213 of 480 funds #231 of 480 funds #230 of 480 funds
..........................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE SIX-MONTH PERIOD, THE FUND PAID THE FOLLOWING DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
INCOME
DIVIDEND
....................................................................
<S> <C> <C> <C>
KEMPER U.S. GROWTH AND INCOME FUND
CLASS A $0.037
....................................................................
KEMPER U.S. GROWTH AND INCOME FUND
CLASS B $0.017
....................................................................
KEMPER U.S. GROWTH AND INCOME FUND
CLASS C $0.018
....................................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Data provided by Morningstar, Inc. Chicago,
BOX] 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. THE FUND'S
PORTFOLIO CHANGES FROM DAY-TO-DAY. A LONGER-TERM
VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR
CATEGORY, WHICH IS BASED ON 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 INVEST-
MENT POLICIES.
</TABLE>
<PAGE> 3
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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
As spring moves along towards summer, there isn't much to complain about. For
all the yammering about the "new" economy, the old economy is doing pretty well.
Consumers may hanker for a new GPS handset or a Palm Pilot, but they lust after
a suburban mansion with a garage big enough to hold their luxury car and SUV --
and state and local governments are laying old-fashioned asphalt almost as fast
as businesses are building the information superhighway. Satisfying both old and
new desires got the economy off to a fast start in the new century -- GDP growth
rose at an annual rate of more than 5 percent in the first quarter. Even with a
modest slowdown possible in the second half, growth for the year 2000 is likely
to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show no signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats.
Why are consumers still buying despite Greenspan's attempts to slow their
splurging? There are three answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment.
And just like consumers, businesses are borrowing to buy. You may think that
with booming sales, entrepreneurs are cash-rich. But while 1999 saw economy-wide
earnings jump 10 percent and profits of Standard and Poor's (S&P) 500 companies
leap nearly 14 percent, internal cash covered less than 84 percent of capital
spending. With the exception of 1998, that's the lowest on record. Last year
alone, corporate debt shot up by more than 11 percent to $560 billion. New
economy companies are no exception; they have more debt than most people
realize, issuing more than half of all convertible bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Private
financial obligations must be paid with personal income and corporate profits.
When the economy slows, personal income stagnates and corporate profits often
fall -- which makes it harder to pay off those debts. Consumers and businesses
may have to sell their assets to pay off the debt, and they may risk going into
default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
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 (3/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 6.10 5.20 5.60
Prime rate (2) 9.00 8.25 7.75 8.50
Inflation rate (3)* 3.70 2.60 1.80 1.40
The U.S. dollar (4) 1.10 -0.90 -0.50 4.10
Capital goods orders (5)* 10.10 4.70 5.50 11.50
Industrial production (5)* 5.10 3.50 3.10 5.30
Employment growth (6) 2.30 2.20 2.30 2.60
</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 2/29/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some indicators suggest that monetary policy has
actually been lax. Broad money and credit creation have vastly exceeded economic
activity since 1995, and no central bank can allow that to continue indefinitely
without creating inflation. If we begin to see higher core inflation, the Fed
will have to deal with all that money it's created in a less gradualist
manner -- and that could get tricky. Financial turmoil accompanied each of the
Fed's last two efforts to slow the economy down. In 1994, there was a bond
market meltdown that resulted in a Mexican debt crisis. After a more timid Fed
tightening in 1997, crises in Asia were followed by problems with Russian debt,
Brazilian debt and a large American hedge fund. We don't think this is a
coincidence: The global debt market is so vast and interconnected that it's
highly vulnerable to a rise in the cost of its basic raw material -- short-term
funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
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 MAY 8, 2000, 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
[MILLARD PHOTO]
KATHLEEN MILLARD JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1991 AS A PORTFOLIO
MANAGER, HAVING BEGUN HER INVESTMENT CAREER IN 1983. MILLARD HAS MORE THAN 15
YEARS OF INVESTMENT INDUSTRY EXPERIENCE AS A PORTFOLIO MANAGER SPECIALIZING IN
VALUE-STYLE PORTFOLIOS AND IS A CHARTERED FINANCIAL ANALYST. MILLARD IS JOINED
BY PORTFOLIO MANAGER GREGORY ADAMS, WHO JOINED THE ORGANIZATION IN 1999. ADAMS
IS A CHARTERED FINANCIAL ANALYST AND HAS 12 YEARS OF INVESTMENT MANAGEMENT
EXPERIENCE. INVESTMENT PROFESSIONALS INCLUDING ECONOMISTS, RESEARCH ANALYSTS,
TRADERS AND OTHER SPECIALISTS THROUGHOUT THE UNITED STATES AND ABROAD SUPPORT
THE TEAM.
