<PAGE> 1
KEMPER TOTAL RETURN FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED OCTOBER 31, 1996
SEEKING THE HIGHEST TOTAL RETURN, A COMBINATION OF INCOME AND CAPITAL
APPRECIATION, CONSISTENT WITH REASONABLE RISK
"...Severe market rotation required a broader and more diversified approach..."
[KEMPER FUNDS LOGO]
<PAGE> 2
Table of
Contents
At A Glance
2
Terms to Know
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
25
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1996
(UNADJUSTED FOR ANY SALES CHARGE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Class A 15.34%
- --------------------------------------------------------------------------------
Class B 14.28%
- --------------------------------------------------------------------------------
Class C 14.31%
- --------------------------------------------------------------------------------
Lipper
Balanced
Funds Category
Average* 14.84%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not reflect future performance.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost.
*Lipper Analytical Services, Inc. returns and rankings are based upon changes in
net asset value with all dividends reinvested and do not include the effect of
sales charges and, if they had, results may have been less favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
10/31/96 10/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TOTAL RETURN FUND
CLASS A $11.28 $10.60
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS B $11.27 $10.59
- --------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS C $11.28 $10.61
- --------------------------------------------------------------------------------
</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 #102 OF #153 OF #152 OF
267 FUNDS 267 FUNDS 267 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #55 OF N/A N/A
74 FUNDS
- --------------------------------------------------------------------------------
10-YEAR #22 OF N/A N/A
32 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 $0.3400 $0.2408 $0.2549
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL
GAIN $ 0.11 $ 0.11 $ 0.11
- --------------------------------------------------------------------------------
LONG-TERM CAPITAL
GAIN $ 0.39 $ 0.39 $ 0.39
- --------------------------------------------------------------------------------
</TABLE>
TERMS TO KNOW
CORRECTION A reverse movement, usually downward, in the price of a group of
stocks or the overall market. Corrections are to be expected over a long term.
INDEX An unmanaged group of stocks that is considered representative of the
stock or bond markets. An index does not take into account any fees or expenses
related to the individual securities that it tracks. However, for performance
comparisons, the index is adjusted to reflect reinvestment of dividends of the
securities in the index.
MARKET CAPITALIZATION Capitalization is a measure of the size of a publicly
traded company, as determined by multiplying the current market price by the
number of shares outstanding. The market capitalization 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 and therefore a greater risk to capital.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and it represents the aggregate percentage or
dollar value change over the period.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $76 BILLION IN ASSETS, INCLUDING $42 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we approach the close of 1996, it's remarkable how eventful the year has been
and yet, economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar today to what they
were in 1995. Long-term interest rates are approximately 6.5% compared to 6.3%
in November 1995. The economy is growing at a rate of approximately 2.2%.
Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
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 (11/30/96) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.2 6.91 5.71 7.81
PRIME RATE(2) 8.25 8.25 8.65 8.5
INFLATION RATE(3) 3.19 2.75 2.6 2.67
THE U.S. DOLLAR(4) 3.46 9.15 -2.58 -4.52
CAPITAL GOODS ORDERS(5)* 7.61 3.93 11.3 12.38
INDUSTRIAL PRODUCTION(5)* 3.6 3.35 1.71 6.58
EMPLOYMENT GROWTH(6) 2.11 2.08 1.92 3.4
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of October 31, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICK KEMPER INVESTMENTS, INC.
With this letter as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
December 10, 1996
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
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.
BULLISHNESS -- MEASURED BY A STRICT BUY AND SELL DISCIPLINE -- HELPED BOOST
KEMPER TOTAL RETURN FUND'S PERFORMANCE.
Q. LET'S START BY REVIEWING THE INVESTING ENVIRONMENT IN GENERAL IN THE
LAST YEAR.
A. It was a good year -- with a few qualifications. Nervousness about
the health of the economy and the likely direction of interest rates caused most
of the fixed-income markets to do a stutterstep all year. High yield bonds were
the best performers, yet even their return was well below the return of
equities.
It was another strong year for the U.S. equity market. But while the
broad market continued to climb, certain industry sectors suffered sharp price
corrections. Technology stocks declined in November, December and July;
financial stocks fell in late spring and summer when interest rates rose.
Rotation from strength in one industry group to strength in another group is
what kept the overall market from a sharp decline. Perpetual sector and stock
rotation keeps people worried and controls exuberance. It's healthy.
For the one-year period ended October 31, 1996, the total return of
Kemper Total Return Fund (15.34% for Class A shares, unadjusted for any sales
charge), in particular, exceeded the average 14.84% return reported for funds in
the Lipper Analytical Services, Inc. balanced funds category. The fund's return
is a blended rate that reflects both the equity and fixed-income portions of the
portfolio. Taken alone, the equity portion returned 23.84%, or better than the
22.05% return of the Russell 1000 Growth index. The fund's fixed-income
investments not including convertible securities returned 6.09% for the year.
Q. WHAT SPECIFICALLY CONTRIBUTED TO THE FUND'S PERFORMANCE IN 1996?
A. As we did in 1995, we continued to favor technology for most of 1996.
Intel Corp., Cisco Systems and 3Com Corporation were among our top technology
performers. When you consider that these three stocks were among our top 20
largest positions throughout the period, you can appreciate the contribution
they made.
