<PAGE> 1
KEMPER
TOTAL RETURN FUND
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1997
LONG TERM INVESTING IN A SHORT-TERM WORLD (SM)
Seeking the highest total return, a combination of income and capital
appreciation, consistent with reasonable risk.
"... We've adhered to our strategy, using Corrections to buy good quality
companies when they've come down..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
9
INDUSTRY SECTORS
10
LARGEST HOLDINGS
11
PORTFOLIO OF INVESTMENTS
18
REPORT OF INDEPENDENT AUDITORS
19
FINANCIAL STATEMENTS
21
NOTES TO FINANCIAL STATEMENTS
24
FINANCIAL HIGHLIGHTS
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1997 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 18.95%
CLASS B 17.86%
CLASS C 17.92%
LIPPER BALANCED FUNDS CATEGORY AVERAGE* 19.51%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
Returns, rankings 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
10/31/97 10/31/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TOTAL RETURN FUND
CLASS A $11.34 $11.28
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS B $11.33 $11.27
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS C $11.34 $11.28
- --------------------------------------------------------------------------------
</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 #189 of 343 funds #228 of 343 funds #226 of 343 funds
- --------------------------------------------------------------------------------
5-YEAR #63 of 99 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #20 of 44 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #20 of 28 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #6 of 25 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
DURING THE FISCAL YEAR ENDED OCTOBER 31, 1997, KEMPER TOTAL RETURN FUND MADE
THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.3250 $0.2220 $0.2295
- --------------------------------------------------------------------------------
SHORT-TERM
CAPITAL GAIN $ 0.43 $ 0.43 $ 0.43
- --------------------------------------------------------------------------------
LONG-TERM
CAPITAL GAIN $ 1.06 $ 1.06 $ 1.06
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
FIXED STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR EQUITY STYLE BOX]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style Box
is based on a portfolio date as of October 31, 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.
CONSUMER NONDURABLES Companies whose products are used on a regular basis,
such as soft drinks, household products and razor blades. They are usually
considered defensive stocks since product demand tends to be consistent and not
closely tied to the economy's strength.
PRICE-TO-EARNINGS RATIO A company's stock price divided by its earnings for the
past four quarters, also referred to as its P/E.
VOLATILITY Characteristic of a security, commodity or market to rise or fall
sharply in price within a short period of time.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
Stephen B. Timbers is president, chief executive and chief investment officer of
Zurich Kemper Investments, Inc. (ZKI). ZKI and its affiliates manage
approximately $86 billion in assets, including $49 billion in retail mutual
funds. Timbers is a graduate of Yale University and holds an M.B.A. from
Harvard University.
DEAR SHAREHOLDERS,
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high -- as our equity market was
for most of this year -- they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction was
Southeast Asia, where the world's highest growth economies had been stumbling
since the summer. These economies had become overextended, banks ran into
trouble with bad loans and the local governments failed to take prompt action.
The result was a domino effect of competitive devaluations of currencies,
crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in the
U.S. equity market -- resulting in a 7 percent loss on October 27 -- the world
quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to 7000
than to 8000, we would have expected that the market would have dropped only
slightly.
But as we have said before, today's markets move very fast. We experienced in
one day the kind of correction that we used to experience over a six-month
period. By Wednesday, November 19, the Dow Jones Industrial Average had climbed
back to where it was before Gray Monday, October 27, 1997. It took only 26 days
to recoup -- contrast that with the 463 days needed to recoup from Black Monday.
The market did not recover from its 22.6 percent October 19, 1987, market
correction until January 24, 1989. At this writing, the U.S. equity market
remains very volatile. We expect that condition to continue, as volatility is a
factor of higher valued markets. Despite what the last few years may have
suggested, markets do not go in just one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise. Investors
who got hurt in the October correction were those who had borrowed the
money they invested and were forced to sell at low prices. Investors who
were able to remain invested and did, lost only some of their
above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government securities
investors, for example, found the bond market to be a safe haven as the
bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic growth,
stable interest rates and controlled inflation. While we cannot rule out the
possibility of another market event that would add to the excitement of equity
investing, we would expect the U.S. market to again demonstrate its resiliency.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND
PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (11/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.88 6.49 6.3 5.71
PRIME RATE(2) 8.5 8.5 8.25 8.65
INFLATION RATE(3)* 2.08 2.3 3.25 2.6
THE U.S. DOLLAR(4) 9.65 5.52 4.36 -2.58
CAPITAL GOODS ORDERS(5)* 9.92 7.16 3.3 8.09
INDUSTRIAL PRODUCTION(5)* 5.51 4.23 4.33 3.4
EMPLOYMENT GROWTH(6) 2.52 2.13 2.15 1.91
</TABLE>
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of October 31, 1997.
Sources: Economics Department, Zurich Kemper Investments, Inc.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT AND CHIEF INVESTMENT OFFICER
ZURICH KEMPER INVESTMENTS INC.
December 4, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[LANGBAUM PHOTO]
GARY A. LANGBAUM HAS BEEN WITH ZURICH KEMPER INVESTMENTS, INC. (ZKI) SINCE 1988.
HE IS EXECUTIVE VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND PORTFOLIO MANAGER
OF KEMPER TOTAL RETURN FUND. LANGBAUM IS A CHARTERED FINANCIAL ANALYST WITH 26
YEARS OF EXPERIENCE IN EQUITY RESEARCH AND PORTFOLIO MANAGEMENT. HE RECEIVED HIS
BACHELOR'S DEGREE AND COMPLETED HIS MASTER'S OF BUSINESS ADMINISTRATION
COURSEWORK FROM THE UNIVERSITY OF MARYLAND.
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.
