<PAGE> 1
KEMPER SMALL CAPITALIZATION
EQUITY FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MARCH 31, 1996
SEEKING MAXIMUM APPRECIATION OF INVESTORS' CAPITAL
"...diversification, coupled with a commitment to fundamental research,
helped us achieve some attractive gains during the period..."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
Economic Overview
5
Performance Update
7
Industry Sectors
8
Individual Holdings
9
Portfolio of
Investments
12
Financial Statements
14
Note to
Financial Statements
18
Financial Highlights
At a Glance
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1996
(UNADJUSTED FOR ANY SALES CHARGE):
[BAR GRAPH]
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
CLASS A 6.54%
CLASS B 6.00%
CLASS C 6.18%
LIPPER SMALL CAP GROWTH 7.93%
- --------------------------------------------------------------------------------
</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.
*Lipper Analytical Services, Inc. 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. Rankings are
historical and do not reflect future performance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/96 9/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS A $6.42 $7.14
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS B $6.27 $7.03
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS C $6.27 $7.02
- --------------------------------------------------------------------------------
</TABLE>
KEMPER SMALL CAPITALIZATION EQUITY
FUND LIPPER RANKINGS*
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SMALL CAPITALIZATION FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<C> <S> <C> <C>
- --------------------------------------------------------------------------------
1-YEAR #146 OF #157 OF #155 OF
324 FUNDS 324 FUNDS 324 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #40 OF 84 N/A N/A
FUNDS
- --------------------------------------------------------------------------------
10-YEAR #17 OF N/A N/A
40 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
DURING THE PERIOD, KEMPER SMALL CAPITALIZATION EQUITY FUND PAID THE FOLLOWING
DIVIDENDS:
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
CAPITAL GAIN CAPITAL GAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL
CAPITALIZATION EQUITY
FUND CLASS A $0.23 $0.82
- --------------------------------------------------------------------------------
KEMPER SMALL
CAPITALIZATION EQUITY
FUND CLASS B $0.23 $0.82
- --------------------------------------------------------------------------------
KEMPER SMALL
CAPITALIZATION EQUITY
FUND CLASS C $0.23 $0.82
- --------------------------------------------------------------------------------
</TABLE>
Terms to Know
CAPITALIZATION Capitalization is a measure of the size of a publicly traded
company, as determined by multiplying the current price per share by the number
of shares outstanding. The market value of a company has bearing on its
perceived earnings potential and risk. Investment in small cap companies (less
than $1 billion) may present the potential for greater growth than larger, more
established companies but also present greater risk.
FUNDAMENTAL RESEARCH This research includes analysis of the balance sheets and
income statements of companies used to forecast their future stock price
movements. Fundamental analysis considers past records of assets, earnings,
sales, products, management and markets in helping predict future trends in
these indicators of a company's success or failure. By appraising a firm's
prospects, this analysis may be used to assess whether a particular stock or
group of stocks is undervalued or overvalued at its current market price.
RECESSION A downturn in economic activity, defined by many economists as at
least two consecutive quarters of decline in a country's Gross Domestic Product
(GDP).
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, (ZKI) INC. ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first four months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market followed a spectacular 1995 with a strong first quarter
in 1996. In the three-month period ended March 31, 1996, the Standard & Poor's
500 Stock Index* gained 5.37 percent.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates to control growth. In an environment of stable or gently rising rates, we
would expect corporate earnings to grow at a rate of about 7 to 8 percent --
that's somewhat higher than we believed likely at the start of the year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In April, the U.S. economy entered its 61st month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
Consumers and Job Security
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds of
the new jobs created in the United States in 1994 and 1995 paid better than the
average job. The report found that the rate at which jobs were eliminated has
risen slightly despite strong economic growth of recent years -- however, it
reported that the length of time most workers spent unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the recent
relationship between number of jobs created versus the number of jobs lost.
[LINE GRAPH]
<TABLE>
<S> <C> <C>
12/31/90 -0.06 -0.02
12/31/91 -0.3 0.04
12/31/92 0.12 -0.03
12/31/93 0.3 0.07
12/31/94 0.18 0.07
12/31/95 -0.08 -0.04
3/31/96 0.49 -0.01
</TABLE>
3
<PAGE> 4
GENERAL 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 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 (3/31/96) 6 Months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.27 6.04 7.06 6.97
Prime rate(2) 8.25 8.75 9.00 6.45
Inflation rate(3) 2.84 2.81 3.05 2.36
The U.S. dollar(4) 4.53 -1.05 -11.46 2.70
Capital goods orders(5) 6.24 8.53 9.44 20.01
Industrial production(6) 1.32 1.92 3.89 5.17
Employment growth(7) 1.44 1.80 2.60 2.93
</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%. 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 corporate profits and equity performance.
