<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 2000
[LOGO]
Seeking maximum
appreciation of
investors' capital
KEMPER SMALL CAPITALIZATION
EQUITY FUND
"... The combination of the fund's overweighting in technology stocks as
compared with the benchmark and the addition of biotechnology names put the fund
in the right place at the right time to capture strong gains in both sectors.
..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
INDUSTRY SECTORS
8
LARGEST HOLDINGS
9
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
16
FINANCIAL HIGHLIGHTS
18
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER SMALL CAPITALIZATION EQUITY FUND TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL KEMPER SMALL KEMPER SMALL
CAPITALIZATION EQUITY CAPITALIZATION EQUITY CAPITALIZATION EQUITY LIPPER SMALL CAP GROWTH
FUND CLASS A FUND CLASS B FUND CLASS C FUNDS CATEGORY AVERAGE*
--------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
60.05 58.97 59.26 65.37
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES; IF SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS
FAVORABLE.
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
3/31/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS A $9.34 $6.12
.........................................................
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS B $8.56 $5.67
.........................................................
KEMPER SMALL CAPITALIZATION
EQUITY FUND CLASS C $8.64 $5.71
.........................................................
</TABLE>
KEMPER SMALL CAPITALIZATION EQUITY
FUND LIPPER RANKINGS AS OF 3/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER SMALL COMPANY GROWTH FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
......................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #167 of 253 funds #176 of 253 funds #173 of 253 funds
......................................................................................
5-YEAR #55 of 80 funds #62 of 80 funds #59 of 80 funds
......................................................................................
10-YEAR #14 of 22 funds n/a n/a
......................................................................................
15-YEAR #5 of 9 funds n/a n/a
......................................................................................
20-YEAR #1 of 4 funds n/a n/a
......................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE SIX-MONTH PERIOD, KEMPER SMALL CAPITALIZATION EQUITY FUND PAID THE
FOLLOWING DIVIDENDS PER SHARE:
<TABLE>
<CAPTION>
LONG-TERM
CAPITAL GAIN
................................................................
<S> <C> <C> <C>
KEMPER SMALL CAPITALIZATION EQUITY
FUND CLASS A $0.36
................................................................
KEMPER SMALL CAPITALIZATION EQUITY
FUND CLASS B $0.36
................................................................
KEMPER SMALL CAPITALIZATION EQUITY
FUND CLASS C $0.36
................................................................
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL. (312) 696-6000.
BOX] The Equity Style Box placement is based on two
variables: a fund's market capitalization relative to
the movements of the market, and a fund's valuation,
which is calculated by comparing the stocks in the
fund's portfolio with the most recent of the three
market-cap groups.
THE STYLE BOX REPRESENTS A SNAPSHOT OF THE FUND'S
PORTFOLIO ON A SINGLE DAY. PLEASE NOTE THAT STYLE BOXES
DO NOT REPRESENT AN 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.
</TABLE>
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 Equity Fund's benchmark is the Russell 2000 Growth index, a
pool of small-cap growth stocks.
CAPITALIZATION/MARKET CAPITALIZATION A measure of the size of a company that
offers publicly traded stock, as determined by multiplying the current share
price by the number of shares outstanding.
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.
<PAGE> 3
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
As spring moves along towards summer, there isn't much to complain about. For
all the yammering about the "new" economy, the old economy is doing pretty well.
Consumers may hanker for a new GPS handset or a Palm Pilot, but they lust after
a suburban mansion with a garage big enough to hold their luxury car and SUV --
and state and local governments are laying old-fashioned asphalt almost as fast
as businesses are building the information superhighway. Satisfying both old and
new desires got the economy off to a fast start in the new century -- GDP growth
rose at an annual rate of more than 5 percent in the first quarter. Even with a
modest slowdown possible in the second half, growth for the year 2000 is likely
to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show no signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats.
Why are consumers still buying despite Greenspan's attempts to slow their
splurging? There are three answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment.
And just like consumers, businesses are borrowing to buy. You may think that
with booming sales, entrepreneurs are cash-rich. But while 1999 saw economy-wide
earnings jump 10 percent and profits of Standard and Poor's (S&P) 500 companies
leap nearly 14 percent, internal cash covered less than 84 percent of capital
spending. With the exception of 1998, that's the lowest on record. Last year
alone, corporate debt shot up by more than 11 percent to $560 billion. New
economy companies are no exception; they have more debt than most people
realize, issuing more than half of all convertible bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Private
financial obligations must be paid with personal income and corporate profits.
