<PAGE> 1
KEMPER
SMALL CAPITALIZATION
EQUITY FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED MARCH 31, 1997
SEEKING MAXIMUM APPRECIATION OF INVESTORS' CAPITAL
" . . . Over the last six months,
value-oriented stocks have dominated the small cap
market, to the detriment of growth stocks. "
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Industry Sectors
8
Largest Holdings
9
Portfolio of
Investments
12
Financial Statements
14
Notes to
Financial Statements
18
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A -9.04%
CLASS B -9.49%
CLASS C -9.50%
LIPPER SMALL
COMPANY GROWTH FUNDS
CATEGORY AVERAGE* -4.67%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings 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. returns and rankings are based upon changes in
net asset value with all dividends reinvested and do not include the effect of
sales charges and, if they had, results may have been less favorable.
Investment by the fund in small companies presents greater risk than investment
in larger, more established companies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS A $5.84 $7.01
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS B $5.63 $6.81
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS C $5.62 $6.80
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND LIPPER RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
1-YEAR #252 OF #264 OF #266 OF
386 FUNDS 386 FUNDS 386 FUNDS
- -------------------------------------------------------------------------------
5-YEAR #86 OF N/A N/A
105
- -------------------------------------------------------------------------------
10-YEAR #22 OF 49 N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
During the period, the fund made the following distributions per share:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM CAPITAL GAIN: $0.07 $0.07 $0.07
- -------------------------------------------------------------------------------
LONG-TERM CAPITAL GAIN: $0.50 $0.50 $0.50
- -------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
KEMPER FUNDS' STYLE
MORNINGSTAR EQUITY STYLE BOX
EQUITY STYLE BOX
Style To determine investment style, the sum of a fund's
Value Blend Growth price-to-earnings ratio must be: for value less than
Size 1.75; for blend between 1.75 and 2.25; and for
growth greater than 2.25. Domestic funds are
/ / / / / / Large measured relative to the Standard & Poor's 500.
International funds are measured relative to the
/ / / / / / Medium Morgan Stanley Capital International Europe,
Australasia, Far East Index.
/ / / / /X/ Small
Please note that style boxes do not represent an
exact assessment of risk and do not represent future
performance. Please consult the prospectus for a
description of investment policies.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $42 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur once that date is reached. However, then we
shall enjoy the long-term positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. An economic slowdown would reduce the threat of inflation and reduce the
need for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to be
concerned about. As has been the pattern for more than five years, a few strong
quarters followed by a few weak quarters have produced an overall 2 percent to 3
percent rate of growth in gross domestic product (GDP). Job creation and the
unemployment rate are consistent with a moderately expanding economy. Corporate
profits continue to grow at an expected 4 to 5 percent rate in 1997. The
Consumer Price Index continues to track at a 2.5 percent to 3.0 percent rate.
Just as we see a limited downside to today's rising interest rate environment,
so is there a limited upside in the near future. The effect of higher rates will
have to work itself through the economy. Higher rates have significant
implications for corporate profitability, debt issuance, credit extension and
international trade. Post-correction cash flows into the financial markets will
be a subject of great scrutiny. One of the factors driving the stock market to
its recent all-time high was the unprecedented high level of investment through
mutual funds, 401(k)s and qualified contribution plans. It is realistic to
expect that, on the margin, some of that cash will find a home in short-term,
liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for the
past six months in large, multinational companies with familiar consumer brand
names. The recent rally after the announcement of a balanced budget agreement
suggests that once monetary policy is also more certain, leadership may broaden
to include small capitalization stocks.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with long-
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (4/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.69 6.53 6.51 7.06
PRIME RATE(2)* 8.3 8.25 8.25 9
INFLATION RATE(3)* 2.79 2.99 2.83 3.05
THE U.S. DOLLAR(4) 9.32 3.46 8.51 -10.02
CAPITAL GOOD ORDERS(5)* 6.34 7.46 7.42 9.96
INDUSTRIAL PRODUCTION(5)* 5.62 3.27 2.57 3.37
EMPLOYMENT GROWTH(6) 2.23 2.2 2.07 2.79
</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 family income and retail sales.
