<PAGE> 1
KEMPER BLUE CHIP FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED APRIL 30, 1996
SEEKING GROWTH OF CAPITAL AND OF INCOME
"...We had disagreed with the people who believed that rising
interest rates would send the economy into a recession..."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
General Economic Overview
5
Performance Update
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
14
Financial Statements
17
Notes to
Financial Statements
21
Financial Highlights
At A Glance
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
CLASS A 14.54%
CLASS B 14.18%
CLASS C 14.08%
LIPPER GROWTH & INCOME FUNDS CATEGORY AVERAGE* 13.74%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future results. Returns
and net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
*Lipper Analytical Services, Inc. returns and rankings are based upon changes in
net asset value with all dividends reinvested and do not include the effect of
sales charges and, if they had, results may have been less favorable.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
4/30/96 10/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER BLUE CHIP FUND
CLASS A $15.56 $14.87
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
CLASS B $15.52 $14.82
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
CLASS C $15.57 $14.88
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
LIPPER RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH & INCOME FUNDS CATEGORY
1-YEAR 5-YEAR
- --------------------------------------------------------------------------------
<S> <C> <C>
CLASS A #104 OF 479 FUNDS #167 OF 198 FUNDS
- --------------------------------------------------------------------------------
CLASS B #145 OF 479 FUNDS N/A
- --------------------------------------------------------------------------------
CLASS C #152 OF 479 FUNDS N/A
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE PERIOD, KEMPER BLUE CHIP FUND PAID THE FOLLOWING DIVIDENDS:
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.125 $0.0649 $0.0691
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL
GAIN $0.68 $0.68 $0.68
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL
GAIN $0.52 $0.52 $0.52
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
BLUE CHIP COMPANIES Blue chip companies are generally identified by their
substantial capitalization, established history of earnings and dividends, easy
access to credit, good industry position and superior management structure. They
are believed to generally exhibit less investment risk and less price volatility
than companies lacking these high quality characteristics, such as smaller, less
seasoned companies.
CORRECTION A reverse movement, usually downward, in the price of a group of
stocks or the overall market. Corrections are to be expected over a long term.
INDEX An unmanaged group of stocks that is considered representative of
the stock or bond markets. An index does not take into account any fees or
expenses related to the individual securities that it tracks. However, for
performance comparisons, the index is adjusted to reflect reinvestment of
dividends of the securities in the index.
TOTAL RETURN A fund's total return measures both the net investment
income generated by, and the effect of, any realized and unrealized
appreciation or depreciation of the underlying investments in its portfolio for
the period. Total return assumes the reinvestment of all dividends and it
represents the aggregate percentage or dollar value change over the period.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER
OF ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first five months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In June, the U.S. economy entered its 63rd month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
- ----------------------------------------------------------------------------
CONSUMERS AND JOB SECURITY
- ----------------------------------------------------------------------------
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds of
the new jobs created in the United States in 1994 and 1995 paid better than the
average job. The report found that the rate at which jobs were eliminated has
risen slightly despite strong economic growth of recent years - however, it
reported that the length of time most workers spend unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the recent
relationship between number of jobs created versus the number of jobs lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now
(4/30/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.51 5.93 6.63 7.18
Prime rate(2) 8.25 8.75 9.00 6.99
Inflation rate(3) 2.90 2.60 3.12 2.29
The U.S. dollar(4) 8.94 -1.57 -10.02 2.34
Capital goods orders(5) 7.94 10.38 17.84 19.99
Industrial production(6) 2.56 1.71 3.31 6.22
Employment growth(7) 1.47 1.55 2.30 2.93
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
Such ebb and flow is to be expected in investing, especially at this point
in the cycle. Attempting to "prepare" for a correction is futile, we
believe. Those whose caution caused them to excuse themselves from the market
early this year, for example, would have forgone its significant gain year to
date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
June 5, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[CHESTER PHOTO]
TRACY MCCORMICK CHESTER JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1994 AND
IS NOW A FIRST VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND THE PORTFOLIO
MANAGER OF KEMPER BLUE CHIP FUND. CHESTER RECEIVED BOTH HER B.A. AND M.B.A.