When the economy slows, personal income stagnates and corporate profits often
fall -- which makes it harder to pay off those debts. Consumers and businesses
may have to sell their assets to pay off the debt, and they may risk going into
default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (3/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 6.10 5.20 5.60
Prime rate (2) 9.00 8.25 7.75 8.50
Inflation rate (3)* 3.70 2.60 1.80 1.40
The U.S. dollar (4) 1.10 -0.90 -0.50 4.10
Capital goods orders (5)* 10.10 4.70 5.50 11.50
Industrial production (5)* 5.10 3.50 3.10 5.30
Employment growth (6) 2.30 2.20 2.30 2.60
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 2/29/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some indicators suggest that monetary policy has
actually been lax. Broad money and credit creation have vastly exceeded economic
activity since 1995, and no central bank can allow that to continue indefinitely
without creating inflation. If we begin to see higher core inflation, the Fed
will have to deal with all that money it's created in a less gradualist
manner -- and that could get tricky. Financial turmoil accompanied each of the
Fed's last two efforts to slow the economy down. In 1994, there was a bond
market meltdown that resulted in a Mexican debt crisis. After a more timid Fed
tightening in 1997, crises in Asia were followed by problems with Russian debt,
Brazilian debt and a large American hedge fund. We don't think this is a
coincidence: The global debt market is so vast and interconnected that it's
highly vulnerable to a rise in the cost of its basic raw material -- short-term
funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF MAY 8, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[CABRERA PHOTO]
LEAD PORTFOLIO MANAGER JESUS CABRERA HAS 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 PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
DURING THE SEMIANNUAL PERIOD, KEMPER SMALL CAPITALIZATION EQUITY FUND POSTED
STRONG RETURNS. BELOW, LEAD PORTFOLIO MANAGER JESUS CABRERA, WHO GUIDED THE FUND
THROUGH A CHALLENGING MARKET ENVIRONMENT, DISCUSSES HOW HE POSITIONED THE FUND
AND HIS INVESTMENT STRATEGY.
Q HOW DID KEMPER SMALL CAPITALIZATION EQUITY FUND PERFORM DURING THE
SEMIANNUAL PERIOD?
A Despite sustained stock market volatility, fund performance was extremely
strong. The fund gained 60.05 percent (Class A shares, unadjusted for any sales
charges) for the six months ended March 31, 2000. It soundly beat its benchmark,
the Russell 2000 Growth index, which rose 45.77 percent for the period, and was
closely in line with its peer-group average.
The combination of the fund's overweighting in technology stocks as compared
with the benchmark and the addition of biotechnology names put the fund in the
right place at the right time to capture strong gains in both sectors. Going
forward, the fund's tech bias has the potential to buoy returns, as earnings
expectations for the sector remain strong. However tech stocks are also expected
to remain volatile, which in turn could cause the fund to fluctuate more
significantly as well.
Q COULD YOU PROVIDE AN OVERVIEW OF THE MARKET CLIMATE, HIGHLIGHTING ANY
ADDITIONAL CHALLENGES THAT SMALL-CAP STOCKS FACED?
A Throughout the six-month period, we continued to see dramatic, even
historic levels of market volatility. Despite the fluctuations, most market
indices, along with small cap stocks, ultimately climbed to new highs.
The period began in October with weak small-cap performance. Led by
high-flying technology stocks, the sector rebounded decisively in November and
December. After profit taking in January, the market surged ahead once again,
and performance continued apace through most of the first quarter. Historically
wide valuations between so-called old-economy and new-economy stocks and fears
of a continued rising-interest-rate environment caused a sharp decline in much
of the small-cap universe to end the period.
We can see the discrepancy between small- and large-cap stock performance by
comparing the returns of two market indices. The Russell 2000 index, a benchmark
for small-cap stocks, returned 26.83 percent for the period, while the Russell
1000 index, a benchmark for large-cap stocks, returned just 21.13 percent.
Q HOW HAVE YOU REPOSITIONED THE FUND'S PORTFOLIO SINCE BECOMING LEAD
PORTFOLIO MANAGER IN MID-OCTOBER?
A Consistent with the fund's objective, we've added some companies that we
believe have strong prospects for sustainable, above-average revenue and
earnings growth. We tend to favor niche players, companies that are leaders in
their industries or innovators on the cutting edge of emerging technologies.
We've found some attractive opportunities in software, wireless
telecommunications and Internet infrastructure, notably Applied Micro Circuits,
BEA Systems and Watchguard.
5
<PAGE> 6
PERFORMANCE UPDATE
The increased exposure to technology stocks benefited the fund significantly.
More aggressive growers, such as Business Objects and Alpha Industries, drove
fund performance throughout the period.
In addition, we've shifted the fund's health care emphasis toward the faster
growing pharmaceuticals and biotech firms. We've sold off some service-oriented
names that we believe could be adversely affected by policy changes under
consideration in Congress. Some of the strongest performers were Biovail Inc.
and Gene Logic Inc.
Finally, we added to positions in energy stocks, including Western Gas
Resources and Tallisman Energy. Demand is strong, production is limited and we
expect prices to hold fairly firm over the short term.
Q CAN YOU PROVIDE AN EXAMPLE OF AN ACQUISITION THAT WORKED ESPECIALLY WELL
FOR THE FUND?