VOLATILITY RETURNED TO THE MARKET IN A BIG WAY IN 1997. PORTFOLIO MANAGER GARY
LANGBAUM USED A "GROWTH AT THE RIGHT PRICE" APPROACH TO HELP MITIGATE PRICE
SWINGS AND ACHIEVE A RESPECTABLE RETURN.
Q GARY, BEFORE YOU DETAIL THE FUND'S PERFORMANCE OVER THE LAST YEAR, COULD
YOU PROVIDE SOME BACKGROUND REGARDING THE PERFORMANCE OF STOCKS IN GENERAL?
A Overall, it was a good period for equity markets, although it was more
volatile than recent years. In broad terms, large company stocks performed the
best during the first half of the fiscal year, and smaller stocks performed the
best during the last half. For the year ended October 31, 1997, the Russell 1000
Growth Index, the benchmark we use for large company growth stocks, rose 30.47
percent.
We've gotten used to kinder, gentler markets over the past 36 months or so,
with steep moves only occurring in an upward direction. That changed in 1997,
but despite bouts of panicky selling and "the party's over" rhetoric, the market
finished ahead. If investors didn't get spooked, they ended up with solid gains,
and that just highlights the importance of maintaining a long-term focus.
Q HOW DID THE FUND PERFORM IN COMPARISON?
A For the year ended October 31, 1997, the fund's total return for Class A
shares (unadjusted for any sales charge) was 18.95 percent. Throughout the year,
we maintained approximately 35 percent of the portfolio in bonds. While this
positioning impeded the fund's returns versus the stock market, it also helped
dampen volatility. As far as our peer group is concerned, the Lipper Balanced
Fund Category Average returned 19.51 percent for the same period, so we
performed in line with the average balanced fund. For us, however, our
performance relative to our peers is somewhat disappointing because we were
ahead of the Lipper average for most of the fiscal year. Unfortunately, the
market downturn during the few months (specifically August and October) hit us a
little harder than our competition.
Q WHY WAS THAT?
A There were a couple of reasons. First, the uncertainty created by the
Asian currency problems in October prompted many investors to move to high
quality growth stocks, particularly in the health care area, and pay just about
any price to do so. We, on the other hand, buy those types of stocks only when
we believe the price is right. Consequently, we didn't have significant
positions in some of the big-name growth stocks that continued to gain
regardless of the fundamentals. Second, our aggressive positioning, which had
worked for us for most of the fiscal year, worked against us in October.
Q COULD YOU ELABORATE ON THOSE TWO POINTS?
A Certainly. We are "growth at the right price" investors. We look at
price-to-earnings ratios versus historical norms for given stocks or groups of
stocks, make a judgment as to how well they can grow earnings in the future, and
then determine if the stock's current price represents a good value. Ideally,
we
5
<PAGE> 6
PERFORMANCE UPDATE
seek companies that have good long-term prospects, but whose prices are down for
a short-term reason. Or, to put it another way, we want to find stocks that are
likely to grow faster than the market average, but that are priced near the
market average.
Such stocks were out of favor during the last half of the fiscal year.
The market's volatility made many investors nervous, and they decided to fly to
big, brand-name stocks and pay any price to do so. For example, the price of
the average stock in the S&P 500 is about 20 times this year's earnings right
now. Proctor & Gamble, a classic type of growth company, has a current P/E of
27 times this year's earnings. Coke was recently selling at 38 times this year's
earnings. Lofty valuations like those make you hesitant. We just don't think
there's a lot of upside in a stock priced that highly, and they are susceptible
to a big plunge on any bad news. Regardless, the market continued to bid them
up.
We've adhered to our strategy, using corrections to buy good quality
companies when they're down. So far the market hasn't rewarded us significantly
for our patience, but I believe we'll be vindicated in the long run.
As is our style, we were fairly aggressive when we saw opportunities. In
fast moving markets like this one, you have to move confidently to capture
gains.
Q WHEN DID THIS AGGRESSIVE POSITIONING WORK OUT?
A We had a large weighting in financial stocks, and they had a strong run
this year despite a difficult October. We'll likely maintain this weighting
because we believe the sector should continue to outperform the market as a
whole. Gains will probably be more selective, however, particularly in light of
currency problems in Southeast Asia. Big "money-center" banks in particular may
be negatively impacted. Ironically, the difficulties experienced by Asian
markets do have one potential positive for the U.S. economy: the Federal Reserve
should not raise rates and that bodes well for most financial stocks.
Another area where we saw value was the consumer cyclical sector, that
is, stocks that do well when the economy is healthy and people have more
disposable income. That includes retail and leisure industries such as gaming
and cruise ships. There has been a lot of demand in these areas, and the fund
has benefited from our overweighting there.
Finally, oil service companies have been one of the strongest areas in
the rallying energy sector.
Q WHAT POSITIONS DIDN'T WORK OUT AS WELL AS YOU'D HOPED?
A We carried a meaningful weighting in capital goods stocks and basic
industry stocks and they haven't responded as we thought they would. We believed
they appeared to be attractively valued, and that the economy's solid pace of
growth was in their favor. Unfortunately, they've had no pricing power, which is
where these companies traditionally can leverage their earnings. The worldwide
economy hasn't grown sharply enough, and cost-cutting has kept prices at a
standstill.
We were also light on large drug companies purely for valuation reasons.
They simply looked too expensive and vulnerable to any type of economic
setback. But they've continued to advance because they're considered safer
havens in times of uncertainty. We will look to increase our weighting in these
stocks should they come down in price.
Q YOU'VE TYPICALLY HELD A FAIRLY SUBSTANTIAL WEIGHTING IN TECHNOLOGY STOCKS.
HOW ARE YOU POSITIONED THERE?