7 An influence on family income and retail sales.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
Such ebb and flow is to be expected in investing, especially at this point in
the cycle. Attempting to "prepare" for a correction is futile, we believe. Those
whose caution caused them to excuse themselves from the market early this year,
for example, would have forgone the quarter's significant gain.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform, federal
budget deficit reduction and health care reform, the incumbent legislators are
running out of time to take action before the November elections. If there is
any suspense by November, it is likely to be in whether the Republicans can
retain control of Congress. Their success would make a balanced budget and tax
reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
April 29, 1996
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[LANGBAUM PHOTO]
GARY LANGBAUM HAS BEEN WITH ZURICH KEMPER INVESTMENTS, INC. (ZKI) SINCE 1988. HE
IS NOW A SENIOR VICE PRESIDENT OF ZKI AND THE PORTFOLIO MANAGER OF KEMPER SMALL
CAPITALIZATION EQUITY FUND. LANGBAUM IS A CHARTERED FINANCIAL ANALYST WITH 25
YEARS OF EXPERIENCE IN EQUITY RESEARCH AND SECURITIES ANALYSIS. HE RECEIVED HIS
BACHELOR'S DEGREE AND COMPLETED HIS MASTER'S OF BUSINESS ADMINISTRATION
COURSEWORK FROM THE UNIVERSITY OF MARYLAND.
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.
KAREN HUSSEY, PORTFOLIO MANAGER OF KEMPER SMALL CAPITALIZATION EQUITY FUND
SINCE SEPTEMBER, 1994, RESIGNED HER POSITION EFFECTIVE FEBRUARY 1, 1996. GARY
LANGBAUM IS CURRENTLY MANAGING THE FUND, AND RECEIVES ASSISTANCE FROM THE SMALL
CAP RESEARCH TEAM HEADED BY PAUL ROKOSZ AND ANNE CARNEY. IN THE FOLLOWING
DISCUSSION, LANGBAUM REVIEWS THE FUND'S RECENT PERFORMANCE AND THE OUTLOOK FOR
SMALL COMPANY STOCKS IN THE MONTHS AHEAD.
Q KAREN HUSSEY RESIGNED AS PORTFOLIO MANAGER AFTER JUST 18 MONTHS ON THE
JOB. HOW WILL HER DEPARTURE AFFECT THE FUND?
A First of all, it's important for shareholders to know that Karen's
resignation was based on her desire to spend more time at home with her two
young children. During her tenure, Karen was instrumental in defining and
articulating our small cap research and investment process -- steps that should
help contribute to continued strong performance.
With regard to the fund's management going forward, shareholders
shouldn't see any noticeable changes. Karen built a very effective small cap
research team that is still in place -- headed by Paul Rokosz and Anne Carney.
So, with continuity in terms of people, process and discipline, we believe we
can sustain the strong, consistent performance shareholders have come to
expect.
Q HOW WOULD YOU CHARACTERIZE THE MARKET OVER THE PAST SIX MONTHS, AND HOW
DID SMALL CAP STOCKS FARE?
A Over the past six months several factors affected the market's
performance. General confusion about the health of the economy, compounded by
volatile interest rates, caused investors to seek out stocks with perceived
quality and safety. A sharp correction in technology stocks magnified
investors' concerns and resulted in large cap stocks (which are generally
considered less risky than small caps) outperforming small cap stocks during
much of the period. However, we've seen that trend reverse itself during the
past few months with small caps leading the market due to attractive relative
valuations.
Q HOW WAS KEMPER SMALL CAPITALIZATION EQUITY FUND POSITIONED FOR THIS
ENVIRONMENT?
A We maintained a diversified portfolio with the largest allocations in the
traditional growth sectors -- technology, health care and consumer
services. Our investments in these areas provided some of the fund's best
returns in recent months. The fund's diversification, coupled with a commitment
to fundamental research, helped us achieve some attractive gains during the
period.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. HOW HAS FUNDAMENTAL RESEARCH HELPED PERFORMANCE?
