<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
SEEKING MAXIMUM
APPRECIATION OF
INVESTORS CAPITAL
Kemper Small Capitalization
Equity Fund
"... Compared with a year ago, the market's opinion of small- company stocks
appears to be quietly improving. Investors have been more responsive to the
attractive valuations and fundamentals of small caps ... "
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
9
Industry Sectors
10
Largest Holdings
11
Portfolio of Investments
15
Financial Statements
17
Notes to Financial Statements
21
Financial Highlights
23
Reports of Independent Auditors
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1999 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A 23.91
CLASS B 22.78
CLASS C 23.10
LIPPER SMALL CAP GROWTH FUNDS CATEGORY AVERAGE* 43.76
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN
LESS FAVORABLE.
INVESTMENT BY THE FUND IN SMALL COMPANIES PRESENTS GREATER RISK THAN INVESTMENT
IN LARGER, MORE ESTABLISHED COMPANIES.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS A $6.12 $5.30
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS B $5.67 $4.98
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS C $5.71 $5.00
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY
FUND RANKINGS AS OF 9/30/99
- --------------------------------------------------------------------------------
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SMALL-CAP GROWTH FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #192 of #196 of #194 of
247 funds 247 funds 247 funds
- --------------------------------------------------------------------------------
5-YEAR #57 of #65 of #64 of
82 funds 82 funds 82 funds
- --------------------------------------------------------------------------------
10-YEAR #16 of N/A N/A
23 funds
- --------------------------------------------------------------------------------
15-YEAR #4 of N/A N/A
10 funds
- --------------------------------------------------------------------------------
20-YEAR #3 of N/A N/A
6 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE YEAR ENDED SEPTEMBER 30, 1999 KEMPER SMALL CAPITALIZATION EQUITY
FUND PAID THE FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM
CAPITAL GAIN.. $0.41 $0.41 $0.41
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
KEMPER FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR EQUITY STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc. Chicago, IL (312) 696-6000. The Morningstar Style Box
placement is based on two variables: a fund's market capitalization relative to
the movements of the market and a fund's valuation, which is calculated by
comparing the stocks in the fund's portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY TO DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED KEMPER SMALL
CAPITALIZATION EQUITY FUND IN THE SMALL-CAP GROWTH CATEGORY. PLEASE CONSULT THE
PROSPECTUS FOR A DESCRIPTION OF INVESTMENT POLICIES.
BENCHMARK A gauge of relative performance, often a broad market index. A fund
may evaluate its performance against how well its benchmark performed. Kemper
Small Capitalization Fund's benchmark is the Russell 2000 Growth Index, a pool
of small-cap growth stocks.
LIQUIDITY The ease with which a stock can be bought or sold. Due to higher
recognition and a greater quantity of shares, large-cap stocks are typically
more liquid than small-cap stocks. Reduced liquidity offers the potential of
greater risk and return: investors who wish to sell a less liquid stock may find
it difficult to find a buyer, but they may also be able to dictate a higher
price if the stock is in demand.
MARKET CAPITALIZATION A measure of the size of a publicly traded company, as
determined by multiplying the current share price by the number of shares
outstanding.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers are buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight labor
markets -- i.e., many "help-wanted" signs -- forces companies to pay a premium
for talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data which were
released in late October: The Bureau of Economic Analysis (BEA) released its
third-quarter estimate of gross domestic product (GDP), the value of all goods
and services produced in the United States, and the Bureau of Labor Statistics
(BLS) released its employment cost index (ECI), which measures what employers
pay for their workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
These figures tell us that the Fed won't have inflation as an excuse to raise
interest rates for a third time this year when it meets on Nov. 16 to decide
whether to raise key interest rates for the third time this year.
But more importantly, if these numbers prove anything, it's that conventional
wisdom that growth causes inflation should be turned on its head. The Fed, in
deciding to
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 (10/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 6.1 5.2 4.5 6.0
Prime rate 2 8.25 7.75 8.25 8.5
Inflation rate 3* 2.6 1.8 1.4 2.2
The U.S. dollar 4 -0.9 -0.5 1.1 7.6
Capital goods orders 5* 5.25 5.5 8.6 4.6
Industrial production 5* 2.4 2.0 2.65 6.1
Employment growth 6 2.2 2.3 2.4 2.7
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 9/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
target growth itself, wants the country to slow down to prevent an inflation
outbreak. This is a dangerous game. If it succeeds in slowing growth, inflation
could easily disappear or turn into deflation. Real rates that are already high
would turn punitive. Credit quality would deteriorate rudely. Only rapid growth
can ensure that companies and consumers can continue to pay their bills.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 28, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
EFFECTIVE IN MID-OCTOBER, JESUS CABRERA JOINS THE MANAGEMENT TEAM OF KEMPER
SMALL CAPITALIZATION EQUITY FUND, AS LEAD PORTFOLIO MANAGER. CABRERA BRINGS MORE
THAN A DECADE OF INVESTMENT INDUSTRY EXPERIENCE, MUCH OF IT FOCUSED ON SMALL-CAP
GROWTH INVESTING. HE IS SUPPORTED BY SCUDDER KEMPER INVESTMENTS, INC.'S LARGE
STAFF OF ANALYSTS, RESEARCHERS, TRADERS AND INVESTMENT SPECIALISTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE MANAGEMENT TEAM THROUGH
THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS
ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS.
