<PAGE> 1
KEMPER
BLUE CHIP FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 1997
Seeking growth of capital and of income
" . . . It's in volatile markets that
our scrupulous attention to price
targets can really add value . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Industry Sectors
8
Largest Holdings
9
Portfolio of Investments
12
Financial Statements
14
Notes to Financial Statements
18
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 10.99
CLASS B 10.43
CLASS C 10.55
LIPPER & INCOME 10.43
FUNDS
CATEGORY AVERAGE*
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less
favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/30/97 10/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER BLUE CHIP FUND CLASS A $15.55 $17.14
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KEMPER BLUE CHIP FUND CLASS B $15.49 $17.09
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND CLASS C $15.57 $17.15
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</TABLE>
- --------------------------------------------------------------------------------
KEMPER BLUE CHIP FUND LIPPER RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH AND INCOME FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #76 OF 546 FUNDS #118 OF 546 FUNDS #109 OF 546 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #173 OF 215 FUNDS N/A N/A
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</TABLE>
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DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE PERIOD, KEMPER BLUE CHIP FUND MADE THE FOLLOWING DISTRIBUTIONS PER
SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND: $0.125 $0.0518 $0.0546
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL
GAIN: $1.81 $1.81 $1.81
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL
GAIN: $1.32 $1.32 $1.32
- --------------------------------------------------------------------------------
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY FUNDS STYLE BOX
EQUITY STYLE BOX
Source: Morningstar, Inc., Chicago, IL (312)-696-6000. (Morningstar Style Box is
based on a portfolio date as of April 30, 1997). The Equity Style Box placement
is based on a fund's price-to-earnings and price-to-book ratio relative to the
S&P 500, as well as the size of the companies in which it invests, or median
market capitalization.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. Please consult the prospectus for a
description of investment policies.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 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 agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur. However, then we shall enjoy the long-term
positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. A slower economy would reduce the threat of inflation and reduce the need
for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to
be concerned about. As has been the pattern for more than five years, a few
strong quarters followed by a few weak quarters have produced an overall 2
percent to 3 percent rate of growth in gross domestic product (GDP). Job
creation and the unemployment rate are consistent with a moderately expanding
economy. Corporate profits continue to grow at an expected 4 to 5 percent rate
in 1997. The Consumer Price Index continues to track at a 2.5 percent to 3.0
percent rate.
Just as we see a limited downside to today's rising interest rate
environment, so is there a limited upside in the near future. The effect of
higher rates will have to work itself through the economy. Higher rates have
significant implications for corporate profitability, debt issuance, credit
extension and international trade. Post-correction cash flows into the financial
markets will be a subject of great scrutiny. One of the factors driving the
stock market to its recent all-time high was the unprecedented high level of
investment through mutual funds, 401(k)s and qualified contribution plans. It is
realistic to expect that, on the margin, some of that cash will find a home in
short-term, liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for
the past six months in large, multinational companies with familiar consumer
brand names. The recent rally after the announcement of a balanced budget
agreement suggests that valuations of smaller capitalization stocks are
compelling and the market is broadening.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with
long-term interest rates no lower than 6.50 percent
3
<PAGE> 4
ECONOMIC OVERVIEW
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ECONOMIC GUIDEPOSTS
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and no higher than 7.25 percent. One positive effect of the stock market
correction was the widening of spreads available on high yield bonds. As a
consequence, high yield bonds today are more reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested without help.
Financial assets react much quicker today to events. Volatility has returned to
the market and with it heightened uncertainty. Now is the time to rely on your
financial representative for the expertise and the long-term investing
discipline that he or she can provide.
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recessions 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 (5/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.71 6.3 6.91 6.17
PRIME RATE(2) 8.5 8.25 8.25 9
INFLATION RATE(3) 2.3 3.31 2.75 3.04
THE U.S. DOLLAR(4) 6.55 4.36 9.15 -9.31
CAPITAL GOODS ORDERS(5)* 8.28 2.42 3.93 17.47
INDUSTRIAL PRODUCTION(5)* 4.28 4.36 3.34 2.88
EMPLOYMENT GROWTH(6)* 2.13 2.15 2.09 2.7
</TABLE>
[1] Falling interest rates in recent years have been a big plus for financial
assets.