* Data as of March 31, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
term interest rates no lower than 6.75 percent and no higher than 7.25 percent.
One positive effect of the stock market correction was the widening of spreads
available on high yield bonds. As a consequence, high yield bonds today are more
reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested. Financial
assets react much quicker today to events. Volatility has returned to the market
and with it heightened uncertainty. Now is the time to rely on your financial
representative for the expertise and the long-term investing discipline that he
or she can provide.
With this commentary 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.
May 21, 1997
4
<PAGE> 5
KURT STALZER BEGAN MANAGING THE KEMPER SMALL
CAPITALIZATION EQUITY FUND IN JANUARY. SMALL
COMPANY STOCKS HAVE CONTINUED TO LAG THE OVERALL
MARKET BUT MAY BE A KEY ELEMENT IN MAINTAINING A
FULLY DIVERSIFIED PORTFOLIO. IN THE INTERVIEW BELOW
KURT DISCUSSES HIS MANAGEMENT STYLE, THE CURRENT
MARKET AND THE PROSPECTS FOR SMALL COMPANY STOCKS.
Q
THE KEMPER SMALL CAPITALIZATION EQUITY FUND LAGGED THE RUSSELL 2000 INDEX*
FOR THE SIX-MONTH PERIOD ENDING MARCH 31, 1997. WHAT ACCOUNTS FOR THIS
UNDERPERFORMANCE?
A
Over the last six months, value-oriented stocks have dominated the small
cap market, to the detriment of growth stocks. Historically, small cap value
tends to outperform small cap growth during periods of slow economic growth. In
addition, we did have some stocks which had disappointing earnings. Included in
the list of companies experiencing losses were LCI International, which fell due
to increased price competition and Nichols Research, who found it difficult to
price on government contracts.
*The Russell 2000 Index is an unmanaged capitalization weighted index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization) in the
Russell 3000 Index. Source is Lipper Analytical Services, Inc.
Q
YOU HAVE BEEN MANAGING THE KEMPER SMALL CAPITALIZATION EQUITY FUND SINCE
THE BEGINNING OF THE YEAR. WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO SINCE YOU
BEGAN?
A
I have tried to accomplish a number of things since I began managing the
fund in January. Most important was to increase the level of quality and
earnings predictability of the portfolio. Next was to actively bring the average
market capitalization of the fund below $1 billion. We have reduced or sold many
of the holdings in companies larger than $1 billion, which brought the average
size of the companies in the portfolio down to approximately $700 million.
Finally, we concentrated our holdings in the stocks we had the greatest level of
confidence in, and decreased the number of stocks in the portfolio. In January
there were more than 100 issues in the portfolio and as of March 31, 1997, we
reduced the number to 98. Those changes positively affected the characteristics
of the portfolio; the price-to-earnings ratio of the fund is now just slightly
above the market and the earnings growth of the fund has also increased.
Q
KEMPER EQUITY FUNDS ARE MANAGED USING THE GROWTH PHILOSOPHY. PLEASE DISCUSS
YOUR CRITERIA WHEN SELECTING STOCKS.
A
We seek companies with stable and predictable earnings growth, both on a
historical as well as a projected basis. They must be of superior quality from a
balance sheet and management perspective and also be attractively valued
relative to the market and their peers. We are constructing a portfolio of
companies that all have this high level of
PERFORMANCE UPDATE
LOGO
Kurt R. Stalzer joined Zurich Kemper Investments, Inc. (ZKI) in January 1997
with over 15 years of investment experience. He is a senior vice president of
ZKI and vice president and portfolio manager of Kemper Small Capitalization
Equity Fund. Stalzer received a B.B.A. degree from the University of Michigan
where he earned a dual specialization in finance and accounting. He is also a
member of the Financial Analyst Federation and the Association of Investment
Management and Research.
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
5
on market and other conditions.
<PAGE> 6
PERFORMANCE UPDATE
earnings visibility over a two- to five-year investment time horizon. We search
for attractive niches where a company may have dominant market share or pricing
power, for example. Finally and perhaps most importantly, is the management team
and how accessible they are.
Q CAN YOU GIVE A FEW EXAMPLES OF THE TYPES OF STOCKS THE FUND OWNS?