But the severe market rotation required a broader and more diversified
approach. Our single largest industry sector was in consumer nondurables but, in
fact, we have less exposure to the industry than our benchmark, the Russell 1000
Growth Index* (see graph on page 9). Finance, health care and capital goods were
among the industries the fund had an overweighted position in during the year.
We took advantage of rising interest rates at mid-year to establish
sizable positions in attractively priced financial stocks. We had suspected that
the economy was not growing as fast as was feared, and our financial stocks
rallied as rates declined. Our top-performing financials included Bank of
Boston, Allstate Corp. and NationsBank.
* The Russell 1000 Growth Index is comprised of common stocks of larger U.S.
companies with greater than average growth and represents the universe of stocks
from which "earnings/growth" money managers typically select.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. A COMPARISON WITH THE FUND'S TOP 20 HOLDINGS ONE YEAR AGO AND AT THE
END OF FISCAL 1996 SUGGESTS THAT THE COMPOSITION OF THE PORTFOLIO HAS CHANGED
QUITE A BIT.
A. Yes, some names are new, some are gone and the size of many
positions has been adjusted. In order to understand the fund's performance in
the last year, you need to consider both what was in the portfolio and what we
were able to sell.
We started the fiscal year with a larger exposure to technology than
most of the fund's peers. A technology rally in the fall of 1996 enabled us to
reduce our holdings by selling selected stocks that were achieving our target
prices or those that did not meet our fundamental expectations. We halved our
technology position (to 10% at the end of October from 20% at the end of April)
by "selling into strength" in this way. Microsoft is an example of a company
that climbed quite a bit in the year. We benefited from most of its price gain
but we no longer own it.
Q. BUT IF A STOCK HAS RISEN SO MUCH SO QUICKLY, HOW DO YOU KNOW WHEN
IT'S TIME TO SELL?
A. Our goal is to avoid the round trip -- we don't want to stick with a
stock for its entire ascent and still be invested when or if it declines. After
a stock has risen significantly, we have to ask ourselves if we'd be willing to
buy it at its current price. If we would not, then why should we hold it at that
price? So, there's a discipline involved. We have a target price and when the
stock appreciates within the target price range, we normally start selling. We
can't be worried about missing out on any remaining gain. It's more productive
to focus on looking for another name with significantly greater upside
potential. If we're looking for a technology name, we'll look for a stock that
offers 20% to 25% upside potential. For financial stocks, that upside target
potential might be 15%. The higher targeted return from technology stocks
reflects the greater risk and volatility associated with investing in those
types of companies.
Q. IN LAST YEAR'S ANNUAL REPORT, YOU SAID YOU EXPECTED THE DOW JONES
INDUSTRIAL AVERAGE** TO REACH 6000 IN 1996 AND THAT YOU WOULDN'T BE SURPRISED IF
IT HIT 6250 BY THE YEAR'S END. AS YOU KNOW, THE DOW CLOSED AT 6029 ON OCTOBER
31. AT A TIME WHEN OTHERS WERE DISCOURAGED ABOUT THE PROSPECTS FOR 1996, WHAT
DID YOU SEE?
A. There were two reasons for my bullishness. First, I doubted that the
economy was growing at a dangerous rate. Second, there has not been any shortage
of appealing investment opportunities. Even after two strong years back to back,
we continue to be able to find companies that offer above-average returns
because they are doing what they can to help protect their earnings, control
expenses and provide strong cash flow to shareholders. It's part of the reason
that we continue to have so little of the fund exposed to international markets.
In order to invest overseas and take on the additional currency and political
risks you have to find international opportunities more compelling than what's
available in the U.S.
Still today, the U.S. is the more compelling market to us. In 1997, we
expect the Dow to exceed 7000 and close out the year above that level. Although
a market correction could occur, we see nothing on the near term horizon to
warrant any sustainable decline.
** The Dow Jones Industrial Average is an unmanaged index that's generally
considered representative of the U.S. stock market.
Q. DID ANYTHING OCCUR IN 1996 THAT CAUGHT YOU BY SURPRISE?
A. Sure. I was surprised by the performance of the fixed-income markets.
For the first 11 months of the 12-month period, bond markets ricocheted from one
economic release (E.G., the unemployment report and the Consumer Price Index) to
another. By relying almost exclusively on what unemployment data was indicating
about the health of the economy, fixed-income investors paid no attention to
other indicators. Meanwhile, company managements were keeping us apprised of the
market softness and their inability to pass price hikes on to the consumer. We
had to wait for an October rally to provide most of the fixed-income markets'
return for the year.
On the flipside, I was surprised by the magnitude of the price gains
of certain large capitalization, quality growth stocks. By the same token, we
expected large capitalization health care companies to do well but performance
from that group was mixed.
6
<PAGE> 7
PERFORMANCE UPDATE
Q. WHAT'S NEXT, GARY -- AND HOW ARE YOU POSITIONING THE FUND FOR IT?
A. With stock prices as high as they are, it is a stock-picker's market.
We expect our research analysts' expertise to enable us to continue to find
companies able to grow their earnings in periods of economic slowdown. However,
as we close the books on this fiscal year and look forward to the next, we're
initiating small positions in companies that have the potential to benefit from
an upturn. We think a reduction in interest rates between now and March 31 is
quite possible. When and if the Federal Reserve Board eases, we'd expect
cyclical companies to outperform.