[2] The interest rate that commercial lenders charge their best borrowers.
[3] Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. 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 April 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
June 9, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[MCCORMICK 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 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.
DESPITE A VOLATILE MARKET THAT RALLIED OVERALL BUT EXPERIENCED PERIODIC SHARP
DECLINES, KEMPER BLUE CHIP FUND CONTINUED TO PERFORM WELL DUE TO A
PRICE-CONSCIOUS APPROACH TO GROWTH STOCKS.
Q TRACY, COULD YOU GIVE US A BRIEF RECAP OF THE FUND'S PERFORMANCE VERSUS THE
MARKET AND ITS PEERS FOR THE LAST SIX MONTHS?
A Certainly. For the six months ended April 30, 1997, the Fund's total return
was 10.99% for Class A shares unadjusted for sales charge. That was more than
the average return posted by the funds in Lipper's growth and income fund
category, which was 10.43%, but less than the 14.71% gain posted by the Standard
and Poor's 500 stock index. Our performance kept us well within the top 25% of
the Lipper growth and income funds category for the one-year period ended April
30, 1997 (see page 2 for complete ranking information).
Q HOW DID LARGE COMPANY STOCKS PERFORM DURING THE PERIOD?
A As reflected in the S&P 500's return, large capitalization stocks overall
performed fairly well. But that nice 14.71% return doesn't reflect the
underlying volatility in specific areas of the market - finance and technology
stocks in particular - which experienced sharp corrections. Because the market
has come a long way in the last two years, investors are wary of any earnings
shortfall that might signal that the rally is running out of steam. Often,
problems with individual stocks would tarnish a whole group, regardless of the
fundamentals. So even if your stock picking was good, you sometimes still got
caught in the crossfire.
Q HOW DID YOU RESPOND TO THESE CONDITIONS?
A There's not a lot you can do to counter a market that is rotating quickly -
that is, when sectors are being built up and then torn back down again in
succession. All you can do is try to use the rotations to pick up good quality
companies at low prices once they've come down. That's where our scrupulous
attention to price targets can really add value.
Our philosophy has always been "bottom up" stock selection. Rather than
focus on economic conditions or entire sectors, we tend to choose stocks based
on their individual merits, and seek those that offer above-average growth
prospects, but are selling at what we believe to be attractive prices. To do
that, we set upper and lower price targets on stocks. If a stock falls below a
certain price level, we buy. If it rallies above a certain price level, we sell.
In this way, we hope to benefit from most of the ride up, but avoid most of the
ride down.
Q CAN YOU GIVE US SOME EXAMPLES?
A The most vivid example from the last six months is probably our approach to
technology stocks. Technology is a "growth cyclical" industry, which simply
means that, while it's a long-term growth sector, that growth tends to happen in
spurts. In October, technology stocks only made up about 10 percent of the
portfolio - low by our usual standards. Our underweighting was primarily the
5
<PAGE> 6
PERFORMANCE UPDATE
result of two factors: a glut of semiconductor chips on the market, which kept
semiconductor stocks under pressure, and relatively high prices on networking
stocks. In March and April, earnings estimates on networking stocks started
coming in slightly under expectations. This had a devastating effect as momentum
investors, who were looking for the slightest weakness, headed for the exits. As
a result, technology stocks experienced a fairly broad and rapid sell-off.
However, although they were richly-priced earlier, a number of technology
companies boast growth rates in excess of 30% per year, far above that of the
market as a whole. In mid-April, price declines had made many fast growers
available at very attractive values, and as a result, we boosted our technology
weighting. Purchases were mainly in the semiconductor area, since their
inventory correction looks to be ending. We also bought Cisco Systems, the
largest supplier of routing equipment that directs the flow of data between
local area networks, and Ascend Communications, which specializes in high-speed
digital networking. Software is another area where we made some purchases.
Those were our major changes. In other areas, we reduced health care, which
had held up well during the first quarter turbulence. We sold Johnson & Johnson
and Merck and looked to reinvest in companies with more upside potential. Our
transportation weighting is down right now since we sold Ryder when it achieved
our price goal. Finally, we used sell-offs to upgrade the quality of the
portfolio. An example is Pfizer, which rarely declines to a level where it shows
upside in our valuation model. When it dipped below the mid-80s, we viewed that
as a buying opportunity.