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.
LEAD PORTFOLIO MANAGER KATHLEEN MILLARD DISCUSSES HOW THE FUND'S ENHANCED
INVESTMENT PROCESS ENABLED IT TO TAKE PART IN SOME OF THE GAINS MADE BY THE
TECHNOLOGY SECTOR.
Q HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD?
A The fund's Class A shares gained 8.59 percent unadjusted for any sales
charge. The Standard & Poor's 500 stock index gained 17.50 percent, and the
Russell 1000 Value index gained 5.94 percent. The fund's relative
underperformance to the S&P is due to its value orientation in a momentum market
dominated by growth stocks -- specifically from the technology sector.
Q AS YOU NOTE, A SELECT GROUP OF GROWTH STOCKS DOMINATED MARKET RETURNS OVER
THE SIX-MONTH PERIOD, INCREASING THE DISPARITY OF PERFORMANCE BETWEEN GROWTH AND
VALUE. HOW DID THIS IMPACT THE FUND?
A This has certainly been a difficult time for value investors. The already
narrow market tightened even further as the number of stocks that posted strong
gains declined and an ever-larger group of stocks lost ground or provided only
modest returns.
This environment affected many funds that invest in stocks with value
characteristics, including Kemper U.S. Growth And Income and its peers.
According to Lipper Analytical Services, Inc., an independent analyst of
investment performance, multi-cap value funds reported an average return of 7.88
percent for the six-month period. This compares with the fund's 8.59 percent
return for the same period. Relative to its benchmark, the fund trailed the
17.50 percent return of the unmanaged S&P 500 stock index, reflecting, in part,
the significant component of technology in the index and its exceptional
performance over the period.
Q THE FUND'S STOCK SCREENING PROCESS WAS CHANGED LAST SUMMER. DID THE CHANGE
ALTER THE FUND'S INVESTMENT OBJECTIVE OR POSITIONING?
A We did modify our selection criteria last summer so that we would not have
to rely solely on a relative dividend yield strategy to uncover undervalued
stocks. In short, we added several criteria -- including price/earnings and
price/cash flow ratios -- to our selection process. This enhancement [to our
investment process] enabled us to increase the fund's exposure to sectors that
are heavily populated by low- or non-dividend-paying stocks, such as those in
the technology sector. This helped the fund's performance.
Q HOW DID THE CHANGE IN PROCESS HELP OR HURT THE FUND DURING THE REPORTING
PERIOD?
A Our exposure to technology made a big difference. We significantly
increased our holdings in the technology area in the fourth quarter, while
remaining true to our discipline of investing in attractively valued stocks.
Technology, which comprised about 6.4 percent of the portfolio at the end of
September, increased to about 23 percent by the end of March. We added
technology holdings such as Electronic Data Systems, America Online, Compaq
Computer, Intel and IBM, and we increased our positions in Oracle and
Hewlett-Packard. While the increased exposure to technology helped tremendously,
our benchmark -- the
5
<PAGE> 6
PERFORMANCE UPDATE
S&P 500 -- still held a larger sector weighting (about 33 percent of the index
as of March 31, 2000). We attribute our underperformance directly to our smaller
weighting in technology stocks.
Q WHERE DID YOU FIND TRUE VALUE IN THE HIGH-FLYING TECHNOLOGY SECTOR?
A Within technology, we maintained a very modest weighting in hardware
companies and implemented material positions in software, semiconductors and
telecommunications. Many of these types of companies were trading at what we
believed to be very attractive valuations last fall. Since then, many have
rebounded significantly and thus helped the fund's performance.
Intel is a perfect example of a great value opportunity. The stock sold at a
deep discount last year relative to other large-capitalization technology
stocks. We purchased the stock right in front of an earnings acceleration. The
stock has performed extremely well since we added it to the portfolio. This was
a case in which volatility in the technology sector provided an opportunity. We
believe that Intel still has a great deal of upside potential this year, and we
plan to hold on to the stock until it reaches our price target or until its
fundamentals deteriorate, which we don't anticipate happening anytime soon.