BELOW, THE MANAGEMENT TEAM OF KEMPER SMALL CAPITALIZATION EQUITY FUND PROVIDES
AN OVERVIEW OF HOW THE FUND PERFORMED AND THE MARKET CLIMATE DURING THE PAST
FISCAL YEAR.
Q HOW DID THE FUND PERFORM?
A For the one-year period ending September 30, 1999, Kemper Small
Capitalization Equity Fund earned 23.91 percent (Class A shares, unadjusted for
any sales charges). In contrast, the Lipper Small Capitalization Growth Funds
category average earned 43.76 percent for the same period. The Russell 2000
Growth Index, a benchmark for small-cap growth stocks, returned 32.63 percent.
Over longer time periods, we set our sights on surpassing the peer-group
average and our benchmark. Even though, in absolute terms, a gain of almost 24
percent is indeed a healthy gain, we recognize that shareholders may be
disappointed with a return that trails the peer-group and benchmark average by a
wide margin. As we'll discuss in greater detail, the leading small-cap stocks
were often, in our analysis, too untested, highly priced and volatile. We
believe that while small-cap investing entails greater risk than large-cap
investing, small-cap investing can -- and should be -- risk conscious.
That said, we also encourage shareholders to put short-term performance into a
longer-term framework. Consider this: For the past 20 calendar years, stocks
returned an average of about 18 percent per year.
Q BEFORE DISCUSSING THE FUND IN GREATER DETAIL, PLEASE SUMMARIZE SOME OF THE
GENERAL TRENDS AND THEMES THAT SHAPED THE MARKET DURING THE FISCAL YEAR.
A Small-cap stocks faced their share of challenges during the past year. In
general terms, large-company stocks significantly outperformed their
small-company rivals. While the small-cap Russell 2000 index earned 19.07
percent, the large-cap Standard & Poor's 500 index gained considerably more,
27.79 percent.
This large-cap outperformance was due in large part to investors' desire for
liquidity and perceived stability. At the start of the fiscal year, investors
were on edge, due to a variety of factors, including the uncertainty surrounding
emerging markets, the memory of the Russian debt default and the market
correction of August 1998. There was a general sentiment that in an uncertain
global economy, large-cap domestic growth companies could hold up better than
smaller companies. Many investors also believed that small companies would not
be able to secure the financing required for growth in a rising-interest-rate
environment.
However, that's not to say that small caps didn't enjoy pockets of brighter
performance. As technology stocks surged in the fourth quarter of 1998, many
small-cap technology stocks also rallied. While this rally abated in early 1999,
small caps again took the lead when the markets broadened out in April and May.
And during the final months of the fiscal year, many large-cap stocks have
suffered, closing the performance gap between the large and small caps.
Compared with a year ago, the market's opinion of small-company stocks appears
to be quietly improving. Investors have been more responsive to the attractive
valuations and fundamentals of small caps, and less skittish about liquidity.
People seem to feel better about the domestic and global economy, and small
5
<PAGE> 6
PERFORMANCE UPDATE
caps are benefiting from this increased optimism.
Q WHAT WORKED OUT WELL FOR THE FUND?
A The fund has benefited from this gradual improvement of the small-cap
climate. As the economy has become more vibrant, investors have shown a greater
interest in the small caps. In a more optimistic climate, liquidity concerns
have become less of a stumbling block.
Among individual holdings, many of the fund's technology stocks were
outstanding performers. The leaders list includes Comverse Technologies.
Comverse develops, manufactures and markets high-performance computer systems
designed to serve a broad range of commercial and military
multimedia-communications-processing applications. Mercury Interactive, a
provider of software systems for monitoring client/server network traffic, also
earned excellent gains. We've backed both Comverse Technologies and Mercury
Interactive with conviction; each is a top-five holding of the fund, as of the
end of the fiscal year. Other technology stocks that contributed strong returns
include Applied Micro Systems (specialized semiconductors for wireless
communications) and Computer Networks (computer networking products).
Our decision to underweight health-care service companies proved helpful, as
many stocks in this industry have suffered from regulatory uncertainty. Instead
of service stocks, we favored medical products and supplies. We reaped robust
returns from several holdings in this segment. VISX, the dominant provider of
corrective laser procedures, continued to drive ahead. Xomed Surgical Products
and Sofamor-Danek also benefited performance. Sofamor-Danek is no longer in the
portfolio, as a result of its acquisition by large-cap Medtronic, but Xomed
still counts among our largest positions. (Xomed has also entered into an
agreement to be acquired by Medtronic.)
Other stocks that bolstered performance include Cost Plus (specialty
retailing) and Expeditors International of Washington (air-and water-freight
transport).
Q WHAT FACTORS LIMITED PERFORMANCE?
A During the annual period, Internet stocks posted robust returns. Compared
with many of the fund's peers, Kemper Small Capitalization Fund had limited
exposure to Internet companies. As a result, we missed an opportunity, and our
relative performance suffered.
