<PAGE> 1
Kemper Small Capitalization Equity Fund
Semiannual Report to Shareholders
For the Period Ended
March 31, 1995
(KEMPER LOGO)
<PAGE> 2
DEAR SHAREHOLDER:
We are pleased to provide you with an overview of the performance of your fund
for the six-month period ended March 31, 1995. In addition, following the
overview is a question and answer interview with your fund's Portfolio Manager.
- ----------------------------
PERFORMANCE REVIEW
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Total Return Performance*
For the Six-month Period Ended March 31, 1995
(unadjusted for any sales charge)
<S> <C>
Kemper Small Capitalization Equity Fund A 5.40%
Kemper Small Capitalization Equity Fund B 4.89%
Kemper Small Capitalization Equity Fund C 4.90%
Lipper Mid Cap Growth Funds
Category Average 6.07%
- ----------------------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
When comparing Kemper Small Capitalization Equity Fund A to all other Mid Cap
Growth funds in its Lipper** category for the following time periods ended March
31, 1995, this fund ranked: 1-year, 58 of 79; 5-year, 11 of 34; 10-year, 8 of
18; 15-year, 3 of 8.
- ---------------------------------------
GENERAL ECONOMIC OVERVIEW
Throughout 1994, rising interest rates dominated most economic discussion and
served to dampen the performance of both the fixed-income and stock markets.
However, rates have now stabilized and the markets rebounded in the first
quarter of 1995, suggesting a growing comfort with the health of the economy.
Specifically, we believe that the economy is now growing at a moderate pace that
can be sustained. Higher interest rates--and we expect rates to continue to
creep up as the year progresses--appear to be having the effect of keeping
inflation under control. At the same time, rates have not risen so high or so
quickly to suggest a disruption of economic growth.
As long as long-term fixed-income markets are assured of low inflation,
increases in short-term rates should not hurt the performance of the bond
market. In fact, with inflation running at 3 percent or below, real (adjusted
for inflation) rates of return are attractive. In April, for example, a
five-year Treasury note offered a 3.98 percent real rate of
return--significantly higher than the post-World War II average real rate of
return of 1.40 percent. This relationship is a strong positive for fixed-income
investors.
------------------------------------------------------------
MOST MARKETS REBOUNDED IN THE FIRST QUARTER
Data show the 1994 and first-quarter 1995 comparative total returns for the
domestic and international equity and U.S. and non-U.S. bond markets.
------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1st Quarter 1995
---- ----------------
<S> <C>
1.31% 9.73%
8.06% 1.94%
-3.37% 4.68%
5.99% 14.44%
</TABLE>
1 Standard & Poor's 500, an unmanaged index of common stocks that is generally
considered representative of the U.S. stock market.
2 Morgan Stanley Capital International EAFE Index, an unmanaged index that is
generally considered a measure of international equities in 15 major world
markets excluding the U.S. and Canada.
3 Salomon Brothers U.S. Treasury Bond Index, a composite index of treasuries
with various maturities (unmanaged).
4 Salomon Brothers Non-U.S. Dollar World Government Bond Index, including the
performance of leading government bond markets excluding the U.S. (unmanaged).
While there are continuing opportunities for investors, it is important to
recognize that the economic expansion is several months into its cycle.
Industries such as housing and steel, which led the economy out of the
recession, cannot be expected to repeat the strong double-digit growth they
enjoyed in 1994. Now that such cyclical industries have experienced most of
their outperformance, we believe that investors' sights will shift to the
industries that produce more consistent earnings, such as consumer nondurables,
technology and selected capital goods.
Picking the right sectors to invest in will be the key challenge for equity
investors during the next few quarters.
Leading international economies are lagging the U.S. economy. Japan and Germany,
whose economies typically follow U.S. growth, are not as robust as in past
cycles. This phenomenon makes international investing very complex currently.
Moreover, conditions in emerging market countries underline the importance of
careful research and experience in understanding how these markets work.
We are calm about what has been described as a dollar crisis. While it's true
that the dollar has depreciated against the Japanese yen and many European
currencies, we note that the dollar has appreciated in value against the
currency of Canada and Mexico, two of our largest trading partners.