The income portion of the portfolio, too, has been adjusted. We closed
the year with an increased exposure to U.S. Treasuries. The bond portion of the
portfolio, remember, is one of the ways we attempt to reduce market risk. The
stock market, as measured by the Standard & Poor's 500 Stock Index***, has
gained 50.6% in the last two years (November 1, 1994, to October 31, 1996). At
some point, the stock market appreciation should slow and the bond market should
take over.
*** The Standard & Poor's 500 Stock Index is an unmanaged index that's generally
considered representative of the U.S. stock market.
Q. WHAT ARE THE RISKS TO THE ASSUMPTIONS THAT GUIDE YOUR MANAGEMENT OF
THE FUND?
A. One risk is that consumer spending takes off, manufacturers increase
production and the economy accelerates. If that happened, inflationary fears
would rise and interest rates would move higher. But, with inflation as low as
it is and the economic framework as fragile as we perceive, the greater risk is
that we go into a recession. If there is a spending cutback and the Fed
hesitates to take action to ease interest rates, it wouldn't take much for our
slow growth economy to slip into a recession. At this date, I continue to manage
for a positive but slow growth environment.
7
<PAGE> 8
PERFORMANCE UPDATE
KEMPER TOTAL RETURN FUND
- --------------------------------------------------------------------------------
Average Annual Total Returns*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED OCTOBER 31, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
LIFE OF
1-YEAR 5-YEAR 10-YEARS CLASS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A 8.68% 8.61% 9.73% 11.61% (since 3/2/64)
- --------------------------------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS B 11.28% N/A N/A 11.77 (since 5/31/94)
- --------------------------------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND CLASS C 14.31% N/A N/A 12.97 (since 5/31/94)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Total Return Fund
Class A from 1/1/79 through 10/31/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/79 12/31/85 12/31/90 10/31/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A(1) 10,000 32,967 51,364 105,590
RUSSELL 1000 GROWTH INDEX(+) 10,000 28,186 51,642 129,577
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX(++) 10,000 22,337 35,157 57,334
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Total Return Fund Class B
from 5/31/94 through 10/31/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 10/31/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS B(1) 10,000 9,644 12,011 13,090
RUSSELL 1000 GROWTH INDEX(+) 10,000 10,529 14,445 16,872
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX(++) 10,000 10,063 11,999 12,261
</TABLE>
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Kemper Total Return Fund
Class C from 5/31/94 through 10/31/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 10/31/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS C(1) 10,000 9,646 12,052 13,432
RUSSELL 1000 GROWTH INDEX(+) 10,000 10,529 14,445 16,872
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX(++) 10,000 10,063 11,999 12,261
</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%, for
Class B shares adjustment for the applicable contingent deferred sales charge
(CDSC) of 3% and for Class C shares no adjustment for sales charge. The maximum
B share CDSC is 4%. For C shares purchased on or after April 1, 1996, there is
a 1% 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 A shares and the contingent deferred sales charge in
effect at the end of the period for B shares. When reviewing the performance
chart, please note that the inception date for the Russell 1000 Growth Income
is January 1, 1979. As a result, we are unable to illustrate the life of class
performance for Kemper Total Return Fund Class A shares. In comparing the
Kemper Total Return Fund to the Lehman Government/Corporate Bond Index++ and
the Russell 1000 Growth Index+, you should also note that the fund's
performance reflects the maximum 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 that the fund invests in. 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, 1996, and on October 31, 1995.
[Equity Portion Bar Graph]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER TOTAL RETURN
ON 10/31/96 ON 10/31/95
<S> <C> <C>
CONSUMER NONDURABLES 20.5% 22.0%
FINANCE 18.6% 10.1%
HEALTH CARE 16.2% 13.9%
CAPITAL GOODS 13.2% 11.3%
TECHNOLOGY 10.4% 28.0%
ENERGY 4.8% 2.1%
BASIC INDUSTRIES 4.7% 6.8%
UTILITIES 4.3% 2.4%
CONSUMER DURABLES 3.8% 2.0%
TRANSPORTATION 3.5% 1.4%
</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, 1996, compared to the industry sectors of
the Russell 1000 Growth Index.
[Russell Comparison Bar Graph]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN RUSSELL 1000 GROWTH INDEX
ON 10/31/96 ON 10/31/96
<S> <C> <C>
CONSUMER NONDURABLES 20.5% 33.7%
FINANCE 18.6% 4.8%
HEALTH CARE 16.2% 19.0%
CAPITAL GOODS 13.2% 10.5%
TECHNOLOGY 10.4% 21.5%
ENERGY 4.8% 2.4%
BASIC INDUSTRIES 4.7% 3.7%
UTILITIES 4.3% 3.6%
CONSUMER DURABLES 3.8% 0.5%
TRANSPORTATION 3.5% 0.3%
</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 11.5% OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON OCTOBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Holdings Percentage
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. GENERAL ELECTRIC CO. Operates in major businesses including power 3.2%
generators, appliances, lighting, plastics,
medical systems, aircraft engines, financial
services and broadcasting.