Q WERE THERE ANY AREAS WHERE THE STRATEGY DIDN'T WORK?
A One area that we usually like to overweight is consumer non-durables - that
is, products that people use on a regular basis, such as soft drinks, soap, and
other household products. We usually try to have at least 20 percent of the
portfolio in such stocks, but we had lightened up on them for valuation reasons
- - they were just too expensive. Consumer non-durables are usually thought of as
defensive-type stocks, since demand for them tends to be fairly constant. The
market's uncertainty caused investors to favor these types of stocks and their
prices continued to climb. We participated in some of that increase, but not as
much as we normally would have.
Q HAS THE MODEST BUT STEADY RISE IN INTEREST RATES OVER THE PAST SIX MONTHS
INFLUENCED YOUR STOCK-PICKING?
A Only indirectly. In the first quarter, there was a lot of concern over the
impact of rising rates on financial stocks. We believe the sector remains
attractive due to industry consolidations, still-reasonable valuations overall,
and a lack of major loan problems. So when financial stocks sold off during a
brief period in the first quarter, that enabled us to buy solid companies at
relatively low cost. We purchased Bank of Boston, a very high quality name, and
broadened our financial stock exposure beyond banks and brokerages to include
more insurance companies. In particular, we bought American General and
increased our position in Jefferson Pilot, due to our belief that consolidation
within the life insurance industry will result in increased earning power for
the companies doing the consolidating.
Q CONVENTIONAL WISDOM SAYS THAT OPPORTUNITIES ARE MOST OFTEN OVERLOOKED WITH
SMALL COMPANY STOCKS BECAUSE THEY'RE LESS WIDELY FOLLOWED. DOES THAT MEAN
OPPORTUNITIES WITH LARGE COMPANY STOCKS ARE LESS COMMON?
A That hasn't been our experience. We've found that opportunities with big
companies can be just as overlooked. But to find those opportunities, you have
to do your homework. Our usual strategy is to look for catalysts like new
management, consolidation, or new product cycles. That has enabled us to find
good values in large company stocks like R.R. Donnelly and Stanley Works, which
stand to benefit from the fresh vision of their new managements.
Q AS YOU MENTIONED, LARGE COMPANY STOCKS HAVE ENJOYED A FAIRLY PROLONGED
RALLY OVER THE LAST COUPLE OF YEARS. ARE YOU CONSIDERING ANY MID-CAP PURCHASES
TO ENHANCE THE FUND'S RETURN POTENTIAL?
A Right now, we're looking at a few companies in the upper mid-cap area of
the market, but we're doing so selectively. We're not about to become a mid-cap
fund ... whenever we buy relatively smaller companies, we take smaller positions
so we can quickly reduce our exposure if needed. Regardless of the size of the
company we're researching, our price-conscious approach will remain in place.
Making sure we're getting a solid company at a good price is the most important
consideration for us.
6
<PAGE> 7
INDUSTRY SECTORS
A SIX-MONTH COMPARISON
Data show the percentage of the common stocks in the portfolio that each sector
represented on April 30, 1997, and on October 31, 1996.
[YEAR-TO-YEAR COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER BLUE CHIP FUND KEMPER BLUE CHIP FUND
ON 4/30/97 ON 10/31/96
<S> <C> <C>
FINANCE 20.5% 16.2%
CONSUMER NONDURABLES 18.9% 18.3%
TECHNOLOGY 13.8% 10.1%
HEALTH CARE 12.7% 14.4%
CAPITAL GOODS 9.2% 11.9%
ENERGY 8.1% 9.1%
BASIC INDUSTRIES 6.6% 7.8%
UTILITIES 4.7% 6.3%
TRANSPORTATION 3.8% 5.9%
CONSUMER DURABLES 1.7% 0.0%
</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, 1997, 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 RUSSEL 1000 GROWTH INDEX
ON 4/30/97 ON 4/30/97
<S> <C> <C>
FINANCE 20.5% 5.0%
CONSUMER NONDURABLES 18.9% 34.0%
TECHNOLOGY 13.8% 22.1%
HEALTH CARE 12.7% 19.0%
CAPITAL GOODS 9.2% 10.3%
ENERGY 8.1% 2.4%
BASIC INDUSTRIES 6.6% 3.3%
UTILITIES 4.7% 3.0%
TRANSPORTATION 3.8% 0.4%
CONSUMER DURABLES 1.7% 0.5%
</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.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 20 LARGEST HOLDINGS*
Representing 31.96% of the fund's total net assets on April 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Holdings Percent
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. SBC COMMUNICATIONS One of the world's leading diversified 2.43%
telecommunications companies; provides products and
services over its local network; also serves
international markets.
