<PAGE> 1
Kemper Total Return Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1995
SEEKING THE HIGHEST TOTAL RETURN, A COMBINATION OF INCOME AND CAPITAL
APPRECIATION, CONSISTENT WITH REASONABLE RISK
"...strength from both the equity and fixed-income markets exposed us to the
best of both worlds..."
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
Table of Contents
3
General
Economic Overview
5
Performance Update
7
Terms to Know
9
Industry Sectors
11
Largest Holdings
13
Portfolio of
Investments
18
Report of
Independent Auditors
19
Financial Statements
21
Notes to
Financial Statements
25
Financial Highlights
At A Glance
Kemper Total Return Fund total returns for the year ended October 31, 1995
(unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
<S> <C>
CLASS A 19.46%
CLASS B 18.42%
CLASS C 18.76%
LIPPER BALANCED FUNDS
CATEGORY AVERAGE* 17.98%
</TABLE>
Returns 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.
- ------------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
10/31/95 10/31/94
<S> <C> <C>
KEMPER TOTAL RETURN FUND
CLASS A $10.60 $9.10
KEMPER TOTAL RETURN FUND
CLASS B $10.59 $9.09
KEMPER TOTAL RETURN FUND
CLASS C $10.61 $9.09
</TABLE>
- ------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
LIPPER RANKINGS
- ------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE
LIPPER BALANCED FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1-YEAR # 60 OF # 98 OF # 84 OF
199 FUNDS 199 FUNDS 199 FUNDS
5-YEAR # 29 OF
60 FUNDS N/A N/A
10-YEAR # 17 OF
30 FUNDS N/A N/A
</TABLE>
*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.
Returns and rankings are historical and do not reflect future performance.
- ------------------------------------------------------------------------
DIVIDEND REVIEW
- ------------------------------------------------------------------------
DURING THE FISCAL YEAR, KEMPER TOTAL RETURN FUND PAID THE FOLLOWING DIVIDENDS:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
INCOME
DIVIDEND: $0.2450 $0.1588 $0.1680
</TABLE>
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's sector weightings and how they have changed
- - A comparison of your fund and its benchmark sector weightings
- - Your fund's largest individual holdings
If you have any comments about the revised format, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[PHOTO OF STEPHEN B. TIMBERS]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income
and stock markets in 1995. The returns of most leading securities markets
worldwide are significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2% in the
third quarter. This follows much lower growth in the first two quarters, as the
economy was adjusting to the Federal Reserve Board's series of interest rate
increases. The slowdown, in fact, was acknowledged by the Fed when it eased
short-term rates by a small but symbolic 25 basis points in July. Now we know
that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very encouraging.
Although we are well along in the economic cycle and at a point when prices
often start hiking up, inflationary pressures have actually been reduced
somewhat.
It is likely that the Fed will reduce rates again, possibly as early as
December 19. An additional rate cut would provide stimulation for the economy
and acknowledge the serious discussion -- if not resolution -- on reducing the
federal budget deficit. Even with a rate cut, our forecast calls for lower
growth ranging between 2% to 3% for the next few quarters, with the momentum
likely to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in
the fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the
economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest
in will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low in April, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
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 (11/30/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE (1) 5.93 6.17 7.81 5.77
PRIME RATE (2) 8.75 9.00 8.50 6.00
INFLATION RATE (3) 2.74 3.18 2.60 2.74
THE U.S. DOLLAR (4) -1.57 - 9.31 -4.52 1.71
CAPITAL GOODS ORDERS (5) (*) 7.60 17.84 13.53 23.75
INDUSTRIAL PRODUCTION (6) 2.20 3.31 6.58 2.98
EMPLOYMENT GROWTH (7) 1.50 2.29 3.15 2.58
</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.
* Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding
how these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio manager. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
December 12, 1995
4
<PAGE> 5
Performance Update
[PHOTO OF GARY LANGBAUM]
GARY LANGBAUM HAS BEEN WITH KEMPER FINANCIAL SERVICE, INC. (KFS) SINCE 1988. HE
IS NOW A SENIOR VICE PRESIDENT OF KFS AND THE PORTFOLIO MANAGER OF KEMPER TOTAL
RETURN FUND. PRIOR TO HIS NEW POSITION, LANGBAUM WAS KEMPER'S DIRECTOR OF
EQUITY RESEARCH AND A CHARTERED FINANCIAL ANALYST WITH 25 YEARS OF EXPERIENCE
IN EQUITY RESEARCH AND SECURITIES ANALYSIS. HE RECEIVED HIS BACHELOR'S DEGREE
AND COMPLETED HIS MASTER'S OF BUSINESS ADMINISTRATION COURSEWORK FROM THE
UNIVERSITY OF MARYLAND.
CHANGE, IN BOTH PORTFOLIO MANAGEMENT AND INVESTMENT STRATEGY, AGREED WITH
KEMPER TOTAL RETURN FUND IN FISCAL 1995. BELOW PORTFOLIO MANAGER GARY LANGBAUM
DETAILS THE CHANGES AND EXPLAINS HOW THEY COMBINED WITH THE MARKETS' STRENGTH
FOR AN EXCELLENT YEAR FO THE FUND.
Q. GARY, CLASS A SHARES OF KEMPER TOTAL RETURN FUND ADVANCED 19.46 PERCENT IN
THE LAST FISCAL YEAR, AND THE FUND JUMPED IN ITS PEER GROUP STANDINGS, AS
RANKED BY LIPPER ANALYTICAL SERVICES, INC. (SEE PAGE 2). WHAT HAPPENED DURING
THE FISCAL YEAR (NOVEMBER 1, 1994, THROUGH OCTOBER 31, 1995)?
A. Well, it was an extraordinary year for U.S. domestic markets -- and for a
balanced fund like Kemper Total Return Fund, such strength from both the equity
and fixed-income markets exposed us to the best of both worlds.