- ------------------------------------------------------------------------------------------
2. FEDERAL NATIONAL Often referred to as "Fannie Mae," this is a 2.3%
MORTGAGE ASSOCIATION private corporation federally chartered to provide
financial products and services that increase the
availability and affordability of housing to low-,
moderate- and middle-income Americans.
- ------------------------------------------------------------------------------------------
3. JOHNSON & JOHNSON The world's largest and most comprehensive 2.2%
manufacturer of health care products, serving the
consumer, pharmaceutical and professional markets.
- ------------------------------------------------------------------------------------------
4. ALLSTATE CORP. Established in 1931 by Sears, Roebuck & Co., the 1.9%
Allstate Insurance Group is the second largest
domestic property/casualty insurer.
- ------------------------------------------------------------------------------------------
5. PROCTER & GAMBLE CO. Engaged in the manufacture and distribution of a 1.9%
wide variety of household products, consisting of
laundry and cleaning products, diapers, personal
care products and food products.
- ------------------------------------------------------------------------------------------
</TABLE>
THE FUND'S LARGEST CORPORATE BOND HOLDINGS*
REPRESENTING 11.4% OF THE FUND'S TOTAL LONG-TERM BOND HOLDINGS ON OCTOBER 31,
1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Holdings Percentage
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. OWENS-ILLINOIS, INC. Leading diversified manufacturer of packaging 2.7%
products including glass bottles, plastic
containers and multipack plastic carriers. It is
the largest manufacturer of glass bottles and
containers in the U.S.
- ------------------------------------------------------------------------------------------
2. DELTA AIRLINES The third largest carrier in the U.S., with strong 2.7%
hubs in Atlanta, Cincinnati and Salt Lake City.
Acquired trans-atlantic routes from PanAm in 1990
and has a strong alliance with Virgin Atlantic
Airways of London.
- ------------------------------------------------------------------------------------------
3. TELEWEST Owns and operates 16 cable franchises and has 2.0%
COMMUNICATIONS PLC minority interests in 7 others.
- ------------------------------------------------------------------------------------------
4. BOISE CASCADE CORP. One of the largest integrated paper products 2.0%
companies in the U.S., with an annual capacity of
about 3.2 million tons of paper and paperboard
products.
- ------------------------------------------------------------------------------------------
5. USX CORPORATION Engaged in the production and sale of a wide range 2.0%
of steel mill products, coke and taconite
pellets.
- ------------------------------------------------------------------------------------------
</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, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES 8.75%, 2000 $ 4,300 $ 4,693
7.75%, 2000 14,000 14,733
7.75%, 2001 77,500 82,416
6.25%, 2003 12,500 12,549
7.25%, 2004 180,000 190,528
6.50%, 2005 20,800 21,041
-----------------------------------------------------------------------------
325,960
- --------------------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS 10.75%, 2005 36,250 46,847
12.00%, 2013 8,200 11,811
12.50%, 2014 63,000 94,785
-----------------------------------------------------------------------------
153,443
- --------------------------------------------------------------------------------------------------------------
PROVINCE OF QUEBEC, CANADA 8.625%, 2005 9,500 10,508
-----------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--16.2%
(Cost: $483,609) 489,911
-----------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--2.9% (a)AES Corporation, warrants expiring 2000 22,685 476
Air Products & Chemicals 308,700 18,522
Betz Laboratories 175,000 9,187
Cementos Mexicanos, S.A. de C.V., "B," ADR 192,700 693
Crown Cork & Seal Co. 108,500 5,208
W.R. Grace & Co. 213,800 11,331
Monsanto Co. 288,500 11,432
Pall Corp. 350,000 8,969
Praxair, Inc. 480,400 21,258
Rentokil Group PLC 93,000 625
Sumitomo Metal Industries 227,000 625
Toray Industries 105,000 634
-----------------------------------------------------------------------------
88,960
- --------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--8.3% Boeing Co. 252,000 24,034
Emerson Electric Co. 282,600 25,151
Fluor Corp. 315,000 20,632
GM Hughes Electronics Corp. 335,000 17,881
General Electric Co. 635,000 61,436
B. F. Goodrich Co. 725,000 30,722
Illinois Tool Works 277,700 19,508
Mitsubishi Heavy Industries 82,000 631
Sundstrand Corp. 675,000 27,169
Technip S.A. 7,803 683
Westinghouse Electric Corp. 475,000 8,134
Xerox Corporation 295,900 13,722
-----------------------------------------------------------------------------
249,703
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--9.1% Burton Group PLC 316,483 $ 769
Carnival Corp. 900,000 27,112
(a)Circus Circus Enterprises 417,400 14,400
(a)Consolidated Stores Corporation 600,800 23,206
Walt Disney Company 500,000 32,937
(a)Federated Department Stores 520,000 17,160
Hilton Hotels 608,000 18,468
(a)Liberty Media Group, "A" 840,000 21,630
(a)Lone Star Steakhouse & Saloon 640,000 16,400