Additionally, several stocks fell short of earnings expectations and hurt the
fund's performance. These include Boron LePore and Associates, Axent
Technologies, Complete Business Systems, and Serologicals. Because we believed
that the earnings disappointments signaled fundamental deterioration, we
eliminated the companies from the portfolio.
A handful of stocks in the portfolio (U.S. Foodservice, Regis and United
Rentals) suffered declines in the wake of acquisitions. We're carefully
monitoring and evaluating their longer-term strength.
Finally, the fund's basic-materials stocks haven't performed as well as we had
anticipated, and have lacked the degree of stability for which we'd hoped.
Q HOW IS THE FUND PARTICIPATING IN THE GROWTH OF ELECTRONIC COMMERCE AND THE
INTERNET?
A We're attuned to the opportunities of the Internet and electronic
commerce, so we're watching Internet-oriented stocks carefully. In particular,
we're keeping a close eye out as leading companies emerge. So far, we've found
attractive growth potential in WebTrends, a provider of Internet-traffic
tracking systems and software. We've also been investing in companies that are
involved in the broad build-out of the Internet. Examples include Web-oriented
specialty-software companies Verity and Micromuse, as well as semiconductor
companies Transwitch, Semtech and Applied Micro Circuits. In addition, we're
participating in the growth of e-commerce by investing in a variety of
traditional (non ".com") companies that are leveraging the Internet in
innovative ways to enhance their distribution methods and market position.
Q COULD YOU PROVIDE AN OVERVIEW OF HOW THE PORTFOLIO IS CURRENTLY
POSITIONED?
A Technology stocks enjoy the most substantial representation within the
portfolio. During the annual period, we found opportunities to bolster our
overall exposure to the sector. In particular, we're favoring component-based
technology -- such as semiconductors -- as well as communications-based
technology. We've also found good opportunities to invest in retail stocks.
In contrast, we're keeping our exposure to financial service stocks more
limited. In a rising-rate environment, financial services stocks typically
experience crimped profit margins and growth. At this time, the fund holds
smaller weightings in other groups, including basic materials, transportation
and energy stocks.
Q AS THE FUND BEGINS ITS NEXT YEAR, WHAT WOULD YOU ENCOURAGE SHAREHOLDERS TO
KEEP IN MIND?
A We'd encourage shareholders to remember the classic risk/reward trade-off.
Small caps have historically offered higher return potential, but they've also
entailed higher risk. Shareholders should always be prepared for short-term
volatility.
That said, we also feel that a small-cap component is an important element of
many investors' well-diversified portfolios. In this past year, for instance, we
saw the
6
<PAGE> 7
PERFORMANCE UPDATE
markets rotate between large-cap and small-cap stocks.
We're pleased to see that the sentiment surrounding small caps has improved.
Investors are less skittish, and more attuned to the earnings potential of small
caps. Despite the short-term challenges of the market, we look forward to
pursuing, on behalf of the shareholders, the superior long-term opportunities we
believe small-cap stocks can provide.
7
<PAGE> 8
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS A 16.86% 10.61% 11.26% 11.91% (since 2/20/69)
- ------------------------------------------------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS B 19.78 10.59 N/A 10.36 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS C 23.10 10.92 N/A 10.63 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY FUND CLASS A
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares
from 12/31/78 to 9/30/99
<TABLE>
<CAPTION>
KEMPER SMALL
CAPITALIZATION EQUITY STANDARD & POOR'S RUSSELL 2000 GROWTH
FUND CLASS A1 RUSSELL 2000 INDEX+ 500 STOCK INDEX++ INDEX+++
--------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
12/31/78 9423 10000 10000 10000
13401 14309 11820 15083
19536 19830 15634 22967
19248 20232 14850 20846
24545 25280 18034 25219
30339 32644 22072 30297
28059 30260 23418 25501
35734 39656 30825 33399
12/31/86 41021 41909 36547 34595
41119 38234 38410 30971
44308 47752 44644 37280
55887 55509 58647 44798
52969 44680 56728 36999
89523 65253 74015 55937
12/31/92 89634 77401 79649 60284
104686 92032 87632 68338
101220 90356 88789 66676
132765 116050 122144 87372
151474 135191 150194 97212
182477 165421 200316 109804
176816 161206 257077 111158
9/30/99 178862 165031 268238 119244
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY FUND CLASS B
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares
from 5/31/94 to 9/30/99
<TABLE>
<CAPTION>
KEMPER SMALL
CAPITALIZATION EQUITY STANDARD & POOR'S RUSSELL 2000 GROWTH
FUND CLASS B1 RUSSELL 2000 INDEX+ 500 STOCK INDEX++ INDEX+++
--------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
5/31/94 10000 10000 10000 10000
10146 10140 10229 10388
12/31/95 13179 13024 14072 13612
14871 15172 17304 15145
12/31/97 17676 18564 23078 17107
16930 18091 29618 17318
9/30/99 16921 18578 30904 18521
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER SMALL CAPITALIZATION EQUITY FUND CLASS C
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares
from 5/31/94 to 9/30/99
<TABLE>
<CAPTION>
KEMPER SMALL
CAPITALIZATION EQUITY STANDARD & POOR'S RUSSELL 2000 GROWTH
FUND CLASS C1 RUSSELL 2000 INDEX+ 500 STOCK INDEX++ INDEX+++
--------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
5/31/94 10000 10000 10000 10000
10128 10140 10229 10388
12/31/95 13162 13024 14072 13612
14854 15172 17304 15145
12/31/97 17661 18564 23078 17107
17026 18091 29618 17318
9/30/99 17146 18578 30904 18521
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE. INVESTMENT
RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURE NET INVESTMENT
INCOME AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND, FOR CLASS A SHARES, ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75% AND FOR CLASS B SHARES ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC) OF 3%, CLASS C SHARES
HAVE NO SALES CHARGE ADJUSTMENT. THE MAXIMUM CDSC FOR CLASS B SHARES IS 4%.