A Applied Micro Circuits was the biggest single contributor to the fund's
overall performance. The company manufactures specialized semiconductors
designed for wireless telecommunications. Companies such as Nortel and Lucent
Technologies look to Applied Micro Circuits for fiber-optic solutions to help
them increase speed and bandwidth. The company is a niche player. Its products
meet needs that microprocessors can't. Sales are robust, and because companies
are always seeking better and faster ways to transmit data, demand is expected
to surge. And the management team is highly respected.
Q WHAT DID NOT PERFORM AS YOU EXPECTED?
A We were disappointed by one of the fund's longtime holdings, Cinar, a
company that develops, produces and distributes family entertainment. As
recently as November, the outlook for the company remained strong. It continued
to produce popular children's programs, including Arthur and others, for PBS and
Nickelodeon. It had global distribution rights within markets with strong
demographic trends.
In December, news surfaced that fiscal moves by top management had been called
into question. We sold off some of the stock immediately. Trading since has been
halted. While there are no formal charges of impropriety pending, we look to
management to show credibility, capability and leadership. We believe that
without confidence in upper management, there is no reason to hold a stock -- no
matter how strong its fundamentals.
Q CAN YOU SUMMARIZE WHAT YOU LOOK FOR IN STOCKS?
A We look for superior companies first and foremost. To meet our strict
criteria, a company must have sustainable and consistent earnings-growth
potential for a two-to three-year horizon. As I mentioned earlier, we favor
firms with dominant or increasing market positions, niche players and those with
innovative products, services or distribution strategies.
Our investment approach is research intensive. It incorporates qualitative and
quantitative measures. We scrutinize company fundamentals, including product
positioning, business models, management capability and competitive positioning.
Further, we analyze and project revenue and earnings growth along with the
company's cash flow requirements. Above all, a stock has got to trade at the
right price relative to its rate of earnings growth.
Q GIVEN THE FUND'S STRONG PERFORMANCE, HOW ARE YOU BALANCING LIQUIDITY
CONCERNS?
A We are of course concerned with the lack of liquidity in today's market,
and as a result, we have made some adjustments to the portfolio. We buy smaller
positions of companies that we believe are less liquid. In essence, we try to
buy a position size that would not require a long time to either acquire or
sell.
Q WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
A It's important to remember that no one can predict with certainty how the
markets or any sector will perform. However, we believe that slower economic
growth is likely and that investors will have to pay a premium for companies
with rapidly growing revenues. We believe technology and telecommunications
stocks have the best prospects for growth and will continue to look for
opportunities in these sectors. Companies that do not improve on their losses
will be left behind.
We expect volatility in the market to continue. However, the fund currently
has little sensitivity to interest rates. Consumer cyclicals and financials
account for only a small portion of the portfolio. Should it look as if rates
are beginning to come down, we will seek to increase exposure to these sectors.
Despite the market's recent challenges, we remain committed to small-cap
growth stock investing. Our investment strategy leverages the vast capabilities
of our large staff of portfolio managers, analysts and investment specialists.
We are dedicated to using these resources to help the fund's shareholders pursue
their long-term investment goals.
6
<PAGE> 7
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
REPRESENTED ON MARCH 31, 2000, AND ON SEPTEMBER 30, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAPITALIZATION KEMPER SMALL CAPITALIZATION
EQUITY FUND ON 3/31/00 EQUITY FUND ON 9/30/99
--------------------------- ---------------------------
<S> <C> <C>
TECHNOLOGY 56.1 21.3
COMMUNICATION SERVICES 11.3 7.7
CONSUMER NON-DURABLES 10 36.2
HEALTHCARE 8.8 11.8
CAPITAL GOODS 7.2 9.3
ENERGY 4.5 3.3
FINANCE 2.1 5.7
BASIC INDUSTRIES 0 2
TRANSPORTATION 0 2.7
</TABLE>
A COMPARISON WITH THE RUSSELL 2000 GROWTH INDEX*
DATA SHOWS THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR
OF THE KEMPER SMALL CAPITALIZATION EQUITY FUND REPRESENTED ON MARCH 31, 2000,
COMPARED WITH THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE
RUSSELL 2000 GROWTH INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER SMALL CAPITALIZATION
EQUITY FUND ON 3/31/00 RUSSELL 2000 GROWTH INDEX
--------------------------- -------------------------
<S> <C> <C>
TECHNOLOGY 56.1 46
COMMUNICATION SERVICES 11.3 4
CONSUMER NON-DURABLES 10 17.2
HEALTHCARE 8.8 12.7
CAPITAL GOODS 7.2 8.6
ENERGY 4.5 1.7
FINANCE 2.1 6
BASIC INDUSTRIES 0 2.2
TRANSPORTATION 0 1.4
UTILITIES 0 0.2
</TABLE>
* The Russell 2000 Growth index is an unmanaged capitalization-weighted index
comprising 2,000 of the smallest growth stocks (on the basis of
capitalization) in the Russell 3000 index.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST HOLDINGS
Representing 23.0 percent of the fund's total investment portfolio on March 31,
2000.