1
<PAGE> 3
Political leadership also has some bearing on the progress of the economy and
the state of the financial markets. In the months preceding a presidential
election year, it has not been uncommon for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this a foregone conclusion as we move closer to 1996.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question-and-answer with your fund's
portfolio manager. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
Chief Investment and Executive Officer
April 10, 1995
Stephen Timbers is Chief Executive Officer and
is also Chief Investment Officer of Kemper
Financial Services, Inc. (KFS). KFS and its
[PHOTO] affiliates manage approximately $60 billion in
assets, including $42 billion in retail mutual
funds. Timbers is a graduate of Yale
University and holds a M.B.A. from Harvard
University.
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. During the
period noted, securities prices fluctuated. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
** Lipper Analytical Services, Inc. performance 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. Performance and rankings are historical and do not reflect future
performance.
2
<PAGE> 4
Q
& A
AN INTERVIEW
WITH PORTFOLIO
MANAGER
KAREN HUSSEY
Karen Hussey joined Kemper Financial Services, Inc. in September 1994 as
Portfolio Manager of Kemper Small Capitalization Equity Fund. Ms. Hussey
graduated with a B.S. degree from Southwest Missouri University.
Q: What changes have you made to the portfolio since assuming management
of the fund last September?
A: The past six months have definitely been a period of transition for
the fund. In addition to a new portfolio manager coming aboard, Kemper was in
the process of refining and articulating its overall approach to equity
investing. Consequently, a number of changes were made to reposition the fund
for stronger, more consistent long-term performance.
First of all, we eliminated several small, illiquid positions. In an
increasingly volatile market, the ability to move quickly in or out of a
position is very important. We also reduced the fund's average market
capitalization by selling many of the fund's higher capitalization stocks. The
fund's average capitalization is now about $800 million. Finally, the fund's
diversification was broadened with exposure to a wider variety of industries.
Overall, however, I actually reduced the number of issues held by the fund from
approximately 100 to about 90, making for a portfolio that is easier to monitor
and manage.
Q: What sectors of the market performed the best during the period? Which
were the weakest?
A: Technology was very strong in almost all subsectors.
Telecommunications and semiconductor-related stocks were particularly strong
and our holdings of Tellabs, ADC Telecommunications Inc., Scientific Atlanta,
Atmel, Microchip and Ultratech Stepper were big winners. Other strong
technology issues included U.S. Robotics, Parametric Technology, and Broderbund
Software Inc. Financial stocks such as Advanta and MBNA had strong moves after
we had increased our exposure.
The radio broadcasting group was very strong and our holdings of Infinity
Broadcasting, Emmis Broadcasting Corp. and EZ Communications benefitted from
this trend. We also had some strong moves in our industrial stocks such as
Greenfield Industries and Federal Signal Corp.
The weakest sectors during the period were housing-related and selected retail
stocks. The fund's HMO positions were eliminated in December and January due to
our concerns about pricing pressure and slowing earnings growth over the next
year.
Q: What kinds of stocks have you purchased during the past six months?
What stocks have been sold, and why?
A: I've been somewhat defensive, buying some consumer products and
financial stocks that should do well in a slow growth environment. We've also
added companies with international exposure that should benefit from improving
overseas economies and the weak dollar. More recently, we've established
positions in specialty chemicals, energy, medical technology and selected
retail holdings. The fund's gaming exposure has also been increased with
purchases of Prime Hospitality, Players International and MGM Grand. In the
financial sector I purchased Advanta and Western National Corp. These stocks,
which are typically very defensive, had reached attractive valuations and I
expect them to benefit from a more stable long bond market.
I've added several medical technology stocks and I am evaluating others. These
stocks, which were under pressure over the past two years due to concerns about
healthcare reform are now beginning to post much stronger relative earnings
gains while the valuations remain somewhat depressed. However, since many of
these stocks have appreciated quite a bit in recent months, I will add to these
positions on corrections, when prices are a bit more compelling.
Meanwhile, I've gradually reduced the fund's technology exposure. While I'm
bullish on technology for the long-term, I believe this area presents a high
degree of risk over the next few months. After several months of big upward
price moves, they are especially vulnerable to any real or perceived slowing in
the economy. However, the fund still has over 20% of its assets in technology
due to our bullish long-term view on this group.
3
<PAGE> 5
Q: As of March 31, the fund's cash level was at 13%. Does this reflect a
bearish outlook for the stock market or for small capitalization
stocks?