Q WHAT COMPANIES HELPED PERFORMANCE?
A Corning, one of the fund's largest holdings, was a significant contributor
to the portfolio. The company is a major beneficiary of the explosive demand for
bandwidth that is being driven by the Internet. This is not only boosting sales
of Corning's traditional fiber-optic cable products, but fueling new high-growth
areas such as photonic components as well. We've held the stock in the fund for
several years, and its valuation has risen tremendously with its success. We
continue to see a great deal of upside growth potential for this company, which,
we believe, will sustain its higher valuation. Of course, if its valuation rises
past a point that we believe is sustainable, we'll most likely reduce our
position.
Other contributors included media giant Disney and Schlumberger, an oil
service company. Disney was a true turnaround story, with the company's earnings
having declined for several consecutive quarters. We met with Michael Eisner and
Disney's other top management several times during the period. Based on those
meetings and our internal research, we decided that the company was still well
positioned and capable of posting stronger earnings, and therefore we added the
stock to our portfolio. Our assessment was correct, and the stock has made
strong gains over the last six months, helping the fund's performance.
Schlumberger had been hurt by the depressed crude oil prices of late 1998 and
1999. Although oil prices began rising in 1999, it has taken a while to catch up
with and benefit oil service companies such as Schlumberger. During the period,
however, we've seen a pickup in demand for oil service products, which has had a
positive impact on this stock. We expect that demand will continue to grow.
Q YOU MENTIONED THAT THE DEMAND FOR OIL AND OIL SERVICES HAS PICKED UP. HOW
DID THE FUND'S ENERGY SECTOR PERFORM DURING THE PERIOD, AND WHAT IS YOUR OUTLOOK
FOR IT IN THE FUTURE?
A Demand did pick up late in the period. However, this increase in demand
did not come soon enough to offset earlier losses in the energy sector. Our
energy holdings, as a whole, were somewhat disappointing during the period. We
do see the opportunity for improved performance in this area going forward.
We don't, however, make big sector investments based on where we think the
overall economy or markets might be going. Our valuation model, company
fundamentals, and risk control measures that we employ determine the fund's
sector weightings. With regard to the energy sector, we have an overweight
position in this area mainly because valuations are attractive and our earnings
forecast for many companies in this sector is very strong. The higher price of
oil should also help the earnings of a number of companies, and we have
attempted to invest in the best names that meet our criteria in this area.
Q THE FUND INVESTS A LARGE PORTION OF ITS ASSETS IN FINANCIAL SERVICES. HAS
THE RISING-INTEREST-RATE ENVIRONMENT HURT THE PERFORMANCE OF THESE STOCKS?
A Clearly, rising interest rates have had a negative impact on the financial
services sector. However, our strategy in the financial services area has been
to emphasize companies with scale and
6
<PAGE> 7
PERFORMANCE UPDATE
global reach. We have overweighted the insurance segment for two reasons: These
companies are generally not as exposed to the negative effects of rising
interest rates as are other financial service stocks, and we expect a pricing
recovery for property and casualty companies.
We also have a position in banks. However, compared with value benchmarks, our
position is underweighted. For the most part, banks, which tend to be sensitive
to interest-rate moves, struggled throughout much of the period. We did see a
split in the group: the larger banks with capital markets exposure performed
better and posted strong earnings, while smaller regional banks lagged. However,
in March, the sector as a whole advanced, outperforming most other areas of the
market. Our financials rallied too and helped the fund's performance. We need to
see signs of improving fundamentals before increasing our commitment to this
sector.
Q ASIDE FROM INCREASING THE FUND'S TECHNOLOGY INVESTMENTS, WHAT OTHER
CHANGES DID YOU MAKE TO THE PORTFOLIO?
A We focused on making the fund's portfolio more sector neutral -- more in
line with its benchmark, the S&P 500. We believe that one of our core
competencies is fundamental research and analysis of companies. As such, we
believe that a bottom-up approach to investing makes more sense than trying to
determine which sectors are going to benefit going forward.
With this in mind, we moved out of some illiquid and smaller-cap holdings and
reduced our exposure to communications stocks. The fund's holdings of regional
Bell operating companies and other communications companies had previously
comprised about 17 percent of assets. At the end of the period, communications
stocks represented just 10 percent of the portfolio. This is still more than the
S&P 500 communications sector weighting of about 8 percent.