A We moved aggressively in and out of the technology sector as valuations
dictated. After they corrected in April, we increased our weighting and enjoyed
good performance as a result. In October, technology stocks were being dumped
across the board, mainly because investors aren't sure how big an impact the
Asian currency problems will have. However, valuations look attractive on solid
companies that will likely be little affected by the turbulence in Asian
markets. Selected companies will experience earnings disappointments, but
overall the widespread disenchantment with technology companies at the end of
October is reminiscent of last April, which represented a huge buying
opportunity in high quality tech companies. We only had neutral weighting in
tech stocks going into October because they'd had such a strong rally during the
summer. But we'll probably boost that given the good values we're seeing now.
Q HOW WAS THE BOND PORTION OF THE PORTFOLIO POSITIONED AND HOW DID THAT
PERFORM?
A Bonds have consistently made up about 35 percent of the portfolio during
the fiscal year. Late in the year, we boosted our weighting in government bonds
as a percentage of the total so that they are about 60 percent of the bond
position, up from 50 percent. That was to help increase liquidity as well as
dampen volatility. Plus, we felt more comfortable that rates would hold
6
<PAGE> 7
PERFORMANCE UPDATE
steady or move down, which favors government bonds. The majority of our bond
assets not invested in governments has been in high yield bonds to help provide
some income.
Q HOW MUCH OF THE PORTFOLIO IS INVESTED INTERNATIONALLY?
A Our international exposure has been virtually nil this year, and that
positioning has been vindicated by the turbulence in international markets,
particularly Pacific Rim markets. We simply believe that the domestic market
still has strong growth prospects and should be quite a bit more stable than
foreign markets. We might increase our international exposure if rates start
moving down more aggressively overseas or if we cannot find attractively priced
domestic stocks.
Q WITH THE MARKET NOW WILLING TO MAKE BIG MOVES DOWN AS WELL AS UP, ARE YOU
STILL BULLISH IN YOUR OUTLOOK?
A Definitely. I believe we should test 8,000 again by year end, and I'm
highly confident that we'll break into new highs in 1998. In fact, I believe the
big surprise for 1998 will be another 20 percent appreciation year. That would
make the fourth successive year of over 20 percent performance, a record for the
market.
Certainly there will be bouts of uncertainty and turbulence. But we
continue to enjoy relatively little upward pressure on interest rates, plus
modest economic expansion, solid earnings growth and no inflation to speak of.
With these factors in place, the environment remains very positive for both
stocks and bonds. We think that investors who can keep their heads and
maintain a long-term focus should continue to benefit.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A 12.09% 11.12% 12.13% 11.82% (since 3/02/64)
- -----------------------------------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS B 14.86 N/A N/A 13.84 (since 5/31/94)
- -----------------------------------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS C 17.92 N/A N/A 14.38 (since 5/31/94)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 1/1/79 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/79 12/31/85 12/31/91 10/31/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Total Return Fund Class A(1) 10000 32967 71990 125595
Russell 1000 Growth Index+ 10000 28186 72895 169047
Lehman Brothers Government/Corporate Bond Index++ 10000 22337 40826 62387
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class B shares from 5/31/94 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/95 12/31/96 10/31/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Total Return Fund Class B(1) 10000 12011 13847 15581
Russell 1000 Growth Index+ 10000 14445 17784 22011
Lehman Brothers Government/Corporate Bond Index++ 10000 11999 12347 13341
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class C shares from 5/31/94 to 10/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/95 12/31/96 10/31/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Total Return Fund Class C(1) 10000 12052 13894 15839
Russell 1000 Growth Index+ 10000 14445 17784 22011
Lehman Brothers Government/Corporate Bond Index++ 10000 11999 12347 13341
</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.
* 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
percent and for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) as follows: 1-year, 3 percent; 5 year, 1
percent; since inception, 0 percent. The maximum CDSC for Class B shares is
4 percent. For Class C shares, there is a 1 percent CDSC on certain
redemptions within the first year of purchase. 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 Class A shares and the contingent deferred sales
charge in effect at the end of the period for Class B shares. When
reviewing the performance chart, please note that the inception date for
the Russell 1000 Growth Index is January 1, 1979. As a result, we are
unable to illustrate the life of fund performance (since March 2, 1964) for
Kemper Total Return Fund Class A shares. In comparing the Kemper Total
Return Fund Class A and Class B to the 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 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 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.
8
<PAGE> 9
INDUSTRY SECTORS
A LOOK AT 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 in which the fund invests. The graph below
provides a look at how the composition of the common stock portion of the
portfolio has changed in a year, by presenting the fund's sectors represented on
October 31, 1997, and on October 31, 1996.
[EQUITY PORTION BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER TOTAL RETURN
ON 10/31/97 ON 10/31/96
<S> <C> <C>
CONSUMER NONDURABLES 22.0% 20.5%
FINANCE 20.6% 18.6%
TECHNOLOGY 15.8% 10.4%
HEALTH CARE 9.9% 16.2%
ENERGY 9.1% 4.8%
CAPITAL GOODS 8.8% 13.2%
UTILITIES 5.7% 4.3%
CONSUMER DURABLES 4.4% 3.8%
BASIC INDUSTRIES 1.9% 4.7%
TRANSPORTATION 1.8% 3.5%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX*, THE FUND'S BENCHMARK FOR THE
COMMON STOCK PORTION OF THE FUND
The common stock portion of Kemper Total Return Fund can be compared to the
Russell 1000 Growth Index as a benchmark. The graph below shows the percentage
of the common stocks in the portfolio that each sector of the Kemper Total
Return Fund represented on October 31, 1997, compared to the industry sectors of
the Russell Growth 1000 Index.