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
1. APPLIED MICRO CIRCUITS Manufactures high-performance, 3.2%
high-bandwidth integrated
circuits used to control the
high-speed flow of transmissions
through fiber-optic telephone
networks.
-------------------------------------------------------------------------------------
2. BUSINESS OBJECTS Creates software tools to help 2.9%
access and analyze information
stored in companies' databases.
-------------------------------------------------------------------------------------
3. WATCHGUARD TECHNOLOGIES Creates products and services 2.5%
that protect computer networks
from intruders.
-------------------------------------------------------------------------------------
4. MERCURY INTERACTIVE Makes testing software for 2.3%
enterprise resource planning
applications, client/server
software and e-business
applications.
-------------------------------------------------------------------------------------
5. BEA SYSTEMS Creates a variety of corporate 2.3%
software solutions.
-------------------------------------------------------------------------------------
6. COMVERSE TECHNOLOGIES A leader in multimedia 2.2%
telecommunications applications.
-------------------------------------------------------------------------------------
7. INTRANET SOLUTIONS Makes Web-based document 2.0%
management products for corporate
intranets.
-------------------------------------------------------------------------------------
8. NETEGRITY Creates products and services to 2.0%
protect companies with heavy
volumes of e-commerce
transactions.
-------------------------------------------------------------------------------------
9. ENTRUST TECHNOLOGIES Creates security software 1.8%
products for businesses.
-------------------------------------------------------------------------------------
10. BIOVAIL Manufactures timed-release 1.8%
drug-delivery systems for
existing drugs that treat
hypertension, obesity and
arthritis.
-------------------------------------------------------------------------------------
</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, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
CONVERTIBLE BOND--.7% AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
HEALTH
PHARMACEUTICALS
Biovail Corp., 6.75%, 3/31/2025 160,000 $ 7,360,000
----------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost $8,000,000) 7,360,000
----------------------------------------------------------------------------
<CAPTION>
CONVERTIBLE PREFERRED STOCK--.0% SHARES
<S> <C> <C> <C> <C> <C>
TECHNOLOGY
OFFICE/PLANT AUTOMATION
Cimlinc, Inc., "D" 75,431 282,866
----------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost $660,021) 282,866
----------------------------------------------------------------------------
COMMON STOCKS--99.3%
CONSUMER DISCRETIONARY--3.3%
APPAREL & SHOES--.5%
Abercrombie & Fitch Co. "A"* 309,500 4,952,000
----------------------------------------------------------------------------
4,952,000
HOME FURNISHINGS--1.1%
Linen 'n Things, Inc.* 359,900 12,326,575
----------------------------------------------------------------------------
12,326,575
RECREATIONAL PRODUCTS--.4%
The 3DO Company* 481,100 4,660,656
----------------------------------------------------------------------------
4,660,656
RESTAURANTS--.6%
CEC Entertainment, Inc.* 252,400 6,846,350
----------------------------------------------------------------------------
6,846,350
SPECIALTY RETAIL--.7%
Cinar Corp.* 252,300 1,766,100
Cost Plus, Inc.* 163,900 5,541,869
----------------------------------------------------------------------------
7,307,969
----------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.4%
CONSUMER SPECIALITIES
Valence Technology, Inc.* 204,200 4,811,463
----------------------------------------------------------------------------
4,811,463
----------------------------------------------------------------------------------------------------------------------------
HEALTH--8.2%
BIOTECHNOLOGY--3.2%
Enzon, Inc.* 210,500 7,933,219
Gene Logic, Inc.* 237,200 9,977,225
Genome Therapeutics Corp.* 118,100 2,782,731
Genset SA* 148,000 4,807,688
IDEC Pharmaceuticals Corp.* 45,000 4,421,250
Isis Pharmaceuticals, Inc.* 331,000 4,654,688
----------------------------------------------------------------------------
34,576,801
MEDICAL SUPPLY &
SPECIALTY--.3%
Aclara Biosciences, Inc.* 77,000 3,036,688
----------------------------------------------------------------------------
3,036,688
PHARMACEUTICALS--4.7%
Allos Therapeutics, Inc.* 154,200 2,206,988