Lowes Companies 420,000 16,958
Marriott International 284,900 16,204
Melville Corp. 332,300 12,378
(a)Mirage Resorts, Inc. 960,000 21,120
(a)OfficeMax Inc. 756,900 10,218
Reed International PLC 40,357 751
(a)Thrifty Payless Holdings 32,775 701
Viacom International, "B" 405,000 13,213
Wendy's International 535,000 11,034
-----------------------------------------------------------------------------
274,659
- --------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.4% Brunswick Corp. 675,000 15,862
Honda Motor Co., Ltd. 29,000 694
Leggett & Platt Incorporated 860,200 25,698
Magna International Inc., "A" 608,900 30,521
-----------------------------------------------------------------------------
72,775
- --------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.7% Dole Food Co. 395,000 15,405
Duracell International Inc. 150,000 10,012
Gillette Co. 210,000 15,697
Manpower, Inc. 320,000 9,080
Philip Morris Companies 285,200 26,417
Procter & Gamble Co. 355,900 35,234
Swire Pacific Ltd., "A" 88,000 777
-----------------------------------------------------------------------------
112,622
- --------------------------------------------------------------------------------------------------------------
ENERGY--3.0% Amerada Hess Corp. 335,000 18,551
Enron Corp. 503,400 23,408
Mobil Corp. 137,000 15,995
Union Pacific Resources Group 127,041 3,494
Union Texas Petroleum Holdings 932,500 19,932
Unocal Corp. 250,000 9,156
-----------------------------------------------------------------------------
90,536
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--11.7% Allstate Corp. 640,000 $ 35,920
American International Group, Inc. 145,000 15,751
Bank of Boston 273,800 17,523
Bank of Ireland 110,758 915
CITIC Pacific Ltd. 187,000 909
Chase Manhattan Corp. 180,000 15,435
Cheung Kong Holdings Ltd. 101,000 810
(a)College Construction Loan Insurance
Association, "A," convertible preferred 534,189 6,336
Corestates Financial Corp. 200,000 9,725
Dean Witter Discover 345,000 20,312
Development Bank of Singapore 59,000 708
Federal National Mortgage Association 1,125,000 44,016
First Chicago NBD Corp. 370,000 18,870
First USA 329,900 18,969
Great Western Financial Corp. 600,000 16,800
ITT Hartford Group 390,000 24,570
Internationale Nederlanden Groep 26,280 820
KeyCorp 227,600 10,612
Krung Thai Bank Public Co. Ltd. 36,100 98
MBIA Inc. 200,900 17,805
MGIC Investment Corp. 236,800 16,250
Merrill Lynch & Co. 106,200 7,461
NationsBank 91,500 8,624
PNC Bank Corp. 410,000 14,863
Signet Banking Corp. 128,500 3,710
Travelers Group 445,000 24,141
-----------------------------------------------------------------------------
351,953
- --------------------------------------------------------------------------------------------------------------
HEALTH CARE--10.1% Abbott Laboratories 525,000 26,578
American Home Products 440,000 26,950
(a)Amgen, Inc. 165,000 10,117
Astra AB 16,609 764
C. R. Bard 260,000 7,345
Baxter International 470,000 19,564
(a)Fresenius Medical AG, ADS 224,295 6,701
(a)HealthCare COMPARE Corp. 338,900 14,912
Johnson & Johnson 845,200 41,626
Eli Lilly & Co. 430,000 30,315
Merck & Co., Inc. 370,000 27,426
Omnicare, Inc. 340,500 9,279
Perkin-Elmer Corp. 440,000 23,595
Pharmacia & Upjohn 250,000 9,000
Roche Holding AG 180 686
(a)St. Jude Medical 325,000 12,838
Sandoz, Ltd. 288,800 16,642
(a)Steris Corp. 450,000 16,988
(a)Ventritex Inc. 216,000 4,928
-----------------------------------------------------------------------------
306,254
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--6.5% (a)Cadence Design Systems 280,600 $ 10,242
(a)Cimlinc Incorporated, "D," convertible
preferred 37,716 141
(a)Cisco Systems 390,400 24,157
(a)Computer Sciences Corporation 205,000 15,221
Electronic Data Systems 194,000 8,730
L.M. Ericsson Telephone Co., "B" 36,205 982
Harris Corp. 195,000 12,212
Intel Corp. 200,000 21,975
International Business Machines 135,000 17,415
Matsushita Electric Industrial Co., Ltd. 44,000 704
Murata Manufacturing 21,000 676
(a)Parametric Technology Corp. 196,800 9,619
(a)Sterling Commerce 320,000 9,000
(a)Sun Microsystems 260,000 15,860
(a)3Com Corporation 276,100 18,671
United Technologies 234,100 30,140
-----------------------------------------------------------------------------
195,745
- --------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.2% Burlington Northern 175,000 14,416
Canadian National Railway Company 39,452 1,085
Nippon Express 21,000 171
Ryder System Inc. 1,076,100 32,014
Southwest Airlines Co. 262,100 5,897
Union Pacific Corp. 225,000 12,628
-----------------------------------------------------------------------------
66,211
- --------------------------------------------------------------------------------------------------------------
UTILITIES--2.7% (a)Airtouch Communications 500,000 13,062
Ameritech Corp. 150,000 8,212
Cincinnati Bell 245,000 12,097
Iberdrola, S.A. 78,000 829
SBC Communications Inc. 350,000 17,019
Telefonica del Peru S.A., ADS 37,500 773
(a)WorldCom 1,215,600 29,630
-----------------------------------------------------------------------------
81,622
-----------------------------------------------------------------------------
TOTAL COMMON STOCKS--62.6%
(Cost: $1,563,480) 1,891,040
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES--1.7% Boise Cascade Corp.