FOR CLASS C SHARES, THERE IS A 1% CDSC ON CERTAIN REDEMPTIONS WITHIN THE
FIRST YEAR OF PURCHASE. SHARE CLASSES INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN REFLECTS ANNUALIZED CHANGE WHILE
TOTAL RETURN REFLECTS AGGREGATE CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. BEGINNING WITH THE NEXT ANNUAL REPORT THE
RUSSELL 2000 GROWTH INDEX, A MORE REPRESENTATIVE INDEX WILL BE SHOWN
INSTEAD OF THE RUSSELL 2000 INDEX. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. WHEN
REVIEWING THE PERFORMANCE CHART, PLEASE NOTE THAT THE INCEPTION DATE FOR
THE RUSSELL 2000 INDEX IS JANUARY 1, 1979. AS A RESULT, WE ARE UNABLE TO
ILLUSTRATE THE LIFE-OF-FUND PERFORMANCE FOR CLASS A SHARES (SINCE FEBRUARY
20, 1969) FOR KEMPER SMALL CAPITALIZATION EQUITY FUND. IN COMPARING KEMPER
SMALL CAPITALIZATION EQUITY FUND WITH THE RUSSELL 2000 INDEX, RUSSELL 2000
GROWTH INDEX AND STANDARD & POOR'S 500 STOCK INDEX, YOU SHOULD ALSO NOTE
THAT THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE, WHILE NO
SUCH CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE INDICES.
+ THE RUSSELL 2000 INDEX IS A CAPITALIZATION WEIGHTED PRICE ONLY INDEX THAT
COMPRISES 2000 OF THE SMALLEST STOCKS (ON THE BASIS OF CAPITALIZATION) IN
THE RUSSELL 3000 INDEX. THE LARGEST COMPANY IN THE INDEX HAS AN APPROXIMATE
MARKET CAP OF $591 MILLION.
++ THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET. SOURCE IS CDA WIESENBERGER.
+++ THE RUSSELL 2000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL
2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED
GROWTH VALUES. THESE STOCKS ARE SELECTED FROM THE 2,000 SMALLEST COMPANIES
IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 10% OF THE TOTAL
MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE STOCKS REPRESENTED BY
THIS INDEX INVOLVE INVESTMENT RISKS WHICH MAY INCLUDE THE LOSS OF PRINCIPAL
SOURCE IS CDA WIESENBERGER.
8
<PAGE> 9
INDUSTRY SECTORS
A YEAR-TO-YEAR COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON SEPTEMBER 30, 1999, AND ON SEPTEMBER 30, 1998.
[YEAR-TO-YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAPITALIZATION KEMPER SMALL CAPITALIZATION
EQUITY FUND ON 9/30/99 EQUITY FUND ON 9/30/98
<S> <C> <C>
Consumer non-durables 36.2% 29.7%
Technology 21.3% 20.6%
Healthcare 11.8% 22.6%
Capital goods 9.3% 13.1%
Communication services 7.7% 0%
Finance 5.7% 6.8%
Energy 3.3% 1.2%
Transportation 2.7% 3.1%
Basic materials 2.0% 2.9%
Utilities 0% 0%
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 GROWTH INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF KEMPER SMALL CAPITALIZATION EQUITY FUND REPRESENTED ON SEPTEMBER 30, 1999,
COMPARED WITH THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE
RUSSELL 2000 GROWTH INDEX.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAPITALIZATION
EQUITY FUND RUSSELL 2000 GROWTH INDEX
<S> <C> <C>
Consumer non-durables 36.2% 24.3%
Technology 21.3% 32.3%
Healthcare 11.8% 12.5%
Capital goods 9.3% 9.6%
Communication services 7.7% 0%
Finance 5.7% 10.2%
Energy 3.3% 1.9%
Transportation 2.7% 1.8%
Basic materials 2.0% 3.2%
Utilities 0% 0.4%
</TABLE>
* The Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forcasted growth values.
These stocks are selected from the 2,000 smallest companies in the Russell
3000 Index, which represents approximately 10% of the total market
capitalizations of the Russell 3000 Index. The Stocks represented by this
index involve investment risks which may include the loss of principal. Source
is CDA Wiesenberger.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS*
Representing 25.6 percent of the fund's total net assets on September 30, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDING PERCENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. COMVERSE TECHNOLOGIES Develops, manufactures and markets 5.2%
high-performance computer systems
designed to serve a broad range of
commercial and military
multimedia-communications-processing
applications.