In addition, the decision we made early in 1995 to adopt a more
structured approach to the portfolio well positioned us to benefit from the
market rallies. As was explained to shareholders in a special communication in
April, we revised our investment strategy to invest approximately 60 percent of
the fund's portfolio in stocks and 40 percent in bonds.
The fixed-income portion of the portfolio serves as what we call a
risk limiter -- investing in
- -----------------------------------------------------------------------------
FIVE OF SIX ASSET CLASSES PRODUCED DOUBLE-DIGIT RETURNS
- -----------------------------------------------------------------------------
Data show the fiscal year (November 1, 1994, to October 31, 1995) comparative
total returns for the six asset classes that Kemper Total Return Fund invests
in.
[BAR GRAPH]
<TABLE>
<S> <C>
U.S. STOCKS(1) 26.41%
INTERNATIONAL STOCKS(2) -0.07%
U.S. GOV'T BONDS(3) 15.69%
CORPORATE BONDS(4) 15.65%
HIGH-YIELD BONDS(5) 16.78%
INTERNATIONAL BONDS(6) 15.19%
</TABLE>
(1) Standard & Poor's 500, an unmanaged index of common stocks that is
generally considered representative of the U.S. stock market
(2) Morgan Stanley Capital International EAFE Index, an unmanaged index that is
generally considered a measure of international equities in 15 major world
markets excluding the U.S. and Canada
(3) Salomon Brothers Broad Investment-Grade Bond Index, including Treasury
issues with a maturity of one year or longer (unmanaged)
(4) Lehman Brothers Aggregate Bond Index
(5) Salomon Brothers High Yield Index
(6) Salomon Brothers World Government, Non-U.S. Governments Index, including
the performance of leading government bond markets excluding the U.S.
(unmanaged)
5
<PAGE> 6
Performance Update
bonds tends to reduce the overall risk of the portfolio and enables us to
aggressively manage the fund's stock holdings for capital appreciation. Our
income comes from both the stocks and bonds.
Given that this strategy was implemented in 1995, a better measure of the
progress we're making is our year-to-date returns. From January 1 to October
31, 1995, Class A Shares returned 22.42 percent.
Q. YOU STARTED MANAGING THE FUND IN FEBRUARY. WHAT WERE SOME OF THE CHANGES YOU
INTRODUCED?
A. The most significant changes I've made have been to the equity portion of
the portfolio. The fund now maintains larger positions in fewer individual
stocks. When we see a stock we like, we need to be able to own enough for it to
make a meaningful contribution to the fund. While the fund ended last year with
110 stocks with a weighted market capitalization of $8 billion, the fund closed
fiscal 1995 with 75 stocks, averaging $14.5 billion in size.
In addition, we now make larger commitments to favored stocks in industry
sectors that we believe will be outperformers. Our experience with technology
stocks this year is an excellent example. By taking advantage of the depth
available in Kemper's equity department (including the two portfolio managers
of Kemper Technology Fund and our four technology analysts) and based on my
previous experience as a technology analyst, I was comfortable boosting our
exposure to technology. Cisco Systems, Microsoft, Sun Microsystems, Applied
Materials, Intel and Computer Associates were among the fund's top contributors.
While most balanced funds had no more than 15 percent invested in technology,
27.7 percent of the common stocks in our fund was in technology. Given the
technology rally in 1995, this difference is part of the reason for the fund's
outperformance.
As the year ended, the fund remained overweighted in the technology and
financial sectors.
We also are willing to be underweighted or have no weighting in a sector if
there are few or no attractively priced stocks to own. For example, we are
underweighted in both the utility and consumer nondurable areas, even though
we own selected stocks in each.
Q. WE'VE HEARD SO MUCH ABOUT WHAT A GOOD YEAR IT WAS FOR THE STOCK MARKET --
DID THE FUND HAVE ANY "MISSES"?
A. It was a good year but many people failed to recognize that there was
significant intramarket rotation -- although the broad market was going up,
corrections of 10 percent or more did occur within sectors.
The stocks that disappointed us in 1995 were in the retail sector (Home
Depot, Nordstrom and Ann Taylor) and the health maintenance organizations
(United Health and U.S. Health Care).
The market was not kind to companies whose earnings fell short of estimates.
But our response to a decline in price was not always to sell. If we perceived
a long-term fundamental problem or if there was a change in management
philosophy, we'd get out of the stock. But we welcomed other short-term
declines as an opportunity to accumulate at an attractive price. For example,
when Computer Associates fell from about $50 to $38 in July and August in
response to concerns over a pending acquisition, we added to our position. The
stock then reported strong results and ended October at $55 per share.
My regrets about the year are the same regrets everyone else has: I wish the
fund had more of the stocks that did well and I wish we'd gotten out of the
poor performers sooner. This was a problem as we were restructuring the
portfolio earlier in the year. It took longer than I would have liked to get
out of our older, less liquid positions and into the stocks that we believed
were poised for growth. Microsoft, a leading software company, was a stock that
the fund owned a small position in when I became portfolio manager. We bought
more shares in February, March and April in the $60 to $70 range. The stock
moved as high as $108 before correcting to the $90 range.
Q. WE'RE REPORTING ON A YEAR WHEN INTEREST RATES BOTH ROSE AND FELL, WHICH
AFFECTED INVESTMENT OPPORTUNITIES. HOW DID YOUR STRATEGY EVOLVE DURING THE
YEAR?
A. Generally, I was optimistic about the economy and U.S. markets for most of
the year, and the fund's investment in the longest maturity of intermediate
government bonds was a measure of my optimism. The slowdown of the economy,
however, did cause me to cut back the fund's investment in
6
<PAGE> 7
Performance Update
high yield bonds in favor of higher grade bonds. When an economy is slowing,
some credit deterioration is to be expected and we adjusted our allocation in
an effort to avoid that.
Having first sold our international equities and then our foreign bonds, we
had no international assets in the portfolio by the end of the fiscal year.
