<PAGE> 1
KEMPER
TOTAL RETURN
FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 1997
Seeking the highest total return, a combination of income and capital
appreciation, consistent with reasonable risk
" . . . The biggest companies have been
the strongest performers, but sector
returns were mixed ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Industry Sectors
9
Largest Holdings
10
Portfolio of Investments
16
Financial Statements
18
Notes to Financial Statements
22
Financial Highlights
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 7.17%
CLASS B 6.65%
CLASS C 6.69%
LIPPER
BALANCED FUNDS
CATEGORY AVERAGE* 6.22%
- -------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less
favorable.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
4/30/97 10/31/96
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TOTAL RETURN FUND
CLASS A $10.36 $11.28
- -------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS B $10.35 $11.27
- -------------------------------------------------------------------------------
KEMPER TOTAL RETURN FUND
CLASS C $10.36 $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 #45 OF #68 OF #65 OF
295 FUNDS 295 FUNDS 295 FUNDS
- -------------------------------------------------------------------------------
5-YEAR #59 OF N/A N/A
83 FUNDS
- -------------------------------------------------------------------------------
10-YEAR #34 OF N/A N/A
38 FUNDS
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
DURING THE PERIOD, KEMPER TOTAL RETURN FUND MADE THE FOLLOWING DISTRIBUTIONS PER
SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DIVIDEND $0.1650 $0.1126 $0.1170
- -------------------------------------------------------------------------------
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
EQUITY STYLE BOX
MORNINGSTAR EQUITY FUNDS STYLE BOX
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. (Morningstar Style Box is
based on a portfolio date as of April 30, 1997.) The Equity Style Box placement
is based on a fund's price-to-earnings and price-to-book ratio relative to the
S&P 500, as well as the size of the companies in which it invests, or median
market capitalization.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. Please consult the prospectus for a
description of investment policies.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $80 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur. However, then we shall enjoy the long-term
positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. A slower economy would reduce the threat of inflation and reduce the need
for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to
be concerned about. As has been the pattern for more than five years, a few
strong quarters followed by a few weak quarters have produced an overall 2
percent to 3 percent rate of growth in gross domestic product (GDP). Job
creation and the unemployment rate are consistent with a moderately expanding
economy. Corporate profits continue to grow at an expected 4 to 5 percent rate
in 1997. The Consumer Price Index continues to track at a 2.5 percent to 3.0
percent rate.
Just as we see a limited downside to today's rising interest rate
environment, so is there a limited upside in the near future. The effect of
higher rates will have to work itself through the economy. Higher rates have
significant implications for corporate profitability, debt issuance, credit
extension and international trade. Post-correction cash flows into the financial
markets will be a subject of great scrutiny. One of the factors driving the
stock market to its recent all-time high was the unprecedented high level of
investment through mutual funds, 401(k)s and qualified contribution plans. It is
realistic to expect that, on the margin, some of that cash will find a home in
short-term, liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for
the past six months in large, multinational companies with familiar consumer
brand names. The recent rally after the announcement of a balanced budget
agreement suggests that valuations of smaller capitalization stocks are
compelling and the market is broadening.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with
long-term interest rates no lower than 6.50 percent
3
<PAGE> 4
ECONOMIC OVERVIEW
and no higher than 7.25 percent. One positive effect of the stock market
correction was the widening of spreads available on high yield bonds. As a
consequence, high yield bonds today are more reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested without help.
Financial assets react much quicker today to events. Volatility has returned to
the market and with it heightened uncertainty. Now is the time to rely on your
financial representative for the expertise and the long-term investing
discipline that he or she can provide.
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recessions or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (5/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.71 6.3 6.91 6.17
PRIME RATE(2)* 8.5 8.25 8.25 9
INFLATION RATE(3)* 2.3 3.31 2.75 3.04
THE U.S. DOLLAR(4) 6.55 4.36 9.15 -9.31
CAPITAL GOODS ORDERS(5)* 8.28 2.42 3.93 17.47
INDUSTRIAL PRODUCTION(5) 4.28 4.36 3.34 2.88
EMPLOYMENT GROWTH(6) 2.13 2.15 2.09 2.7
</TABLE>
[1] Falling interest rates in recent years have been a big plus for financial
assets.
[2] The interest rate that commercial lenders charge their best borrowers.
[3] Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
[4] Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
[5] These influence corporate profits and equity performance.
[6] An influence on family income and retail sales.
* Data as of April 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
June 9, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[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.
BY MAINTAINING A STRICT BUY-AND-SELL DISCIPLINE, PORTFOLIO MANAGER GARY LANGBAUM
CONTINUED TO HELP KEMPER TOTAL RETURN FUND PERFORM WELL.