A: No, not necessarily. The higher cash position reflects the
elimination of stocks that no longer met our growth stock criteria, companies
where earnings momentum was questionable and, more recently, profit taking on
stocks that had experienced rapid gains. We're looking for high-quality stocks
that offer the potential for consistent growth at an attractive price. However,
in an environment where valuations and risk-reward ratios are generally
uninspiring, that will take time. Over the past few months I've met with the
management of close to 100 companies and, together with our research analysts,
we've been finding some exciting opportunities. We're currently in the process
of purchasing several of these stocks so the cash level should continue to
decline in the coming months.
Q: In the recent market rally, large capitalization stocks have broadly
outperformed small caps. What is your outlook for small capitalization
stocks for the rest of 1995?
A: Generally positive. The past year has been turbulent, marked by
industry consolidation and a very rapid rise in interest rates -- a difficult
environment for small companies. But as the year progresses and the market
fully adjusts to higher interest rates and a slowing economy, I think small
capitalization issues can once again outperform their larger counterparts.
Additionally, if we ultimately see the capital gains tax reduced it would be
particularly beneficial for small cap stocks. Meanwhile, we'll remain defensive
with more of a focus on quality and capital preservation.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS March 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Number
of Shares Value
------------ --------
<S> <C> <C>
COMMON STOCKS
BUILDING MATERIALS AND HOUSING-.4%
- ----------------------------------------------------------------
(b)Schuler Homes Inc. 238,300 $ 2,592
- ----------------------------------------------------------------
CABLE TELEVISION, BROADCASTING, AND WIRELESS
COMMUNICATIONS-5.6%
- ----------------------------------------------------------------
(b)EZ Communications, Inc. 92,000 1,541
- ----------------------------------------------------------------
(b)Emmis Broadcasting 85,000 1,806
- ----------------------------------------------------------------
Gaylord Entertainment 440,000 11,550
- ----------------------------------------------------------------
(b)Infinity Broadcasting 123,000 5,135
- ----------------------------------------------------------------
(b)International CableTel Incorporated 347,000 10,323
- ----------------------------------------------------------------
(b)Jones Intercable, Inc. "A" 225,600 3,610
- ----------------------------------------------------------------
(b)Technology Resources Industries 1,049,000 3,003
- ----------------------------------------------------------------
36,968
CHEMICALS-6.2%
- ----------------------------------------------------------------
(b)FMC Corp. 270,000 16,335
- ----------------------------------------------------------------
Ferro Corporation 145,000 3,679
- ----------------------------------------------------------------
Lawter International 102,300 1,343
- ----------------------------------------------------------------
Lilly Industries Inc. 159,750 2,117
- ----------------------------------------------------------------
Minerals Technologies, Inc. 262,000 8,449
- ----------------------------------------------------------------
OM Group 190,000 4,750
- ----------------------------------------------------------------
Sigma-Aldrich 122,000 4,728
- ----------------------------------------------------------------
41,401
COMPUTER SOFTWARE AND TECHNOLOGY-11.8%
- ----------------------------------------------------------------
(b)Alternative Resources, Inc. 215,000 8,546
- ----------------------------------------------------------------
(b)Atmel Corp. 77,000 2,974
- ----------------------------------------------------------------
(b)Broderbund Software, Inc. 115,000 5,966
- ----------------------------------------------------------------
(b)Cats Software 49,000 735
- ----------------------------------------------------------------
(b)Intergraph Corporation 50,000 594
- ----------------------------------------------------------------
Keane, Inc. 337,000 8,172
- ----------------------------------------------------------------
(b)Medaphis Corporation 60,000 3,780
- ----------------------------------------------------------------
(b)Microchip Technologies 143,000 4,022
- ----------------------------------------------------------------
(b)Norand Corporation 118,100 4,133
- ----------------------------------------------------------------
(b)Parametric Technology Corporation 100,000 4,000
- ----------------------------------------------------------------
(b)Progress Software Corporation 84,000 4,368
- ----------------------------------------------------------------
(b)7th Level, Inc. 619,600 5,112
- ----------------------------------------------------------------
(b)SPS Transaction Services 354,600 12,411
- ----------------------------------------------------------------
(b)Solectron Corporation 230,000 6,728
- ----------------------------------------------------------------
(b)Transaction Systems Architects 'A' 15,700 328
- ----------------------------------------------------------------
(b)Ultratech Stepper 138,000 6,710
- ----------------------------------------------------------------