There are two reasons for this adjustment. The first is our optimism and
outlook for U.S. opportunities. We were convinced that we could find many U.S.
companies with significant upside potential but without the currency risk that
foreign securities represent. Our second concern is the currency risk and its
effect on asset value and our ability to produce income.
Of course, the amount of assets we allocate to each class will vary at my
discretion, based on an assessment of market conditions and other factors. I
evaluate the attractiveness of each asset class with the help of the
management specialists in the various classes.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. I'm still bullish. At this point, I don't see any reason for us not to be
able to have another good year. We're not going to replicate 1995, but I think
the Dow Jones Industrial Average* could hit another high -- 6000 -- in 1996. If
the economy can grow at a 2 percent to 2.5 percent rate, inflation remains
tame, long-term interest rates fall below 6 percent and we get some action on
the federal budget deficit, we should have another excellent year.
The fund's weighting in financial stocks, combined with its holdings of
longer-term government bonds, represents my doubling up on this outlook.
However, because we're not looking for a sustained weakening in the economy, we
have been buying some attractively priced economically sensitive stocks that
could do well. These would include Allied Signal, Fluor, Emerson Electric, FMC
and Monsanto.
*The Dow Jones Industrial Average impressed many market strategists by passing
two milestones -- the 4000 and the 5000 marks -- in 1995.
Q. IF YOU EXPECT THE STOCK MARKET TO BE SO STRONG, WHY SHOULD SHAREHOLDERS BE
IN A BALANCED FUND AS OPPOSED TO AN ALL-EQUITY FUND?
A. After the year we've had, I could be wrong on my optimistic forecast for
1996. After all, what are the chances that 1995's gains are going to be
replicated? The risk is greater that it's not going to be replicated and that
investors are going to need greater diversification in 1996 than they had in
1995. And that's what the fund's 35 percent to 40 percent in the fixed-income
markets provides.
Terms to Know
BALANCED FUND Balanced funds, such as Kemper Total Return Fund, generally try
to balance three different objectives: moderate long-term growth of capital,
moderate income and moderate stability in an investor's principal.
MARKET CAPITALIZATION Capitalization is a measure of the size of a publicly
traded company, as determined by multiplying the current price by the number of
shares outstanding. The market value of a company has bearing on its
perceived earnings potential and risk. Small cap companies (less than $1
billion) may present the potential for greater growth than larger, more
established companies. On the other hand, the stock of small cap companies may
be expected to be more volatile.
MARKET CORRECTION A reverse movement, usually downward, in the price of the
overall market. Corrections are to be expected over a long term.
TOTAL RETURN A fund's total return figure 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.
7
<PAGE> 8
Performance Update
- ----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- ----------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1995 (ADJUSTED FOR THE APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A 12.54% 12.45% 11.10% 11.50% (SINCE 3/2/64)
KEMPER TOTAL RETURN FUND CLASS B 15.43 N/A N/A 9.78 (SINCE 5/31/94)
KEMPER TOTAL RETURN FUND CLASS C 18.76 N/A N/A 12.03 (SINCE 5/31/94)
</TABLE>
- ----------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN
KEMPER TOTAL RETURN FUND CLASS A FROM 1/1/79 THROUGH 10/31/95
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/79 12/31/83 12/31/87 12/31/91 10/31/95
<S> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A(1) $10,000 $25,975 $37,892 $72,062 $ 91,637
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX+ $10,000 $16,010 $26,419 $40,831 $ 55,191
RUSSELL 1000 GROWTH INDEX++ $10,000 $21,421 $34,234 $72,895 $106,180
</TABLE>
- ----------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN
KEMPER TOTAL RETURN FUND CLASS B FROM 5/31/94 THROUGH 10/31/95
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
<S> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS B(1) $10,000 $ 964 $11,417
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX+ $10,000 $10,064 $11,680
RUSSELL 1000 GROWTH INDEX++ $10,000 $10,529 $13,825
</TABLE>
- ----------------------------------------------------------------------------
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN
KEMPER TOTAL RETURN FUND CLASS C FROM 5/31/94 THROUGH 10/31/95
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 10/31/95
<S> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS C(1) $10,000 $ 9,646 $11,751
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX+ $10,000 $10,064 $11,680
RUSSELL 1000 GROWTH INDEX++ $10,000 $10,529 $13,825
</TABLE>
Past performance is not predictive of 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.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for Class A Shares adjustment for the maximum sales charge of 5.75% and for
Class B Shares adjustment for the applicable contingent deferred sales charge
of 3%. The maximum contingent deferred sales charge is 4%. There is no sales
charge for Class C Shares. Average annual returns reflect annualized change.
During the periods noted, securities prices fluctuated. For additional
information, see the Prospectus and Statement of Additional Information and the
Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for A Shares and the contingent deferred sales charge in
effect at the end of the period for B Shares. In comparing the Kemper Total
Return Fund to the two indices, you should also note that the fund's
performance reflects the applicable sales charge, while no such charges are
reflected in the performance of the indices.
+ The Lehman Brothers Government/Corporate Bond Index is an unmanaged index
comprised of intermediate and long-term government and investment grade
corporate debt securities. Source is Towers Data Systems.