Q DOES THAT REPRESENT A MAJOR CHANGE TO THE PORTFOLIO?
A No, not really. We see these adjustments to the fund's holdings as more of
a fine-tuning that enables us to better focus on undervalued stocks rather than
undervalued sectors.
Q WHAT IS YOUR OUTLOOK FOR THE FUND?
A Over the long term, we believe that the fund's broadened investment
universe will provide us with additional opportunities to outperform our
benchmark, the S&P 500. We are working to achieve first-quartile performance
among our peers, and while the enhancements have only recently been implemented
and may take time to show results, we are confident that we will be able to
achieve both of these goals over time. We believe the fund's portfolio is quite
attractive and well positioned to benefit from a broadening of the market.
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.
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.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON MARCH 31, 2000 AND SEPTEMBER 30, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GROWTH AND KEMPER U.S. GROWTH AND
INCOME FUND ON 3/31/00 INCOME FUND ON 9/30/99
---------------------- ----------------------
<S> <C> <C>
TECHNOLOGY 19.5 4.9
FINANCE 18.2 14.1
CAPITAL GOODS 15.2 17.9
COMMUNICATIONS SERVICES 13.5 17.8
CONSUMER NON-DURABLES 11.1 12.9
ENERGY 10 10.9
HEALTH CARE 9.1 4.9
UTILITIES 2.3 3.7
BASIC MATERIALS 0.8 4.1
TRANSPORTATION 0.3 5.5
OTHER 0 3.3
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*
DATA SHOWS THE PERCENTAGE OF COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR OF
THE KEMPER U.S. GROWTH AND INCOME FUND REPRESENTED ON MARCH 31, 2000, COMPARED
WITH THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE STANDARD &
POOR'S 500 STOCKS INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER U.S. GROWTH AND STANDARD & POOR'S 500 STOCK
INCOME FUND ON 3/31/00 INDEX 3/31/00
---------------------- ---------------------------
<S> <C> <C>
TECHNOLOGY 19.5 33.7
FINANCE 18.2 12
CAPITAL GOODS 15.2 7.9
COMMUNICATIONS SERVICES 13.5 7.5
CONSUMER NON-DURABLES 11.1 18.6
ENERGY 10 5.4
HEALTH CARE 9.1 9.3
UTILITIES 2.3 2.5
BASIC MATERIALS 0.8 2.5
TRANSPORTATION 0.3 0.6
</TABLE>
* THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 32.1 percent of the fund's portfolio on March 31, 2000
<TABLE>
<CAPTION>
HOLDINGS DESCRIPTION PERCENT
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
1. INTEL Engaged in the design, 5.0%
development, manufacture and
sale of advanced semiconductors
and integrated circuits.
-----------------------------------------------------------------------------------------
2. CORNING Engaged in the fiber-optics 4.8%
business and the manufacture
and sale of products made from
specialty glasses and related
inorganic materials for the
specialty materials,
communications and consumer
product markets.
-----------------------------------------------------------------------------------------
3. EXXON MOBIL Produces, transports, refines 4.3%
and markets petroleum and
natural gas and related
products.
-----------------------------------------------------------------------------------------
4. ORACLE The company is the leading 3.5%
developer of database
management systems software,
which lets multiple users and
applications access the same
data simultaneously.
-----------------------------------------------------------------------------------------
5. GENERAL ELECTRIC A broadly diversified company 2.7%
with major businesses in power
generators, appliances,
lighting, plastics, medical
systems, aircraft engines,
financial services and
broadcasting.
-----------------------------------------------------------------------------------------
6. MARSH & MCLENNAN The world's largest insurance 2.5%
COMPANIES brokerage company.
-----------------------------------------------------------------------------------------
7. AMERICAN HOME Manufactures and markets health 2.4%
PRODUCTS care products, including
pharmaceuticals, consumer
health care products and
medical supplies
-----------------------------------------------------------------------------------------
8. CITIGROUP A worldwide bank holding 2.3%
company that provides a broad
array of financial services.
-----------------------------------------------------------------------------------------
9. MICROSOFT Develops, markets and supports 2.3%
a variety of software,
operating systems, language and
application programs
-----------------------------------------------------------------------------------------
10. AMERICAN The leading U.S.-based 2.3%
INTERNATIONAL international insurance
GROUP organization and among the
largest underwriters of
commercial and industrial
coverage in the U.S.