Q GARY, IN BROAD TERMS, HOW WOULD YOU DESCRIBE THE STOCK MARKET OVER THE LAST
SIX MONTHS?
A The market had a positive tone overall, but gains were very rotational and
very selective. The biggest companies have been the strongest performers, but
sector returns were mixed. Uncertainty regarding higher interest rates and
concerns about potentially high valuations made the relative predicability of
large cap stocks -- primarily more defensive-type stocks like pharmaceuticals --
the favored groups. Technology and most other sectors were selective.
Q HOW DID THE FUND PERFORM?
A The one good thing about a rotational market is that, if you do your
research and stick to your valuation models, you may uncover some attractive
opportunities. We worked to buy selectively, and we didn't panic in March when
the market was spooked by the Federal Reserve's interest rate increase. As a
result, the fund performed well, turning in a total return of 7.17 percent for
the six-month period (for Class A shares unadjusted for sales charge). That was
well ahead of the average balanced fund's 6.22% return as measured by the Lipper
Balanced Fund category average. We also remain in the top 15 percent of balanced
funds based on total return for the one-year period ended April 30, 1997 (see
page 2 for complete ranking information).
Q THE FUND PERFORMED WELL, WHICH SUGGESTS YOUR INVESTMENT STRATEGIES WERE ON
TARGET. STILL, WERE THERE ANY SURPRISES?
A We were surprised by the market's reaction to the Fed's March interest rate
hike -- not the decline necessarily, but the MAGNITUDE of the decline. Inflation
wasn't a problem, and even the Fed admitted the increase was "preemptive." But
the market went into a tailspin nonetheless.
Q HOW DID YOU COPE WITH THE MARKET'S ROTATION?
A Primarily, our strategy was to trade aggressively in the technology sector.
At the beginning of the fiscal year, we had a 10 percent weighting in technology
stocks -- about half our usual weighting. That was due primarily to some lofty
expectations on a lot of companies, primarily networking companies. The prices
and earnings projections on these stocks left very little room for error, which
made us nervous because even a slight earnings short-fall had the potential to
send them crashing back to earth.
That's eventually what happened in February and March, when earnings
weren't as strong as many analysts believed they should have been, and the
management of a few high-flying tech companies
5
<PAGE> 6
PERFORMANCE UPDATE
reported outlooks that weren't as rosy as the market would have liked. As a
result, many tech companies were crushed, with declines often in excess of 20-30
percent. So it was good that we were substantially out of the market during the
first quarter of 1997.
However, technology is an extremely important growth area, and we don't
like to be out of it for an extended period. So when prices came down, we began
buying and established an overweighted position in the sector. We tended to
concentrate our purchases among the most hard-hit areas where we judged values
to be the best. Those included networking companies like Cisco Systems and
Ascend Communications, and software companies such as PeopleSoft.
Q HOW DID YOU APPROACH OTHER SECTORS?
A Our strategy elsewhere was consistent with what we try to do under normal
circumstances -- identify good companies selling at attractive prices. Over the
last six months, our approach to the more economically-sensitive sectors --
basic industry, capital goods, and transportation -- was roughly the same. We
increased our weighting at year end, because it seems every year the economy
comes out of the box stronger than everyone expects. That happened in 1997. As
these stocks rallied in the first quarter, we "sold into strength" and took
profits, because we expect their performance will be tempered by signs of a
slowing economy as the year wears on.
Q FINANCIAL STOCKS PERFORMED WELL IN 1996, BUT TOOK A HIT IN EARLY 1997 WHEN
THE FED RAISED SHORT-TERM INTEREST RATES A QUARTER OF A PERCENT. HOW DID YOU
RESPOND?
A We simply stood firm and maintained our exposure to financial stocks at
about 21 percent of equity holdings. In our view, financial stocks represent
about as much of a win/win situation as you ever see in investing. Despite their
rally, our models still show financial stocks to be attractively valued. We
believe that if the Fed raises rates again, that would slow the economy and lead
to lower rates longer-term -- a positive for financial stocks. If the Fed
DOESN'T raise rates, investors would consider it evidence that rates aren't due
to head significantly higher anytime soon -- also a positive for financial
stocks. So far, we've been right, and financial stocks have been among our best
performers. Examples include Travelers Group, Merrill Lynch, Mellon Bank,
Nations Bank and Dean Witter. However, as was often the case in this market,
gains tended to be somewhat isolated. Fannie Mae and Chase Manhattan both
underperformed.
Q IN HINDSIGHT, WERE THERE OPPORTUNITIES YOU DIDN'T TAKE ADVANTAGE OF?
A We would have liked to be more heavily weighted in consumer non-durables.
They normally should make up at least 20 percent of the portfolio, but we'd
lightened up on them due to valuation reasons -- they just looked too expensive.