- --------------------------------------------------------------------------------------
2. ZALE Operates retail jewelry stores 2.6%
throughout the United States and
Canada. Retail chains include
Zale's; Daniel's; Bailey, Banks
and Biddle; Broadway and
Mercantile.
- --------------------------------------------------------------------------------------
3. CINAR FILMS Develops, produces and distributes 2.4%
family-oriented programming and
educational services.
- --------------------------------------------------------------------------------------
4. XOMED SURGICAL PRODUCTS Develops and manufactures medical 2.4%
products for ear, nose and throat
conditions and procedures.
- --------------------------------------------------------------------------------------
5. MERCURY INTERACTIVE Creates products to automate the 2.4%
testing and quality assurance of
client-server software.
- --------------------------------------------------------------------------------------
6. SPARTECH Provider of specialty plastics and 2.3%
compounds.
- --------------------------------------------------------------------------------------
7. ALPHA INDUSTRIES Manufacturer of components, 2.2%
including semiconductors.
- --------------------------------------------------------------------------------------
8. JABIL CIRCUIT Contract manufacturer of electric 2.1%
circuit-board assemblies.
- --------------------------------------------------------------------------------------
9. VERITY Develops software tools and 2.1%
applications for Internet services
and enterprise technology.
- --------------------------------------------------------------------------------------
10. PINNACLE HOLDINGS Owns wireless communication towers 1.9%
that it leases to a variety of
customers, including
telecommunication providers and
government agencies.
- --------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER SMALL CAPITALIZATION EQUITY FUND
Portfolio of Investments at September 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER
OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--7.2%
TELEPHONE/COMMUNICATIONS
(a) Comverse Technologies, Inc. 397,850 $ 37,522
(a) Pinnacle Holdings, Inc. 529,700 13,838
--------------------------------------------------------------------------------
51,360
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--1.8%
BUILDING MATERIALS
(a) Jacobs Engineering Group, Inc. 244,588 7,949
(a) U.S. Aggregates, Inc. 366,300 5,105
--------------------------------------------------------------------------------
13,054
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--17.5%
DEPARTMENT & CHAIN STORES--2.8%
(a) Men's Wearhouse, Inc. 545,550 11,729
(a) Pacific Sunwear of California, Inc. 301,650 8,456
--------------------------------------------------------------------------------
20,185
HOME FURNISHINGS--1.4%
(a) Linens 'n Things, Inc. 298,700 10,081
--------------------------------------------------------------------------------
HOTELS & CASINOS--1.8%
(a) Station Casinos, Inc. 542,800 12,620
--------------------------------------------------------------------------------
RECREATIONAL
PRODUCTS--1.4%
(a) Speedway Motorsports, Inc. 232,500 10,070
--------------------------------------------------------------------------------
RESTAURANTS--2.9%
(a) CEC Entertainment, Inc. 245,000 8,789
(a) Jack in the Box, Inc. 461,700 11,514
--------------------------------------------------------------------------------
20,303
SPECIALTY RETAIL--7.2%
(a) Cost Plus, Inc. 203,400 9,865
(a) David's Bridal, Inc. 367,200 2,731
(a) O'Reilly Automotive 197,900 9,431
Regis Corp. 513,850 9,892
(a) Zale Corp. 494,400 18,942
--------------------------------------------------------------------------------
50,861
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.8%
FOOD & BEVERAGE
(a) American Italian Pasta Co. 196,600 5,628
--------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DURABLES--2.2%
AUTOMOBILES
(a) Dura Automotive Systems, Inc. 315,000 7,580
(a) Tower Automotive, Inc. 399,300 7,911
--------------------------------------------------------------------------------
15,491
- ---------------------------------------------------------------------------------------------------------------------------
ENERGY--3.1%
OILFIELD SERVICES/
EQUIPMENT
(a) Cal Dive International, Inc. 327,500 11,217
(a) Dril-Quip, Inc. 420,700 10,754
--------------------------------------------------------------------------------
21,971
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL--5.4%
BANKS--4.2%
Bank United Corp. 181,800 5,886
National Commerce Bancorp 327,800 7,201
People's Heritage Financial Group, Inc. 381,100 6,336
Texas Regional Bancshares, Inc. 413,950 10,245
---------------------------------------------------------------------------------
29,668
OTHER FINANCIAL
COMPANIES--1.2%
(a) Digital Insight Corp. 124,000 186
Legg Mason, Inc. 220,900 8,463
--------------------------------------------------------------------------------
8,649
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH--11.0%
BIOTECHNOLOGY--.4%
(a) IDEC Pharmaceuticals Corp. 32,000 $ 3,009