[RUSSELL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN RUSSELL 1000 GROWTH
ON 10/31/97 ON 10/31/97
<S> <C> <C>
CONSUMER NONDURABLES 22.0% 31.1%
FINANCE 20.6% 6.8%
TECHNOLOGY 15.8% 24.4%
HEALTH CARE 9.9% 19.8%
ENERGY 9.1% 3.1%
CAPITAL GOODS 8.8% 9.6%
UTILITIES 5.7% 1.6%
CONSUMER DURABLES 4.4% 0.6%
BASIC INDUSTRIES 1.9% 2.8%
TRANSPORTAION 1.8% 0.2%
</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.
9
<PAGE> 10
LARGEST HOLDINGS
THE FUND'S LARGEST EQUITY HOLDINGS*
REPRESENTING 9.4 PERCENT OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON OCTOBER
31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. GENERAL ELECTRIC CO. Operates in major businesses including power 2.9%
generators, appliances, lighting, plastics, medical
systems, aircraft engines, financial services and
broadcasting.
- -------------------------------------------------------------------------------------------------------
2. MORGAN STANLEY, DEAN WITTER Financial conglomerate whose businesses include 1.7%
DISCOVER & CO. investment banking, securities brokerage and credit
card services.
- -------------------------------------------------------------------------------------------------------
3. EXXON CORP. Explores for and produces crude oil and natural 1.7%
gas; also manufactures petroleum products as well
as exploring and mining for coal.
- -------------------------------------------------------------------------------------------------------
4. FEDERATED DEPARTMENT STORES One of the nation's leading department store 1.6%
retailers, Federated operates over 350 department
stores and over 100 specialty and clearance stores
in 35 states. Operates under the names
Bloomingdale's, The Bon Marche, Burdine's,
Goldsmith's, Lazarus, Macy's, Rich's and Stern's.
- -------------------------------------------------------------------------------------------------------
5. AMERICAN HOME PRODUCTS CORP. Manufactures and markets health care products, 1.5%
including pharmaceuticals, consumer health care
products and medical supplies.
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE FUND'S LARGEST CORPORATE BOND HOLDINGS*
Representing 15.3 percent of the fund's total long-term bond holdings on October
31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
HOLDINGS PERCENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. COMCAST Operates, develops and manages cable communication 5.3%
systems. The company is also prominent in the
cellular telephone industry in the Mid-Atlantic
region.
- -------------------------------------------------------------------------------------------------------
2. TELEWEST COMMUNICATIONS PLC Owns and operates 16 cable franchises and has 2.8%
minority interests in seven others.
- -------------------------------------------------------------------------------------------------------
3. TENET HEALTHCARE CORP. Provides a broad range of health care services via 2.6%
acute care hospitals and related businesses.
- -------------------------------------------------------------------------------------------------------
4. PATHMARK STORES An established grocery store chain based primarily 2.3%
on the east coast.
- -------------------------------------------------------------------------------------------------------
5. DELCO REMY INTERNATIONAL One of the largest manufacturers of automotive 2.3%
batteries and other auto parts.
- -------------------------------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS 10.75%, 2003 $ 9,755 $ 12,008
10.75%, 2005 57,880 75,190
10.375%, 2009 24,405 30,438
9.125%, 2009 21,610 25,226
13.875%, 2011 87,765 133,485
12.00%, 2013 8,200 12,009
10.625%, 2015 102,660 151,808
8.75%, 2020 14,000 18,268
6.50%, 2026 13,010 13,561
6.00%, 2026 5,110 4,974
6.625%, 2027 10,000 10,603
-----------------------------------------------------------------------------
487,570
- --------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES 8.75%, 2000 4,300 4,630
7.75%, 2001 77,500 82,089
6.625%, 2002 16,550 17,088
6.25%, 2003 14,800 15,096
7.25%, 2004 8,000 8,605
5.875%, 2004 2,400 2,408
6.625%, 2007 1,725 1,815
6.125%, 2007 15,950 16,291
-----------------------------------------------------------------------------
148,022
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION 6.50%, 2024 39,663 39,260
- --------------------------------------------------------------------------------------------------------------------
PROVINCE OF QUEBEC, CANADA 8.625%, 2005 8,250 9,265
-----------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--21.1%
(Cost: $668,720) 684,117
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--1.2% Air Products & Chemicals 238,700 18,141
Cementos Mexicanos, S.A. de C.V., "B" 128,500 558
Georgia-Pacific Corp. 125,000 10,602
Temple-Inland, Inc. 141,100 8,096
-----------------------------------------------------------------------------
37,397
- --------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.3% Emerson Electric Co. 380,200 19,937
General Electric Co. 866,000 55,911
General Motors Corp. - Class H 225,000 14,231
Murata Manufacturing 14,000 568
Raytheon Co. 375,000 20,344
Sundstrand Corp. 369,800 20,108
Technip, S.A. 15,606 1,657
(a)USA Waste Services 485,500 17,964
U.S. Industries 375,000 10,078
United Technologies 153,200 10,724
-----------------------------------------------------------------------