9.85%, 2002 $ 4,000 4,530
9.45%, 2009 5,500 6,352
Crown Paper, 11.00%, 2005 5,200 4,888
Euramax International, 11.25%, 2006 3,750 3,825
Owens-Illinois, Inc., 11.00%, 2003 13,590 14,932
Smurfit Capital Funding, 6.75%, 2005 9,500 9,311
Stone Container Corp., 11.875%, 2016 3,500 3,658
Stone Container Finance Corp., 11.50%, 2006 2,500 2,594
-----------------------------------------------------------------------------
50,090
- --------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--.2% Nortek, Inc., 9.875%, 2004 5,220 5,103
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--6.4% AMF Group
12.25%, 2006 $ 1,700 $ 1,045
10.875%, 2006 2,500 2,589
Adelphia Communications Corporation,
12.50%, 2002 1,870 1,851
American Radio System, 9.00%, 2006 5,740 5,453
Bally's Park Place Funding, 9.25%, 2004 8,200 8,979
CF Cable TV, Inc., 11.625%, 2005 1,060 1,227
Cablevision Industries Corporation, 10.75%,
2002 6,300 6,826
Cablevision Systems Corporation, 9.25%, 2005 8,200 7,728
Cinemark USA, Inc., 9.625%, 2008 7,000 6,860
Circus Circus Enterprises, 6.45%, 2006 5,000 4,756
(b)Comcast UK Cable Partners Limited, 11.20%,
2007 13,120 8,577
Delco Remy International, 10.625%, 2006 5,000 5,150
Federated Department Stores, 10.00%, 2001 9,500 10,397
Granite Broadcasting Corp., 9.375%, 2005 5,640 5,379
Hayes Wheels International, Inc., 11.00%, 2006 5,000 5,200
K-III Communications Corporation, 8.50%, 2006 4,250 3,990
News American Holdings, 9.25%, 2013 9,500 10,707
Paging Network, Inc., 10.125%, 2007 2,850 2,871
Pathmark Stores, Inc.
11.625%, 2002 3,700 3,816
9.625%, 2003 3,000 2,933
Rogers Cantel Mobile Inc., 11.125%, 2002 6,990 7,383
Royal Caribbean Cruises Ltd., 8.25%, 2005 9,500 10,165
Sears Roebuck Acceptance Corp., 6.75%, 2005 9,500 9,400
Sinclair Broadcasting Group, Inc., 10.00%, 2003 7,790 7,605
TCI Communications, 8.65%, 2004 4,750 4,722
(b)TeleWest Communications PLC, 11.00%, 2007 17,250 11,040
360 Communications, 7.125%, 2003 9,500 9,416
Time Warner Entertainment Company, L.P.,
8.875%, 2012 4,750 5,151
Time Warner Inc., 9.125%, 2013 4,750 5,207
Trump Atlantic City, 11.25%, 2006 8,200 7,770
Univision TV, 11.75%, 2001 7,000 7,368
(b)Videotron Holdings, 11.125%, 2004 2,800 2,275
-----------------------------------------------------------------------------
193,836
- --------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--.2% WestPoint Stevens, 9.375%, 2005 5,100 5,151
- --------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.1% Nabisco Inc., 8.00%, 2000 4,500 4,676
- --------------------------------------------------------------------------------------------------------------
ENERGY--1.6% BHP Finance USA, 7.875%, 2002 9,500 10,091
Gulf Canada Resources Limited, 9.25%, 2004 7,000 7,262
Parker & Parsley Petroleum, 8.25%, 2007 9,500 10,285
Petronas Dagangan Bhd, 7.75%, 2015 4,500 4,621
Repsol International Finance, 7.00%, 2005 5,000 5,054
USX Corporation, 9.375%, 2012 9,500 10,850
-----------------------------------------------------------------------------
48,163
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--5.0% AB Spintab, 7.50%, 2049 $ 9,500 $ 9,616
ABN-AMRO Bank, 8.25%, 2009 9,500 10,190
Abbey National First Capital, 8.20%, 2004 3,200 3,457
Abbey National PLC, 7.35%, 2006 6,300 6,404
Associates Corp. N.A., 8.25%, 1999 9,500 10,011
BCH Cayman Islands Limited, 7.70%, 2006 5,500 5,692
Banco Central Hispano Americano, 7.50%, 2005 4,000 4,086
Bangkok Bank Ltd., 7.25%, 2005 9,500 9,335
Capital One Bank, 8.125%, 2000 9,500 9,899
Citicorp, 7.625%, 2005 4,000 4,175
ERAC USA Finance, 6.95%, 2006 9,500 9,292
Equitable Life, 6.95%, 2005 5,500 5,449
GMAC Medium Term Note, 8.50%, 2000 9,500 10,162
Lehman Brothers Holdings, 7.25%, 2003 9,500 9,621
Merita Bank Ltd., 6.50%, 2006 5,500 5,276
NationsBank Corp., 7.50%, 2006 9,500 9,832
Skandinaviska Enskilda Banken, 6.625%, 2049 6,000 5,912
Societe Generale New York, 7.40%, 2006 9,500 9,737
SunTrust Banks, Atlanta, 7.25%, 2006 9,500 9,723
UBS Securities, 7.25%, 2006 4,500 4,619
-----------------------------------------------------------------------------
152,488
- --------------------------------------------------------------------------------------------------------------
HEALTH CARE--1.0% Columbia/HCA Healthcare Corp., 7.25%, 2008 4,500 4,599
MedPartners, 7.375%, 2006 9,500 9,580
Ornda HealthCorp.