A One of the stocks purchased that has performed well is Tencor Instruments,
a semi-conductor capital equipment company, which is being acquired and has seen
its stock price increase as a result. They have an excellent position in wafer
defect inspection and thin film measurement systems. Another example is SPX
Corp. which sells tools and equipment used to repair or make automobiles. The
company's low price-to-earnings ratio, coupled with a positive earnings surprise
and a management that truly runs the company for the shareholders, has
significantly increased the price of this stock.
Q CAN YOU GIVE A RECAP OF THE MARKET FOR THE PAST SIX MONTHS?
A Small company stocks continued to be overlooked relative to the overall
market. Their performance for the last two years has lagged the market. Much of
the reason for their underperformance is due to the cash flowing into large
company stocks, which drove their prices up while small company stocks trailed
behind. Also, small cap earnings growth, on a relative basis, seems to be
lagging large caps. The market was dominated by technology stocks in the fourth
quarter only to see much of those gains given back at the end of March. The
first quarter was also tough on health care stocks, yet proved to be good for
energy stocks.
Q WHAT OPPORTUNITIES DID THE MARCH SELL-OFF PRESENT TO YOU?
A The volatility we have been experiencing does not create a bad environment
for investing. The benefit from the sell-off was the creation of good
opportunities in some technology stocks. Technology stock valuations had been
high, and a perceived change in the fundamentals caused the stocks to sell-off
sharply. The reality, however, is that for many companies the fundamentals did
not change at all and they are selling at more reasonable prices. Financial
stocks also experienced a sell-off due to the Fed increasing interest rates.
Nevertheless, their fundamentals remain strong and are less affected by changes
in interest rates than is generally believed. We were buyers of some service
names, such as Caribiner International, Inc. and U.S. Rentals, where P/E's are
higher due to their earnings predictability. We bought these names on their
price weakness.
Q SMALL COMPANY STOCKS HAVE BEEN LAGGING THE MARKET FOR TWO YEARS. WHAT DO
YOU SEE FOR THEM IN THE NEAR FUTURE?
A There are a couple of indications that small company stocks will turn
around. The first is that small company stocks remain historically undervalued
relative to large company stocks. What this means is their earnings are selling
for less than those of large company stocks. Secondly, the dollar has been very
strong since November. A strong dollar has a negative impact on the earnings of
large, multinational companies because it dilutes the value of their overseas
earnings. Finally, the supply of initial public offerings has diminished
recently; this should have a positive impact on existing issues in the market.
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, 1997, and on September 30, 1996.
[A SIX-MONTH COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL KEMPER SMALL
CAPITALIZATION CAPITALIZATION
EQUITY FUND EQUITY FUND
ON 3/31/97 ON 9/30/96
<S> <C> <C>
CONSUMER NONDURABLES 27.4% 23.9%
HEALTH CARE 13.6% 23.4%
TECHNOLOGY 13.9% 21.4%
FINANCE 13.0% 10.4%
CAPITAL GOODS 11.4% 6.8%
BASIC INDUSTRIES 11.3% 4.5%
ENERGY 4.1% 1.6%
TRANSPORTATION 3.5% 1.5%
CONSUMER DURABLES 1.8% 3.6%
UTILITIES 0.0% 2.9%
</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, 1997,
compared to the industry sectors that make up the fund's benchmark, the Russell
2000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL
CAPITALIZATION RUSSELL 2000
EQUITY FUND INDEX ON
ON 3/31/97 3/31/97
<S> <C> <C>
CONSUMER NONDURABLES 27.4% 19.8%
HEALTH CARE 13.6% 9.7%
TECHNOLOGY 13.9% 13.2%
FINANCE 13.0% 25.5%
CAPITAL GOODS 11.4% 10.1%
BASIC INDUSTRIES 11.3% 6.5%
ENERGY 4.1% 5.7%
TRANSPORTATION 3.5% 3.5%
CONSUMER DURABLES 1.8% 3.7%
UTILITIES 0.0% 3.9%
</TABLE>
* The Russell 2000 Index is an unmanaged capitalization weighted index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization) in
the Russell 3000 Index. Source is Lipper Analytical Services, Inc.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
REPRESENTING 18.52% OF THE FUND'S TOTAL NET ASSETS ON MARCH 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 SPX CORP. Designs, manufactures and markets specialty service 2.51%
tools and original equipment components for the global
motor vehicle industry.