++ 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
Industry Sectors
A YEAR-TO-YEAR COMPARISON OF THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND
THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND CAN BE REVIEWED ACCORDING TO THE
CONCENTRATION OF INDUSTRY SECTORS THAT THE FUND INVESTS IN. THE CHART BELOW
PROVIDES A LOOK AT HOW THE COMPOSITION OF THE EQUITY PORTION OF THE PORTFOLIO
HAS CHANGED IN A YEAR, BY PRESENTING THE FUND'S SECTORS REPRESENTED ON OCTOBER
31, 1995, AND ON OCTOBER 31, 1994.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL KEMPER TOTAL
RETURN FUND RETURN FUND
AS OF 10/31/95 AS OF 10/31/94
<S> <C> <C>
BASIC INDUSTRIES 8.1% 6.1%
CAPITAL GOODS 12.0% 7.1%
TECHNOLOGY 27.7% 19.3%
CONSUMER DURABLES 0.0% 2.0%
CONSUMER NONDURABLES 24.7% 30.7%
HEALTH CARE 13.9% 11.5%
FINANCE 10.1% 12.5%
TRANSPORTATION 1.4% 2.7%
ENERGY 2.1% 3.1%
UTILITIES 0.0% 2.7%
OTHER 0.0% 2.3%
</TABLE>
9
<PAGE> 10
Industry Sectors
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX, THE BENCHMARK FOR THE EQUITY
PORTION OF THE FUND
THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND CAN BE COMPARED TO THE RUSSELL
1000 GROWTH INDEX AS A BENCHMARK. 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. THE CHART BELOW SHOWS THE
PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR OF KEMPER
TOTAL RETURN FUND REPRESENTED ON OCTOBER 31, 1995, COMPARED TO THE INDUSTRY
SECTORS OF THE RUSSELL 1000 GROWTH INDEX.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RUSSELL 1000
RETURN FUND GROWTH FUND
AS OF 10/31/95 AS OF 10/31/95
<S> <C> <C>
BASIC INDUSTRIES 8.1% 4.3%
CAPITAL GOODS 12.0% 10.2%
TECHNOLOGY 27.7% 22.1%
CONSUMER DURABLES 0.0% 0.8%
CONSUMER NONDURABLES 24.7% 34.0%
HEALTH CARE 13.9% 15.4%
FINANCE 10.1% 6.0%
TRANSPORTATION 1.4% 0.3%
ENERGY 2.1% 2.0%
UTILITIES 0.0% 4.3%
OTHER 0.0% 0.6%
</TABLE>
10
<PAGE> 11
Largest Holdings
THE FUND'S LARGEST EQUITY HOLDINGS
REPRESENTING 7.9% OF THE FUND'S TOTAL NET ASSETS ON OCTOBER 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. INTEL Leading manufacturer of microprocessors and semiconductor chips 1.9%
for use in personal computers.
2. PHILIP MORRIS The world's largest consumer marketing company with diversified 1.8%
product offerings, including tobacco, Kraft Cheese, Jello, Miller
Brewing and Maxwell House Coffee.
3. JOHNSON & The world's largest and most comprehensive manufacturer of health 1.4%
JOHNSON care products serving the consumer, pharmaceutical and professional
markets. Johnson & Johnson has a decentralized operating structure
with 160 operating companies in 50 countries around the world, selling
products in more than 175 countries.
4. PROCTER & The leading U.S. company marketing a broad range of laundry, 1.4%
GAMBLE cleaning, paper, beauty care, health care, food and beverage
products in more than 140 countries around the world. P&G's
top-selling brands include Tide, Ariel, Crest, Pampers, Pantene,
Crisco, Vick's and Max Factor.
5. COMPAQ A leading manufacturer of personal computers. 1.4%
COMPUTER
</TABLE>
11
<PAGE> 12
Largest Holdings
THE FUND'S LARGEST CORPORATE BOND HOLDINGS
REPRESENTING 2.2% OF THE FUND'S TOTAL NET ASSETS ON OCTOBER 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
1. OWENS ILLINOIS Leading diversified manufacturer of packaging products including 0.5%
glass bottles, plastic containers and multipack plastic carriers.
It is the largest manufacturer of glass bottles and containers in
the U.S.
2. RJR NABISCO The second largest producer of primarily branded cigarettes sold 0.5%
domestically and internationally. Through its 81 percent-owned
subsidiary, it is the leading producer of crackers and cookies in
the U.S. market with significant products in various other food
categories.
3. BOISE CASCADE One of the largest integrated paper products companies in the U.S., 0.4%
with an annual capacity of about 3.2 million tons of paper and
paperboard products.
4. UNITED AIRLINES The world's largest capacity airline with major hubs in Chicago and 0.4%
Los Angeles as well as in the Pacific. Employees in 1994 acquired 55
percent of the company through an ESOP transaction.
5. DELTA AIRLINES The third largest carrier in the U.S., with strong hubs in Atlanta, 0.4%
Cincinnati and Salt Lake City. Acquired translantic routes from
PanAm in 1990 and has a strong alliance with Virgin Atlantic Airways
of London.