Alpharma, Inc.* 160,800 5,909,400
Biovail Corp.* 438,400 19,426,600
COR Therapeutics, Inc.* 130,400 8,596,213
Intermune Pharmaceuticals, Inc.* 232,500 4,635,469
Maxim Pharmaceuticals, Inc.* 151,000 7,087,563
Oxford GlycoSciences, PLC 118,189 3,201,683
----------------------------------------------------------------------------
51,063,916
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--7.5%
CELLULAR TELEPHONE--1.6%
Research in Motion, Ltd. 163,500 $ 17,147,588
----------------------------------------------------------------------------
17,147,588
TELEPHONE/
COMMUNICATIONS--5.9%
Adelphia Business Solutions, Inc.* 149,600 9,219,100
Carrier 1 International SA* 208,200 4,033,875
Crown Castle International Corp.* 204,500 7,779,525
Cypress Communications, Inc.* 182,400 4,468,800
Digital Microwave Corp.* 322,067 10,910,020
Efficient Networks, Inc.* 64,200 9,999,150
Pinnacle Holdings, Inc.* 116,300 6,425,575
Time Warner Telecom, Inc. "A"* 144,000 11,448,000
----------------------------------------------------------------------------
64,284,045
----------------------------------------------------------------------------------------------------------------------------
FINANCIAL--2.1%
BANKS--1.3%
Bank United Corp. 143,500 4,529,219
People Heritage Financial Group, Inc. 366,700 5,500,500
Texas Regional Bancshares, Inc. 165,150 4,201,003
----------------------------------------------------------------------------
14,230,722
BUSINESS FINANCE--.6%
Heller Financial, Inc. 270,100 6,246,063
----------------------------------------------------------------------------
6,246,063
OTHER FINANCIAL
COMPANIES--.2%
Bay View Capital Corp. 316,900 2,376,750
----------------------------------------------------------------------------
2,376,750
----------------------------------------------------------------------------------------------------------------------------
MEDIA--3.8%
ADVERTISING--.7%
Interep National Radio Sales, Inc.* 295,300 1,974,819
Ticketmaster Online-City Search, Inc.* 218,500 5,476,156
----------------------------------------------------------------------------
7,450,975
BROADCASTING &
ENTERTAINMENT--1.7%
Acme Communications, Inc.* 27,400 626,775
Regent Communications, Inc.* 804,900 9,960,638
StarMedia Network, Inc.* 284,900 8,564,806
----------------------------------------------------------------------------
19,152,219
MISCELLANEOUS--1.4%
About. com, Inc.* 124,900 11,006,801
WorldGate Communications, Inc.* 161,500 4,855,094
----------------------------------------------------------------------------
15,861,895
----------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--6.4%
EDP SERVICES--2.9%
ChoicePoint, Inc.* 132,000 4,933,500
Micromuse, Inc.* 122,800 17,046,175
Verio, Inc.* 215,800 9,724,488
----------------------------------------------------------------------------
31,704,163
MISCELLANEOUS
COMMERCIAL SVCS.--2.5%
AnswerThink Consulting Group, Inc.* 334,800 8,181,675
Concord EFS, Inc.* 433,400 9,941,113
FreeMarkets, Inc.* 12,600 1,524,600
Plexus Corp.* 114,000 7,595,250
----------------------------------------------------------------------------
27,242,638
MISCELLANEOUS CONSUMER
SERVICES--.1%
GetThere.com, Inc.* 43,600 670,350
----------------------------------------------------------------------------
670,350
MISCELLANEOUS--.9%
Metris Companies, Inc. 255,800 9,944,225
----------------------------------------------------------------------------
9,944,225
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
DURABLES--2.1%
TELECOMMUNICATIONS
EQUIPMENT
CELERITEK, INC.* 152,300 $ 7,735,475
COM21, INC.* 267,600 12,577,200
SPECTRIAN CORP.* 142,800 3,213,000
----------------------------------------------------------------------------
23,525,675
----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.0%
ELECTRICAL PRODUCTS--2.6%
ATMI, Inc.* 205,100 9,793,525
Anadigics, Inc.* 291,000 19,206,000
----------------------------------------------------------------------------
28,999,525
INDUSTRIAL SPECIALTY--1.6%
E-Tek Dynamics, Inc.* 77,300 18,184,825
----------------------------------------------------------------------------
18,184,825
MISCELLANEOUS--.8%
Dril-Quip, Inc.* 195,600 9,217,650
----------------------------------------------------------------------------
9,217,650
----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--55.9%
COMPUTER SOFTWARE--32.3%
Allaire Corp.* 196,600 14,867,875
Arrowpoint Communications* 15,100 1,789,350
BEA Systems, Inc.* 339,200 24,888,800
Business Objects, S.A.* 315,100 31,352,450
Clarent Corp.* 42,400 3,823,950