78,579
CONSUMER PRODUCTS AND SERVICES-9.3%
- ----------------------------------------------------------------
(b)Coleman, Inc. 283,000 10,860
- ----------------------------------------------------------------
(b)Department 56, Inc. 180,000 7,177
- ----------------------------------------------------------------
(b)Franklin Quest Inc. 200,000 6,300
- ----------------------------------------------------------------
(b)Greencore Group PLC 285,000 1,976
- ----------------------------------------------------------------
Harley-Davidson, Inc. 423,800 10,171
- ----------------------------------------------------------------
Hudson Foods, Inc. 592,500 11,332
- ----------------------------------------------------------------
(b)Safety 1st, Inc. 285,800 7,324
- ----------------------------------------------------------------
Unifi, Inc. 260,000 7,020
- ----------------------------------------------------------------
62,160
<CAPTION>
Number
of Shares Value
------------ --------
<S> <C> <C>
ENERGY AND RELATED SERVICES-.7%
- ----------------------------------------------------------------
Enron Oil and Gas 185,000 $ 4,556
- ----------------------------------------------------------------
ENGINEERING-1.4%
- ----------------------------------------------------------------
Aalberts Industries N.V. 40,000 2,118
- ----------------------------------------------------------------
Jacobs Engineering Group 350,000 6,869
- ----------------------------------------------------------------
8,987
FINANCIAL SERVICES-4.1%
- ----------------------------------------------------------------
ADVANTA Corporation 360,800 11,275
- ----------------------------------------------------------------
Conseco, Inc. 57,200 2,281
- ----------------------------------------------------------------
MBNA Corporation 265,600 7,702
- ----------------------------------------------------------------
Western National Corporation 460,000 5,750
- ----------------------------------------------------------------
27,008
GAMING AND LODGING-2.8%
- ----------------------------------------------------------------
(b)Hammons (John Q) Hotels, Inc. 531,000 7,168
- ----------------------------------------------------------------
(b)MGM Grand 145,000 4,386
- ----------------------------------------------------------------
(b)Players International 130,000 3,672
- ----------------------------------------------------------------
(b)Prime Hospitality Corporation 339,400 3,563
- ----------------------------------------------------------------
18,789
MANUFACTURING AND DISTRIBUTION-8.5%
- ----------------------------------------------------------------
Ball Corporation 210,000 7,218
- ----------------------------------------------------------------
Daifuku Co., Ltd. 120,000 1,611
- ----------------------------------------------------------------
Federal Signal Corporation 561,000 12,132
- ----------------------------------------------------------------
Greenfield Industries 365,000 10,311
- ----------------------------------------------------------------
Harmon Industries 234,500 3,283
- ----------------------------------------------------------------
TriMas Corporation 780,000 17,355
- ----------------------------------------------------------------
(b)Universal Robina Corp. 641,800 366
- ----------------------------------------------------------------
Wabash National Corporation 80,000 2,620
- ----------------------------------------------------------------
(b)Zehnder Holding AG 2,000 1,377
- ----------------------------------------------------------------
56,273
MEDICAL PRODUCTS AND EQUIPMENT-7.3%
- ----------------------------------------------------------------
Arrow International 130,400 4,597
- ----------------------------------------------------------------
DENTSPLY International 300,000 10,425
- ----------------------------------------------------------------
(b)Gambro AB 100,000 1,167
- ----------------------------------------------------------------
(b)Healthdyne Technologies, Inc. 70,900 842
- ----------------------------------------------------------------
(b)Heart Technology 41,200 772
- ----------------------------------------------------------------
(b)IDEXX Laboratories 310,000 12,865
- ----------------------------------------------------------------
(b)MediSense, Inc. 80,000 1,580
- ----------------------------------------------------------------
(b)Nellcor Inc. 19,500 743
- ----------------------------------------------------------------
(b)Pyxis Corporation 325,000 6,744
- ----------------------------------------------------------------
(b)Respironics, Inc. 146,900 2,111
- ----------------------------------------------------------------
St. Jude Medical 95,000 4,109
- ----------------------------------------------------------------
(b)Tecnol Medical Products Inc. 146,100 2,776
- ----------------------------------------------------------------
48,731
MEDICAL SERVICES-4.4%
- ----------------------------------------------------------------
(b)ABR Information Services 85,900 2,126
- ----------------------------------------------------------------
Integrated Health Services 149,000 5,643
- ----------------------------------------------------------------
(b)Medpartners, Inc. 29,100 644
- ----------------------------------------------------------------
Omnicare, Inc. 247,000 12,968
- ----------------------------------------------------------------