DEGREES FROM MICHIGAN STATE UNIVERSITY.
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.
KEMPER BLUE CHIP FUND'S PERFORMANCE IN THE LAST SIX MONTHS IS DUE TO
ITS SUCCESS IN ANTICIPATING CHANGE -- AND POSITIONING THE PORTFOLIO
APPROPRIATELY.
Q. TRACY, KEMPER BLUE CHIP FUND'S MOMENTUM HAS CONTINUED. IN THE
LAST SIX MONTHS, THE FUND MOVED INTO THE FIRST QUARTILE OF THE LIPPER GROWTH
AND INCOME CATEGORY. CLASS A SHARES RANKED #104 OF 479 FUNDS FOR THE ONE-YEAR
PERIOD AND #167 OF 198 FUNDS FOR THE FIVE-YEAR PERIOD ENDED APRIL 30, 1996.*
WHAT'S BEEN DRIVING THIS IMPROVEMENT?
A. We can talk about the general economic climate and company
specifics later, but the most significant difference in the way I've been
managing the fund** is in my desire to recognize change early. Remember that
investors react to a company's prospects. If we can succeed in recognizing a
change in those prospects before the overall market does, we stand to benefit.
The fund's performance in the last six months is the result of our identifying
and acquiring stocks that enjoyed a significant runup in price, in part because
of a broader market recognition after we owned the stock.
*SEE "AT A GLANCE" ON PAGE 2 FOR MORE INFORMATION.
**CHESTER BECAME PORTFOLIO MANAGER IN SEPTEMBER 1994.
Q. WHAT TYPE OF CHANGE DO YOU LOOK FOR?
A. All kinds of changes can influence a company's prospects. A turn
in the economic cycle can have an effect on an economically-dependent company.
A trend toward consolidation in a given industry can strengthen some companies
while weakening others. And then there are company-specific changes: new
management, a maturing of the product cycle, a redirection of the corporate
philosophy. All of these can have an effect on a company's profitability and,
in the kinds of blue chip companies that we invest in, most will eventually
attract the attention of investors. Our objective is to spot these changes
early.
Q. WHAT'S AN EXAMPLE OF HOW THIS STRATEGY RECENTLY WORKED FOR THE
FUND?
A. I'll give you two. The first is Betz Laboratories, which is a $1
billion company in the water treatment business. We bought our first shares at
$43.80 in March because we liked the company's position in its industry. The
industry is consolidating, which should improve pricing and that should in turn
help revenues and earnings. In addition, the stock offered a 3.5% yield, which
supports our dividend-paying objectives. Betz' recent acquisition of Dearborn
initially hurt its stock price. But
5
<PAGE> 6
PERFORMANCE UPDATE
people don't understand that the acquisition provides Betz with an international
presence that could take them 10 years to develop on their own. Since we've
owned it, Betz has advanced to almost $45 share.
Cincinnati Bell is another example of a company that most people
overlooked. The regional carrier business is considered boring and
predictable. But the regional carrier operation is just one-third of Cincinnati
Bell's business. It's also in the fast growing businesses of direct marketing
and cellular billing. We saw this stock make a huge move to $49.25 per share on
April 30, 1996, from $27, the price of the first shares we bought in October
1995.
Q. SO, THE CHANGES THAT YOU LOOK FOR ARE POSITIVE CHANGES THAT HAVE THE
POTENTIAL TO BOOST A STOCK'S PERFORMANCE?
A. Well, it's true that we want to be holding stocks that improve but it's
also important to recognize a negative turn as early as possible. As
I've said before, avoiding potholes can help performance, too.
Q. THE STOCK MARKET HAS BEEN SO ROBUST -- HAVE THERE BEEN MANY
POTHOLES TO AVOID?
A. Absolutely. The market has rotated from sector to sector and, during these
rotations, it has been important to be exposed to the right sectors with minimal
exposure to the wrong sectors. On page 8 of this report, we provide a look at
the sector breakdown of the fund, compared to its sector breakdown
one year ago and compared to its benchmark, the Russell 1000 Growth Index*. But,
these comparisons don't represent our sector shifts at various points during the
year.