171,522
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--5.8% CVS Corp. 332,300 $ 20,374
Carnival Corp. 300,000 14,550
(a)Consolidated Stores Corp. 566,250 22,579
Dillard Department Stores 525,000 20,147
Walt Disney Co. 180,000 14,805
(a)Federated Department Stores 700,000 30,800
Hudson's Bay Co. 40,400 925
May Department Stores Co. 401,900 21,652
PPG Industries 235,000 13,307
J.C. Penney Co. 100,000 5,869
Rentokil Initial 186,000 749
Sony Corp. 5,100 424
(a)Toys R Us 600,000 20,438
-------------------------------------------------------------------------
186,619
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.6% Goodyear Tire & Rubber Co. 212,500 13,308
Honda Motor Co., Ltd. 14,000 471
(a)Lear Corp. 349,300 16,788
Leggett & Platt, Inc. 484,600 20,232
Magna International, Inc., "A" 217,500 14,328
Matsushita Electric Industrial Co., Ltd 29,000 487
Stanley Works 459,100 19,397
-------------------------------------------------------------------------
85,011
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.5% CPC International 166,000 16,434
Clear Channel Communications 231,600 15,283
R.R. Donnelley & Sons Co. 442,000 14,420
General Mills 170,000 11,220
Gillette Co. 180,000 16,031
H.J. Heinz Co. 300,000 13,931
International Flavors & Fragrances 300,000 14,512
Kimberly-Clark Corp. 375,000 19,477
Newell Co. 522,200 20,039
PepsiCo 595,000 21,903
Philip Morris Cos. 275,600 10,921
Procter & Gamble Co. 269,800 18,346
Sara Lee Corp. 350,000 17,894
Seagram Company, Ltd. 300,000 10,106
Time Warner, Inc. 375,000 21,633
Tricon Global Restaurant 59,500 1,804
-------------------------------------------------------------------------
243,954
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--5.5% AMOCO Corp. 285,000 26,131
Baker Hughes, Inc. 300,000 13,781
British Petroleum 54,483 800
Chevron Corp. 125,000 10,367
Exxon Corp. 536,800 32,980
Mobil Corp. 334,000 24,319
Petro-Canada 50,900 1,034
Royal Dutch Petroleum 480,000 25,260
Schlumberger, Ltd. 200,000 17,500
Unocal Corp. 620,000 25,575
-------------------------------------------------------------------------
177,747
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--12.4% Allstate Corp. 350,000 $ 29,028
American Express Co. 215,000 16,770
American General Corp. 455,000 23,205
American International Group, Inc. 150,000 15,309
Banc One Corp. 323,592 16,867
Banco Santander, S.A. 18,000 505
BankAmerica Corp. 210,000 15,015
Bank of Ireland 113,860 1,439
Beneficial Corp. 200,000 15,337
CITIC Pacific, Ltd. 187,000 895
Chase Manhattan Corp. 150,000 17,306
(a)College Construction Loan Insurance
Association, "A", convertible preferred 534,189 6,672
Federal National Mortgage Association 300,000 14,531
First Chicago NBD Corp. 225,000 16,369
First Union Corp. 296,850 14,564
Fleet Financial Group, Inc. 225,000 14,470
HSBC Holdings PLC, ADR 16,800 380
Household International 75,000 8,494
ING Groep, N.V. 26,971 1,133
Jefferson-Pilot Corp. 232,000 17,936
KeyCorp 267,600 16,374
Merrill Lynch & Co. 260,000 17,583
Morgan Stanley, Dean Witter Discover & Co. 690,000 33,810
NationsBank 330,000 19,759
PNC Bank, N.A. 290,000 13,775
Safeco Corp. 325,000 15,478
Travelers Group 308,333 21,583
Washington Mutual 268,800 18,396
-------------------------------------------------------------------------
402,983
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--6.0% (a)ALZA Corp. 525,000 13,683
Abbott Laboratories 275,000 16,861
American Home Products Corp. 405,000 30,021
Baxter International 300,000 13,875
Bristol-Myers Squibb Co. 220,000 19,305
(a)British Biotech, PLC 166,000 283
(a)HealthCare COMPARE Corp. 378,900 20,366
(a)HEALTHSOUTH Corp. 700,000 17,894
Merck & Co. 155,000 13,834
Perkin-Elmer Corp. 170,000 10,625
Roche Holding, A.G. 90 793
(a)Tenet Healthcare Corp. 600,000 18,338
United Healthcare Corp. 400,000 18,525
-------------------------------------------------------------------------
194,403
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--9.6% AMP, Inc. 400,000 $ 18,000
(a)Cadence Design Systems 440,000 23,430
(a)Cimlinc, Inc., convertible preferred 37,716 141
(a)Cisco Systems 340,000 27,891
(a)Compaq Computer Corp. 225,000 14,344
Computer Associates International 300,000 22,369
(a)Computer Sciences Corp. 300,000 21,281
L.M. Ericsson Telephone Co., "B" 36,205 1,596
Harris Corp. 431,200 18,811
Hewlett-Packard Co. 285,000 17,581
Intel Corp. 350,000 26,950
International Business Machines 225,000 22,064
Linear Technology Corp. 182,000 11,443
(a)Microsoft Corp. 75,000 9,750
(a)Oracle Corp. 630,000 22,542
Pitney Bowes 250,000 19,828
(a)Solectron Corp. 340,000 13,345
(a)Sun Microsystems 525,000 17,981
-------------------------------------------------------------------------
309,347
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.1% CSX Corp. 410,000 22,422
Canadian National Railway Co. 450,000 13,416
-------------------------------------------------------------------------
35,838
- ----------------------------------------------------------------------------------------------------------------------
UTILITIES--3.4% AT&T 450,000 22,022
Ameritech Corp. 420,000 27,300
(a)AirTouch Communications 500,000 19,312
SBC Communications, Inc. 345,000 21,951
Telecom Italia Mobile 103,300 648
Telefonica del Peru, S.A., ADR 35,520 970
(a)WorldCom, Inc. 565,600 19,018