- -------------------------------------------------------------------------------------------------------
2 CULLIGAN WATER TECHNOLOGIES Designs, manufactures and distributes systems that 2.28%
provide solutions to water problems for residential,
commercial, industrial and municipal customers.
- -------------------------------------------------------------------------------------------------------
3 DURA PHARMACEUTICALS A specialty pharmaceutical company marketing 2.12%
prescription pharmaceuticals in the U.S. for treatment
of asthma, allergies and other respiratory ailments.
- -------------------------------------------------------------------------------------------------------
4 CAPSTAR HOTEL Owns, acquires, manages and renovates hotels 1.84%
throughout the United States.
- -------------------------------------------------------------------------------------------------------
5 STEWART ENTERPRISES Owns and operates 199 funeral homes and 114 cemeteries 1.79%
worldwide.
- -------------------------------------------------------------------------------------------------------
6 OMNICARE Provides services to long-term care institutions such 1.73%
as nursing homes, retirement centers and other
institutional health care facilities.
- -------------------------------------------------------------------------------------------------------
7 WESTERN NATIONAL CORPORATION Develops, markets and issues annuity products through 1.72%
niche distribution channels.
- -------------------------------------------------------------------------------------------------------
8 PRECISION DRILLING The leading Canadian company engaged in contract 1.56%
drilling of oil and gas wells.
- -------------------------------------------------------------------------------------------------------
9 KEANE Engaged in the management, analysis, design, 1.53%
programming, marketing and installation of
computer-based information systems.
- -------------------------------------------------------------------------------------------------------
10 GLOBAL INDUSTRIES A major supplier of pipeline construction, derrick and 1.44%
diving services to the offshore oil and gas industry
in the Gulf of Mexico.
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAPITALIZATION EQUITY FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--11.0% (a)Culligan Water Technologies 475,000 $ 18,584
Dekalb Genetics Corp. 110,000 5,858
(a)Fort Howard Corp. 360,000 11,205
(a)Jacobs Engineering Group 360,000 8,820
(a)Mycogen Corporation 210,000 4,883
OM Group 305,000 8,578
(a)Philip Environmental 700,000 10,588
Precision Castparts Corp. 228,900 11,674
(a)Shaw Group 225,000 5,147
(a)Steel Dynamics Inc. 257,100 4,499
----------------------------------------------------------------------------
89,836
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--11.1% BE Aerospace, Inc. 327,000 8,011
BMC Industries 310,000 8,757
(a)Littelfuse, Inc. 200,000 9,250
(a)MSC Industrial Direct 123,900 3,609
(a)Miller Industries 700,000 8,400
(a)Robotic Vision Systems 300,000 3,413
(a)Rofin-Sinar Technologies, Inc. 409,100 5,983
SPX Corp. 450,000 20,419
TriMas Corp. 479,400 11,266
Watsco, Inc. 441,000 11,246
----------------------------------------------------------------------------
90,354
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--23.2% CKE Restaurants 520,000 11,505
(a)CapStar Hotel Company 535,000 14,980
(a)Caribiner International, Inc. 195,000 9,116
(a)Kenneth Cole Productions 450,000 9,450
Consolidated Graphics, Inc. 342,500 9,804
(a)Equity Corporation International 450,000 9,450
(a)Four Seasons Hotels Inc. 450,000 10,350
(a)Heftel Broadcasting Corp. 158,900 7,389
Hollinger International 861,600 7,862
(a)Interim Services 250,000 9,719
(a)Interstate Hotels Company 360,000 10,170
Intertape Polymer Group 205,000 4,177
(a)K-III Communications Corporation 1,000,000 11,250
(a)MGM Grand 155,000 5,619
(a)Men's Wearhouse 350,000 9,625
(a)Paymentech 215,700 5,635
Pier 1 Imports 337,000 5,940
(a)Rental Service 270,500 5,140
Stewart Enterprises 400,000 14,600
(a)Teletech Holdings Inc. 180,000 3,555
(a)US Rentals 410,700 7,444
(a)Williams-Sonoma 200,000 5,750
----------------------------------------------------------------------------
188,530
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.7% Ethan Allen Interiors 220,000 9,570
(a)Mohawk Industries 220,000 4,592
----------------------------------------------------------------------------
14,162
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--3.5% (a)JP Foodservice 350,000 $ 9,669
(a)Revlon, Inc. 270,000 10,294
Richfood Holdings 238,550 4,473
(a)Starbucks Corp. 135,000 3,999
----------------------------------------------------------------------------
28,435
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--4.0% (a)Global Industries, Ltd. 550,000 11,756
(a)Precision Drilling Corp. 300,000 12,675
(a)Trico Marine Services Inc. 170,000 8,075
----------------------------------------------------------------------------
32,506
- ---------------------------------------------------------------------------------------------------------------------
FINANCE--12.7% (a)BA Merchant Services 440,000 6,050
Bank United Corp. 356,300 10,511
Executive Risk 200,000 9,275
First Financial Corp. 440,000 11,495
PMI Group 209,000 10,476
Redwood Trust 232,500 10,753
Sirrom Capital Corporation 281,500 10,204
Texas Regional Bancshares 167,000 5,427