</TABLE>
12
<PAGE> 13
KEMPER TOTAL RETURN FUND
Portfolio of Investments at October 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
GOVERNMENT OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
8.75%, 2000 $ 7,300 $ 8,178
7.75%, 2000 14,000 14,998
7.75%, 2001 77,500 84,160
6.25%, 2003 12,500 12,707
7.25%, 2004 180,000 194,690
6.50%, 2005 20,800 21,512
- ------------------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
7.25%, 2016 89,600 98,014
8.75%, 2017 129,000 162,197
- ------------------------------------------------------------------------------------------------------------
REPUBLIC OF ITALY
6.875%, 2023 9,500 8,788
---------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--20.7%
(Cost: $579,103) 605,244
---------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES VALUE
COMMON STOCKS
- ----------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.8%
Air Products & Chemicals 610,000 31,491
Alco Standard Corporation 225,000 19,912
Armstrong World Industries 366,700 21,773
(b)FMC Corp. 191,500 13,716
Georgia-Pacific Corp. 200,000 16,500
Monsanto Co. 343,700 36,002
---------------------------------------------------------------------------
139,394
- ----------------------------------------------------------------------------------------------------------
COMMUNICATIONS,
MEDIA AND
ENTERTAINMENT--4.0%
(b)Airtouch Communications 600,000 17,100
(b)DSC Communications Corp. 228,400 8,451
Walt Disney Co. 500,000 28,813
Gillett Holdings, Inc. 11,779 247
(b)Liberty Media Group, "A" 175,000 4,309
Tele-Communications, Inc. 700,000 11,900
(b)Tellabs Operations 172,500 5,865
(b)Viacom International
"A" shares 153,248 7,624
"B" shares 304,990 15,249
(b)WorldCom, Inc. 486,500 15,872
---------------------------------------------------------------------------
115,430
- ----------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE,
COMPONENTS, AND
SEMICONDUCTORS--12.3%
(b)Applied Materials, Inc. 520,000 26,065
(b)Atmel Corporation 698,600 21,831
(b)Bay Networks 202,500 13,416
(b)Cisco Systems 400,000 31,000
(b)Compaq Computer Corp. 720,000 40,140
Hewlett-Packard, Co. 405,000 37,513
Intel Corp. 809,000 56,529
(b)LSI Logic Corp. 470,000 22,149
(b)Parametric Technology Corp. 200,000 13,400
(b)Silicon Graphics, Inc. 586,600 19,504
(b)Sun Microsystems 414,000 32,292
Texas Instruments 350,000 23,887
(b)3Com Corporation 200,000 9,400
(b)Xilinx, Inc. 300,000 13,800
---------------------------------------------------------------------------
360,926
- ----------------------------------------------------------------------------------------------------------
</TABLE>
13
Portfolio of Investments
<PAGE> 14
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--3.9%
(a)Cimlinc Incorporated, "D", convertible
preferred 37,716 $ 142
Computer Associates International 555,000 30,525
First Data Corporation 377,286 24,948
General Motors Corporation, "E" 504,400 23,770
(b)Microsoft Corp. 350,000 35,000
---------------------------------------------------------------------------
114,385
- ----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND
SERVICES--8.0%
CPC International 250,500 16,627
Coca-Cola Co. 335,000 24,078
Gillette Co. 330,000 15,964
Newell Co. 509,000 12,280
PepsiCo 621,800 32,800
Philip Morris Companies 620,200 52,407
Procter & Gamble Co. 495,900 40,168
Sara Lee Corp. 670,000 19,681
Warnaco Group 850,000 19,763
---------------------------------------------------------------------------
233,768
- ----------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH
CARE--8.2%
Abbott Laboratories 604,800 24,041
Baxter International 450,000 17,381
Columbia/HCA Healthcare Corp. 439,200 21,576
Johnson & Johnson 500,600 40,799
Eli Lilly & Co. 300,000 28,987
Medtronic, Inc. 310,000 17,902
Merck & Co., Inc. 425,000 24,437
Pfizer Inc. 470,000 26,966
SmithKline Beecham PLC 525,000 27,234
Stryker Corp. 200,000 9,025
---------------------------------------------------------------------------
238,348
- ----------------------------------------------------------------------------------------------------------
ENERGY--1.2%
Enron Corp. 473,400 16,273
Mobil Corp. 200,000 20,150
---------------------------------------------------------------------------
36,423
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--5.9%
American International Group, Inc. 375,000 31,641
Banc One Corporation 450,000 15,188
(a)College Construction Loan Insurance
Association, "A", convertible preferred 534,189 5,817
Dean Witter Discover 310,000 15,423
Federal National Mortgage Association 250,000 26,219
First USA 218,400 10,046
General Re Corp. 105,000 15,212
MGIC Investment Corp. 302,400 17,199
Merrill Lynch & Co. 400,000 22,200
NationsBank 225,000 14,794
---------------------------------------------------------------------------
173,739
- ----------------------------------------------------------------------------------------------------------
</TABLE>
14
Portfolio of Investments
<PAGE> 15
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING AND CAPITAL
GOODS--7.0%
Allied-Signal 605,000 $ 25,713
B.F. Goodrich Co. 200,000 13,175
Boeing Co. 420,000 27,563
Emerson Electric Co. 337,800 24,068
Fluor Corp. 450,000 25,425
General Electric Co. 535,000 33,839
Magna International, "A" 270,000 11,678
Xerox Corporation 205,000 26,599
York International Corp. 406,500 17,784
---------------------------------------------------------------------------
205,844
- ----------------------------------------------------------------------------------------------------------
RETAILING--2.6%
(b)CUC International 329,050 11,393
(b)Federated Department Stores 900,000 22,838
May Department Stores Co. 410,000 16,093
(b)OfficeMax 1,004,600 24,864
Thrifty Payless Holdings 109,250 437
---------------------------------------------------------------------------
75,625
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION--.8%
Union Pacific Corp. 300,000 19,613
(b)Wisconsin Central Transportation
Corporation 72,600 4,374
---------------------------------------------------------------------------
23,987
---------------------------------------------------------------------------
TOTAL COMMON STOCKS--58.7%
(Cost: $1,362,594) 1,717,869
---------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
CORPORATE OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------
COMMUNICATIONS,
MEDIA AND
ENTERTAINMENT--3.7%
Adelphia Communications Corporation,
12.50%, 2002 $ 2,640 2,574
CF Cable TV, Inc., 11.625%, 2005 1,060 1,142
Cablevision Industries Corporation, 10.75%,
2002 6,300 6,851
Century Communications Corporation, 9.50%,
2005 7,000 7,070
Cinemark USA, Inc., 12.00%, 2002 3,230 3,488
Comcast Corporation, 10.625%, 2012 7,000 7,682
Continental Cablevision, Inc.
8.875%, 2005 2,000 2,090
9.50%, 2013 5,000 5,237
Cox Communications, 6.375%, 2000 9,500 9,479
MCI Communications, 7.50%, 2004 4,000 4,217
News American Holdings, 9.25%, 2013 9,500 10,810
Rogers Cablesystems Limited, 10.00%, 2005 4,900 5,120
Rogers Cantel, 11.125%, 2002 6,990 7,374
TCI Communications, 8.65%, 2004 9,500 10,213
Time Warner Entertainment Company, L.P.,
8.375%, 2033 9,500 9,624
Univision TV, 11.75%, 2001 7,000 7,595
Viacom International, Inc., 8.00%, 2006 7,000 6,947
---------------------------------------------------------------------------
107,513
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
Portfolio of Investments
<PAGE> 16
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS,
HEALTHCARE AND
RETAILING--4.0%
American Home Products, 7.90%, 2005 $ 9,500 $ 10,345
Columbia/HCA Healthcare Corp., 6.91%, 2005 9,500 9,601
Federated Department Stores, 10.00%, 2001 9,500 10,165
Grand Union Company, 12.00%, 2004 7,000 6,720
Host Marriott Travel Plazas, Inc., 9.50%,
2005 1,500 1,474
May Department Stores Co., 7.50%, 2015 4,500 4,640
Owens-Illinois, Inc., 11.00%, 2003 13,590 15,085
P&C Food Markets, Inc., 11.50%, 2001 60 59
Pathmark Stores, Inc.