(b)Renal Treatment Centers, Inc. 220,000 5,610
- ----------------------------------------------------------------
(b)Vivra Inc. 68,100 2,196
- ----------------------------------------------------------------
29,187
</TABLE>
5
<PAGE> 7
(Dollars in thousands)
<TABLE>
<CAPTION>
Number
of Shares Value
------------ --------
<S> <C> <C>
OFFICE EQUIPMENT AND SUPPLIES-4.8%
- ----------------------------------------------------------------
(b)Corporate Express 109,900 $ 2,912
- ----------------------------------------------------------------
Danka Business Systems, ADR 408,000 10,710
- ----------------------------------------------------------------
(b)Officemax, Inc. 349,500 8,956
- ----------------------------------------------------------------
(b)Viking Office Products 300,000 9,300
- ----------------------------------------------------------------
31,878
RETAILING AND RESTAURANTS-5.6%
- ----------------------------------------------------------------
(b)General Nutrition Centers 264,000 7,326
- ----------------------------------------------------------------
(b)Gymboree 200,000 5,075
- ----------------------------------------------------------------
Hagemeyer N.V. 25,000 2,108
- ----------------------------------------------------------------
(b)PetsMart, Inc. 137,000 4,795
- ----------------------------------------------------------------
(b)Proffitt's, Inc. 245,000 5,972
- ----------------------------------------------------------------
(b)Starbucks Corporation 251,000 6,024
- ----------------------------------------------------------------
Tandy Corporation 125,000 5,969
- ----------------------------------------------------------------
37,269
TELECOMMUNICATIONS AND EQUIPMENT-10.5%
- ----------------------------------------------------------------
(b)ADC Telecommunications, Inc. 300,000 8,850
- ----------------------------------------------------------------
Allen Group Inc. 450,000 11,137
- ----------------------------------------------------------------
(b)LCI International 564,000 14,029
- ----------------------------------------------------------------
(b)Nokia 31,703 4,647
- ----------------------------------------------------------------
(b)Paging Network, Inc. 186,000 6,231
- ----------------------------------------------------------------
Scientific Atlanta, Inc. 260,000 6,078
- ----------------------------------------------------------------
(b)Tellabs, Inc. 185,000 10,776
- ----------------------------------------------------------------
(b)US Robotics Inc. 135,000 8,438
- ----------------------------------------------------------------
70,186
TRANSPORTATION-3.9%
- ----------------------------------------------------------------
(b)ABC Rail Products 266,600 5,965
- ----------------------------------------------------------------
(b)Wisconsin Central Transportation
Corp. 425,000 20,241
- ----------------------------------------------------------------
26,206
- ----------------------------------------------------------------
<CAPTION>
Number of
Shares
or Principal
Amount Value
------------ --------
<S> <C> <C>
TOTAL COMMON STOCKS-87.3%
(Cost: $461,478) $580,770
- ----------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK-.1%
(Cost: $660)
- ----------------------------------------------------------------
(a)(b)Cimlinc Incorporated "D" 75,431 283
- ----------------------------------------------------------------
MONEY MARKET INSTRUMENTS
Yield-6.05% to 6.50%
Due-April and May 1995
- ----------------------------------------------------------------
Baxter International $ 10,000 9,945
- ----------------------------------------------------------------
Caterpillar Financial 6,160 6,145
- ----------------------------------------------------------------
ConAgra, Inc. 11,000 10,987
- ----------------------------------------------------------------
Enron Corp. 10,000 9,969
- ----------------------------------------------------------------
Enterprise Funding Corporation 3,991 3,973
- ----------------------------------------------------------------
Loral Corp. 9,000 8,997
- ----------------------------------------------------------------
Nynex Corporation 4,000 3,983
- ----------------------------------------------------------------
Ranger Funding Corporation 7,000 6,978
- ----------------------------------------------------------------
Sherwood Medical 18,000 17,940
- ----------------------------------------------------------------
Windmill Funding Corporation 8,000 7,945
- ----------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS-13.0%
(Cost: $86,861) 86,862
- ----------------------------------------------------------------
TOTAL INVESTMENTS-100.4%
(Cost: $548,999) 667,915
- ----------------------------------------------------------------
LIABILITIES, LESS
OTHER ASSETS-(.4)% (2,498)
- ----------------------------------------------------------------
NET ASSETS-100% $665,417
- ----------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The following security may require registration under the Securities Act of
1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; it was valued at cost on the date of acquisition. No
market quotation was available for restricted securities of the same class
on the date of acquisition or on March 31, 1995. This security is valued at
fair market value as determined in good faith by the Board of Trustees of
the Fund.