- -----------------------------------------------------------------------------------------------------
2. MOBIL Produces, transports, refines and markets petroleum 2.27%
and natural gas and related products.
- -----------------------------------------------------------------------------------------------------
3. AMERICAN GENERAL A leading provider of annuities, consumer loans and 1.96%
life insurance.
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4. AMERITECH Provides telecommunications and exchange access 1.84%
services.
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5. JEFFERSON PILOT Writes life, health and accident insurance and 1.77%
annuities; owns and operates radio and television
stations.
- -----------------------------------------------------------------------------------------------------
6. NORFOLK SOUTHERN A holding company which owns Norfolk Southern 1.67%
Railway and motor carrier North American Van Lines,
Inc.
- -----------------------------------------------------------------------------------------------------
7. PITNEY BOWES Manufactures mailing, shipping, copying, dictating 1.61%
and facsimile systems.
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8. ABBOTT LABS Engaged in discovering, developing, manufacturing 1.57%
and selling of a broad and diversified line of
health care products and services.
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9. STANLEY WORKS A worldwide producer of tools, hardware and 1.55%
specialty hardware for consumer, industrial and
professional use.
- -----------------------------------------------------------------------------------------------------
10. PHILIP MORRIS Food, beverage and tobacco conglomerate. 1.50%
- -----------------------------------------------------------------------------------------------------
11. PERKIN-ELMER Manufactures analytical instruments, optics and life 1.49%
CORP. science products.
- -----------------------------------------------------------------------------------------------------
12. BANC ONE CORP. Provides banking, loan, trust, brokerage and 1.46%
investment management services.
- -----------------------------------------------------------------------------------------------------
13. R.R. DONNELLY World's largest provider of print and print-related 1.43%
& SONS services.
- -----------------------------------------------------------------------------------------------------
14. RJR NABISCO Food and tobacco conglomerate. 1.38%
- -----------------------------------------------------------------------------------------------------
15. MCDONALD'S National food franchise. 1.38%
- -----------------------------------------------------------------------------------------------------
16. UNOCAL Crude oil and natural gas provider. 1.37%
- -----------------------------------------------------------------------------------------------------
17. SUNDSTRAND Manufactures systems and components for aerospace 1.36%
and industrial applications.
- -----------------------------------------------------------------------------------------------------
18. MAY DEPARTMENT Owns and operates retail department stores and 1.33%
STORES self-service shoe stores.
- -----------------------------------------------------------------------------------------------------
19. AMOCO Engaged in exploration, production and refining of 1.30%
crude oil, natural gas and petroleum products.
- -----------------------------------------------------------------------------------------------------
20. H.J. HEINZ Manufactures and markets processed food products. 1.29%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER BLUE CHIP FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--6.0% Betz Dearborn Inc. 43,700 $ 2,797
Canon, Inc. 1,000 24
Cementos Mexicanos, S.A. de C.V., "B", ADR 21,000 79
Crown Cork & Seal Co.