11.625%, 2002 3,700 3,848
9.625%, 2003 3,000 2,970
Penn Traffic Company
10.25%, 2002 150 139
10.65%, 2004 2,100 1,963
10.375%, 2004 4,610 4,235
Philip Morris Companies
8.25%, 2003 4,500 4,896
7.25%, 2003 5,000 5,126
Philips Electronics N.V., 8.375%, 2006 9,100 10,135
RJR Nabisco Inc.
8.00%, 2000 4,500 4,719
8.75%, 2005 9,500 9,432
Ralph's Grocery, 13.75%, 2005 1,000 1,056
Sweetheart Cup Company Inc., 10.50%, 2003 2,850 2,822
Tenet Healthcare
9.625%, 2002 580 625
10.125%, 2005 6,420 6,934
---------------------------------------------------------------------------
116,989
- ----------------------------------------------------------------------------------------------------------
ENERGY--1.9%
Commonwealth Edison Co., 8.125%, 2007 9,500 9,767
Gulf Canada Resources Limited, 9.25%, 2004 7,000 7,053
Parker & Parsley Petroleum, 8.25%, 2007 6,000 6,248
Repsol International Finance, 7.00%, 2005 5,000 5,141
Texas Utilities Company, 6.75%, 2003 9,500 9,542
TransTexas Gas Corporation, 11.50%, 2002 7,000 7,315
USX Corporation, 9.375%, 2012 9,500 10,731
---------------------------------------------------------------------------
55,797
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--3.6%
ABN-AMRO Bank, 8.25%, 2009 9,500 10,318
Abbey National First Capital, 8.20%, 2004 9,500 10,474
Associates Corp. N.A., 8.25%, 1999 9,500 10,165
Capital One Bank, 8.125%, 2000 9,500 10,044
Citicorp, 7.625%, 2005 4,000 4,243
Comdata Network, Inc.
12.50%, 1999 3,310 3,699
13.25%, 2002 3,690 4,336
Commercial Credit, 7.375%, 2005 9,500 9,932
First USA Bank, 8.10%, 1997 9,500 9,733
GMAC Medium Term Note, 8.50%, 2000 9,500 10,341
Lehman Brothers Holdings, 7.125%, 2003 9,500 9,541
Malayan Banking Berhad, 7.125%, 2005 5,000 5,065
Sears Roebuck Acceptance Corp., 6.75%, 2005 9,500 9,505
---------------------------------------------------------------------------
107,396
- ----------------------------------------------------------------------------------------------------------
</TABLE>
16
Portfolio of Investments
<PAGE> 17
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
MANUFACTURING--2.3%
Boise Cascade Corp.
9.85%, 2002 $ 4,000 $ 4,610
9.45%, 2009 5,500 6,503
CSR America, 6.875%, 2005 9,500 9,589
Case Corp., 7.25%, 2005 5,000 5,125
Champion International Corporation, 7.10%,
2005 5,000 5,091
Crown Paper, 11.00%, 2005 5,000 4,750
James River Corp., 8.375%, 2001 9,500 10,318
Lockheed Corp., 6.75%, 2003 5,000 5,069
Magna International, 5.25%, 2005 2,750 2,798
Nortek, Inc., 9.875%, 2004 5,220 4,868
Raytheon Co., 6.50%, 2005 9,500 9,479
---------------------------------------------------------------------------
68,200
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION--.8%
Delta Airlines, 9.75%, 2021 9,500 10,862
United Airlines
11.21%, 2014 5,000 6,023
9.56%, 2018 4,750 5,058
---------------------------------------------------------------------------
21,943
---------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--16.3%
(Cost: $460,455) 477,838
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--2.6%
Yield--5.80% to 5.87%
Due--November and December 1995
Caterpillar Financial Services Corporation 7,200 7,193
ConAgra, Inc. 7,600 7,563
Countrywide Funding Corporation 15,200 15,195
Dayton Hudson Corporation 3,000 2,987
Finova Capital Corporation 28,000 27,971
GTE Finance Corporation 11,000 10,992
Sheffield Receivables Corp. 3,800 3,799
---------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--2.6%
(Cost: $75,701) 75,700
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.3%
(Cost: $2,477,853) 2,876,651
---------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--1.7% 49,891
---------------------------------------------------------------------------
NET ASSETS--100% $2,926,542
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition. No
market quotations were available for unrestricted securities of the same
class on the dates of acquisition or on October 31, 1995. These securities
are valued at fair value as determined in good faith by the Board of
Trustees of the Fund. At October 31, 1995, the aggregate value of the Fund's
restricted securities was $5,959,000, which represented .20% of net assets.
<TABLE>
<CAPTION>
DATE OF NUMBER COST
SECURITY DESCRIPTION ACQUISITION OF SHARES PER SHARE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cimlinc Incorporated, "D", convertible preferred December 1983 37,716 $8.75
------------------------------------------------------------------------------------------------------------
College Construction Loan Insurance Association, "A",
convertible preferred September 1991 534,189 9.31
------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Non-income producing security.
Based on the cost of investments of $2,477,853,000 for federal income tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation
was $417,776,000, the aggregate gross unrealized depreciation was
$18,978,000 and the net unrealized appreciation on investments was
$398,798,000.