Comverse Technologies, Inc.* 127,850 24,163,650
Cybergold, Inc.* 441,300 4,743,975
Entrust Technologies, Inc.* 229,600 19,533,938
FirstWorld Communications, Inc. "B"* 107,900 2,198,463
Globix Corp.* 384,100 14,643,813
HNC Software, Inc.* 111,500 8,034,969
IONA Technologies PLC (ADR)* 117,800 8,717,200
InterWorld Corp.* 122,500 6,921,250
Intertrust Technologies Corp.* 133,700 5,682,250
Intranet Solutions, Inc.* 483,700 22,250,200
Keynote Systems, Inc.* 32,400 3,312,900
Marimba, Inc.* 187,100 8,255,788
MatrixOne, Inc.* 77,100 3,079,181
Mediaplex, Inc.* 60,600 3,151,200
Net Perceptions, Inc.* 324,300 11,978,831
Netcentives, Inc.* 13,200 396,000
Netegrity, Inc.* 321,700 22,036,450
Packeteer, Inc.* 282,129 9,874,515
Preview Systems, Inc.* 337,500 15,967,969
Quintus Corp.* 211,200 6,270,000
Sanchez Computer Associates, Inc.* 279,400 9,813,925
SilverStream Software, Inc.* 62,700 4,631,963
Usinternetworking, Inc.* 406,650 15,757,688
Verity, Inc.* 474,000 19,315,500
Watchguard Technologies, Inc.* 298,900 26,901,000
----------------------------------------------------------------------------
354,355,043
DIVERSE ELECTRONIC
PRODUCTS--2.3%
Aether Systems, Inc.* 30,000 5,445,000
Hearme, Inc.* 321,500 8,117,875
Natural Microsystems Corp.* 139,100 11,927,825
----------------------------------------------------------------------------
25,490,700
EDP PERIPHERALS--3.3%
Mercury Interactive Corp.* 322,900 25,589,825
Symbol Technologies, Inc.* 122,400 10,075,050
----------------------------------------------------------------------------
35,664,875
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C> <C> <C> <C>
ELECTRONIC COMPONENTS/
DISTRIBUTORS--5.3%
Applied Micro Circuits Corp.* 235,900 $ 35,399,744
Jabil Circuit* 308,200 13,329,650
Photronics, Inc.* 118,900 4,198,656
Powerwave Technologies, Inc.* 43,100 5,387,500
----------------------------------------------------------------------------
58,315,550
ELECTRONIC DATA
PROCESSING--2.0%
Computer Network Technology Corp.* 473,500 8,286,250
Webtrends Corp.* 183,500 13,212,000
----------------------------------------------------------------------------
21,498,250
PRECISION INSTRUMENTS--2.0%
Coherent, Inc.* 293,700 15,272,400
Harmonic, Inc.* 84,000 6,993,000
----------------------------------------------------------------------------
22,265,400
SEMICONDUCTORS--7.0%
Alpha Industries, Inc.* 192,950 18,330,250
Cree Research, Inc.* 120,000 13,545,000
Emcore Corp.* 31,000 3,566,938
Fairchild Semiconductor Corp.* 237,500 8,668,750
Pericom Semiconductor Corp.* 207,000 7,387,313
Qlogic Corp.* 105,700 14,322,350
Transwitch Corp.* 81,875 7,870,234
Xicor, Inc.* 245,300 3,464,863
----------------------------------------------------------------------------
77,155,698
MISCELLANEOUS--1.7%
Gadzoox Networks, Inc.* 390,000 18,695,625
Onvia. Com 4,900 103,514
----------------------------------------------------------------------------
18,799,139
----------------------------------------------------------------------------------------------------------------------------
ENERGY--4.6%
OIL & GAS PRODUCTION--1.3%
Devon Energy Corp.* 106,300 5,162,194
Plains Resources, Inc.* 345,600 4,320,000
Talisman Energy, Inc.* 155,400 4,433,720
----------------------------------------------------------------------------
13,915,914
OIL COMPANIES--.7%
Louis Dreyfus Natural Gas* 225,100 7,653,400
----------------------------------------------------------------------------
7,653,400
OIL/GAS TRANSMISSION--.6%
Western Gas Resources, Inc.* 385,000 6,111,875
----------------------------------------------------------------------------
6,111,875
OILFIELD SERVICES/
EQUIPMENT--1.1%
Cal Dive International, Inc.* 144,100 7,313,075
Newpark Resources, Inc.* 613,200 4,905,600
----------------------------------------------------------------------------
12,218,675
MISCELLANEOUS--.9%
Dynegy, Inc.* 155,400 9,751,350
----------------------------------------------------------------------------
9,751,350
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--99.3%
(Cost $759,386,744) 1,089,017,595
----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $768,046,765) $1,096,660,461
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing securities
(a) The cost for federal income tax purposes was $768,046,765. At March 31,
2000, the net unrealized appreciation for all securities based on tax cost
was $328,613,696. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess market value over tax cost
of $403,379,841 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$74,766,146.