(a)United Insurance Companies 214,100 4,898
Western National Corporation 598,500 13,990
Wilmington Trust Corp. 239,900 10,196
----------------------------------------------------------------------------
103,275
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--13.2% (a)ABR Information Services 600,000 10,800
(a)CRA Managed Care, Inc. 295,000 11,062
(a)Dura Pharmaceuticals 483,000 17,267
(a)EndoSonics Corp. 300,000 2,850
Mentor Corp. 191,500 4,141
(a)Occusystems, Inc. 210,000 4,725
Omnicare, Inc. 600,000 14,100
(a)PAREXEL International Corporation 400,000 9,200
(a)Physician Sales & Service 600,000 7,575
(a)Renal Treatment Centers 180,000 4,050
(a)Serologicals Corporation 405,000 6,075
(a)Sofamor-Danek Group 265,000 9,573
(a)Total Renal Care Holdings 203,000 6,166
----------------------------------------------------------------------------
107,584
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--13.5% (a)Analog Devices 230,000 5,175
(a)Cimlinc Incorporated, "D", convertible
preferred 75,431 283
(a)Comverse Technology 200,000 7,900
(a)Gartner Group 140,000 3,028
(a)Inso Corporation, Inc. 270,000 10,142
(a)Keane, Inc. 380,000 12,492
(a)Kulicke & Soffa Industries 185,000 3,908
Linear Technology Corp. 105,000 4,646
MRV Communications 131,000 2,915
(a)McAfee Associates, Inc. 170,000 7,522
Methode Electronics 410,000 5,740
(a)Novellus Systems 70,000 4,830
(a)Parametric Technology Corp. 150,000 6,769
(a)Solectron Corp. 190,000 9,524
(a)Tech Data Corporation 395,000 9,529
(a)Tellabs Operations 320,000 11,560
(a)Tencor Instruments 120,000 4,335
----------------------------------------------------------------------------
110,298
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--3.4% (a)Eagle USA Airfreight 273,800 $ 8,419
Heartland Express 330,000 6,270
Tranz Rail Holdings, Ltd. 413,500 7,495
(a)Wisconsin Central Transportation 151,900 5,354
----------------------------------------------------------------------------
27,538
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--97.3%
(Cost: $670,011) 792,518
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.75% to 6.90%
INSTRUMENTS--3.5%
Due--April 1997
(Cost: $28,699) $ 28,700 28,699
----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.8%
(Cost: $698,710) 821,217
----------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(.8)% (7,057)
----------------------------------------------------------------------------
NET ASSETS--100% $814,160
----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $698,710,000 for federal income tax
purposes at March 31, 1997, the gross unrealized appreciation was
$155,322,000, the gross unrealized depreciation was $32,815,000 and the net
unrealized appreciation on investments was $122,507,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
- ------------------------------------------------------------------------
<S> <C>
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $698,710) $821,217
- ------------------------------------------------------------------------
Receivable for:
Investments sold 8,754
- ------------------------------------------------------------------------
Fund shares sold 188
- ------------------------------------------------------------------------
Dividends 326
- ------------------------------------------------------------------------
TOTAL ASSETS 830,485
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 6,820
- ------------------------------------------------------------------------
Payable for:
Investments purchased 6,994
- ------------------------------------------------------------------------
Fund shares redeemed 1,733
- ------------------------------------------------------------------------
Management fee 266
- ------------------------------------------------------------------------
Distribution services fee 155
- ------------------------------------------------------------------------
Administrative services fee 144
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 143
- ------------------------------------------------------------------------
Trustees' fees 70
- ------------------------------------------------------------------------
Total liabilities 16,325
- ------------------------------------------------------------------------
NET ASSETS $814,160
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $646,203
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 45,450
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 122,507
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $814,160
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($564,230 / 96,589 shares outstanding) $5.84
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $6.20
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($227,656 / 40,443 shares outstanding) $5.63
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($6,895 / 1,228 shares outstanding) $5.62
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($15,379 / 2,610 shares outstanding) $5.89
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
- ------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 1,566
- ------------------------------------------------------------------------
Interest 2,636
- ------------------------------------------------------------------------
Total investment income 4,202
- ------------------------------------------------------------------------
Expenses:
Management fee 1,619
- ------------------------------------------------------------------------