-------------------------------------------------------------------------
111,221
-------------------------------------------------------------------------
TOTAL COMMON STOCKS--60.4%
(Cost: $1,623,689) 1,956,042
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--.6% Case Corp., 6.75%, 2007 $ 2,500 2,517
Euramax International, 11.25%, 2006 8,400 9,093
MMI Products, Inc., 11.25%, 2007 1,600 1,712
Stone Container Corp., 11.875%, 2016 3,500 3,815
Stone Container Finance Corp., 11.50%, 2006 2,500 2,650
-------------------------------------------------------------------------
19,787
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--.3% Neenah Corp., 11.125%, 2007 4,000 4,340
Nortek, 9.875%, 2004 5,220 5,298
-------------------------------------------------------------------------
9,638
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--6.4% AFC Enterprise, Inc., 10.25%, 2007 $ 2,840 $ 2,975
AMF Group
(b) 12.25%, 2006 1,700 1,288
10.875%, 2006 3,500 3,798
Cablevision Systems Corp., 9.25%, 2005 8,200 8,487
Cinemark USA, Inc., 9.625%, 2008 7,000 7,210
Cole National Group, 9.875%, 2006 3,360 3,570
Comcast Cable Communications
8.875%, 2017 3,250 3,712
8.50%, 2027 1,400 1,588
Comcast Corp., 9.375%, 2005 8,500 8,883
(b)Comcast UK Cable Partners, Ltd.,
11.20%, 2007 13,120 10,299
Dayton Hudson Corp., 7.50%, 2006 2,400 2,531
Delco Remy International, 10.625%, 2006 10,000 10,650
(b)Diamond Cable Communications, PLC,
10.75%, 2007 4,500 2,914
Federated Department Stores, 10.00%, 2001 8,150 9,009
Frontiervision, 11.00%, 2006 5,000 5,412
General Electric Co., 8.625%, 2008 3,750 4,356
Granite Broadcasting Corp., 9.375%, 2005 5,640 5,619
Harman International Industries, 7.32%, 2007 2,900 2,993
Hilton Hotels Corp.
7.375%, 2002 1,750 1,796
7.95%, 2007 1,900 2,024
K-III Communications Corp., 8.50%, 2006 4,250 4,293
Kinder-Care Learning Centers, 9.50%, 2009 8,500 8,351
Marriott International, 6.75%, 2009 2,000 1,987
News American Holdings
9.25%, 2013 1,750 2,028
8.25%, 2018 2,950 3,126
Pathmark Stores, 9.625%, 2003 11,400 10,716
J.C. Penney Co., 7.95%, 2017 2,400 2,637
Rogers Cantel Mobile, Inc., 8.80%, 2007 7,900 7,861
Royal Caribbean Cruises, Ltd., 8.25%, 2005 4,250 4,577
Simon DeBartolo Group, Inc., 7.125%, 2007 3,650 3,708
Sinclair Broadcasting Group, Inc.,
10.00%, 2003 7,790 8,082
Staples, Inc., 7.125%, 2007 3,750 3,787
Tele-Communications, Inc., 9.80%, 2012 1,800 2,174
(b)TeleWest Communications, PLC, 11.00%, 2007 17,250 12,894
Time Warner Entertainment Co., L.P.,
8.875%, 2012 2,075 2,356
Time Warner, Inc.
9.125%, 2013 2,075 2,410
9.15%, 2023 2,325 2,744
Trump Atlantic City, 11.25%, 2006 8,200 8,077
Viacom, Inc., 8.00%, 2006 9,475 9,309
Windy Hill Pet Food Company, Inc.,
9.75%, 2007 3,320 3,370
WorldCom, Inc.
7.75%, 2007 2,400 2,528
7.75%, 2027 1,800 1,938
-------------------------------------------------------------------------
208,067
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--.7% American Radio Systems, 9.00%, 2006 5,740 6,041
Continental Homes Holding, 10.00%, 2006 4,000 4,220
Del Webb Corp., 9.75%, 2008 8,400 8,484
WestPoint Stevens, 9.375%, 2005 5,100 5,342
-------------------------------------------------------------------------
24,087
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER STAPLES--.4% Nabisco, Inc., 8.00%, 2000 $ 4,500 $ 4,646
Riverwood International, 10.25%, 2006 8,350 8,496
-------------------------------------------------------------------------
13,142
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--.5% Gulf Canada Resources, Ltd., 9.25%, 2004 7,000 7,350
USX Corp., 9.375%, 2012 3,750 4,553
Wiser Oil Co., 9.50%, 2007 3,540 3,505
-------------------------------------------------------------------------
15,408
- ----------------------------------------------------------------------------------------------------------------------
FINANCE--3.0% AB Spintab, 7.50%, 2049 9,500 9,731
ABN AMRO Bank, 8.25%, 2009 4,250 4,565
Abbey National, PLC, 7.35%, 2049 6,300 6,489
Aegon, N.V., 8.00%, 2006 4,000 4,385
BCH Cayman Islands, Ltd., 7.70%, 2006 1,000 1,047
Banco Central Hispano Americano, 7.50%, 2005 4,000 4,130
Citicorp, 7.125%, 2006 4,250 4,394
Corporation Andina De Fomento, 7.79%, 2017 3,750 3,817
Crestar Financial Corp., 8.25%, 2002 2,400 2,580
Den Danske Bank, 7.40%, 2010 4,000 4,113
Empress River Casino Finance, 10.75%, 2002 2,000 2,150
FINOVA Capital Corp., 6.50%, 2002 3,750 3,771
Fleet Financial Group, Inc., 8.625%, 2007 3,750 4,247
Ford Motor Credit Corp., 7.75%, 2005 2,400 2,557
Lehman Brothers Holdings
7.25%, 2003 1,250 1,287
7.375%, 2007 4,000 4,133
Morgan Stanley Group, 6.875%, 2007 3,750 3,802
NationsBank Corp., 9.50%, 2004 2,400 2,787
Peoples Bank Bridgeport, 7.20%, 2006 3,750 3,799
Repsol International Finance, 7.00%, 2005 5,000 5,199
Scotland International Finance Co., 8.80%, 2004 1,350 1,499
Skandinaviska Enskilda Banken, 6.625%, 2049 6,000 5,984
Svenska Handelsbanken, 7.125%, 2049 7,700 7,740
Wells Fargo & Co., 6.875%, 2006 3,750 3,806
-------------------------------------------------------------------------
98,012
- ----------------------------------------------------------------------------------------------------------------------
HEALTH CARE--.5% MedPartners, Inc., 7.375%, 2006 2,100 2,036
Packard BioScience Co., 9.375%, 2007 1,700 1,709
Tenet Healthcare Corp.