<TABLE>
<CAPTION>
Date of Number Cost
Security Description Acquisition of Shares Per Share
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Cimlinc Incorporated, convertible preferred, "D" December 1983 75,431 $8.75
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $548,999,000 for federal income tax purposes
at March 31, 1995, the aggregate gross unrealized appreciation was $128,563,000,
the aggregate gross unrealized depreciation was $9,647,000 and the net
unrealized appreciation of investments was $118,916,000.
See accompanying Notes to Financial Statements.
6
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
- -------------------------------------------------------
Investments, at value
(Cost: $548,999) $ 667,915
- -------------------------------------------------------
Receivable for:
Fund shares sold 236
- -------------------------------------------------------
Investments sold 11,081
- -------------------------------------------------------
Dividends and Interest 229
- -------------------------------------------------------
Total assets 679,461
- -------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------
Cash overdraft 393
- -------------------------------------------------------
Payable for:
Fund shares redeemed 800
- -------------------------------------------------------
Investments purchased 12,055
- -------------------------------------------------------
Management fee 180
- -------------------------------------------------------
Distribution services fee 109
- -------------------------------------------------------
Administrative services fee 123
- -------------------------------------------------------
Custodian and transfer agent
fees and related expenses 335
- -------------------------------------------------------
Other 49
- -------------------------------------------------------
Total liabilities 14,044
- -------------------------------------------------------
Net assets $ 665,417
- -------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------
Excess of amounts received from
issuance of shares over amounts
paid on redemptions of shares
on account of capital $ 508,719
- -------------------------------------------------------
Undistributed net realized
gain on sales of investments 37,782
- -------------------------------------------------------
Unrealized appreciation
of investments 118,916
- -------------------------------------------------------
Net assets applicable to shares
outstanding $ 665,417
- -------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per
share ($489,578/85,158 shares outstanding) $5.75
- -------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of net asset
value or 5.75% of offering price) $6.10
- -------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales
charge) per share ($174,243-30,608 shares
outstanding) $5.69
- -------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per
share ($1,596-281 shares outstanding) $5.68
- -------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six months ended March 31, 1995
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
- ------------------------------------------------------
Dividends $ 2,736
- ------------------------------------------------------
Interest 948
- ------------------------------------------------------
Total investment income 3,684
- ------------------------------------------------------
EXPENSES
- ------------------------------------------------------
Management fee 1,221
- ------------------------------------------------------
Distribution services fee 621
- ------------------------------------------------------
Administrative services fee 720
- ------------------------------------------------------
Custodian and transfer agent
fees and related expenses 1,505
- ------------------------------------------------------
Professional fees 26
- ------------------------------------------------------
Reports to shareholders 59
- ------------------------------------------------------
Trustees' fees and other 13
- ------------------------------------------------------
Total expenses 4,165
- ------------------------------------------------------
Net investment loss (481)
- ------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------
Net realized gain on sales of investments 48,934
- ------------------------------------------------------
Net change in balance of unrealized
appreciation of investments (14,001)
- ------------------------------------------------------
Net gain on investments 34,933
- ------------------------------------------------------
Net increase in net assets resulting
from operations $ 34,452
- ------------------------------------------------------
</TABLE>
7
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
Six months Year ended
ended March September 30,
31, 1995 1994
----------- -------------
<S> <C> <C>
OPERATIONS
- -----------------------------------------------------------
Net investment loss $ (481) (4,349)
- -----------------------------------------------------------
Net realized gain on
investments 48,934 29,175
- -----------------------------------------------------------
Net change in unrealized
appreciation (14,001) (44,153)
- -----------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 34,452 (19,327)
- -----------------------------------------------------------
Distribution from net
realized gain on
investment transactions (37,831) (26,718)
- -----------------------------------------------------------
Net increase from capital
share transactions 37,189 167,592
- -----------------------------------------------------------
Total increase in net assets 33,810 121,547
- -----------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------
Beginning of period 631,607 510,060
- -----------------------------------------------------------
End of period $ 665,417 631,607
- -----------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE FUND
The Kemper Small Capitalization Equity 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 or a contingent deferred sales charge but are subject to higher ongoing
expenses than Class A shares and do not convert into another class. The Fund may
offer Class I shares (none sold at March 31, 1995) to a limited group of
investors which are not subject to initial or contingent deferred sales charges
and have lower ongoing expenses than other classes. Each share represents an
identical interest in the investments of the Fund and has the same rights.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
Investments are stated at value. Portfolio securities that are traded on a
domestic securities exchange or securities listed on the NASDAQ National Market
are valued at the last sale price on the exchange or market where primarily
traded or listed or, if there is no recent sale, at the last current bid
quotation. Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges where primarily traded. Securities not
so traded or listed are valued at the last current bid quotation if market
quotations are available. Fixed income securities are valued by using market
quotations, or independent pricing services that use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Equity options are
valued at the last sale price unless the bid price is higher or the asked price
is lower, in which event such bid or asked price is used. Financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Forward foreign currency
contracts are valued at the forward rates prevailing on the day of valuation.