*THE RUSSELL 1000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF COMMON STOCKS
OF LARGER U.S. COMPANIES WITH GREATER THAN AVERAGE GROWTH ORIENTATION. IT
REPRESENTS THE UNIVERSE OF STOCKS FROM WHICH "EARNINGS/GROWTH" MONEY MANAGERS
TYPICALLY SELECT.
Q. WOULD YOU ELABORATE ON A FEW OF THOSE SHIFTS?
A. In the last report to shareholders (reporting on the fiscal year
ended October 31, 1995), we explained that the portfolio was positioned for a
slight economic rebound. We had disagreed with the people who believed that
rising interest rates would send the economy into a recession. To the contrary,
we heightened our investment in several attractively priced stocks that stood
to benefit from an improving economy. Monsanto Co. and GM Hughes Electronics
Corp. were a few stocks with whom this strategy worked. As growth became more
evident, our retail (May Department Stores, Federated Department Stores, Pep
Boys - Manny Moe & Jack) and gaming (Circus Circus Enterprises) stocks began to
contribute. Having said that, however, we have since cut back our
economically-sensitive holdings.
Our minimal exposure to the technology and financial sectors for most of
the period is an example of how we have managed to avoid potholes. The
absence of these stocks helped quite a bit as technology suffered in late 1995
and financials struggled in early 1996.
During such periods of weakness, we try to be opportunistic by
accumulating depressed shares of high-quality stocks that we expect to
improve. We had increased our position in both sectors by the end of April. Our
exposure to technology, a sector I continue to be somewhat leery of, is
concentrated in the software and servicing businesses (Computer Sciences
Corporation and GM - Electronic Data Systems), which offer some consistency.
But our more dramatic change was in our exposure to financial holdings, which
we more than doubled in less than one month. Immediately after the close of the
first quarter, we began to buy financial stocks whose prices were depressed.
Q. BUT WHAT HAD CHANGED YOUR MIND?
A. We had watched the financial stocks suffer in early 1996 from
worries that inflation was heating up and that consumer credit problems were on
the horizon. But neither of these concerns materialized. Group corrections tar
and feather everyone -- even companies whose individual circumstances seem
capable of overcoming a sectorwide concern. That's when we have been able to
recognize opportunities and establish positions in companies that appear to
have promise. ITT Hartford Group and Allstate Corp. are two stocks we bought
then.
Our move into financial stocks following a period of rising interest rates
might seem as if we
6
<PAGE> 7
were anticipating a drop in interest rates but we weren't making an interest
rate forecast. No one -- including us -- knew if interest rates were going to
continue to rise. But what we did know was that these companies showed promise
and could do well when rates bottomed out, which they would eventually.
Q. AND HOW HAVE THE STOCKS PERFORMED IN THE SHORT TIME YOU'VE OWNED THEM?
A. Well, that's the thing about a rotational market. When a group
gets undervalued, money quickly flows in. By the end of April, many financial
stocks were up 10 to 15 percent from their lows.
Q. WERE THERE ANY DISAPPOINTMENTS OR MISCALCULATIONS IN THE LAST SIX
MONTHS?
A. Of course there were. Our work in the health care sector serves
as a reminder of how it is possible to overwork a sector. As we recognized that
many of our favorite high-quality names (Eli Lilly & Co., Pfizer Inc.) were
becoming fully valued, perhaps we should have just lightened up on the group
for a while rather than traded down to laggards that appeared to be less
expensive.
Q. WHAT KIND OF A BURDEN DOES IT IMPOSE ON YOU AND YOUR STAFF TO
ATTEMPT TO BE AHEAD OF WHAT'S GENERALLY RECOGNIZED BY THE MARKET?
A. Our strategy has a few implications. One is that we could be too
early and that the investment is deadweight while you're waiting for it to
perform as expected. When that happens, obviously, you want to re-examine why
you liked the stock and the likelihood of its ability to contribute. On the
whole, I don't mind being too early. I prefer it to being too late and chasing
stocks.
A second implication is the need to be alert after the stock performs.
Some stocks have gained dramatically in just a short time. When that
happens, it may be time to cut back because the price went so far so fast. The
burden here is that you can't get too committed to a stock -- and that you
always need to be cultivating fresh ideas.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS, IN TERMS OF YOUR
ABILITY TO CONTINUE TO FIND PROMISING STOCKS AND IN TERMS OF THE ECONOMY AS A
WHOLE?