A. Two examples come to mind. First, our health care position. This has been
one of our largest overweight positions relative to our benchmark, the Russell
2000 Index. Our research led us to place an emphasis on service and health care
delivery companies like Physician Sales & Service, Access Health Inc.
and Omnicare. This area offers some very strong growth opportunities, and
through fundamental research we identify the companies that we believe will
remain competitive and be able to maintain their growth. Another theme related
to health care that has worked well for us is managed workers' compensation.
This is another area where we can add value through research, by identifying
companies that offer reasonable and affordable solutions for companies to
manage these costs. In this area, CRA Managed Care and RTW, Inc. have been good
performers, and we see strong potential for continued growth.
Our approach to technology stocks highlights our use of fundamental
research as well. We've stayed away from commodity, personal computer and
semiconductor equipment names, a strategy that allowed us to avoid much of the
technology correction that occurred in early 1996. Instead, we've focused on
attractive niche stocks in the computer hardware and software field, such as
Alternative Resources and Keane. Again, our research capability allows us to
help identify and own quality names with strong stories that are not followed
closely by Wall Street.
Q. HOW HAS THE FUND PERFORMED RELATIVE TO ITS BENCHMARK -- THE RUSSELL 2000
INDEX -- AND IN ITS LIPPER CATEGORY?
A. During the six months ended March 31, the fund's performance was generally
in line with the Russell 2000 Index. However, year-to-date through March
31, the fund has outperformed the index with a gain of 7.0%, compared to 5.1%.
As for the Lipper category, the fund was slightly below its category
average for the six-month period. However, for the year-to-date, one-, three-,
five-, and ten-year periods ending March 31, we're consistently above its
category average.
Q WHAT'S YOUR OUTLOOK FOR THE REST OF 1996?
A We're very optimistic. The market, which had favored large cap stocks for
much of the past two years, has shifted more towards small and mid cap
companies. At this point, small cap stocks are trading at more attractive
valuations and offer comparatively better earnings growth than larger cap
companies. In addition, the dollar has gotten stronger, which is favorable for
small companies with a more domestic orientation. As long as the economy
continues on a positive track and avoids recession, small cap stocks should do
well.
6
<PAGE> 7
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on March 31, 1996, and on September 30, 1995.
[BAR GRAPH]
<TABLE>
<CAPTION>
Kemper Small Capitalization Kemper Small Capitalization
Equity Fund on Equity Fund on
3/31/96 9/30/95
<S> <C> <C>
BASIC INDUSTRIES 4.3% 6.4%
CAPITAL GOODS 10.3% 13.4%
TECHNOLOGY 27.0% 23.2%
CONSUMER NON-DURABLES 22.7% 26.8%
HEALTH CARE 24.7% 20.2%
FINANCE 6.9% 4.7%
TRANSPORTATION 3.5% 4.5%
ENERGY 0.6% 0.8%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 INDEX*
Data show the percentage of the common stocks in the portfolio that each sector
of the Kemper Small Capitalization Equity Fund represented on March 31, 1996,
compared to the industry sectors that make up the fund's benchmark, the Russell
2000 Index.
[BAR GRAPH]
<TABLE>
<CAPTION>
Kemper Small Capitalization Russell 2000
Equity Fund on Index on
3/31/96 3/31/96
<S> <C> <C>
BASIC INDUSTRIES 4.3% 6.0%
CAPITAL GOODS 10.3% 9.8%
TECHNOLOGY 27.0% 15.8%
CONSUMER DURABLES 0.0% 3.4%
CONSUMER NON-DURABLES 22.7% 19.4%
HEALTH CARE 24.7% 11.6%
FINANCE 6.9% 22.7%
TRANSPORTATION 3.5% 2.3%
ENERGY 0.6% 5.8%
UTILITIES 0.0% 3.2%
</TABLE>
* The Russell 2000 Index is a capitalization weighted price only index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization) in
the Russell 3000 Index.
7
<PAGE> 8
INDIVIDUAL HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS
REPRESENTING 20.5% OF THE FUND'S TOTAL NET ASSETS ON MARCH 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Holdings Percent
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. LCI Worldwide long distance telecommunications company that 2.8%
International, provides a full array of voice, data and video
Inc. transmission services to businesses and residential
customers through its fiber optic network.
2. Fort Manufactures, converts and markets sanitary tissue 2.3%
Howard products in the United States and the United Kingdom.