17
Portfolio of Investments
<PAGE> 18
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER TOTAL RETURN FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Total Return Fund as of
October 31, 1995, the related statements of operations for the year then ended,
and changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal periods since 1991. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Total Return Fund at October 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal periods
since 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1995
18
Report of Independent Auditors
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
(in thousands)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
ASSETS
Investments, at value
(Cost: $2,477,853) $2,876,651
- ------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1,207
- ------------------------------------------------------------------------------------------
Investments sold 39,853
- ------------------------------------------------------------------------------------------
Dividends and interest 26,927
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 2,944,638
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
LIABILITIES AND NET ASSETS
<S> <C>
Cash overdraft 110
- ------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 6,014
- -------------------------------------------------------------------------------------------
Investments purchased 7,983
- -------------------------------------------------------------------------------------------
Management fee 1,310
- -------------------------------------------------------------------------------------------
Distribution services fee 714
- -------------------------------------------------------------------------------------------
Administrative services fee 581
- -------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,277
- -------------------------------------------------------------------------------------------
Other 107
- -------------------------------------------------------------------------------------------
Total liabilities 18,096
- -------------------------------------------------------------------------------------------
NET ASSETS $2,926,542
- -------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
</TABLE>
<TABLE>
<S> <C>
Paid-in capital $2,358,916
- -------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 139,014
- -------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 398,798
- -------------------------------------------------------------------------------------------
Undistributed net investment income 29,814
- -------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $2,926,542
- -------------------------------------------------------------------------------------------
THE PRICING OF SHARES
</TABLE>
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($1,772,822 / 167,193 shares outstanding) $10.60
- -------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $11.25
- -------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,135,827 / 107,242 shares outstanding) $10.59
- -------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($5,357 / 505 shares outstanding) $10.61
- -------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($12,536 / 1,182 shares outstanding) $10.61
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
Financial Statements
<PAGE> 20
STATEMENT OF OPERATIONS
Year ended October 31, 1995
(in thousands)
INVESTMENT INCOME
<TABLE>
<S> <C>
Interest $ 85,861
- --------------------------------------------------------------------------------------------
Dividends 30,292
- --------------------------------------------------------------------------------------------
Total investment income 116,153
- --------------------------------------------------------------------------------------------
Expenses:
Management fee 15,147
- --------------------------------------------------------------------------------------------
Distribution services fee 8,329
- --------------------------------------------------------------------------------------------
Administrative services fee 6,766
- --------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 10,288
- --------------------------------------------------------------------------------------------
Professional fees 94
- --------------------------------------------------------------------------------------------
Reports to shareholders 614
- --------------------------------------------------------------------------------------------
Registration fees 582
- --------------------------------------------------------------------------------------------
Trustees' fees and other 55
- --------------------------------------------------------------------------------------------
Total expenses 41,875
- --------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 74,278
- --------------------------------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments 166,489
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 250,703
- --------------------------------------------------------------------------------------------
Net gain on investments 417,192
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $491,470
- --------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 74,278 45,058
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) 166,489 (22,890)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 250,703 (162,556)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 491,470 (140,388)
- ----------------------------------------------------------------------------------------------
Net equalization credits (charges) (3,257) 1,040
- ----------------------------------------------------------------------------------------------
Distribution from net investment income (61,461) (43,250)
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain -- (145,818)
- ----------------------------------------------------------------------------------------------
Total dividends to shareholders (61,461) (189,068)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (364,532) 1,683,051
- ----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 62,220 1,354,635
- ----------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 2,864,322 1,509,687
- ----------------------------------------------------------------------------------------------
END OF YEAR (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF
$29,814 AND $12,277, RESPECTIVELY) $2,926,542 2,864,322
- ----------------------------------------------------------------------------------------------
</TABLE>
20
Financial Statements
<PAGE> 21
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Total Return Fund is an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund 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 or a contingent deferred sales
charge but are subject to higher ongoing expenses
than Class A shares and 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. 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. Exchange traded fixed
income options are valued at the last sale price
unless there is no sale price, in which event
prices provided by market makers are 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. Interest income includes
premium and discount amortization on money market
instruments; it also includes original issue and
market discount amortization on long-term 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
21
Notes to Financial Statements
<PAGE> 22
shares). Proceeds payable on redemption of Class B
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 AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax provision is required.
The Fund declares and pays dividends on a quarterly
basis. Net realized capital gains, if any, will be
distributed at least annually. Differences in
dividends per share are due to different class
expenses. Dividends payable to its shareholders are
recorded by the Fund on the ex-dividend date.
Dividends are determined in accordance with income
tax principles which may treat certain transactions
differently than 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 Kemper Financial Services, Inc.
(KFS) and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining gradually to .42% of average
daily net assets in excess of $12.5 billion. The
Fund incurred a management fee of $15,147,000 for
the year ended October 31, 1995.
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>
Year ended
October 31, 1995 $206,000 1,642,000 218,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to 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 shares. Distribution fees and commissions
paid in connection with the sale of Class B and
Class C
22
Notes to Financial Statements
<PAGE> 23
shares and the CDSC received in connection with the
redemption of Class B 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>
Year ended
October 31, 1995 $11,647,000 3,784,000 376,000
</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>
Year ended
October 31, 1995 $ 6,766,000 6,685,000 1,010,000
</TABLE>
SHAREHOLDER SERVICES AGENT AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. For the year ended
October 31, 1995, the transfer agent remitted
shareholder services fees to KSvC of $7,970,000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of KFS.