-----------------------------------------------------------------------------------------
</TABLE>
*THE FUND'S HOLDINGS ARE SUBJECT TO CHANGE.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER U.S. GROWTH & INCOME FUND
Portfolio of Investments at March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS--1.5% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
State Street Bank & Trust Company, 6.05%,
to be repurchased at $1,196,603 on
04/03/2000**
(Cost: $1,196,000) $1,196,000 $ 1,196,000
<CAPTION>
COMMON STOCKS--98.5% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--1.4%
DEPARTMENT & CHAIN STORES
Wal-Mart Stores, Inc. 9,300 516,150
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.9%
ALCOHOL & TOBACCO--1.5%
Anheuser-Busch Companies, Inc. 8,900 554,025
----------------------------------------------------------------------------
FOOD & BEVERAGE--2.0%
PepsiCo, Inc. 20,400 705,075
----------------------------------------------------------------------------
PACKAGED GOODS COSMETICS--1.4%
Avon Products, Inc. 17,300 502,781
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
HEALTH--8.9%
BIOTECHNOLOGY--0.5%
Amgen Inc.* 3,200 196,400
----------------------------------------------------------------------------
MEDICAL SUPPLY & SPECIALTY--2.2%
Becton, Dickinson & Co. 6,600 173,663
Medtronic, Inc. 11,800 606,963
----------------------------------------------------------------------------
780,626
PHARMACEUTICALS--6.2%
American Home Products Corp. 16,600 890,175
Bristol-Myers Squibb Co. 11,250 649,688
Johnson & Johnson, Inc. 3,800 266,238
Merck & Co., Inc. 7,000 434,875
----------------------------------------------------------------------------
2,240,976
-------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--9.7%
TELEPHONE/COMMUNICATIONS
AT&T Corp. 7,000 393,750
Bell Atlantic Corp. 9,750 595,969
BellSouth Corp. 15,000 705,000
GTE Corp. 9,300 660,300
Global Crossing Ltd.* 8,371 342,687
SBC Communications, Inc. 7,811 328,062
Sprint Corp. 7,700 485,100
----------------------------------------------------------------------------
3,510,868
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
FINANCIAL--17.9%
BANKS--5.7%
Chase Manhattan Corp. 8,150 $ 710,578
First Union Corp. 12,415 462,459
FleetBoston Financial Corp. 12,000 438,000
J.P. Morgan & Co., Inc. 1,200 158,100
US Bancorp 13,625 298,047
----------------------------------------------------------------------------
2,067,184
INSURANCE--2.3%
American International Group, Inc. 7,600 832,200
----------------------------------------------------------------------------
CONSUMER FINANCE--2.9%
American Express Co. 1,400 208,513
Citigroup, Inc. 14,400 854,100
----------------------------------------------------------------------------
1,062,613
OTHER FINANCIAL COMPANIES--6.6%
Federal National Mortgage Association 14,275 805,645
Marsh & McLennan Companies, Inc. 8,300 915,594
Morgan Stanley Dean Witter & Co. 7,800 636,188
----------------------------------------------------------------------------
2,357,427
REAL ESTATE--0.4%
General Growth Properties, Inc. (REIT) 4,600 140,013
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
MEDIA--3.6%
ADVERTISING--0.8%
Interpublic Group of Companies, Inc. 5,800 274,050
----------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT--2.2%
Walt Disney Co. 18,900 781,988
----------------------------------------------------------------------------
CABLE TELEVISION--0.6%
Comcast Corp. "A" 5,200 225,550
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--4.7%
EDP SERVICES--2.6%
Electronic Data Systems Corp. 9,100 584,106
First Data Corp. 8,400 371,700
----------------------------------------------------------------------------
955,806
MISCELLANEOUS COMMERCIAL
SERVICES--0.5%