A. We may be in a lull right now but I think the general attitude of
the market is positive. Interest rates may be stabilizing, and economic growth
is neither taking off nor screeching to a halt. It's an environment where hard
work and careful stock selection should be capable of producing good results.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT
EACH SECTOR REPRESENTED ON APRIL 30, 1996, AND ON OCTOBER 31, 1995.
[YEAR TO YEAR BAR GRAPH]
<TABLE>
<CAPTION>
Kemper Blue Chip Fund Kemper Blue Chip Fund
on 4/30/96 on 10/31/95
<S> <C> <C>
Consumer non-durables 19.1% 19.0%
Helth care 14.9% 16.0%
Technology 12.8% 16.7%
Finance 12.5% 9.0%
Capital goods 10.8% 17.6%
Basic Industries 10.2% 5.6%
Utilities 8.2% 7.2%
Energy 6.6% 4.7%
Consumer durables 3.7% 2.6%
Transportation 1.2% 1.6%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX*
DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT
EACH SECTOR OF KEMPER BLUE CHIP FUND REPRESENTED ON APRIL 30, 1996, COMPARED TO
THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 1000 GROWTH
INDEX.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
Kemper Blue Chip Fund Russell 1000 Growth Index
on 4/30/96 on 4/30/96
<S> <C> <C>
Consumer non-durables 19.1% 33.4%
Health care 14.9% 16.7%
Technology 12.8% 19.9%
Finance 12.5% 6.1%
Capital goods 10.8% 10.5%
Basic industries 10.2% 4.6%
Utilities 8.2% 5.0%
Energy 6.6% 2.3%
Consumer durables 3.7% 0.9%
Transportation 1.2% 0.6%
</TABLE>
* The Russell 1000 Growth Index is an unmanaged index comprised of common stocks
of larger U.S. companies with greater than average growth orientation and
represents the universe of stocks from which "earnings/growth" money managers
typically select.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S 20 LARGEST HOLDINGS
REPRESENTING 34.8% OF THE FUND'S TOTAL NET ASSETS ON APRIL 30, 1996
<TABLE>
<CAPTION>
HOLDINGS PERCENT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. PHILIP MORRIS Cigarettes, food products, brewing 2.5%
COMPANIES
- ---------------------------------------------------------------------------------------
2. CINCINNATI Regional telephone, cellular billing services, 2.3%
BELL direct marketing services
- ---------------------------------------------------------------------------------------
3. AT&T Telecommunications equipment and long-distance 2.1%
service provider
- ---------------------------------------------------------------------------------------
4. AMERICAN HOME Drugs, food, packaged medicine 2.0%
PRODUCTS
- ---------------------------------------------------------------------------------------
5. BAXTER Hospital supply and medical technology 1.9%
INTERNATIONAL
- ---------------------------------------------------------------------------------------
6. MOBIL CORP. International oil/gas exploration, development 1.9%
- ---------------------------------------------------------------------------------------
7. XEROX Document and image processing 1.9%
CORPORATION
- ---------------------------------------------------------------------------------------
8. DURACELL Manufactures alkaline batteries 1.9%
INTERNATIONAL
INC.
- ---------------------------------------------------------------------------------------
9. HARRIS CORP. Government systems/communications 1.8%
- ---------------------------------------------------------------------------------------
10. BETZ Water treatment chemicals 1.7%
LABORATORIES
- ---------------------------------------------------------------------------------------
11. PERKIN-ELMER Analytical instruments, optics, life sciences 1.6%
CORP.
- ---------------------------------------------------------------------------------------
12. GM ELECTRONIC Computer service, major outsourcing contractor 1.6%
DATA SYSTEMS
- ---------------------------------------------------------------------------------------
13. KEYCORP Commercial banking in several states 1.5%
- ---------------------------------------------------------------------------------------
14. ALCO STANDARD Distributes paper and office equipment 1.5%
CORPORATION
- ---------------------------------------------------------------------------------------
15. MONSANTO CO. Agricultural chemicals, food additives, Searle 1.5%
Pharmaceuticals
- ---------------------------------------------------------------------------------------
16. ENRON CORP. Gathers, transports and markets natural gas 1.5%
- ---------------------------------------------------------------------------------------
17. SBC COMMUNICATIONS, International telecommunications 1.4%
INC.