Corporation Products include paper towels, bath tissue, table
napkins, wipers and boxed facial tissue which are made
from recycled fibers.
3. Caremark Provides various alternate-site healthcare products and 2.2%
International, services, including home intravenous therapies, HIV/AIDS
Inc. care, women's health programs and hemophilia care.
4. Wisconsin Operates a regional railroad in Wisconsin, the Upper 2.1%
Central Peninsula of Michigan, northeastern Illinois, eastern
Transportation Minnesota and Sault Ste. Marie, Ontario through
Corporation wholly-owned subsidiaries.
5. Alternative Leading provider of technical resources specializing in 2.0%
Resources information service operations.
Corporation
6. Jacobs Provides engineering, construction and maintenance 1.9%
Engineering services. Services are focused on the environmental,
Group hazardous waste, aerospace and chemical industries.
7. Risk Provides reinsurance services with a primary focus on 1.9%
Capital traditional and finite risk property and casualty
Holdings reinsurance treaty coverage through its subsidiary, Risk
Capital Re.
8. Omnicare Provides services to long-term care institutions such as 1.8%
Inc. nursing homes, retirement centers and other
institutional health care facilities.
9. IDEXX Develops and manufactures biotechnology-based detection 1.8%
Laboratories systems. The company's products are used in animal
health and food quality assurance applications.
10. Viking Sells office products to small- and medium-sized 1.7%
Office businesses nationwide through direct marketing, catalogs
Products and programs.
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAPITALIZATION EQUITY FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS--2.0% (b) FMC Corp. 176,300 $ 13,245
OM Group 100,000 3,713
---------------------------------------------------------------------------
16,958
- --------------------------------------------------------------------------------------------------------------
COMMUNICATIONS, (b) Cellularvision USA 168,000 1,848
ENTERTAINMENT AND Gaylord Entertainment Co. 448,000 12,096
MEDIA--4.3% Hollinger International 689,600 8,275
(b) Infinity Broadcasting Corp. 200,000 8,675
(b) MGM Grand 165,000 6,332
---------------------------------------------------------------------------
37,226
- --------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE AND (b) Alternative Resources Corporation 550,000 17,875
TECHNOLOGY--12.9% (b) Auspex Systems, Inc. 370,000 6,614
(b) CBT Group, ADR 14,400 1,058
(b) Ciber, Inc. 150,000 4,912
(a)(b) Cimlinc Incorporated, "D", convertible
preferred 75,431 283
(b) Gartner Group 60,000 3,660
(b) IDX Systems 58,500 1,697
(b) Keane, Inc. 397,800 11,884
(b) McAfee Associates 150,000 8,213
(b) Microchip Technology 233,600 6,424
(b) Novadigm, Inc. 132,000 1,996
(b) Parametric Technology Corp. 250,000 9,781
Pioneer-Standard Electronics 425,700 6,545
(b) SPSS, Inc. 200,000 3,575
(b) 7th Level 597,200 6,047
(b) Silicon Valley Group 300,000 7,313
(b) Solectron Corp. 170,000 7,480
(b) Sterling Commerce, Inc. 41,100 1,264
(b) Tech Data Corporation 109,500 1,834
(b) Wang Laboratories 200,000 4,750
---------------------------------------------------------------------------
113,205
- --------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS (b) Department 56, Inc. 97,200 2,126
AND SERVICES--6.7% (b) Franklin Quest Co. 216,900 5,856
(b) Kenneth Cole Productions 300,000 5,362
(b) Manhattan Bagel Company 238,000 5,533
(b) Opta Food Ingredients 351,600 4,230
(b) Revlon, Inc. 347,000 9,543
(b) Safety 1st 400,000 5,700
Stewart Enterprises, Inc. 240,000 10,260
(b) Williams-Sonoma 426,500 9,703
---------------------------------------------------------------------------
58,313
- --------------------------------------------------------------------------------------------------------------
ENERGY AND (b) Copart, Inc. 360,000 8,910
TRANSPORTATION--3.6% (b) Input/Output, Inc. 150,000 4,650
(b) Wisconsin Central Transportation Corporation 271,300 18,041
---------------------------------------------------------------------------
31,601
- --------------------------------------------------------------------------------------------------------------
ENGINEERING--1.9% (b) Jacobs Engineering Group 585,000 16,526
- --------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES--6.1%
(b) Cityscape Financial 200,000 $ 7,200
Meadowbrook Insurance Group 122,700 3,926
(b) Profit Recovery Group, Inc. 237,500 3,681