Sabre Holdings, Inc. "A" 4,684 173,015
----------------------------------------------------------------------------
PRINTING/PUBLISHING--1.6%
McGraw-Hill, Inc. 12,300 559,650
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
DURABLES--3.3%
AEROSPACE--1.3%
Rockwell International Corp. 11,500 480,844
----------------------------------------------------------------------------
AUTOMOBILES--1.3%
Ford Motor Co. 10,325 474,305
----------------------------------------------------------------------------
CONSTRUCTION/AGRICULTURAL
EQUIPMENT--0.7%
Deere & Co. 6,600 250,800
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
MANUFACTURING--11.6%
CHEMICALS--2.6%
Dow Chemical Co. 6,400 $ 729,600
E.I. du Pont de Nemours & Co. 3,900 206,213
----------------------------------------------------------------------------
935,813
DIVERSIFIED MANUFACTURING--2.7%
General Electric Co. 6,300 977,681
----------------------------------------------------------------------------
INDUSTRIAL SPECIALTY--4.8%
Corning, Inc. 9,075 1,760,550
----------------------------------------------------------------------------
MACHINERY/COMPONENTS/ CONTROLS--1.5%
Parker-Hannafin Corp. 12,700 524,669
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--19.2%
COMPUTER SOFTWARE--8.1%
America Online, Inc.* 5,700 383,325
Computer Associates International, Inc. 6,900 408,395
Microsoft Corp.* 8,000 850,000
Oracle Corp.* 16,400 1,280,225
----------------------------------------------------------------------------
2,921,945
ELECTRONIC COMPONENTS/
DISTRIBUTORS--1.7%
Cisco Systems, Inc.* 8,100 626,231
----------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING--3.8%
Compaq Computer Corp. 16,500 439,313
Hewlett-Packard Co. 3,400 450,713
International Business Machines Corp. 4,000 472,000
----------------------------------------------------------------------------
1,362,026
SEMICONDUCTORS--5.6%
Conexant Systems, Inc.* 2,600 184,600
Intel Corp. 13,900 1,833,924
----------------------------------------------------------------------------
2,018,524
-------------------------------------------------------------------------------------------------------------------------
ENERGY--9.9%
OIL & GAS PRODUCTION--6.6%
Exxon Mobil Corp. 20,449 1,591,188
Texaco, Inc. 14,625 784,266
----------------------------------------------------------------------------
2,375,454
OIL COMPANIES--2.1%
Chevron Corp. 8,275 764,920
----------------------------------------------------------------------------
OILFIELD SERVICES/ EQUIPMENT--1.2%
Schlumberger Ltd. 5,600 428,400
----------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--0.8%
STEEL & METALS
Alcoa, Inc. 3,900 273,975
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.3%
AIRLINES
AMR Corp.* 3,300 105,188
----------------------------------------------------------------------------
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
UTILITIES--2.3%
ELECTRIC UTILITIES
FPL Group, Inc. 6,500 $ 299,406
Unicom Corp. 14,125 515,563
----------------------------------------------------------------------------
814,969
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $30,792,908) 35,532,691
----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $31,988,908)(a) $36,728,691
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury on Government
agency securities.
(a) The cost for federal income tax purposes was $31,988,908. At March 31, 2000,
net unrealized appreciation for all investment securities based on tax cost
of $4,739,783. This consisted of aggregate gross unrealized appreciation for
all investments in which there was an excess of value over tax cost of
$6,305,362 and aggregate gross unrealized depreciation for all investment
securities in which there was an excess of tax cost over value of
$1,565,579.