12.25%, 2002 6,560 7,027
11.375%, 2004 1,740 1,979
Tenet Healthcare Corporation
9.625%, 2002 580 635
10.125%, 2005 6,420 7,046
-----------------------------------------------------------------------------
30,866
- --------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.7% Delta Airlines
9.875%, 2008 3,106 3,521
9.750%, 2021 9,250 11,138
United Airlines, 9.56%, 2018 4,750 5,365
-----------------------------------------------------------------------------
20,024
- --------------------------------------------------------------------------------------------------------------
UTILITIES--1.2% (b)International CableTel Inc., 11.50%, 2006 13,000 7,897
(b)PanAmSat, L.P., 11.375%, 2003 8,200 7,524
Southwestern Bell Telephone, 6.625%, 2005 4,500 4,424
Tenaga Nasional Berhad, 7.875%, 2004 8,000 8,460
USA Mobile Communications, Inc., 9.50%, 2004 7,950 7,403
-----------------------------------------------------------------------------
35,708
-----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--18.1%
(COST: $539,310) 546,105
-----------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKETS Yield--5.26% to 5.47%
INSTRUMENTS--3.5%
Due--November and December 1996
(Cost: $105,254) $ 105,400 $ 105,253
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.4%
(Cost: $2,691,653) 3,032,309
-----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER
ASSETS--(.4)% (11,511)
-----------------------------------------------------------------------------
NET ASSETS--100% $3,020,798
-----------------------------------------------------------------------------
</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 $2,691,653,000 for federal income tax
purposes at October 31, 1996, the gross unrealized appreciation was
$366,994,000, the gross unrealized depreciation was $26,338,000 and the net
unrealized appreciation on investments was $340,656,000.
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, 1996, 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 1992. 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, 1996, 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, 1996, 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 1992, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 17, 1996
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
(in thousands)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $2,691,653) $3,032,309
- -------------------------------------------------------------------------------------------------------
Cash 50
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 7,927
- -------------------------------------------------------------------------------------------------------
Fund shares sold 998
- -------------------------------------------------------------------------------------------------------
Dividends and interest 23,410
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,064,694
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 36,493
- -------------------------------------------------------------------------------------------------------
Fund shares redeemed 3,170
- -------------------------------------------------------------------------------------------------------
Management fee 1,354
- -------------------------------------------------------------------------------------------------------
Distribution services fee 718
- -------------------------------------------------------------------------------------------------------
Administrative services fee 639
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,397
- -------------------------------------------------------------------------------------------------------
Trustees' fees 125
- -------------------------------------------------------------------------------------------------------
Total liabilities 43,896
- -------------------------------------------------------------------------------------------------------
NET ASSETS $3,020,798
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $2,267,074
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain on investments 398,463
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 340,656
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 14,605
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,020,798
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,865,933 / 165,455 shares outstanding) $11.28
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $11.97
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,132,718 / 100,551 shares outstanding) $11.27
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($11,067 / 981 shares outstanding) $11.28
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($11,080 / 983 shares outstanding) $11.27
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended October 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $ 85,039
- -------------------------------------------------------------------------------------------------------
Dividends 27,187
- -------------------------------------------------------------------------------------------------------
Total investment income 112,226
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 15,825
- -------------------------------------------------------------------------------------------------------
Distribution services fee 8,524
- -------------------------------------------------------------------------------------------------------
Administrative services fee 7,044
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9,393
- -------------------------------------------------------------------------------------------------------
Professional fees 92
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 512
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 119
- -------------------------------------------------------------------------------------------------------
Total expenses 41,509
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 70,717
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign currency transactions 395,876
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 232
- -------------------------------------------------------------------------------------------------------
Net realized gain 396,108
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (58,142)
- -------------------------------------------------------------------------------------------------------
Net gain on investments 337,966
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $408,683
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 70,717 74,278
- ---------------------------------------------------------------------------------------------------------
Net realized gain 396,108 166,489
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (58,142) 250,703
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 408,683 491,470
- ---------------------------------------------------------------------------------------------------------
Net equalization charges (2,799) (3,257)
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (83,169) (61,461)
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain (136,617) --
- ---------------------------------------------------------------------------------------------------------
Total dividends to shareholders (219,786) (61,461)
- ---------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (91,842) (364,532)
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 94,256 62,220
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of year 2,926,542 2,864,322
- ---------------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$14,605 and $29,814, respectively) $3,020,798 2,926,542
- ---------------------------------------------------------------------------------------------------------
</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,
for shares sold on or after April 1, 1996, 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. 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 and includes discount
amortization on fixed income securities. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
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 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 $15,825,000 for the
year ended October 31, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended
October 31, 1996 $ 225,000 1,697,000 79,000
</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 and Class C shares. Distribution fees and
commissions paid in connection with the sale of