During the year ended October 31, 1995, the Fund
made no direct payments to its officers and
incurred trustees' fees of $43,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1995, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $3,826,883
Proceeds from sales 3,905,053
23
Notes to Financial Statements
<PAGE> 24
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION> YEAR ENDED OCTOBER 31,
1995 1994
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
SHARES SOLD
--------------------------------------------------------------------------
Class A 14,502 $ 135,398 31,207 $ 297,652
---------------------------------------------------------------------------
Class B 15,052 143,653 10,573 95,681
---------------------------------------------------------------------------
Class C 395 3,809 220 1,981
---------------------------------------------------------------------------
Class I 1,310 13,241 -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 4,083 39,343 17,063 165,753
---------------------------------------------------------------------------
Class B 1,801 17,381 702 6,454
---------------------------------------------------------------------------
Class C 6 61 1 9
---------------------------------------------------------------------------
Class I 10 108 -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------
Class A (47,282) (445,366) (35,399) (330,847)
---------------------------------------------------------------------------
Class B (28,454) (269,650) (12,294) (110,801)
---------------------------------------------------------------------------
Class C (110) (1,072) (7) (68)
---------------------------------------------------------------------------
Class I (138) (1,438) -- --
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CONVERSION OF SHARES
--------------------------------------------------------------------------
Class A 7,674 72,592 9,282 83,900
---------------------------------------------------------------------------
Class B (7,680) (72,592) (9,291) (83,900)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) SHARES ISSUED IN ACQUISITION
--------------------------------------------------------------------------
Class A -- -- 31,665 292,476
---------------------------------------------------------------------------
Class B -- -- 136,833 1,264,761
---------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $(364,532) $1,683,051
---------------------------------------------------------------------------
(a) On May 27, 1994, the Fund acquired the assets
of Kemper Investment Portfolios - Total Return
Portfolio in a tax-free exchange.
</TABLE>
24
Notes to Financial Statements
<PAGE> 25
<TABLE>
<CAPTION>
---------------------------------------------
CLASS A
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 9.10 11.23 10.07 10.07 7.78
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .19 .30 .22 .36
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.46 (1.01) 1.54 .37 2.42
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.75 (.82) 1.84 .59 2.78
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .25 .23 .24 .29 .49
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- 1.08 .44 .30 --
- -------------------------------------------------------------------------------------------------------
Total dividends .25 1.31 .68 .59 .49
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.60 9.10 11.23 10.07 10.07
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN 19.46% (7.92) 19.08 6.09 37.20
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12% 1.13 1.02 1.06 1.03
- -------------------------------------------------------------------------------------------------------
Net investment income 3.00 2.34 2.94 2.23 3.96
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS I
MAY 31, MAY 31, JULY 3,
YEAR ENDED 1994 TO YEAR ENDED 1994 TO 1995 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------- -------------------------- -------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.09 9.24 9.09 9.24 10.07
- -------------------------------------------------------------------- --------------------------- ----------------
Income from investment operations:
Net investment income .20 .06 .21 .06 .10
- -------------------------------------------------------------------- --------------------------- ----------------
Net realized and unrealized gain (loss) 1.46 (.16) 1.48 (.16) .52
- -------------------------------------------------------------------- --------------------------- ----------------
Total from investment operations 1.66 (.10) 1.69 (.10) .62
- -------------------------------------------------------------------- --------------------------- ----------------
Less distribution from net investment
income .16 .05 .17 .05 .08
- -------------------------------------------------------------------- --------------------------- ----------------
Net asset value, end of period $10.59 9.09 10.61 9.09 10.61
- -------------------------------------------------------------------- -------------------------- -------------
TOTAL RETURN (NOT ANNUALIZED) 18.42% (1.06) 18.76 (1.05) 6.21%
- -------------------------------------------------------------------- -------------------------- -------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
Expenses 2.05% 2.03 1.86 2.00 .61
- -------------------------------------------------------------------- --------------------------- ----------------
Net investment income 2.07 1.57 2.26 1.60 2.97
- -------------------------------------------------------------------- --------------------------- ----------------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $2,926,542 2,864,322 1,509,687 1,212,896 998,465
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 142% 121 180 150 157
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
25
Financial Highlights
<PAGE> 26
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, a special shareholders' meeting was held. Kemper Total
Return Fund shareholders were asked to vote on four separate issues: election
of nine Trustees to the Board of Trustees, ratification of Ernst & Young LLP as
independent auditors, approval of a new investment management agreement with
Kemper Financial Services, Inc. or its successor on the same terms as the
current agreement and for Class B and Class C shareholders only, approval of a
new 12b-1 distribution plan with Kemper Distributors, Inc. or its successor on
the same terms as the current plan. We are pleased to report that all nominees
were elected and all other items were approved. Following are the results for
each issue:
- -Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 160,421,963 4,893,333
Lewis A. Burnham 160,554,215 4,761,091
Donald L. Dunaway 160,537,684 4,777,612
Robert B. Hoffman 160,554,215 4,761,081
Donald R. Jones 160,455,026 4,860,270
David B. Mathis 160,421,963 4,893,333
Shirley D. Peterson 160,355,837 4,959,459
William P. Sommers 160,504,621 4,810,675
Stephen B. Timbers 160,537,684 4,777,612
</TABLE>
- -Ratification of the selection of Ernst & Young LLP as independent auditors for
the fund
For Against Abstain
156,266,142 2,550,714 6,498,440
- -Approval of new investment management agreement
For Against Abstain
152,567,329 4,261,348 8,486,619
- -Approval of new 12b-1 distribution plan
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
Class B
Shares 56,810,678 2,393,999 3,881,604
Class C
Shares 201,196 3,057 19,158
</TABLE>
26
<PAGE> 27
NOTES
27
<PAGE> 28
Trustees and Officers
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
GARY A. LANGBAUM
Vice President
JOHN E. PETERS
Vice President
STEVEN H. REYNOLDS
Vice President
PHILIP J. COLLORA
Vice President
and Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
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
Independent Auditors Ernst & Young LLP
233 South Wacker Drive
Chicago, IL 60606
Investment Manager Kemper Financial Services, Inc.
Principal Underwriter Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, IL 60603
[Recycled paper logo] [KEMPER MUTUAL FUNDS LOGO]
Printed on recycled paper.
This report is not to be distributed 1006780
unless preceded or accompanied by a Printed in the U.S.A.
Kemper Equity Funds prospectus.
KTRF - 2 (12/95)