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
As of March 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value, (cost $768,046,765) $1,096,660,461
----------------------------------------------------------------------------
Cash 135,300
----------------------------------------------------------------------------
Receivable for investments sold 69,274,055
----------------------------------------------------------------------------
Dividends receivable 71,671
----------------------------------------------------------------------------
Receivable for Fund shares sold 61,028,093
----------------------------------------------------------------------------
Other assets 156,611
----------------------------------------------------------------------------
TOTAL ASSETS 1,227,326,191
----------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 3,999,956
----------------------------------------------------------------------------
Notes payable 51,000,000
----------------------------------------------------------------------------
Interest payable 11,305
----------------------------------------------------------------------------
Dividends payable 7,814,639
----------------------------------------------------------------------------
Payable for Fund shares redeemed 365,638
----------------------------------------------------------------------------
Accrued management fee 619,800
----------------------------------------------------------------------------
Other accrued expenses 1,781,557
----------------------------------------------------------------------------
Total liabilities 65,592,895
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $1,161,733,296
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ (5,529,030)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
securities 328,613,696
----------------------------------------------------------------------------
Accumulated net realized gain (loss) 267,753,631
----------------------------------------------------------------------------
Paid-in capital 570,894,999
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $1,161,733,296
----------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($917,828,554 / 98,285,216 Shares outstanding of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $9.34
----------------------------------------------------------------------------
Maximum offering price per share:
(100/94.25 of $9.34) $9.91
----------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($204,044,327
/ 23,846,196 Shares outstanding of beneficial interest,
$.01 par value, unlimited number of shares authorized) $8.56
----------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($19,403,224 /
2,246,083 Shares outstanding of beneficial interest, $.01
par value, unlimited number of shares authorized) $8.64
----------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price
($20,457,191 / 2,128,558 Shares outstanding of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $9.61
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 505,785
----------------------------------------------------------------------------
Interest 1,045,850
----------------------------------------------------------------------------
Total Income 1,551,635
----------------------------------------------------------------------------
Expenses:
Management fee 3,345,717
----------------------------------------------------------------------------
Services to shareholders 1,610,562
----------------------------------------------------------------------------
Custodian fees 21,012
----------------------------------------------------------------------------
Distribution services fees 699,655
----------------------------------------------------------------------------
Administrative service fees 1,045,871
----------------------------------------------------------------------------
Auditing 33,067
----------------------------------------------------------------------------
Legal 4,941
----------------------------------------------------------------------------
Trustees' fees and expenses 15,921
----------------------------------------------------------------------------
Reports to shareholders 230,998
----------------------------------------------------------------------------
Registration fees 24,177
----------------------------------------------------------------------------
Interest expense 42,445
----------------------------------------------------------------------------
Other 15,758
----------------------------------------------------------------------------
Total expenses, before expense reductions 7,090,124
----------------------------------------------------------------------------
Expense reductions (9,459)
----------------------------------------------------------------------------
Total expenses, after expense reductions 7,080,665
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (5,529,030)
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 279,470,530
----------------------------------------------------------------------------
Foreign currency related transactions (320)
----------------------------------------------------------------------------
279,470,210
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 143,572,223
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 423,042,433
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $417,513,403
----------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
2000 SEPTEMBER 30,
(UNAUDITED) 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
----------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (5,529,030) $ (6,926,237)
----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 279,470,210 30,251,323
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transaction 143,572,223 146,803,473
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 417,513,403 170,128,559
----------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net realized gains
Class A (31,467,541) (41,243,057)
----------------------------------------------------------------------------------------------------------
Class B (8,027,760) (14,397,816)
----------------------------------------------------------------------------------------------------------
Class C (663,405) (1,081,302)
----------------------------------------------------------------------------------------------------------
Class I (612,508) (916,990)
----------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 1,347,545,341 1,889,386,324
----------------------------------------------------------------------------------------------------------
Reinvestment of distributions 38,360,514 53,893,196
----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,322,840,446) (2,052,192,470)
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 63,065,409 (108,912,950)
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 439,807,598 3,576,434
----------------------------------------------------------------------------------------------------------
Net assets at beginning of period 721,925,698 718,349,264
----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income (loss) of ($5,929,030) and $0,
respectively) $ 1,161,733,296 $ 721,925,698
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 --------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $6.12 5.30 7.98 7.01 7.14 5.81
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.04)(a) (.04)(a) (.03) (.01) (.02)(a) (.01)
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.62 1.27 (1.84) 1.55 .94 1.68
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.58 1.23 (1.87) 1.54 .92 1.67
-------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.34 6.12 5.30 7.98 7.01 7.14
---------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 60.05**(C) 23.91 (25.13) 24.29 16.33 30.88
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 918 565 512 760 680 589
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.30* 1.01 .90 .90 1.08 1.14
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.29* 1.01 .90 .90 1.08 1.14
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.96)* (.64) (.38) (.20) (.26) (.18)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 184* 133 86 102 85 102
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 --------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $5.67 4.98 7.64 6.81 7.03 5.78
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (.10)(a) (.11) (.10) (.09)(a) (.07)
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.33 1.20 (1.74) 1.50 .92 1.66
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.25 1.10 (1.85) 1.40 .83 1.59
-------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.56 5.67 4.98 7.64 6.81 7.03
-------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 58.97**(C) 22.78 (26.06) 22.83 15.13 29.59
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 204 136 186 302 258 227
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.44* 2.28 2.14 2.14 2.15 2.17
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.44* 2.28 2.14 2.14 2.15 2.17
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (2.11)* (1.91) (1.62) (1.44) (1.33) (1.21)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 184* 133 86 102 85 102
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 --------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $5.71 5.00 7.63 6.80 7.02 5.77
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.06)(a) (.08)(a) (.14) (.09) (.09)(a) (.07)
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.35 1.20 (1.68) 1.49 .92 1.66
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.29 1.12 (1.82) 1.40 .83 1.59
-------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.41) (.81) (.57) (1.05) (.34)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.64 5.71 5.00 7.63 6.80 7.02
-------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 59.26**(C) 23.10 (25.65) 22.87 15.16 29.65
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 19 10 8 11 6 3
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.02* 1.93 2.06 1.95 2.15 2.10
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.02* 1.93 2.06 1.95 2.15 2.10
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (1.69)* (1.56) (1.54) (1.25) (1.33) (1.14)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 184* 133 86 102 85 102
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 --------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $6.27 5.39 8.07 7.05 7.15 6.27
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.02)(a) (.01)(a) -- .01 .01(a) --
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 3.72 1.30 (1.87) 1.58 .94 .88
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.70 1.29 (1.87) 1.59 .95 .88
-------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains on investment transactions (.36) (.41) (.81) (.57) (1.05) --
-------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.41) (.81) (.57) (1.05) --
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.61 6.27 5.39 8.07 7.05 7.15
-------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (B) 60.55**(C) 24.66 (24.82) 24.89 16.76 14.04
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 20 12 12 21 20 21
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .88* .58 .48 .53 .66 .79
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .88* .58 .48 .53 .66 .79
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) (.55)* (.21) .04 .17 .16 (.14)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 184* 133 86 102 85 102
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of any sales charges.