common stock 50,000 2,737
convertible preferred 45,000 2,301
W.R. Grace & Co. 39,300 2,044
Pall Corp. 175,000 4,047
RPM, Inc. 160,000 2,680
Rentokil Group PLC 11,000 72
Temple-Inland Inc. 43,000 2,387
Toray Industries 11,000 68
(a)Tubos de Acero de Mexico, S.A., ADR 1,700 28
------------------------------------------------------------------------
19,264
- -----------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--8.4% Boeing Co. 6,000 592
Cooper Industries 45,000 2,070
Emerson Electric Co. 50,900 2,583
General Electric Co. 25,200 2,794
B.F. Goodrich Co. 87,300 3,481
Honeywell 54,900 3,877
Matsushita Electric Industrial Co., Ltd. 4,500 72
Murata Manufacturing 2,200 81
Raytheon Co. 90,000 3,926
Sundstrand Corp. 90,000 4,388
Technip S.A. 704 74
WMX Technologies Inc. 110,000 3,231
------------------------------------------------------------------------
27,169
- -----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--6.8% CVS Corp. 40,000 1,985
Carnival Corp. 50,000 1,844
(a)Consolidated Stores Corp. 39,250 1,570
Deluxe Corp. 47,800 1,464
Dillard Department Stores 70,000 2,161
R.R. Donnelley & Sons Co. 135,000 4,624
May Department Stores Co. 92,500 4,278
Reed International PLC 4,719 87
Sony Corp. 800 58
Tribune Co. 90,000 3,949
------------------------------------------------------------------------
22,020
- -----------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.6% Honda Motor Co., Ltd. 3,000 93
Stanley Works 128,500 4,995
------------------------------------------------------------------------
5,088
- -----------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--10.5% Avon Products 20,000 1,233
CPC International 50,000 4,131
Dial Corp. 165,000 2,557
H.J. Heinz Co. 100,000 4,150
McDonald's Corp. 83,000 4,451
PepsiCo 100,000 3,487
Philip Morris Co. 123,000 4,843
Procter & Gamble Co. 12,000 1,509
RJR Nabisco Holdings Corp. 150,000 4,463
Unilever N.V., ADR 15,500 3,042
------------------------------------------------------------------------
33,866
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--7.4% AMOCO Corp. 50,000 $ 4,181
British Petroleum PLC 6,390 73
Exxon Corp. 55,000 3,114
MCN Corp., convertible preferred 20,000 995
Mobil Corp. 56,300 7,319
Pennzoil Co. 45,000 2,216
Tosco Corp., convertible preferred 30,000 1,665
Unocal Corp. 116,000 4,423
------------------------------------------------------------------------
23,986
- -----------------------------------------------------------------------------------------------------------------
FINANCE--18.7% American Express Co. 62,000 4,084
American General Corp. 145,000 6,326
Banc One Corp. 111,000 4,704
BankAmerica Corp. 30,000 3,506
Bank of Boston 40,000 2,910
Bank of Ireland 11,304 118
CITIC Pacific Ltd. 11,000 59
Cheung Kong Holdings Ltd. 5,000 44
Citicorp 14,600 1,644
Dean Witter Discover 90,000 3,443
Development Bank of Singapore 5,000 59
First Bank System 41,500 3,185
Fleet Financial Group Inc. 33,000 2,013
Internationale Nederlanden Groep 2,934 115
ITT Hartford Group 40,000 2,980
Jefferson-Pilot Corp. 99,000 5,717
KeyCorp 30,000 1,564
Mellon Bank Corp. 44,000 3,658
Merrill Lynch & Co., convertible preferred 30,000 2,096
PNC Bank Corp. 40,000 1,645
Provident Co., Inc. 35,000 1,956
Signet Banking Corp. 62,000 1,914
Summit Bancorp 70,000 3,255
Washington Mutual 37,000 1,827
Wilmington Trust Corp. 36,200 1,557
------------------------------------------------------------------------
60,379
- -----------------------------------------------------------------------------------------------------------------
HEALTH CARE--11.6% Abbott Laboratories 83,000 5,063
C.R. Bard 89,400 2,838
Biomet, Inc. 100,000 1,519
Bristol-Myers Squibb Co. 50,000 3,275
(a)British Bio-Technology Group 17,000 67
(a)Fresenius Medical Care A.G. 1,008 72
(a)HealthCare COMPARE Corp. 59,000 2,559
Eli Lilly & Co. 45,000 3,954
McKesson Corp.