--------------------------------------------------------------------------------
HEALTH INDUSTRY
SERVICES--2.5%
(a) MedQuist, Inc. 393,200 13,148
(a) Res-Care, Inc. 272,300 4,629
--------------------------------------------------------------------------------
17,777
MEDICAL SUPPLY &
SPECIALTY--5.8%
(a) ResMed, Inc. 368,700 12,190
(a) VISX, Inc. 152,200 12,038
(a) Xomed Surgical Products, Inc. 302,900 17,265
--------------------------------------------------------------------------------
41,493
PHARMACEUTICALS--2.3%
(a) Advance Paradigm, Inc. 168,600 9,231
(a) Priority Health Corp. 117,700 3,634
(a) U.S. Bioscience, Inc. 248,700 3,544
--------------------------------------------------------------------------------
16,409
- ---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--6.6%
ELECTRICAL PRODUCTS--1.8%
(a) ATMI, Inc. 344,000 12,835
--------------------------------------------------------------------------------
INDUSTRIAL SPECIALITY--3.5%
(a) E-Tek Dynamics, Inc. 113,100 6,136
Spartech Corp. 556,000 16,298
(a) Techne Corp. 85,900 2,695
--------------------------------------------------------------------------------
25,129
WHOLESALE
DISTRIBUTORS--1.3%
(a) US Foodservice, Inc. 505,600 9,101
--------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
MEDIA--2.5%
BROADCASTING &
ENTERTAINMENT
(a) Cinar Corp. 580,800 17,569
--------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--13.4%
EDP SERVICES--1.9%
(a) ChoicePoint, Inc. 120,000 8,085
Reynolds and Reynolds Company 282,100 5,748
--------------------------------------------------------------------------------
13,833
MISCELLANEOUS COMMERCIAL
SERVICES--8.0%
(a) Concord EFS, Inc. 197,100 4,065
(a) Dycom Industries, Inc. 292,350 12,334
(a) Lason, Inc. 206,900 9,214
Metris Companies, Inc. 325,300 9,576
(a) Plexus Corp. 117,100 3,586
(a) Select Appointments Hldgs. (ADR) 396,400 13,378
(a) United Rentals, Inc. 205,933 4,479
--------------------------------------------------------------------------------
56,632
MISCELLANEOUS CONSUMER
SERVICES--3.5%
(a) Cheap Tickets, Inc. 202,300 6,549
(a) Complete Business Solutions, Inc. 40,800 558
(a) Education Management Corporation 458,800 5,678
(a) NCO Group, Inc. 255,600 12,013
--------------------------------------------------------------------------------
24,798
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--20.0%
COMPUTER SOFTWARE--6.4%
(a) Advanced Digital Information Corp. 477,000 $ 13,267
(a) Business Objects, S.A. 217,300 12,821
(a) Micromuse, Inc. 65,300 4,196
(a) Verity, Inc. 215,300 14,815
--------------------------------------------------------------------------------
45,099
EDP PERIPHERALS--2.4%
(a) Mercury Interactive Corp. 266,300 17,193
--------------------------------------------------------------------------------
ELECTRONIC COMPONENTS/
DISTRIBUTORS--4.3%
(a) Applied Micro Circuits Corp 191,000 10,887
(a) Jabil Circuit 300,900 14,895
(a) Powerwave Technologies, Inc. 107,200 5,169
--------------------------------------------------------------------------------
30,951
ELECTRONIC DATA
PROCESSING--.7%
(a) Webtrends Corp. 113,800 5,071
--------------------------------------------------------------------------------
SEMICONDUCTORS--6.2%
(a) Alpha Industries 281,150 15,859
(a) Cree Research, Inc. 204,800 6,950
(a) hi/fn, inc. 7,700 849
(a) QLogic Corp. 46,700 3,263
(a) Semitech Corporation 311,800 11,420
(a) Transwitch Corp. 97,250 5,543
--------------------------------------------------------------------------------
43,884
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.6%
AIR FREIGHT--1.8%
Expeditors International of Washington, Inc. 385,400 12,369
--------------------------------------------------------------------------------
RAILROADS--.8%
C.H. Robinson Worldwide, Inc. 172,400 5,808
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS--94.1%
(Cost: $483,483) 668,901
--------------------------------------------------------------------------------
<CAPTION>
CONVERTIBLE PREFERRED STOCK NUMBER OF SHARES VALUE
TECHNOLOGY--.1%
OFFICE/PLANT
AUTOMATION
(a)(c) Cimlinc Incorporated, "D" 75,431 283
--------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK--.1%
(Cost: $660) 283
--------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--5.8%
(b) Repurchase agreement--
State Street Bank and Trust Company dated
9/30/99, 5.26%, due 10/1/99 405 405
Commercial paper
Yield--5.26% to 5.65%
Due--October 1999
Abbott Laboratories 19,000 18,992
Other 21,500 21,491
--------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--5.8%
(Cost: $40,888) 40,888
--------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $525,031) $710,072
--------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Repurchase agreement is fully collateralized by U.S. Treasury or Government
securities.
(c) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $283 (.04% of net assets). Their values
have been estimated by the Valuation Committee in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the difference could be material. The cost of these securities at September
30, 1999 aggregated $660. These securities may also have certain
restrictions as to resale.