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of March 31, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $31,988,908) $36,728,691
---------------------------------------------------------------------------
Receivable for investments sold 311,163
---------------------------------------------------------------------------
Dividends receivable 36,900
---------------------------------------------------------------------------
Interest receivable 201
---------------------------------------------------------------------------
Receivable for Fund shares sold 82,066
---------------------------------------------------------------------------
Deferred organization expense 5,902
---------------------------------------------------------------------------
TOTAL ASSETS 37,164,923
---------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 99,842
---------------------------------------------------------------------------
Payable for investments purchased 613,915
---------------------------------------------------------------------------
Payable for Fund shares redeemed 1,040
---------------------------------------------------------------------------
Other accrued expenses 95,162
---------------------------------------------------------------------------
Total liabilities 809,959
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $36,354,964
---------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ (27,136)
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
securities 4,739,783
---------------------------------------------------------------------------
Accumulated net realized gain (loss) (2,539,802)
---------------------------------------------------------------------------
Paid-in capital 34,182,119
---------------------------------------------------------------------------
NET ASSETS, AT VALUE $36,354,964
---------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($17,400,008 / 1,609,551 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $10.81
---------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of 10.81) $11.47
---------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($15,600,733 /
1,446,615 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $10.78
---------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($3,354,223 /
311,420 outstanding shares of beneficial interest, $.01
par value, unlimited number of shares authorized) $10.77
---------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 2000 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $158) $ 313,947
---------------------------------------------------------------------------
Interest 41,088
---------------------------------------------------------------------------
Total income 355,035
---------------------------------------------------------------------------
Expenses:
Management fee 111,623
---------------------------------------------------------------------------
Services to shareholders 97,398
---------------------------------------------------------------------------
Custodian and accounting fees 36,077
---------------------------------------------------------------------------
Distribution services fees 70,392
---------------------------------------------------------------------------
Administrative services fees 46,516
---------------------------------------------------------------------------
Auditing 28,975
---------------------------------------------------------------------------
Legal 7,813
---------------------------------------------------------------------------
Trustees' fees and expenses 9,800
---------------------------------------------------------------------------
Reports to shareholders 10,600
---------------------------------------------------------------------------
Registration fees 1,048
---------------------------------------------------------------------------
Amortization of organization expenses 1,098
---------------------------------------------------------------------------
Other 1,831
---------------------------------------------------------------------------
Total expenses, before expense reductions 423,171
---------------------------------------------------------------------------
Expense reductions (116,937)
---------------------------------------------------------------------------
Total expenses, after expense reductions 306,234
---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 48,801
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from investments (1,519,623)
---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 4,304,872
---------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,785,249
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 2,834,050
---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
2000 SEPTEMBER 30,
(UNAUDITED) 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 48,801 $ 269,093
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,519,623) (583,498)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transaction 4,304,872 1,958,912
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,834,050 1,644,507
-----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (67,591) (174,068)
-----------------------------------------------------------------------------------------------------
Class B (26,138) (52,381)
-----------------------------------------------------------------------------------------------------
Class C (5,963) (23,486)
-----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 12,261,055 27,739,907
-----------------------------------------------------------------------------------------------------
Reinvestment of distributions 92,379 236,074
-----------------------------------------------------------------------------------------------------
Cost of shares redeemed (13,217,394) (13,448,987)
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from fund share
transactions (863,960) 14,526,994
-----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets: 1,870,398 15,921,566
Net assets at beginning of period 34,484,566 18,563,000
-----------------------------------------------------------------------------------------------------
Net assets at end of period (including undistributed net
investment income (loss) of ($27,136) and $23,755,
respectively) $ 36,354,964 $ 34,484,566
-----------------------------------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
FOR THE PERIOD
SIX MONTHS JANUARY 30, 1998
ENDED (COMMENCEMENT OF
MARCH 31, YEAR ENDED OPERATIONS) TO
2000 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1999 1998
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.99 9.12 9.50
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) .03 .13 .07
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .83 .86 (.38)
---------------------------------------------------------------------------------------------------
Total from investment operations .86 .99 (.31)
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.04) (0.12) (0.07)
---------------------------------------------------------------------------------------------------
Total distributions (.04) (0.12) (0.07)
---------------------------------------------------------------------------------------------------
Net asset value, end of period 10.81 9.99 9.12
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) 8.59** 10.87 (3.36)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 17,400 17,118
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.65* 2.10 2.59*
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.28* 1.24 1.36*
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .63* 1.29 1.56*
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 107* 74 93*
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE PERIOD
SIX MONTHS JANUARY 30, 1998
ENDED (COMMENCEMENT OF
MARCH 31, YEAR ENDED OPERATIONS) TO
2000 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1999 1998
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.98 9.12 9.50
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.01) .05 .03
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .83 .86 (.38)
---------------------------------------------------------------------------------------------------
Total from investment operations .82 .91 (.35)
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.02) (0.05) (0.03)
---------------------------------------------------------------------------------------------------
Total distributions (.02) (0.05) (0.03)
---------------------------------------------------------------------------------------------------
Net asset value, end of period 10.78 9.98 9.12
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) 8.19** 9.96 (3.72)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 15,601 14,564
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.54* 2.97 3.49*
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.01* 2.01 2.01*
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.10)* .52 .91*
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 107* 74 93*
---------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
FOR THE PERIOD
SIX MONTHS JANUARY 30, 1998
ENDED (COMMENCEMENT OF
MARCH 31, YEAR ENDED OPERATIONS) TO
2000 SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1999 1998
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.97 9.12 9.50
---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (a) (.01) .06 .03
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .83 .84 (.38)
---------------------------------------------------------------------------------------------------
Total from investment operations .82 .90 (.35)
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.02) (0.05) (0.03)
---------------------------------------------------------------------------------------------------
Total distributions (.02) (0.05) (0.03)
---------------------------------------------------------------------------------------------------
Net asset value, end of period 10.77 9.97 9.12
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B)(C) 8.21** 9.88 (3.71)**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 3,354 2,803
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.84* 2.78 3.25*
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.99* 1.99 1.99*
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.08)* .54 .93*
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 107* 74 93*
---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper U.S. Growth and Income Fund (the "Fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class.