common stock 38,500 2,786
convertible preferred 20,000 1,140
Medtronic, Inc. 20,000 1,385
Perkin-Elmer Corp. 66,000 4,793
Pfizer Inc. 32,000 3,072
Roche Holding AG, with warrants expiring May 1998 9 76
(a)Tenet Healthcare Corp. 123,200 3,203
United Healthcare Corp. 35,000 1,702
------------------------------------------------------------------------
37,504
- -----------------------------------------------------------------------------------------------------------------
TECHNOLOGY--12.7% (a)Applied Materials, Inc. 33,000 1,811
(a)Ascend Communications, Inc. 39,000 1,784
(a)Atmel Corp. 65,000 1,617
(a)Cadence Design Systems 52,600 1,683
(a)Cisco Systems 45,000 2,329
L.M. Ericsson Telephone Co., "B" 2,459 78
Harris Corp. 37,100 3,172
Hewlett-Packard Co. 77,000 4,043
Intel Corp. 15,000 2,297
Motorola 56,000 3,206
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)Peoplesoft Inc. 50,000 $ 2,075
Pitney Bowes 81,000 5,184
(a)Sun Microsystems 78,400 2,259
(a)Tellabs, Inc. 55,000 2,193
(a)Teradyne 101,900 3,337
Texas Instruments 41,900 3,740
------------------------------------------------------------------------
40,808
- -----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--3.5% Canadian National Railway Co. 54,276 2,090
Norfolk Southern Corp. 60,000 5,393
Swire Pacific Ltd., "A" 5,500 42
Union Pacific Corp. 57,000 3,634
------------------------------------------------------------------------
11,159
- -----------------------------------------------------------------------------------------------------------------
UTILITIES--4.3% Ameritech Corp. 97,000 5,929
Iberdrola, S.A. 6,800 77
SBC Communications Inc. 141,000 7,826
Telefonica del Peru, S.A., ADR 3,500 84
------------------------------------------------------------------------
13,916
------------------------------------------------------------------------
TOTAL COMMON STOCKS--91.5%
(Cost: $272,133) 295,159
------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--.6% Hilton Hotels Corp., 5.00%, 2006 $ 1,750 1,838
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
HEALTH CARE--.8% ALZA Corp., 5.00%, 2006 2,500 2,500
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.4% Analog Devices, 3.50%, 2000 1,700 2,397
Xilinx, Inc., 5.25%, 2002 2,000 2,300
------------------------------------------------------------------------
4,697
------------------------------------------------------------------------
TOTAL CONVERTIBLE CORPORATE
OBLIGATIONS--2.8%
(Cost: $8,276) 9,035
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.48% to 5.76%
INSTRUMENTS--8.7%
Due--May and June 1997
Whirlpool Financial Corp. 13,000 12,969
Other 15,000 14,948
------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--8.7%
(Cost: $27,918) 27,917
------------------------------------------------------------------------
TOTAL INVESTMENTS--103.0%
(Cost: $308,327) 332,111
------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(3.0%) (9,730)
------------------------------------------------------------------------
NET ASSETS--100% $322,381
------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
Based on the cost of investments of $308,327,000 for federal income tax purposes
at April 30, 1997, the gross unrealized appreciation was $28,152,000, the gross
unrealized depreciation was $4,368,000 and the net unrealized appreciation on
investments was $23,784,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $308,327) $332,111
- ------------------------------------------------------------------------
Cash 314
- ------------------------------------------------------------------------
Receivable for:
Investments sold 4,073
- ------------------------------------------------------------------------
Fund shares sold 426
- ------------------------------------------------------------------------
Dividends and interest 606
- ------------------------------------------------------------------------
TOTAL ASSETS 337,530
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 14,495
- ------------------------------------------------------------------------
Fund shares redeemed 268
- ------------------------------------------------------------------------
Management fee 148
- ------------------------------------------------------------------------
Distribution services fee 50
- ------------------------------------------------------------------------
Administrative services fee 55
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 104
- ------------------------------------------------------------------------
Trustees' fees 29
- ------------------------------------------------------------------------
Total liabilities 15,149
- ------------------------------------------------------------------------
NET ASSETS $322,381
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $274,187
- ------------------------------------------------------------------------
Undistributed net realized gain on investments 22,877
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 23,785
- ------------------------------------------------------------------------
Undistributed net investment income 1,532
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $322,381
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($238,510,000 / 15,342,000 shares outstanding) $15.55
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $16.50
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($78,177,000 / 5,047,000 shares outstanding) $15.49
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($5,598,000 / 360,000 shares outstanding) $15.57
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($96,000 / 6,000 shares outstanding) $15.57
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Dividends $ 2,539
- -----------------------------------------------------------------------
Interest 891
- -----------------------------------------------------------------------
Total investment income 3,430
- -----------------------------------------------------------------------
Expenses:
Management fee 851
- -----------------------------------------------------------------------
Distribution services fee 269
- -----------------------------------------------------------------------
Administrative services fee 337
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 537
- -----------------------------------------------------------------------