Based on the cost of investments of $525,400 for federal income tax purposes at
September 30, 1999, the gross unrealized appreciation was $198,511, the gross
unrealized depreciation was $13,839 and the net unrealized appreciation on
investments was $184,672.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
September 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investment securities, at value
(Cost $525,031) $710,072
- ------------------------------------------------------------------------
Receivable for:
Investments sold 12,359
- ------------------------------------------------------------------------
Dividends 132
- ------------------------------------------------------------------------
Fund shares sold 7,565
- ------------------------------------------------------------------------
TOTAL ASSETS 730,128
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Payable for:
Investments purchased 1,316
- ------------------------------------------------------------------------
Fund shares redeemed 5,801
- ------------------------------------------------------------------------
Accrued management fee 251
- ------------------------------------------------------------------------
Other accrued expenses 834
- ------------------------------------------------------------------------
Total liabilities 8,202
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $721,926
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments $185,041
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) 29,055
- ------------------------------------------------------------------------
Paid-in capital 507,830
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $721,926
- ------------------------------------------------------------------------
NET ASSETS VALUE
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($564,678 /
92,207 shares outstanding) $6.12
- ------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
6.10% of net asset value or 5.75% of offering price) $6.49
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($135,678 /
23,949 shares outstanding) $5.67
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($10,035 /
1,758 shares outstanding) $5.71
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price ($11,535 / 1,839
shares outstanding) $6.27
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Income:
Dividends $ 1,197
- ------------------------------------------------------------------------
Interest 1,608
- ------------------------------------------------------------------------
2,805
- ------------------------------------------------------------------------
Expenses:
Management fee 2,966
- ------------------------------------------------------------------------
Administrative services fee 1,629
- ------------------------------------------------------------------------
Custodian and transfer agent and related expenses 3,227
- ------------------------------------------------------------------------
Trustees' fees 36
- ------------------------------------------------------------------------
Reports to shareholders 402
- ------------------------------------------------------------------------
Auditing 78
- ------------------------------------------------------------------------
Legal 15
- ------------------------------------------------------------------------
Registration fees 14
- ------------------------------------------------------------------------
Distribution fees 1,315
- ------------------------------------------------------------------------
Other 49
- ------------------------------------------------------------------------
Expenses 9,731
- ------------------------------------------------------------------------
NET INVESTMENT LOSS (6,926)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
- ------------------------------------------------------------------------
Net realized gain (loss) from investments 30,251
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investment securities 146,803
- ------------------------------------------------------------------------
Net gain on investment transactions 177,054
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $170,128
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------------
1999 1998
- ----------------------------------------------------------------------------------------
OPERATIONS:
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) $ (6,926) (6,977)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) 30,251 62,885
- ----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 146,803 (301,603)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 170,128 (245,695)
- ----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains (57,639) (110,208)
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets from fund share
transactions (108,912) (21,226)
- ----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 3,577 377,129
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------
Net assets at beginning of year 718,349 1,095,478
- ----------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR $ 721,926 718,349
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Small Capitalization Equity Fund (the
"fund") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an
open-end, diversified management investment company
organized as a Massachusetts business trust.
The fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the fund have
equal rights with respect to voting subject to
class specific arrangements.
The fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sales price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
REPURCHASE AGREEMENTS. The fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
which at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the fund.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date. Interest income is recorded on the
accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the 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 year ended September 30, 1999, the fund
incurred management fees as follows (in thousands):
Base fee $ 4,894
Performance adjustment (1,928)
-------
Total fees $ 2,966
=======
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
The fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the year end September 30, 1999 are $65,000.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate 12b-1 plans for the
Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
CDSC received by KDI for the year ended September
30, 1999 are $1,799,000.
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 that the
firms service. Administrative services fees paid by
the fund to KDI for the year ended September 30,
1999 are $1,629,000, of which $66,000 is unpaid.
Additionally, $1,000 was paid by KDI to affiliates.