Distribution services fee 982
- ------------------------------------------------------------------------
Administrative services fee 983
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,825
- ------------------------------------------------------------------------
Professional fees 28
- ------------------------------------------------------------------------
Reports to shareholders 129
- ------------------------------------------------------------------------
Trustees' fees and other 67
- ------------------------------------------------------------------------
Total expenses 5,633
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (1,431)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments 34,549
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments (115,873)
- ------------------------------------------------------------------------
Net loss on investments (81,324)
- ------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(82,755)
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
- ---------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (1,431) (4,680)
- ---------------------------------------------------------------------------------------------------------
Net realized gain 34,549 98,994
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (115,873) 29,125
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (82,755) 123,439
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain (76,851) (120,799)
- ---------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 39,691 91,530
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (119,915) 94,170
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 934,075 839,905
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD $ 814,160 934,075
- ---------------------------------------------------------------------------------------------------------
</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 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 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. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
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.
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
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
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, 1997.
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) 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, 1997, the
Fund incurred management fees as follows (in
thousands):
<TABLE>
<S> <C>
Base fee $2,887
Performance adjustment (1,268)
------
Total fees $1,619
======
</TABLE>
Zurich Investment Management Limited, an affiliate
of ZKI, serves as sub-adviser with respect to
foreign securities investments in the Fund and is
paid by ZKI for its services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY ZKDI BY ZKDI TO FIRMS
---------------- -------------------
<S> <C> <C>
Six months ended
March 31, 1997 $ 61,000 366,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI 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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC COMMISSIONS AND
RECEIVED BY DISTRIBUTION FEES
ZKDI PAID BY ZKDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Six months ended
March 31, 1997 $1,193,000 718,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these services and pays
these firms based on assets of Fund accounts that
the firms service. Administrative services fees
(ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY -----------------------------
THE FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- -------------
<S> <C> <C> <C>
Six months ended
March 31, 1997 $ 983,000 982,000 3,000
</TABLE>
SHAREHOLDER SERVICES AGENT AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of
$1,566,000 for the six months ended March 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended March 31, 1997, the
Fund made no payments to its officers and incurred
trustees' fees of $15,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $527,665
Proceeds from sales 453,501
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 10,804 $ 71,446 30,868 $ 202,700
--------------------------------------------------------------------------------
Class B 7,054 44,975 14,887 95,149
--------------------------------------------------------------------------------
Class C 478 3,049 756 4,816
--------------------------------------------------------------------------------
Class I 707 4,646 1,486 9,698
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 8,072 50,128 13,634 77,454
--------------------------------------------------------------------------------
Class B 3,582 21,530 5,749 32,025
--------------------------------------------------------------------------------
Class C 105 631 95 525
--------------------------------------------------------------------------------
Class I 232 1,450 505 2,875
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (15,464) (100,617) (34,939) (226,681)
--------------------------------------------------------------------------------
Class B (7,635) (48,026) (14,337) (91,287)
--------------------------------------------------------------------------------
Class C (307) (1,897) (359) (2,253)
--------------------------------------------------------------------------------
Class I (1,147) (7,624) (2,055) (13,491)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 425 2,771 702 4,562