(b) Riscorp Inc. 191,200 3,633
(b) Risk Capital Holdings 790,000 16,195
(b) SPS Transaction Services 354,600 10,948
Western National Corporation 498,500 8,101
---------------------------------------------------------------------------
53,684
- ----------------------------------------------------------------------------------------------------------------
MANUFACTURING AND
DISTRIBUTION--9.1%
Elsag Bailey Process Automation 400,000 9,150
Federal Signal Corp. 480,000 12,300
(b) Fort Howard Corporation 900,000 20,250
Greenfield Industries 365,000 12,638
IMCO Recycling 135,500 2,676
(b) Mohawk Industries 450,000 6,750
Nordson Corp. 75,000 4,556
(b) Superior Services 28,700 380
TriMas Corp. 479,400 10,547
---------------------------------------------------------------------------
79,247
- ----------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS AND
EQUIPMENT--6.4%
(b) Dura Pharmaceuticals 264,000 13,101
(b) EndoSonics Corp. 80,000 1,430
(b) ICU Medical 275,000 3,992
(b) IDEXX Laboratories 375,000 15,755
(b) i-STAT Corp. 345,000 8,797
(b) Intercardia Inc. 24,000 606
(b) Quest Medical 501,100 6,076
(b) Research Medical 280,000 6,440
---------------------------------------------------------------------------
56,197
- ----------------------------------------------------------------------------------------------------------------
MEDICAL SERVICES--15.3%
(b) ABR Information Services 285,300 13,266
(b) Access Health, Inc. 179,550 6,958
(b) CRA Managed Care, Inc. 270,000 9,652
Caremark International, Inc. 775,000 19,472
(b) Dendrite International 330,000 7,219
(b) HCIA 90,000 4,230
(b) Imnet Systems, Inc. 95,200 2,880
(b) Medaphis Corp. 120,000 5,820
(b) Occusystems, Inc. 210,000 4,777
Omnicare Inc. 300,000 16,163
(b) Owen Healthcare, Inc. 300,000 7,013
(b) Patterson Dental Company 150,000 4,538
Physician Sales & Service 400,000 9,900
(b) RTW, Inc. 201,100 7,441
(b) Renal Treatment Centers 320,000 7,600
(b) Total Renal Care Holdings 230,000 7,159
---------------------------------------------------------------------------
134,088
- ----------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT AND
SUPPLIES--5.4%
Danka Business Systems, ADR 350,000 14,787
(b) Global DirectMail 275,000 9,591
(b) OfficeMax Inc. 300,000 7,275
(b) Viking Office Products 275,000 15,297
---------------------------------------------------------------------------
46,950
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAILING AND
RESTAURANTS--3.7%
(b) General Nutrition 400,000 $ 10,000
(b) Gymboree 300,000 7,838
(b) Renters Choice, Inc. 319,900 5,558
(b) Starbucks Corp. 400,000 9,325
---------------------------------------------------------------------------
32,721
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS AND
EQUIPMENT--10.9%
(b) APAC TeleServices 130,000 9,262
Allen Group 436,800 8,463
(b) Ascend Communications, Inc. 95,000 5,118
(b) Cascade Communications 64,500 5,789
(b) InterVoice, Inc. 500,000 14,313
(b) LCI International, Inc. 1,000,000 24,500
(b) MIDCOM Communications 145,800 1,048
(b) StrataCom 104,000 3,809
(b) Tellabs Operations 280,000 13,545
(b) Teltrend 40,000 1,820
U.S. Robotics 50,000 6,463
(b) Xylan Corp. 21,100 1,097
---------------------------------------------------------------------------
95,227
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--88.3%
(Cost: $538,750) 771,943
---------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--12.9%
Yield-5.22% to 5.58%
Due-April and May 1996
Ciesco, L.P. $ 15,000 14,944
Columbia/HCA Healthcare Corporation 8,700 8,683
ConAgra, Inc. 11,000 10,967
Dynamic Funding Corporation 9,100 9,078
GTE Corporation 14,700 14,645
Lehman Brothers Holding Inc. 8,000 7,995
Whirlpool Corporation 8,300 8,279
Other 38,000 37,878
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--12.9%
(Cost: $112,470) 112,469
---------------------------------------------------------------------------
TOTAL INVESTMENTS--101.2%
(Cost: $651,220) 884,412
---------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(1.2)% (10,047)
---------------------------------------------------------------------------
NET ASSETS--100% $874,365
---------------------------------------------------------------------------
</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. This
security is valued at fair value as determined in good faith by the Board of
Trustees of the Fund. At March 31, 1996, the value of the Fund's restricted
security was $283,000, which represented .03% of net assets.