10.125%, 2005 6,420 6,966
8.625%, 2007 5,000 5,113
-------------------------------------------------------------------------
15,824
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.4% Continental Airlines
7.75%, 2014 1,944 2,091
6.90%, 2018 1,850 1,879
Hayes Wheels International, Inc., 11.00%, 2006 8,000 8,860
-------------------------------------------------------------------------
12,830
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--1.4% (b)Call-Net Enterprises, Inc., 13.25%, 2004 $ 6,350 $ 5,731
Commonwealth Edison, 7.375%, 2004 5,350 5,478
(b)International CableTel, Inc., 11.50%, 2006 13,000 9,555
(b)McLeod, Inc., 10.50%, 2007 6,000 4,140
(b)PanAmSat, L.P., 11.375%, 2003 8,200 8,108
USA Mobile Communications, Inc. II, 9.50%, 2004 7,950 7,791
U.S. West Capital Funding, Inc., 7.90%, 2027 4,250 4,481
-------------------------------------------------------------------------
45,284
-------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--14.2%
(Cost: $452,074) 462,079
-------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.55% to 5.70%
INSTRUMENT--3.4% Due--November and December, 1997
(Cost: $111,022) 111,300 111,020
-------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1%
(Cost: $2,855,505) 3,213,258
-------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.9% 28,125
-------------------------------------------------------------------------
NET ASSETS--100% $3,241,383
-------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
Based on the cost of investments of $2,855,505,000 for federal income tax
purposes at October 31, 1997, the gross unrealized appreciation was
$383,510,000, the gross unrealized depreciation was $25,757,000 and the net
unrealized appreciation on investments was $357,753,000.
See accompanying Notes to Financial Statements.
17
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
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, 1997, 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 1993. 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, 1997, 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 16, 1997
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,855,505) $3,213,258
- --------------------------------------------------------------------------
Cash 629
- --------------------------------------------------------------------------
Receivable for:
Investments sold 69,382
- --------------------------------------------------------------------------
Fund shares sold 1,854
- --------------------------------------------------------------------------
Dividends and interest 26,468
- --------------------------------------------------------------------------
TOTAL ASSETS 3,311,591
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Investments purchased 62,677
- --------------------------------------------------------------------------
Fund shares redeemed 3,557
- --------------------------------------------------------------------------
Management fee 1,496
- --------------------------------------------------------------------------
Distribution services fee 747
- --------------------------------------------------------------------------
Administrative services fee 694
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 909
- --------------------------------------------------------------------------
Trustees' fees 128
- --------------------------------------------------------------------------
Total liabilities 70,208
- --------------------------------------------------------------------------
NET ASSETS $3,241,383
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $2,428,172
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 441,829
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 357,753
- --------------------------------------------------------------------------
Undistributed net investment income 13,629
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,241,383
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,079,560 / 183,370 shares outstanding) $11.34
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.03
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,132,158 / 99,967 shares outstanding) $11.33
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($17,472 / 1,541 shares outstanding) $11.34
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($12,193 / 1,076 shares outstanding) $11.33
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest $ 95,024
- ------------------------------------------------------------------------
Dividends 30,632
- ------------------------------------------------------------------------
Total investment income 125,656
- ------------------------------------------------------------------------
Expenses:
Management fee 17,084
- ------------------------------------------------------------------------
Distribution services fee 8,814
- ------------------------------------------------------------------------
Administrative services fee 7,532
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,329
- ------------------------------------------------------------------------
Professional fees 86
- ------------------------------------------------------------------------
Reports to shareholders 733
- ------------------------------------------------------------------------
Trustees' fees and other 56
- ------------------------------------------------------------------------
Total expenses 43,634
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 82,022
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 446,008
- ------------------------------------------------------------------------
Net realized loss from futures transactions (7,661)
- ------------------------------------------------------------------------
Net realized gain 438,347
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 17,097
- ------------------------------------------------------------------------
Net gain on investments 455,444
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $537,466
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 82,022 70,717
- -----------------------------------------------------------------------------------------------
Net realized gain 438,347 396,108
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 17,097 (58,142)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 537,466 408,683
- -----------------------------------------------------------------------------------------------
Net equalization charges (1,348) (2,799)
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (81,608) (83,169)
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain (395,023) (136,617)
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders (476,631) (219,786)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 161,098 (91,842)
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 220,585 94,256
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of year 3,020,798 2,926,542
- -----------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$13,629 and $14,605, respectively) $3,241,383 3,020,798
- -----------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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 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
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
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 and therefore no
federal income tax provision is required.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income quarterly
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 $17,084,000 for the
year ended October 31, 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). 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 FIRMS
---------------- ---------------
<S> <C> <C>
Year ended October 31, 1997 $191,000 1,591,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of the 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 and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY ZKDI BY ZKDI TO FIRMS
----------------- -----------------------
<S> <C> <C>
Year ended October 31, 1997 $10,198,000 3,892,000
</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
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
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>
Year ended October 31, 1997 $7,532,000 7,603,000 22,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $7,212,000 for the year ended October 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $43,000 to independent trustees.