--------------------------------------------------------------------------------
Class B (440) (2,771) (719) (4,562)
--------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 39,691 $ 91,530
--------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.01 7.14 5.81 6.45 5.25
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss -- (.02) (.01) (.01) (.02)
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.60) .94 1.68 (.27) 1.71
- -----------------------------------------------------------------------------------------------
Total from investment operations (.60) .92 1.67 (.28) 1.69
- -----------------------------------------------------------------------------------------------
Less distribution from net realized gain .57 1.05 .34 .36 .49
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $5.84 7.01 7.14 5.81 6.45
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (9.04)% 16.33 30.88 (4.31) 34.11
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses .91% 1.08 1.14 1.34 1.03
- -----------------------------------------------------------------------------------------------
Net investment income (loss) .01% (.26) (.18) (.76) (.43)
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------
CLASS B
--------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30, MAY 31
MARCH 31, TO SEPT. 30,
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.81 7.03 5.78 5.65
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (.04) (.09) (.07) (.02)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.57) .92 1.66 .15
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (.61) .83 1.59 .13
- ---------------------------------------------------------------------------------------------------------
Less distribution from net realized gain .57 1.05 .34 --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.63 6.81 7.03 5.78
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (9.49)% 15.13 29.59 2.30
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses 2.04% 2.15 2.17 2.29
- ---------------------------------------------------------------------------------------------------------
Net investment loss (1.12)% (1.33) (1.21) (1.38)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------- --------------------------------------
CLASS C CLASS I
----------------------------------------- --------------------------------------
SIX MONTHS MAY 31 SIX MONTHS YEAR JULY 3
ENDED YEAR ENDED TO ENDED ENDED TO
MARCH 31, SEPT. 30, SEPT. 30, MARCH 31, SEPT. 30, SEPT. 30,
1997 1996 1995 1994 1997 1996 1995
- ---------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------- --------------------------------------
Net asset value, beginning of
period $6.80 7.02 5.77 5.65 7.05 7.15 6.27
- -------------------------------------------------------------------------- --------------------------------------
Income from investment operations:
Net investment income (loss) (.03) (.09) (.07) (.03) .01 .01 --
- -------------------------------------------------------------------------- --------------------------------------
Net realized and unrealized gain
(loss) (.58) .92 1.66 .15 (.60) .94 .88
- -------------------------------------------------------------------------- --------------------------------------
Total from investment operations (.61) .83 1.59 .12 (.59) .95 .88
- -------------------------------------------------------------------------- --------------------------------------
Less distribution from net
realized gain .57 1.05 .34 -- .57 1.05 --
- -------------------------------------------------------------------------- --------------------------------------
Net asset value, end of period $5.62 6.80 7.02 5.77 5.89 7.05 7.15
- -------------------------------------------------------------------------- --------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (9.50)% 15.16 29.65 2.12 (8.85) 16.76 14.04
- -------------------------------------------------------------------------- --------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------- --------------------------------------
Expenses 2.02% 2.15 2.10 2.10 .60 .66 .79
- --------------------------------------------------------------------- --------------------------------------
Net investment income (loss) (1.10)% (1.33) (1.14) (1.21) .32 .16 (.14)
- -------------------------------------------------------------------------- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $ 814,160 934,075 839,905 631,607 510,060
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 110% 85 102 58 82
- -------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended March 31, 1997 and the
year ended September 30, 1996 were $.0570 and $.0557, respectively.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Per share
data for the year ended September 30, 1996 were determined based on average
shares outstanding.
19
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM STEVEN H. REYNOLDS
Trustee Vice President
DONALD L. DUNAWAY KURT R. STALZER
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President
and Secretary
DONALD R. JONES JEROME L. DUFFY
Trustee Treasurer
DOMINIQUE P. MORAX ELIZABETH C. WERTH
Trustee Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ----------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- ----------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- ----------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Fund prospectus.
KSCF - 3 (5/97) 1031840 [KEMPER FUNDS LOGO]