- ---------------------------------------------------------------------------------------
18. HARCOURT Retail stores, publishing, theaters, insurance 1.4%
GENERAL
- ---------------------------------------------------------------------------------------
19. BOEING CO. Manufactures airplanes and missiles 1.4%
- ---------------------------------------------------------------------------------------
20. MARSH & MCCLENNAN Insurance brokerage 1.4%
COMPANIES, INC.
- ---------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER BLUE CHIP FUND
Portfolio of Investments at April 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--8.9%
<S> <C> <C> <C>
Air Products & Chemicals 33,600 $ 1,919
Alco Standard Corporation, convertible preferred 31,000 3,069
Betz Laboratories 78,700 3,512
Consolidated Papers 30,000 1,642
Crown Cork & Seal Co., convertible preferred 55,000 2,516
(a)FMC Corp. 10,000 694
Georgia-Pacific Corp. 20,000 1,555
Mitsubishi Heavy Industries 9,000 80
Monsanto Co. 20,200 3,060
Sumitomo Metal Industries 23,000 74
Technip S.A. 352 32
Toray Industries 11,000 75
-------------------------------------------------------------------------------
18,228
- ----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.4%
Boeing Co. 35,000 2,874
Emerson Electric Co. 33,000 2,760
Fluor Corp. 31,000 2,050
General Electric Co. 22,000 1,705
GM Hughes Electronics Corp. 45,000 2,751
B.F. Goodrich Co. 58,300 2,317
Matsushita Electric Industrial Co., Ltd. 4,500 79
Murata Manufacturing 2,200 85
Xerox Corporation 26,500 3,882
York International Corp. 17,900 859
-------------------------------------------------------------------------------
19,362
- ----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--8.9%
(a)AutoZone, Inc. 25,000 912
Burton Group PLC 37,784 89
(a)Circus Circus Enterprises 30,000 1,102
Walt Disney Company 39,000 2,418
Harcourt General 67,000 2,948
Hilton Hotels 20,000 2,110
(a)Liberty Media Group, "A" 65,000 1,779
Lowes Companies 20,000 647
Marriott International 50,000 2,438
May Department Stores Co. 51,000 2,601
Moet Hennessey Louis Vuitton 351 90
Pep Boys - Manny Moe & Jack 35,000 1,168
Reed International PLC 4,719 81
VNU BV 1,931 32
-------------------------------------------------------------------------------
18,415
- ----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--3.2%
Armstrong World Industries 28,000 1,596
Avon Products 25,000 2,222
Leggett & Platt Incorporated 70,000 1,802
Shaw Industries 75,000 928
-------------------------------------------------------------------------------
6,548
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--7.7%
Duracell International Inc. 85,000 $ 3,846
Heineken N.V. 405 85
PepsiCo 28,000 1,778
Philip Morris Companies 57,000 5,137
Procter & Gamble Co. 13,000 1,099
Sara Lee Corp. 64,000 1,984
Warnaco Group 70,000 1,838
---------------------------------------------------------------------------
15,767
- ------------------------------------------------------------------------------------------------------------
ENERGY--5.7%
Enron Corp. 75,000 3,019
Enron Oil & Gas Co. 80,000 2,050
Mobil Corp. 34,000 3,910
Schlumberger Ltd. 32,300 2,850
---------------------------------------------------------------------------
11,829
- ------------------------------------------------------------------------------------------------------------
FINANCE--10.9%
Allstate Corp. 40,000 1,555
Bank of Ireland 10,920 78
Boatmen's Bancshares 50,000 1,937
CITIC Pacific Ltd. 14,000 55
Cheung Kong (Holdings) Limited 7,000 50
Development Bank of Singapore 3,000 38
Federal National Mortgage Association 60,000 1,837
(a)Internationale Nederlanden Groep 1,136 88
ITT Hartford Group 48,000 2,346
Jefferson-Pilot Corp., convertible preferred 25,000 2,025
KeyCorp 80,000 3,090
Krung Thai Bank Public Co. Ltd. 14,400 71
MBIA Inc. 27,000 1,927
Marsh & McLennan Companies, Inc. 30,400 2,858
Merrill Lynch & Co., convertible preferred 45,000 2,346
Nomura Securities Co. Ltd. 3,850 84
Northern Trust Co. 35,000 1,969
---------------------------------------------------------------------------
22,354
- ------------------------------------------------------------------------------------------------------------
HEALTH CARE--12.9%
American Home Products 40,000 4,220
Astra AB 1,780 79
C.R. Bard 30,000 1,095
Baxter International 90,000 3,982
(a)Forest Laboratories 20,000 922
Glaxo Wellcome
common stock 5,256 64
ADR 110,000 2,654
Eli Lilly & Co. 40,000 2,360
Medtronic, Inc. 18,000 956
Perkin-Elmer Corp. 60,000 3,293
Pfizer Inc. 25,000 1,722
Roche Holding AG 9 71
Sandoz, Ltd. 35,000 1,908
SmithKline Beecham PLC 40,000 2,160
U.S. Healthcare 20,000 1,043
---------------------------------------------------------------------------
26,529
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--11.1%
AMP, Inc. 50,100 $ 2,242
(a)Compaq Computer Corp. 25,000 1,166
(a)Computer Sciences Corp. 35,000 2,590
LM Ericsson Telephone Co., "B" 2,459 50
General Motors-Electronic Data Systems 57,234 3,227
Harris Corp. 60,000 3,705
Hewlett-Packard, Co. 20,000 2,117
Intel Corp. 9,800 664
(a)Microsoft Corp. 18,000 2,041
NEC Corporation 4,000 51
Reynolds & Reynolds Co. 40,000 1,850
(a)Sun Microsystems 22,000 1,194
Texas Instruments 35,000 1,978
---------------------------------------------------------------------------
22,875
- ------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.0%
Canadian National Railway Company 4,276 81
Nippon Express 7,400 77
Swire Pacific Ltd. 6,500 55
Union Pacific Corp. 28,000 1,908
---------------------------------------------------------------------------
2,121