Other securities and assets are valued at fair value as determined in good faith
by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Dividend income is recorded on the ex-dividend date,
and interest income is recorded on the accrual basis and includes amortization
of money market instrument premium and discount. Realized gains and losses from
investment transactions are reported on an identified cost basis. Realized and
unrealized gains and losses on financial futures, options and forward foreign
currency contracts
8
<PAGE> 10
are included in net realized and unrealized gain (loss) on investments, as
appropriate.
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 shares will be reduced by the amount of any applicable
contingent deferred sales charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is determined as of the earlier
of 3:00 p.m. Chicago time or 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 AND DIVIDENDS TO SHAREHOLDERS
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies for the six months ended March 31, 1995.
Differences in dividends per share are due to different class expenses.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management agreement with Kemper Financial Services, Inc. (KFS)
and pays a management fee at a base annual fee of .65% of average daily net
assets which is then adjusted upward or downward by a maximum of .30% based upon
the Fund's performance as compared to the performance of the Standard & Poor's
500 Stock Index (thus the fee on an annual basis can range from .35% to .95% of
average daily net assets).
During the six months ended March 31, 1995, the Fund incurred management fees as
follows (in thousands):
Base fee $1,957
- ------------------------------------------------------------
Performance adjustment (736)
- ------------------------------------------------------------
Total fees $1,221
- ------------------------------------------------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
The Fund has an underwriting and distribution services agreement with Kemper
Distributors, Inc. (KDI). Before February 1, 1995, KFS was the Fund's principal
underwriter and distributor. As principal underwriter for the Fund, KDI (as
successor to KFS) retained commissions of $62,000 for the six months ended March
31, 1995 for sales of Class A shares, after allowing $425,000 as commissions to
firms of which $43,000 was paid to firms affiliated with KDI. For distribution
services the Fund pays KDI a fee of .75% of average daily net assets of the
Class B and Class C shares. Pursuant to the agreement, KDI enters into related
selling group agreements with various firms that provide distribution services
to investors. KDI compensates these firms at various rates for sales of Class B
and Class C shares. During the six months ended March 31, 1995, the Fund
incurred a distribution services fee for Class B and Class C shares of $621,000,
and KDI paid $559,000 for commissions and distribution fees to firms, including
$69,000 to firms affiliated with KDI. In addition, KDI received $255,000 of
contingent deferred sales charges.
ADMINISTRATIVE SERVICE AGREEMENT
The Fund has an administrative services agreement with KDI. Before February 1,
1995, KFS was the Fund's administrator. 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 provide these services and pays
these firms based on assets of Fund accounts the firms service. For the six
months ended March 31, 1995, the Fund incurred an administrative services fee of
$720,000 and KDI (as successor to KFS) paid $731,000 to firms, including
$164,000 that was paid to firms affiliated with KDI.