Professional fees 24
- -----------------------------------------------------------------------
Reports to shareholders 33
- -----------------------------------------------------------------------
Trustees' fees and other 9
- -----------------------------------------------------------------------
Total expenses 2,060
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 1,370
- -----------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments and foreign
currency transactions 22,651
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 4,461
- -----------------------------------------------------------------------
Net gain on investments 27,112
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,482
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 1,370 2,620
- ----------------------------------------------------------------------------------------------
Net realized gain 22,651 48,809
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 4,461 (3,487)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 28,482 47,942
- ----------------------------------------------------------------------------------------------
Net equalization credits 120 36
- ----------------------------------------------------------------------------------------------
Distribution from net investment income (1,621) (2,271)
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain (48,419) (13,966)
- ----------------------------------------------------------------------------------------------
Total dividends to shareholders (50,040) (16,237)
- ----------------------------------------------------------------------------------------------
Net increase from capital share transactions 87,647 56,165
- ----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 66,209 87,906
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Beginning of period 256,172 168,266
- ----------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$1,532 and $1,663, respectively) $322,381 256,172
- ----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
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 a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are sold to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Portfolio securities that are traded on a
domestic securities exchange or securities listed
on the NASDAQ National Market are valued at the
last sale price on the exchange or market where
primarily traded or listed or, if there is no
recent sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded or listed are
valued at the last current bid quotation if market
quotations are available. Fixed income securities
are valued by using market quotations, or
independent pricing services that use prices
provided by market makers or estimates of market
values obtained from yield data relating to
instruments or securities with similar
characteristics. Equity options are valued at the
last sale price unless the bid price is higher or
the asked price is lower, in which event such bid
or asked price is used. Financial futures and
options thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Forward foreign
currency contracts are valued at the forward rates
prevailing on the day of valuation. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
deferred sales charge. On each day the New York
Stock Exchange is open for trading, the net asset
value per share is determined as of the earlier of
3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended April 30, 1997.
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) 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 $851,000 for the six
months ended April 30, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund and is paid by ZKI for its
services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS ALLOWED BY ZKDI
RETAINED BY -----------------------------
ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------- -------------
<S> <C> <C> <C>
Six months ended
April 30, 1997 $66,000 389,000 3,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
and Class C shares, and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC COMMISSIONS AND
RECEIVED BY DISTRIBUTION FEES
ZKDI PAID BY ZKDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Six months ended
April 30, 1997 $310,000 677,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these services and pays
these firms based on assets of Fund accounts the
firms service. Administrative services fees (ASF)
paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY ------------------------------
THE FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- -------------
<S> <C> <C> <C>
Six months ended
April 30, 1997 $337,000 367,000 2,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of
$426,000 for the six months ended April 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended April 30, 1997, the
Fund made no payments to its officers and incurred
trustees' fees of $8,000 to independent trustees.
- --------------------------------------------------------------------------------
4 TRANSACTIONS
INVESTMENT For the six months ended April 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $342,018
Proceeds from sales 305,625
16
<PAGE> 17
- --------------------------------------------------------------------------------
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, 1997 OCTOBER 31, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 2,880 $ 45,265 2,996 $ 46,627
------------------------------------------------------------------------------
Class B 2,274 36,065 3,136 49,419
------------------------------------------------------------------------------
Class C 244 3,857 168 2,667
------------------------------------------------------------------------------
Class I 5 82 3 39
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,544 37,069 976 13,750
------------------------------------------------------------------------------
Class B 713 10,387 110 1,543
------------------------------------------------------------------------------
Class C 40 578 6 80
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,762) (27,650) (2,753) (42,327)
------------------------------------------------------------------------------
Class B (1,033) (16,326) (956) (14,819)
------------------------------------------------------------------------------