- ------------------------------------------------------------------------------------------------------------
UTILITIES--7.1%
AT&T 69,000 4,226
(a)AirTouch Communications 90,000 2,812
Cincinnati Bell 95,600 4,708
SBC Communications Inc. 59,600 2,980
---------------------------------------------------------------------------
14,726
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--86.8%
(Cost: $157,649) 178,754
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--3.2%
Carnival Corp., 4.50%, 1997 $ 1,000 1,676
Federated Department Stores, 5.00%, 2003 1,800 2,025
Interpublic Group of Companies, 3.75%, 2002 400 415
Lowes Companies, 3.00%, 2003 1,400 1,740
Pep Boys - Manny Moe & Jack, 4.00%, 1999 800 824
---------------------------------------------------------------------------
6,680
- ------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.0%
Magna International Inc., 5.00%, 2002 2,000 2,060
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.4%
ALZA Corp., 5.00%, 2006 2,000 2,003
Sandoz Capital BVI, 2.00%, 2002 800 864
---------------------------------------------------------------------------
2,867
- ------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.3%
First Financial Management Corporation, 5.00%,
1999 1,000 1,811
LSI Logic Corp., 5.50%, 2001 550 1,638
3Com Corporation, 10.25%, 2001 800 1,232
---------------------------------------------------------------------------
4,681
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--.3%
LDDS Metromedia Communications, 5.00%, 2003 $ 500 631
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE
OBLIGATIONS--8.2%
(Cost: $15,695) 16,919
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--5.6%
Yield-5.50%
Due-May 1996
Baxter International 1,100 1,097
ConAgra, Inc. 6,000 5,999
Mid-Atlantic Fuel Company 4,500 4,491
-------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--5.6%
(Cost: $11,587) 11,587
-------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.6%
(Cost: $184,931) 207,260
-------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(.6)% (1,293)
-------------------------------------------------------------------------------
NET ASSETS--100% $205,967
-------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
Based on the cost of investments of $184,931,000 for federal income tax purposes
at April 30, 1996, the gross unrealized appreciation was $24,037,000, the gross
unrealized depreciation was $1,708,000 and the net unrealized appreciation on
investments was $22,329,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $184,931) $207,260
- -------------------------------------------------------------------------------------------------------
Cash 1,879
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 114
- -------------------------------------------------------------------------------------------------------
Investments sold 3,124
- -------------------------------------------------------------------------------------------------------
Dividends and interest 401
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 212,778
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 68
- -------------------------------------------------------------------------------------------------------
Investments purchased 6,484
- -------------------------------------------------------------------------------------------------------
Management fee 98
- -------------------------------------------------------------------------------------------------------
Distribution services fee 19
- -------------------------------------------------------------------------------------------------------
Administrative services fee 43
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 75
- -------------------------------------------------------------------------------------------------------
Other 24
- -------------------------------------------------------------------------------------------------------
Total liabilities 6,811
- -------------------------------------------------------------------------------------------------------
NET ASSETS $205,967
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $158,854
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 24,445
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 22,337
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 331
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $205,967
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($174,282,900 / 11,201,400 shares outstanding) $15.56
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $16.51
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($30,239,600 / 1,948,500 shares outstanding) $15.52
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,440,600 / 92,500 shares outstanding) $15.57
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($3,500 / 200 shares outstanding) $15.61
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
STATEMENT OF OPERATIONS
Six months ended April 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Dividends $ 1,611
- -------------------------------------------------------------------------------------------------------
Interest 893
- -------------------------------------------------------------------------------------------------------
Total investment income 2,504
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 550
- -------------------------------------------------------------------------------------------------------
Distribution services fee 93
- -------------------------------------------------------------------------------------------------------