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND DISTRIBUTION
FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC RECEIVED ------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Year ended
October 31, 1996 $10,613,000 3,641,000 64,000
</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, 1996 $ 7,044,000 7,049,000 194,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$7,481,000 for the year ended October 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended October 31, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $52,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1996, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $2,584,854
Proceeds from sales 2,796,460
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1996 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
-----------------------------------------------------------------------------
Class A 14,891 $ 157,710 14,502 $ 135,398
-----------------------------------------------------------------------------
Class B 13,124 139,556 15,052 143,653
-----------------------------------------------------------------------------
Class C 572 6,084 395 3,809
-----------------------------------------------------------------------------
Class I 298 3,158 1,310 13,241
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 12,664 128,872 4,083 39,343
-----------------------------------------------------------------------------
Class B 7,404 75,047 1,801 17,381
-----------------------------------------------------------------------------
Class C 43 435 6 61
-----------------------------------------------------------------------------
Class I 99 1,011 10 108
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (34,314) (361,075) (47,282) (445,366)
-----------------------------------------------------------------------------
Class B (22,191) (234,855) (28,454) (269,650)
-----------------------------------------------------------------------------
Class C (139) (1,482) (110) (1,072)
-----------------------------------------------------------------------------
Class I (596) (6,303) (138) (1,438)
-----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 5,021 53,080 7,674 72,592
-----------------------------------------------------------------------------
Class B (5,028) (53,080) (7,680) (72,592)
-----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL SHARE
TRANSACTIONS $ (91,842) $(364,532)
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded futures
contracts in order to help protect it from
anticipated market conditions and, as such, bears
the risk that arises from entering into these
contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and its broker as the market value
of the futures contract fluctuates. At October 31,
1996, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $646,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures positions
open at October 31, 1996 (in thousands):
<TABLE>
<CAPTION>
EXPIRATION LOSS AT
TYPE FACE AMOUNT MONTH 10/31/96
------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes $16,007,500 December '96 $(656,000)
------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.60 9.10 11.23 10.07 10.07
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .29 .19 .30 .22
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.24 1.46 (1.01) 1.54 .37
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.52 1.75 (.82) 1.84 .59
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .34 .25 .23 .24 .29
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- 1.08 .44 .30
- -------------------------------------------------------------------------------------------------------
Total dividends .84 .25 1.31 .68 .59
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $11.28 10.60 9.10 11.23 10.07
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN 15.34% 19.46 (7.92) 19.08 6.09
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.12 1.13 1.02 1.06
- -------------------------------------------------------------------------------------------------------
Net investment income 2.76% 3.00 2.34 2.94 2.23
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------
YEAR ENDED MAY 31 TO
OCTOBER 31, OCTOBER 31,
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $10.59 9.09 9.24
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .20 .06
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1.23 1.46 (.16)
- ------------------------------------------------------------------------------------
Total from investment operations 1.42 1.66 (.10)
- ------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .16 .05
- ------------------------------------------------------------------------------------
Distribution from net realized gain .50 -- --
- ------------------------------------------------------------------------------------
Total dividends .74 .16 .05
- ------------------------------------------------------------------------------------
Net asset value, end of period $11.27 10.59 9.09
- ------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.28% 18.42 (1.06)
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------
Expenses 1.99% 2.05 2.03
- ------------------------------------------------------------------------------------
Net investment income 1.82% 2.07 1.57
- ------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C CLASS I
--------------------------------- ----------------------------
YEAR ENDED MAY 31 TO YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------- ----------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------- ----------------------------
Net asset value, beginning of period $10.61 9.09 9.24 10.61 10.07
- -------------------------------------------------------------------------- ----------------------------
Income from investment operations:
Net investment income .20 .21 .06 .32 .10
- -------------------------------------------------------------------------- ----------------------------
Net realized and unrealized gain (loss) 1.22 1.48 (.16) 1.23 .52
- -------------------------------------------------------------------------- ----------------------------
Total from investment operations 1.42 1.69 (.10) 1.55 .62
- -------------------------------------------------------------------------- ----------------------------
Less dividends:
Distribution from net investment income .25 .17 .05 .39 .08
- -------------------------------------------------------------------------- ----------------------------
Distribution from net realized gain .50 -- -- .50 --
- -------------------------------------------------------------------------- ----------------------------
Total dividends .75 .17 .05 .89 .08
- -------------------------------------------------------------------------- ----------------------------
Net asset value, end of period $11.28 10.61 9.09 11.27 10.61
- -------------------------------------------------------------------------- ----------------------------
TOTAL RETURN (NOT ANNUALIZED) 14.31% 18.76 (1.05) 15.64 6.21
- -------------------------------------------------------------------------- ----------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------- ----------------------------
Expenses 1.89% 1.86 2.00 .72 .61
- -------------------------------------------------------------------------- ----------------------------
Net investment income 1.92% 2.26 1.60 3.09 2.97
- -------------------------------------------------------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $3,020,798 2,926,542 2,864,322 1,509,687 1,212,896
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85% 142 121 180 150
- -----------------------------------------------------------------------------------------------------------
Average commission rate paid per share on stock transactions for the year ended October 31, 1996 was
$.0580.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES & 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
DOMINIQUE P. MORAX
Trustee ELIZABETH C. WERTH
Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- ------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
- ------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- ------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606
http://www.kemper.com
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unless preceded or accompanied by a
Kemper Equity Funds prospectus.
KTRF - 2 (12/96)
[KEMPER FUNDS LOGO]
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