Because consumer non-durables are considered more defensive-type stocks, the
volatility of the market caused investors to move money into them and prices
continued to rise as a result. The fund participated in some of that increase,
but not as much as we would have liked.
Q YOU'VE GOT VERY LITTLE FOREIGN EXPOSURE RIGHT NOW. WHY IS THAT, AND DO YOU
EXPECT IT TO CHANGE?
A We feel very positive about the domestic market, even though it has been
rotational. We just don't see growth opportunities abroad being quite as robust
as they are in the U.S. right now. That could change if rates start moving up
here, or they start moving down more aggressively overseas.
Q WE'VE TALKED A LOT ABOUT STOCKS. HOW DID THE BOND PORTION OF THE PORTFOLIO
DO?
A Bonds were off a bit during the period, but overall our bond holdings did
what they were supposed to do: help dampen volatility. We're still maintaining
about 35% of the fund in bonds. About half of that is invested in AAA-rated
government/agency securities to enhance quality and provide some liquidity. The
other half is split evenly between high-grade and high-yield corporate bonds.
We've got a very talented fixed income department here at Kemper Funds -- we
rely on their advice to set the bond allocations, and their expertise in
choosing individual issues. We think they've done a great job with our bond
assets, balancing our need for greater stability with our desire for total
return potential.
6
<PAGE> 7
PERFORMANCE UPDATE
Q IN THE FUND'S ANNUAL REPORT DATED OCTOBER 31, 1996, WHEN THE DOW JONES
STOOD AT ABOUT 6000, YOU SAID YOU BELIEVED IT WOULD MOVE HIGHER THAN 7000 IN
1997 AND FINISH THE YEAR ABOVE THAT LEVEL. AT THE END OF APRIL, THE DOW WAS
ALREADY AT 7200. DO YOU THINK THERE'S STILL ROOM TO MOVE HIGHER?
A I do, and for the same reasons that prompted me to predict a 7000+ market.
Obviously, stock prices have come a long way very quickly, most notably on large
company stocks. And the rally has not been without its periodic corrections and
turbulence. But overall, the fundamentals remain positive. Corporate earnings
remain strong, inflation is subdued, and the economy is chugging along quite
nicely. Meanwhile, investors continue to pour money into the stock market at an
unprecedented clip, which provides a lot of liquidity and demand. I believe 7500
on the Dow is likely, and 8000 is possible, especially given the improving
chances for a balanced budget agreement.
Currently, there doesn't seem to be anything on the horizon that would
suggest a major change. Certainly, any significant rise in rates that could
dramatically slow corporate earnings growth would not be viewed favorably by the
market. And I would expect continued short-term volatility -- every economic
report and labor statistic seems to engender some sort of outsized market move
- -- but overall, there are still good values to be found if you're disciplined
and patient.
7
<PAGE> 8
INDUSTRY SECTORS
A SIX-MONTH COMPARISON OF THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND
The equity portion of Kemper Total Return Fund can be reviewed according to the
concentration of industry sectors that the fund invests in. The graph below
provides a look at how the composition of the equity portion of the portfolio
has changed in the last six-months, by presenting the fund's sectors represented
on April 30, 1997, and on October 31, 1996.
[EQUITY PORTION BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND KEMPER TOTAL RETURN FUND
ON 4/30/97 ON 10/31/96
<S> <C> <C>
FINANCE 21.2% 18.6%
TECHNOLOGY 18.5% 10.4%
CONSUMER NON-DURABLES 15.7% 20.5%
HEALTH CARE 13.6% 16.2%
CAPITAL GOODS 12.3% 13.2%
ENERGY 6.6% 4.8%
CONSUMER DURABLES 4.6% 3.8%
UTILITIES 3.8% 4.3%
BASIC INDUSTRIES 3.6% 4.7%
TRANSPORTATION 0.1% 3.5%
</TABLE>
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX, THE BENCHMARK FOR THE EQUITY
PORTION OF THE FUND
The equity portion of Kemper Total Return Fund can be compared to the
Russell 1000 Growth Index as a benchmark. The Russell 1000 Growth Index is an
unmanaged index comprised of common stocks of larger U.S. companies with
greater than average growth orientation and represents the universe of stocks
from which "earnings/growth" money managers typically select. The chart below
shows the percentage of the common stocks in the portfolio that each sector of
the Kemper Total Return Fund represented on April 30, 1997, compared to the
industry sectors of the Russell 1000 Growth Index.