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
$2,309,000, of which $305,000 is unpaid at
September 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended September 30,
1999, the Fund made no payments to its officers and
incurred trustees' fees of $36,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $803,662
Proceeds from sales 965,624
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 277,576 $ 1,639,199 150,146 $ 984,735
--------------------------------------------------------------------------------------
Class B 16,918 89,082 10,789 69,768
--------------------------------------------------------------------------------------
Class C 29,842 158,279 52,417 329,342
--------------------------------------------------------------------------------------
Class I 479 2,826 847 6,088
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 6,780 38,038 10,966 69,742
--------------------------------------------------------------------------------------
Class B 2,662 13,924 5,045 30,421
--------------------------------------------------------------------------------------
Class C 193 1,017 245 1,476
--------------------------------------------------------------------------------------
Class I 160 914 315 2,030
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (297,259) (1,711,845) (163,024) (1,077,863)
--------------------------------------------------------------------------------------
Class B (23,822) (173,959) (14,691) (95,212)
--------------------------------------------------------------------------------------
Class C (29,905) (159,943) (52,521) (331,527)
--------------------------------------------------------------------------------------
Class I (1,090) (6,444) (1,464) (10,226)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 8,561 48,577 3,201 21,822
--------------------------------------------------------------------------------------
Class B (9,160) (48,577) (3,390) (21,822)
--------------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE TRANSACTIONS
$ (108,912) $ (21,226)
--------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------
CLASS A
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of year
$ 5.30 7.98 7.01 7.14 5.81
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.04) (.03) (.01) (.02) (.01)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.27 (1.84) 1.55 .94 1.68
- --------------------------------------------------------------------------------------
Total from investment operations 1.23 (1.87) 1.54 .92 1.67
- --------------------------------------------------------------------------------------
Less distributions from net realized gain .41 .81 .57 1.05 .34
- --------------------------------------------------------------------------------------
Net asset value, end of year $ 6.12 5.30 7.98 7.01 7.14
- --------------------------------------------------------------------------------------
TOTAL RETURN 23.91% (25.13) 24.29 16.33 30.88
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------
Expenses 1.01% .90 .90 1.08 1.14
- --------------------------------------------------------------------------------------
Net investment income (loss) (.64)% (.38) (.20) (.26) (.18)
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
CLASS B
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------
Net asset value, beginning of year
$ 4.98 7.64 6.81 7.03 5.78
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.10) (.11) (.10) (.09) (.07)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.20 (1.74) 1.50 .92 1.66
- --------------------------------------------------------------------------------------
Total from investment operations 1.10 (1.85) 1.40 .83 1.59
- --------------------------------------------------------------------------------------
Less distributions from net realized gain .41 .81 .57 1.05 .34
- --------------------------------------------------------------------------------------
Net asset value, end of year $ 5.67 4.98 7.64 6.81 7.03
- --------------------------------------------------------------------------------------
TOTAL RETURN 22.78% (26.06) 22.83 15.13 29.59
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------
Expenses 2.28% 2.14 2.14 2.15 2.17
- --------------------------------------------------------------------------------------
Net investment income (loss) (1.91)% (1.62) (1.44) (1.33) (1.21)
- --------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------
CLASS C
--------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------
Net asset value, beginning of year $5.00 7.63 6.80 7.02 5.77
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.08) (.14) (.09) (.09) (.07)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.20 (1.68) 1.49 .92 1.66
- ---------------------------------------------------------------------------------
Total from investment operations 1.12 (1.82) 1.40 .83 1.59
- ---------------------------------------------------------------------------------
Less distributions from net realized gain .41 .81 .57 1.05 .34
- ---------------------------------------------------------------------------------
Net asset value, end of year $5.71 5.00 7.63 6.80 7.02
- ---------------------------------------------------------------------------------
TOTAL RETURN 23.10% (25.65) 22.87 15.16 29.65
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------
Expenses 1.93% 2.06 1.95 2.15 2.10
- ---------------------------------------------------------------------------------
Net investment income (loss) (1.56)% (1.54) (1.25) (1.33) (1.14)
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS I
--------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------ JULY 3
1999 1998 1997 1996 TO SEPT. 30, 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of year $5.39 8.07 7.05 7.15 6.27
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) -- .01 .01 --
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.30 (1.87) 1.58 .94 .88
- ---------------------------------------------------------------------------------------------
Total from investment operations 1.29 (1.87) 1.59 .95 .88
- ---------------------------------------------------------------------------------------------
Less distributions from net realized gain .41 .81 .57 1.05 --
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $6.27 5.39 8.07 7.05 7.15
- ---------------------------------------------------------------------------------------------
TOTAL RETURN 24.66% (24.82) 24.89 16.76 14.04
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .58% .48 .53 .66 .79
- ---------------------------------------------------------------------------------------------
Net investment income (loss) (.21)% .04 .17 .16 (.14)
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $721,926 718,349 1,095,478 934,075 839,905
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 86 102 85 102
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Total return does not reflect the effect of any sales charges. Per share
data for the years ended September 30, 1999, and September 30, 1996 were
determined based on average shares outstanding.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The fund paid distributions of $0.41 per share from net long-term capital gains
during the year ended September 30, 1999, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the fund designates
$33,500,000, as capital gain dividends for the year ended September 30, 1999, of
which 100% represents 20% rate gains.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
22
<PAGE> 23
REPORT OF Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER SMALL CAPITALIZATION EQUITY FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Small Capitalization Equity
Fund as of September 30, 1999, the related statements of operations for the year
then ended and changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the fiscal periods since
1995. These financial statements and financial highlights are the responsibility
of the fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Small Capitalization Equity Fund at September 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the fiscal periods since 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 15, 1999
23
<PAGE> 24
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY CAROLINE PEARSON
Trustee President Assistant Secretary
LEWIS A. BURNHAM PHILIP J. COLLORA BRENDA LYONS
Trustee Vice President and Secretary Assistant Treasurer
DONALD L. DUNAWAY JOHN R. HEBBLE
Trustee Treasurer
ROBERT B. HOFFMAN ANN M. MCCREARY
Trustee Vice President
DONALD R. JONES KATHRYN L. QUIRK
Trustee Vice President
THOMAS W. LITTAUER LINDA J. WONDRACK
Trustee and Vice President Vice President
SHIRLEY D. PETERSON MAUREEN E. KANE
Trustee Assistant Secretary
CORNELIA SMALL
Trustee and Vice President
WILLIAM P. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 219557
Kansas City, MO 64121
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Fund/Growth Style prospectus.
KSCF - 2 (11/23/99) 1094330