Administrative services fee 228
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 346
- -------------------------------------------------------------------------------------------------------
Professional fees 19
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 23
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 10
- -------------------------------------------------------------------------------------------------------
Total expenses 1,269
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,235
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 24,593
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (474)
- -------------------------------------------------------------------------------------------------------
Net gain on investments 24,119
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,354
- -------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 1,235 2,226
- ---------------------------------------------------------------------------------------------------------
Net realized gain 24,593 13,899
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (474) 15,753
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 25,354 31,878
- ---------------------------------------------------------------------------------------------------------
Net equalization charges (707) (252)
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (1,459) (2,340)
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain (13,966) (244)
- ---------------------------------------------------------------------------------------------------------
Total dividends to shareholders (15,425) (2,584)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 28,479 (13,948)
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 37,701 15,094
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 168,266 153,172
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$331 and $1,262, respectively) $205,967 168,266
- ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Blue Chip Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund currently
offers four classes of shares. Class A shares are
sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and, for shares sold on or after April 1,
1996, a contingent deferred sales charge payable on
certain redemptions within one year of purchase.
Class C shares do not convert into another class.
Class I shares, which are sold to a limited group
of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. Each
share represents an identical interest in the
investments of the Fund and has the same rights.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gain and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open for
trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended April 30, 1996.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income
semi-annually and net realized capital gains
annually, which are recorded on the ex-dividend
date. Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or
redemptions of shares.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $550,000 for the six
months ended April 30, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $34,000 195,000 6,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
Class C shares, and the CDSC received in connection
with the redemption of such shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC ----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
------------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $ 105,000 199,000 2,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY THE ----------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $ 228,000 233,000 10,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $303,000
for the six months ended April 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended April 30, 1996, the
Fund made no payments to its officers and incurred
trustees' fees of $9,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended April 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $153,305
Proceeds from sales 140,404
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>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
----------------------------------------------------------------------------
Class A 1,437 $ 22,646 1,743 $ 23,136
------------------------------------------------------------------------------
Class B 1,332 20,087 1,447 19,285
------------------------------------------------------------------------------
Class C 60 889 102 1,283
------------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
Class A 928 12,994 198 2,454
------------------------------------------------------------------------------
Class B 109 1,517 4 46
------------------------------------------------------------------------------
Class C 6 78 -- --
------------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------
Class A (1,517) (22,713) (3,870) (50,273)
------------------------------------------------------------------------------
Class B (404) (6,555) (672) (9,197)
------------------------------------------------------------------------------
Class C (31) (464) (53) (682)
------------------------------------------------------------------------------
----------------------------------------------------------------------------
CONVERSION OF SHARES
----------------------------------------------------------------------------
Class A 33 468 16 212
------------------------------------------------------------------------------
Class B (33) (468) (16) (212)
------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ 28,479 $(13,948)