<TABLE>
<CAPTION>
SECURITY DESCRIPTION DATE OF ACQUISITION NUMBER OF SHARES COST PER SHARE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cimlinc Incorporated, "D", convertible preferred December 1983 75,431 $ 8.75
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $651,220,000 for federal income tax purposes
at March 31, 1996, the aggregate gross unrealized appreciation was $247,628,000,
the aggregate gross unrealized depreciation was $14,436,000 and the net
unrealized appreciation on investments was $233,192,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investment, at value
(Cost: $651,220) $884,412
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 133
- -------------------------------------------------------------------------------------------------------
Investments sold 5,246
- -------------------------------------------------------------------------------------------------------
Dividends and interest 98
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 889,889
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft 1,644
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 625
- -------------------------------------------------------------------------------------------------------
Investments purchased 12,185
- -------------------------------------------------------------------------------------------------------
Management fee 385
- -------------------------------------------------------------------------------------------------------
Distribution services fee 149
- -------------------------------------------------------------------------------------------------------
Administrative services fee 159
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 336
- -------------------------------------------------------------------------------------------------------
Other 41
- -------------------------------------------------------------------------------------------------------
Total liabilities 15,524
- -------------------------------------------------------------------------------------------------------
NET ASSETS $874,365
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $623,861
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 17,312
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 233,192
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $874,365
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($609,383 / 94,948 shares outstanding) $6.42
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $6.81
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($239,917 / 38,277 shares outstanding) $6.27
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($4,784 / 763 shares outstanding) $6.27
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($20,281 / 3,146 shares outstanding) $6.45
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------
Dividends $ 682
- ---------------------------------------------------------------------------------------------------------------
Interest 2,692
- ---------------------------------------------------------------------------------------------------------------
Total investment income 3,374
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,801
- ---------------------------------------------------------------------------------------------------------------
Distribution services fee 832
- ---------------------------------------------------------------------------------------------------------------
Administrative services fee 900
- ---------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,695
- ---------------------------------------------------------------------------------------------------------------
Professional fees 27
- ---------------------------------------------------------------------------------------------------------------
Reports to shareholders 85
- ---------------------------------------------------------------------------------------------------------------
Trustees' fees and other 35
- ---------------------------------------------------------------------------------------------------------------
Total expenses 5,375
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (2,001)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 28,536
- ---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 23,937
- ---------------------------------------------------------------------------------------------------------------
Net gain on investments 52,473
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $50,472
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (2,001) (3,152)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain 28,536 120,667
- ---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 23,937 76,338
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 50,472 193,853
- ---------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (120,792) (37,835)
- ---------------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 104,780 52,280
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 34,460 208,298
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 839,905 631,607
- ---------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 874,365 839,905
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND
Kemper Small Capitalization Equity Fund is an
open-end management investment company organized as
a business trust under the laws of Massachusetts.
The Fund currently offers four classes of shares.