(c) Total return would have been lower had certain expenses not been reduced.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES 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.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
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.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts and premiums
are amortized for both tax and financial reporting
purposes.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES For the six months ended March 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $816,373,790
Proceeds from sales 811,735,361
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .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, 2000, the
Fund incurred management fees as follows:
Base Fee $2,811,285
Performance adjustment 534,432
----------
Total fees $3,345,717
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended March
31, 2000 are $54,687.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the six months ended March 31, 2000 are
$976,480, of which $276,625 is unpaid as of March
31, 2000.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets. KDI in turn has
various agreements with financial services firms
that provided these services and pays these firms
based on assets of fund accounts the firms service.
Administrative services fees paid by the Fund to
KDI for the six months ended March 31, 2000 are
$1,045,871, of which $106,564 is unpaid.
Additionally, $895 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
$983,500, of which $163,917 is unpaid as of March
31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended March 31,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $15,921 to independent
trustees.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 144,277,168 $ 1,200,351,493 277,575,668 $ 1,639,199,124
-------------------------------------------------------------------------------------------
Class B 11,802,617 92,303,823 16,918,037 89,082,010
-------------------------------------------------------------------------------------------
Class C 3,934,056 28,281,427 29,841,652 158,279,084
-------------------------------------------------------------------------------------------
Class I 871,385 8,477,927 479,380 2,826,106
-------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 4,066,486 29,359,961 6,780,470 38,038,448
-------------------------------------------------------------------------------------------
Class B 1,168,474 7,758,884 2,662,259 13,924,092
-------------------------------------------------------------------------------------------
Class C 93,905 629,163 193,290 1,016,706
-------------------------------------------------------------------------------------------
Class I 82,659 612,506 159,781 913,950
-------------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (144,415,602) (1,193,837,448) (297,259,222) (1,711,845,183)
-------------------------------------------------------------------------------------------
Class B (10,734,710) (79,577,480) (23,821,773) (173,960,754)
-------------------------------------------------------------------------------------------
Class C (3,539,858) (25,125,573) (29,904,772) (159,942,510)
-------------------------------------------------------------------------------------------
Class I (664,398) (6,169,274) (1,089,997) (6,444,023)
-------------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 2,150,623 18,130,671 8,560,944 48,577,418
-------------------------------------------------------------------------------------------
Class B (2,338,989) (18,130,671) (9,160,719) (48,577,418)
-------------------------------------------------------------------------------------------
NET INCREASE FROM CAPITAL SHARE
TRANSACTIONS $ 63,065,409 $ (108,912,950)
-------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5 LINE OF CREDIT The Fund and several Kemper Funds (the
"Participants") share in a $1 billion revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata amount each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
--------------------------------------------------------------------------------
6 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees and transfer agent fees
were reduced by $2,105 and $7,354, respectively,
under these arrangements.
--------------------------------------------------------------------------------
7 BORROWINGS The weighted average outstanding daily balance of
all loans (based on the number of days the loans
were outstanding) was approximately $47,238,359,
with an average interest rate of 6.40%. Interest
for the six months ended March 31, 2000 is $42,445.
The maximum borrowings outstanding during the six
months ended March 31, 2000 is $57,000,000.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
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
LINDA C. COUGHLIN JOHN R. HEBBLE
Trustee Treasurer
DONALD L. DUNAWAY ANN M. MCCREARY
Trustee Vice President
ROBERT B. HOFFMAN KATHRYN L. QUIRK
Trustee Vice President
DONALD R. JONES LINDA J. WONDRACK
Trustee Vice President
THOMAS W. LITTAUER MAUREEN E. KANE
Trustee and Vice President Assistant Secretary
SHIRLEY D. PETERSON
Trustee
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 - 3 (5/25/00) 1111780
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