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect itself against a decline in the
value of particular foreign currencies against the
U.S. Dollar, the Fund has entered into forward
contracts to deliver foreign currency in exchange
for U.S. Dollars as described below. The Fund bears
the market risk that arises from changes in foreign
exchange rates, and accordingly, the net unrealized
gain on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At April 30, 1996, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in May,
1996:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN GAIN
TO BE DELIVERED U.S. DOLLARS AT 4/30/96
---------------------------------------------------------------
<C> <S> <C> <C>
32,000 British Pounds $ 50,000 $2,000
---------------------------------------------------------------
51,000 Dutch Guilders 31,000 1,000
---------------------------------------------------------------
175,000 French Francs 35,000 1,000
---------------------------------------------------------------
20,913,000 Japanese Yen 202,000 2,000
---------------------------------------------------------------
42,000 Swiss Francs 35,000 2,000
---------------------------------------------------------------
NET UNREALIZED GAIN $8,000
---------------------------------------------------------------
</TABLE>
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------
CLASS A
---------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.87 12.33 13.88 12.72 13.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .19 .19 .18 .18
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.97 2.57 (.71) 1.13 .41
- -------------------------------------------------------------------------------------------------
Total from investment operations 2.02 2.76 (.52) 1.31 .59
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .13 .20 .19 .15 .14
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20 .02 .84 -- .97
- -------------------------------------------------------------------------------------------------
Total dividends 1.33 .22 1.03 .15 1.11
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.56 14.87 12.33 13.88 12.72
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.54% 22.74 (3.82) 10.35 4.76
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 1.23% 1.30 1.48 1.25 1.46
- -------------------------------------------------------------------------------------------------
Net investment income 1.40% 1.47 1.50 1.28 1.63
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS B
------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED MAY 31, 1994
APRIL 30, OCTOBER 31, TO OCTOBER 31,
1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.82 12.29 12.30
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) .09 .06
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.97 2.56 (.01)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.96 2.65 .05
- ----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .06 .10 .06
- ----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20 .02 --
- ----------------------------------------------------------------------------------------------------------------
Total dividends 1.26 .12 .06
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.52 14.82 12.29
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.18% 21.76 .42
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------
Expenses 2.01% 2.06 2.43
- ----------------------------------------------------------------------------------------------------------------
Net investment income .62% .71 .33
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------ --------------------
CLASS C CLASS I
------------------------------------------ --------------------
SIX MONTHS MAY 31, NOVEMBER 22,
ENDED YEAR ENDED 1994 TO 1995 TO
APRIL 30, OCTOBER 31, OCTOBER 31, APRIL 30,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.88 12.32 12.30 15.30
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.01) .07 .09 .13
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.97 2.62 (.01) 1.51
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 1.96 2.69 .08 1.64
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .07 .11 .06 .13
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.20 .02 -- 1.20
- ----------------------------------------------------------------------------------------------------------
Total dividends 1.27 .13 .06 1.33
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.57 14.88 12.32 15.61
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.08% 22.04 .67 9.97
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses 1.96% 2.01 2.33 .73
- ----------------------------------------------------------------------------------------------------------
Net investment income .67% .76 .43 1.98
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $205,967 168,266 153,172 196,327 182,553
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 140% 117 131 222 178
- --------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the six months ended April 30, 1996 was $.0576.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS TRACY M. CHESTER
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM JOHN E. PETERS
Trustee Vice President
DONALD L. DUNAWAY STEVEN H. REYNOLDS
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President
and Secretary
DONALD R. JONES
Trustee JEROME L. DUFFY
Treasurer
DOMINIQUE P. MORAX
Trustee ELIZABETH C. WERTH
Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 S. LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds prospectus.
KBCF - 3 (6/96) KEMPER LOGO
1016910
Printed in the U.S.A.