Class A shares are sold to investors subject to an
initial sales charge. Class B shares are sold
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and, for shares sold on or
after April 1, 1996, a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares, which are sold
to a limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. 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 discount
amortization on money market instruments. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value 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. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended March 31, 1996.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income and net
realized capital gains annually, which are recorded
on the ex-dividend date. Dividends are determined
in accordance with income tax principles which may
treat certain transactions differently from
generally accepted accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.) and pays a management fee at a base annual
rate 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, 1996, the
Fund incurred management fees as follows (in
thousands):
<TABLE>
<S> <C>
Base fee $2,428
Performance adjustment (627)
------
Total fees $1,801
======
</TABLE>
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
March 31, 1996 $63,000 396,000 9,000
</TABLE>
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 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
commissions paid in connection with the sale of
Class B
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
and Class C shares and the CDSC received in
connection with the redemption of Class B shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND DISTRIBUTION
FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC ------------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
March 31, 1996 $ 1,038,000 673,000 17,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ------------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
March 31, 1996 $ 900,000 905,000 20,000
</TABLE>
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. Under the agreement,
KSvC received shareholder services fees of
$1,416,000 for the six months ended March 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended March 31, 1996, the
Fund made no payments to its officers and incurred
trustees' fees of $16,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $285,360
Proceeds from sales 349,040
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1996 SEPTEMBER 30, 1995
----------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
SHARES SOLD
----------------------------------------------------------------------------------
Class A 14,683 $ 93,351 31,018 $ 181,695
----------------------------------------------------------------------------------
Class B 6,671 41,584 14,738 87,414
----------------------------------------------------------------------------------
Class C 294 1,812 369 2,253
----------------------------------------------------------------------------------
Class I 819 5,240 3,091 19,863
----------------------------------------------------------------------------------
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS
----------------------------------------------------------------------------------
Class A 13,624 77,388 4,829 25,278
----------------------------------------------------------------------------------
Class B 5,743 31,991 1,801 9,352
----------------------------------------------------------------------------------
Class C 94 524 14 74
----------------------------------------------------------------------------------
Class I 504 2,875 -- --
----------------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------------
Class A (16,159) (103,615) (35,471) (208,460)
----------------------------------------------------------------------------------
Class B (6,120) (38,993) (10,859) (63,342)
----------------------------------------------------------------------------------
Class C (85) (527) (73) (426)
----------------------------------------------------------------------------------
Class I (1,059) (6,850) (209) (1,421)
----------------------------------------------------------------------------------
CONVERSION OF
SHARES
----------------------------------------------------------------------------------
Class A 313 1,989 739 4,350
----------------------------------------------------------------------------------
Class B (319) (1,989) (746) (4,350)
----------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 104,780 $ 52,280
----------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------
CLASS A
-----------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.14 5.81 6.45 5.25 5.35
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.01) (.01) (.01) (.02) (.02)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .34 1.68 (.27) 1.71 .40
- ---------------------------------------------------------------------------------------------------
Total from investment operations .33 1.67 (.28) 1.69 .38
- ---------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income -- -- -- -- .01
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.05 .34 .36 .49 .47
- ---------------------------------------------------------------------------------------------------
Total dividends 1.05 .34 .36 .49 .48
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $6.42 7.14 5.81 6.45 5.25
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.54% 30.88 (4.31) 34.11 7.02
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses 1.01% 1.14 1.34 1.03 1.28
- ---------------------------------------------------------------------------------------------------
Net investment loss (.18)% (.18) (.76) (.43) (.43)
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS B
--------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MAY 31, 1994
MARCH 31, SEPT. 30, TO SEPT. 30,
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.03 5.78 5.65
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.05) (.07) (.02)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain .34 1.66 .15
- ---------------------------------------------------------------------------------------------------
Total from investment operations .29 1.59 .13
- ---------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.05 .34 --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $6.27 7.03 5.78
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.00% 29.59 2.30
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses 2.18% 2.17 2.29
- ---------------------------------------------------------------------------------------------------
Net investment loss (1.35)% (1.21) (1.38)
- ---------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------ ---------------------------
CLASS C CLASS I
------------------------------------------ ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED MAY 31, 1994 ENDED JULY 3, 1995
MARCH 31, SEPT. 30, TO SEPT. 30, MARCH 31, TO SEPT. 30,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.02 5.77 5.65 7.15 6.27
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.04) (.07) (.03) .01 --
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .34 1.66 .15 .34 .88
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .30 1.59 .12 .35 .88
- ---------------------------------------------------------------------------------------------------------------------
Less distribution from net realized gain 1.05 .34 -- 1.05 --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.27 7.02 5.77 6.45 7.15
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.18% 29.65 2.12 6.83 14.04
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 2.00% 2.10 2.10 .58 .79
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1.17)% (1.14) (1.21) .25 (.14)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in
thousands) $874,365 839,905 631,607 510,060 329,116
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 75% 102 58 82 73
- ----------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on
stock transactions $.0549 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL
President and Trustee Vice President
DAVID W. BELIN JOHN E. PETERS
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President
and Secretary
ROBERT B. HOFFMAN
Trustee CHARLES F. CUSTER
Vice President and
DONALD R. JONES Assistant Secretary
Trustee
JEROME L. DUFFY
DOMINIQUE P. MORAX Treasurer
Trustee
ELIZABETH C. WERTH
SHIRLEY D. PETERSON Assistant Secretary
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds prospectus.
KEMPER LOGO
1014580
KSCF - 3 (5/96) Printed in the U.S.A.