- --------------------------------------------------------------------------------
4 TRANSACTIONS For the year ended October 31, 1997, investment
INVESTMENT transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $3,921,973
Proceeds from sales 4,209,938
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 15,216 $ 167,389 14,891 $ 157,710
---------------------------------------------------------------------------------
Class B 13,404 147,504 13,124 139,556
---------------------------------------------------------------------------------
Class C 748 8,218 572 6,084
---------------------------------------------------------------------------------
Class I 422 4,707 298 3,158
---------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 28,102 284,189 12,664 128,872
---------------------------------------------------------------------------------
Class B 16,342 164,518 7,404 75,047
----------------------------------------------------------------------------------
Class C 177 1,792 43 435
---------------------------------------------------------------------------------
Class I 180 1,820 99 1,011
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
SHARES REDEEMED
Class A (35,349) (386,500) (34,314) (361,075)
---------------------------------------------------------------------------------
Class B (20,367) (222,852) (22,191) (234,855)
---------------------------------------------------------------------------------
Class C (365) (4,008) (139) (1,482)
---------------------------------------------------------------------------------
Class I (509) (5,679) (596) (6,303)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 9,946 109,458 5,021 53,080
---------------------------------------------------------------------------------
Class B (9,963) (109,458) (5,028) (53,080)
---------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ 161,098 $ (91,842)
---------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------
Class A
----------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------
Net asset value, beginning of year $11.28 10.60 9.10 11.23 10.07
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .31 .28 .29 .19 .30
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.57 1.24 1.46 (1.01) 1.54
- -----------------------------------------------------------------------------------
Total from investment operations 1.88 1.52 1.75 (.82) 1.84
- -----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .33 .34 .25 .23 .24
- -----------------------------------------------------------------------------------
Distribution from net realized gain 1.49 .50 -- 1.08 .44
- -----------------------------------------------------------------------------------
Total dividends 1.82 .84 .25 1.31 .68
- -----------------------------------------------------------------------------------
Net asset value, end of year $11.34 11.28 10.60 9.10 11.23
- -----------------------------------------------------------------------------------
TOTAL RETURN 18.95% 15.34 19.46 (7.92) 19.08
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 1.01% 1.05 1.12 1.13 1.02
- -----------------------------------------------------------------------------------
Net investment income 2.92% 2.76 3.00 2.34 2.94
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Class B
----------------------------------------
YEAR ENDED OCTOBER 31, MAY 31, TO
---------------------- OCTOBER 31,
1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $11.27 10.59 9.09 9.24
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .19 .20 .06
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.55 1.23 1.46 (.16)
- -----------------------------------------------------------------------------------
Total from investment operations 1.77 1.42 1.66 (.10)
- -----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .22 .24 .16 .05
- -----------------------------------------------------------------------------------
Distribution from net realized gain 1.49 .50 -- --
- -----------------------------------------------------------------------------------
Total dividends 1.71 .74 .16 .05
- -----------------------------------------------------------------------------------
Net asset value, end of period $11.33 11.27 10.59 9.09
- -----------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.86% 14.28 18.42 (1.06)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------
Expenses 1.95% 1.99 2.05 2.03
- -----------------------------------------------------------------------------------
Net investment income 1.98% 1.82 2.07 1.57
- -----------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------ ---------------------------
CLASS C CLASS I
------------------------------------ ---------------------------
MAY 31 YEAR ENDED
YEAR ENDED OCTOBER 31, TO OCTOBER 31, JULY 3 TO
---------------------- OCTOBER 31, ------------- OCTOBER 31,
1997 1996 1995 1994 1997 1996 1995
- ------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------- ---------------------------
Net asset value, beginning of period $11.28 10.61 9.09 9.24 11.27 10.61 10.07
- ------------------------------------------------------------------------------- ---------------------------
Income from investment operations:
Net investment income .22 .20 .21 .06 .36 .32 .10
- ------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain (loss) 1.56 1.22 1.48 (.16) 1.55 1.23 .52
- ------------------------------------------------------------------------------- ---------------------------
Total from investment operations 1.78 1.42 1.69 (.10) 1.91 1.55 .62
- ------------------------------------------------------------------------------- ---------------------------
Less dividends:
Distribution from net investment income .23 .25 .17 .05 .36 .39 .08
- ------------------------------------------------------------------------------- ---------------------------
Distribution from net realized gain 1.49 .50 -- -- 1.49 .50 --
- ------------------------------------------------------------------------------- ---------------------------
Total dividends 1.72 .75 .17 .05 1.85 .89 .08
- ------------------------------------------------------------------------------- ---------------------------
Net asset value, end of period $11.34 11.28 10.61 9.09 11.33 11.27 10.61
- ------------------------------------------------------------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 17.92% 14.31 18.76 (1.05) 19.40 15.64 6.21
- ------------------------------------------------------------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------- ---------------------------
Expenses 1.90% 1.89 1.86 2.00 .71 .72 .61
- ------------------------------------------------------------------------------- ---------------------------
Net investment income 2.03% 1.92 2.26 1.60 3.22 3.09 2.97
- ------------------------------------------------------------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $3,241,383 3,020,798 2,926,542 2,864,322 1,509,687
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 122% 85 142 121 180
- ------------------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the years ended October 31, 1997 and 1996
were $.0578 and $.0580, respectively.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS GARY A. LANGBAUM
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
SHIRLEY D. PETERSON
Trustee ELIZABETH C. WERTH
Assistant Secretary
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER ZURICH KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style.
KTRF - 2 (12/97) 1040950