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.
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.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, 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
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
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 be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1999, the Fund had a net tax basis
capital loss carryforward of approximately $670,000
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or until September 30, 2006 ($407,000) and
September 30, 2007 ($263,000), the respective
expiration dates, whichever occurs first. In
addition, from November 1, 1998 through September
30, 1999, the Fund incurred approximately $347,000
of net realized capital losses. As permitted by tax
regulations, the Fund intends 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 quarterly.
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.
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 and premiums
are amortized for both tax and financial reporting
purposes.
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.
--------------------------------------------------------------------------------
2 PURCHASES AND
SALES OF SECURITIES For the six months ended March 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
<TABLE>
<S> <C>
Purchases $18,902,429
Proceeds from sales 20,043,034
</TABLE>
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .60% of the first
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
$250 million of average daily net assets declining
to .53% of average daily net assets in excess of
$12.5 billion. The Fund incurred a management fee
of $61,962 for the six months ended March 31, 2000
which was equivalent to an annualized effective
rate of .33%, after an expense waiver of $49,661 by
Scudder Kemper. In addition, certain affiliates
agreed to temporarily waive their fees. Under these
arrangements, Scudder Kemper and its affiliates
waived expenses of $116,127 for the six months
ended March 31, 2000.
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, 2000 are $4,989.
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, 2000 are
$75,827, after an expense waiver of $19,950, of
which $18,430 is unpaid at March 31, 2000.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Kemper
Distributors, Inc. (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. KDI in turn has
various agreements with financial services firms
that provided these services and pays these firms
based on assets of fund accounts the firms service.
The Fund incurred no administrative services fees
for the six months ended March 31, 2000, after an
expense waiver of $46,516.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. The Fund incurred
shareholder services fees of $81,434 for the six
months ended March 31, 2000, of which $18,874 is
unpaid at March 31, 2000.
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. For the six
months ended March 31, 2000, the amount charged to
the Fund by SFAC aggregated $31,125 of which $5,189
is unpaid at March 31, 2000.
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,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $9,800 to independent
trustees.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 575,471 $ 5,973,352 1,269,644 $13,508,855
----------------------------------------------------------------------------------------
Class B 413,235 $ 4,292,550 988,435 10,195,577
----------------------------------------------------------------------------------------
Class C 172,669 $ 1,797,327 395,004 4,035,475
----------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 5,996 62,825 16,213 164,090
----------------------------------------------------------------------------------------
Class B 2,326 24,358 5,024 49,999
----------------------------------------------------------------------------------------
Class C 497 5,196 2,212 21,985
----------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (704,318) (7,284,409) (547,953) (5,724,588)
----------------------------------------------------------------------------------------
Class B (409,598) (4,262,331) (251,471) (2,915,564)
----------------------------------------------------------------------------------------
Class C $(142,856) (1,472,828) (458,960) (4,808,835)
----------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 18,473 $ 197,826 13,296 140,252
----------------------------------------------------------------------------------------
Class B (18,492) (197,826) (13,321) (140,252)
----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (863,960) $14,526,994
----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees were reduced by $810
under these arrangements.
--------------------------------------------------------------------------------
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 amount 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
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
Trustee President Vice President
JAMES R. EDGAR PHILLIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee JAMES M. EYSENBACH Assistant Secretary
Vice President
KATHRYN L. QUIRK BRENDA LYONS
Trustee and Vice President THOMAS W. LITTAUER Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee ANN M. MCCREARY
Vice President
JOHN G. WEITHERS
Trustee KATHLEEN MILLARD
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 P.O. Box 219557
SERVICE AGENT Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG
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
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Kemper Equity Style/Value Style prospectus.
KUSGIF - 3(5/25/00) 1111860