CUSTODIAN AND TRANSFER AGENT AGREEMENT
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31,
1995, when KFS completed the sale of IFTC to a third party. For the six months
ended March 31, 1995, the Fund incurred custodian and transfer agent fees of
$1,267,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the six months ended March 31, 1995, IFTC
remitted shareholder service fees of $1,242,000 to KSvC.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the six months ended March 31, 1995, the Fund made no direct payments to
its officers and incurred trustees' fees of $8,000 to independent trustees.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1995, investment transactions (excluding
short term instruments) are as follows (in thousands):
Purchases $294,219
- ------------------------------------------------------------
Proceeds from sales 290,404
- ------------------------------------------------------------
9
<PAGE> 11
5. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
Six months
ended Year ended
March 31, September 30,
1995 1994
------------------- -------------------
Shares Amount Shares Amount
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Shares sold:
Class A 18,425 $ 101,793 31,360 $ 186,294
- -----------------------------------------------------------------
Class B 7,285 40,080 4,652 25,933
- -----------------------------------------------------------------
Class C 152 855 161 894
- -----------------------------------------------------------------
Shares issued in
reinvestment of
dividends:
Class A 4,815 25,187 4,038 23,345
- -----------------------------------------------------------------
Class B 1,797 9,326 -- --
- -----------------------------------------------------------------
Class C 14 74 -- --
- -----------------------------------------------------------------
Shares redeemed:
Class A (19,736) (109,280) (35,106) (208,289)
- -----------------------------------------------------------------
Class B (5,559) (30,654) (2,601) (14,502)
- -----------------------------------------------------------------
Class C (35) (192) (11) (64)
- -----------------------------------------------------------------
Conversion of shares:
Class A 281 1,566 163 904
- -----------------------------------------------------------------
Class B (283) (1,566) (163) (904)
- -----------------------------------------------------------------
Shares issued in
acquisition(a):
Class A -- -- 1,783 9,995
- -----------------------------------------------------------------
Class B -- -- 25,480 143,986
- -----------------------------------------------------------------
Net increase from
capital share
transactions $ 37,189 $ 167,592
- -----------------------------------------------------------------
</TABLE>
(a) On May 27, 1994, the Fund acquired the assets of Kemper Investment
Portfolios--Small Capitalization Equity Portfolio in a tax-free exchange.
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Six months
ended March Year ended September 30,
31, 1995 1994 1993 1992 1991
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $5.81 6.45 5.25 5.35 3.79
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .01 (.01) (.02) (.02) .02
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .27 (.27) 1.71 .40 1.89
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .28 (.28) 1.69 .38 1.91
- ---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- .01 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments .34 .36 .49 .47 .29
- ---------------------------------------------------------------------------------------------------------------------------------
Total dividends .34 .36 .49 .48 .35
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.75 5.81 6.45 5.25 5.35
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 5.40 (4.31) 34.11 7.02 55.16
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.02 1.34 1.03 1.28 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) .13 (.76) (.43) (.43) .27
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
----------------------------- -----------------------------
May 31, May 31,
1994 1994
Six months to Six months to
ended March September 30, ended March September 30,
31, 1995 1994 31, 1995 1994
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $5.78 5.65 5.77 5.65
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.02) (.02) (.02) (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments .27 .15 .27 .15
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .25 .13 .25 .12
- ---------------------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain on investments .34 -- .34 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.69 5.78 5.68 5.77
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 4.89 2.30 4.90 2.12
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.09 2.29 2.00 2.10
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (.94) (1.38) (.82) (1.21)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six months
ended March Year ended September 30,
31, 1995 1994 1993 1992 1991
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA FOR ALL CLASSES:
Net assets at end of period (in thousands) $ 665,417 631,607 510,060 329,116 289,345
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 104 58 82 73 126
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges.
11
<PAGE> 13
(KEMPER LOGO)
KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
KEMPER SMALL CAPITALIZATION EQUITY FUND
Trustees Officers
STEPHEN B. TIMBERS C. BETH COTNER
President and Vice President
Trustee
KAREN A. HUSSEY
DAVID W. BELIN Vice President
Trustee
JOHN E. PETERS
LEWIS A. BURNHAM Vice President
Trustee
PHILIP J. COLLORA
DONALD L. DUNAWAY Vice President and
Trustee Secretary
ROBERT B. HOFFMAN CHARLES F. CUSTER
Trustee Vice President and
Assistant Secretary
DONALD R. JONES
Trustee JEROME L. DUFFY
Treasurer
DAVID B. MATHIS
Trustee ELIZABETH C. WERTH
Assistant Secretary
WILLIAM P. SOMMERS
Trustee
- -----------------------------------------------------------
Legal Counsel Custodian and Transfer Agent
VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY
& KAMMHOLZ TRUST COMPANY
222 North LaSalle Street 127 West 10th Street
Chicago, IL 60601 Kansas City, MO 64105
Shareholder Service Agent
KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
800-621-1048
Investment Manager
KEMPER FINANCIAL SERVICES, INC.
Principal Underwriter
KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
(LOGO)
Printed on recycled paper.
This report is not to be distributed unless preceded
KSCF-3 (5/95) or accompanied by a Kemper Equity Funds prospectus.
238460
Printed in the U.S.A.