Class C (105) (1,680) (51) (785)
------------------------------------------------------------------------------
Class I -- -- (2) (29)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 73 1,143 70 1,055
------------------------------------------------------------------------------
Class B (73) (1,143) (70) (1,055)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 87,647 $ 56,165
------------------------------------------------------------------------------
</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
loss 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, 1997, the
Fund had the following forward foreign currency
contracts outstanding with settlement dates in July
1997:
<TABLE>
<CAPTION>
CONTRACT UNREALIZED
FOREIGN CURRENCY AMOUNT IN LOSS
TO BE DELIVERED U.S. DOLLARS AT 4/30/97
-----------------------------------------------------------
<C> <S> <C> <C>
107,000 French Francs 17,000 --
-----------------------------------------------------------
34,000 German Marks 19,000 --
-----------------------------------------------------------
24,000,000 Japanese Yen 175,000 $(1,000)
-----------------------------------------------------------
28,000 Swiss Francs 19,000 --
-----------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $17.14 14.87 12.33 13.88 12.72
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .10 .22 .19 .19 .18
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.57 3.45 2.57 (.71) 1.13
- --------------------------------------------------------------------------------------------------
Total from investment operations 1.67 3.67 2.76 (.52) 1.31
- --------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .13 .20 .20 .19 .15
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain 3.13 1.20 .02 .84 --
- --------------------------------------------------------------------------------------------------
Total dividends 3.26 1.40 .22 1.03 .15
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $15.55 17.14 14.87 12.33 13.88
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.99% 26.72 22.74 (3.82) 10.35
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.16% 1.26 1.30 1.48 1.25
- --------------------------------------------------------------------------------------------------
Net investment income 1.15% 1.40 1.47 1.50 1.28
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
CLASS B
------------------------------------------
SIX MONTHS
ENDED MAY 31
APRIL 30, YEAR ENDED OCTOBER 31, TO OCTOBER 31,
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $17.09 14.82 12.29 12.30
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .02 .10 .09 .06
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.56 3.45 2.56 (.01)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.58 3.55 2.65 .05
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .05 .08 .10 .06
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain 3.13 1.20 .02 --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends 3.18 1.28 .12 .06
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.49 17.09 14.82 12.29
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.43% 25.82 21.76 .42
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.08% 2.08 2.06 2.43
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .23% .58 .71 .33
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------- ------------------------
CLASS C CLASS I
---------------------------------------- ------------------------
SIX MONTHS MAY 31 SIX MONTHS NOVEMBER 22,
ENDED YEAR ENDED TO ENDED 1995 TO
APRIL 30, OCTOBER 31, OCTOBER 31, APRIL 30, OCTOBER 31,
1997 1996 1995 1994 1997 1996
- -------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------- ------------------------
Net asset value, beginning of period $17.15 14.88 12.32 12.30 17.18 15.30
- -------------------------------------------------------------------------------------- ------------------------
Income from investment operations:
Net investment income .01 .10 .07 .09 .07 .36
- -------------------------------------------------------------------------------------- ------------------------
Net realized and unrealized gain (loss) 1.59 3.45 2.62 (.01) 1.57 2.96
- -------------------------------------------------------------------------------------- ------------------------
Total from investment operations 1.60 3.55 2.69 .08 1.64 3.32
- -------------------------------------------------------------------------------------- ------------------------
Less dividends:
Distribution from net investment income .05 .08 .11 .06 .12 .24
- -------------------------------------------------------------------------------------- ------------------------
Distribution from net realized gain 3.13 1.20 .02 -- 3.13 1.20
- -------------------------------------------------------------------------------------- ------------------------
Total dividends 3.18 1.28 .13 .06 3.25 1.44
- -------------------------------------------------------------------------------------- ------------------------
Net asset value, end of period $15.57 17.15 14.88 12.32 15.57 17.18
- ------------------------------------------------------------------------------------- ------------------------
TOTAL RETURN (NOT ANNUALIZED) 10.55% 25.75 22.04 .67 10.79 21.89
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.01% 2.05 2.01 2.33 1.37 1.31
- -------------------------------------------------------------------------------------- ------------------------
Net investment income .30% .61 .76 .43 .94 1.33
- -------------------------------------------------------------------------------------- ------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $322,381 256,172 168,266 153,172 196,327
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 214% 166 117 131 222
- ---------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended April 30,
1997 and the year ended October 31, 1996 were $.0591 and $.0587, respectively.
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS TRACY M. CHESTER
President and Trustee Vice President
DAVID W. BELIN CHARLES R. MANZONI, JR.
Trustee Vice President
LEWIS A. BURNHAM JOHN E. NEAL
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 ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Fund prospectus.
KBCF - 3 (6/97) 1033370
Printed in the U.S.A. [KEMPER FUNDS LOGO]