[RUSSLL COMPARISON BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND RUSSELL 1000 GROWTH INDEX ON
ON 4/30/97 ON 4/30/97
<S> <C> <C>
FINANCE 21.2% 5.0%
TECHNOLOGY 18.5% 22.1%
CONSUMER NON-DURABLES 15.7% 34.0%
HEALTH CARE 13.6% 19.0%
CAPITAL GOODS 12.3% 10.3%
ENERGY 6.6% 2.4%
CONSUMER DURABLES 4.6% 0.5%
UTILITIES 3.8% 3.0%
BASIC INDUSTRIES 3.6% 3.3%
TRANSPORTATION 0.1% 0.4%
</TABLE>
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S LARGEST EQUITY HOLDINGS*
REPRESENTING 11.7% OF THE FUND'S TOTAL COMMON STOCK HOLDINGS ON APRIL 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
HOLDINGS PERCENTAGE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. GENERAL ELECTRIC CO. Operates in major businesses including power 3.0%
generators, appliances, lighting, plastics,
medical systems, aircraft engines, financial
services and broadcasting.
- ------------------------------------------------------------------------------------------------------
2. INTEL CORP. Engaged in the design, development, manufacture 2.9%
and sale of advanced microcomputer components,
such as integrated circuits and other related
products.
- ------------------------------------------------------------------------------------------------------
3. PHILIP MORRIS COS. Largest cigarette maker in the U.S., and through 2.1%
its Miller Brewing subsidiary, also the country's
second-largest brewer. This company is also a
major branded food producer through its Kraft
Foods subsidiary.
- ------------------------------------------------------------------------------------------------------
4. ELI LILLY & CO. Researches, develops, manufactures, and sells a 2.0%
broad line of pharmaceutical and animal health
products.
- ------------------------------------------------------------------------------------------------------
5. ABBOTT LABORATORIES Engaged in discovering, developing, manufacturing 1.7%
and selling a diversified line of health care
products and services.
- ------------------------------------------------------------------------------------------------------
</TABLE>
THE FUND'S LARGEST CORPORATE BOND HOLDINGS*
REPRESENTING 15.1% OF THE FUND'S TOTAL CORPORATE BOND HOLDINGS ON APRIL 30, 1997
<TABLE>
<CAPTION>
HOLDINGS PERCENTAGE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. COMCAST Operates, develops and manages cable communication 5.4%
systems. The company is also prominent in the
cellular telephone industry in the Mid-Atlantic
region.
- -------------------------------------------------------------------------------------------------------
2. OWENS-ILLINOIS, INC. Leading diversified manufacturer of packaging 3.0%
products including glass bottles, plastic containers
and multi-pack plastic carriers.
- -------------------------------------------------------------------------------------------------------
3. TELEWEST COMMUNICATIONS PLC Owns and operates 16 cable franchises and has 2.3%
minority interests in seven others.
- -------------------------------------------------------------------------------------------------------
4. TENET HEALTHCARE CORP. Provides a broad range of health care services via 2.3%
acute care hospitals and related businesses.
- -------------------------------------------------------------------------------------------------------
5. DELTA AIRLINES The third largest carrier in the U.S., with strong 2.1%
hubs in Atlanta, Cincinnati and Salt Lake City.
Acquired transatlantic routes from PanAm in 1990 and
has a strong alliance with Virgin Atlantic Airways
of London.
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS 9.125%, 2009 $ 66,475 $ 74,847
14.00%, 2011 25,010 37,402
13.875%, 2011 87,765 128,877
12.00%, 2013 8,200 11,425
12.50%, 2014 72,205 104,934
----------------------------------------------------------------------------
357,485
- ---------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES 8.75%, 2000 4,300 4,586
7.75%, 2001 77,500 80,673
6.25%, 2003 12,500 12,283
6.50%, 2005 20,800 20,507
----------------------------------------------------------------------------
118,049
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN 7.50%, 2026 20,582 20,466
MORTGAGE CORP.
- ---------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL 8.00%, 2026 16,818 17,054
MORTGAGE ASSOCIATION
- ---------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL 7.00%, 2027 17,092 16,569
MORTGAGE ASSOCIATION
- ---------------------------------------------------------------------------------------------------------------------
PROVINCE OF QUEBEC, CANADA 8.625%, 2005 9,500 10,213
----------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS--17.7%
(Cost: $545,384) 539,836
----------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--2.2% Air Products & Chemicals 198,700 14,257
Cementos Mexicanos, S.A. de C.V., "B," ADR 192,700 725
Crown Cork & Seal Co. 375,000 20,531
W.R. Grace & Co. 203,800 10,598
Praxair, Inc. 405,400 20,929
Rentokil Group PLC 93,000 610
Toray Industries 105,000 654
(a) Tubos de Acero de Mexico, S.A., ADR 31,700 519
----------------------------------------------------------------------------
68,823
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL GOODS--7.7% Boeing Co. 117,000 $ 11,539
Emerson Electric Co. 535,200 27,161
General Electric Co. 508,000 56,324
B. F. Goodrich Co. 575,000 22,928
Honeywell 336,400 23,758
Illinois Tool Works 145,000 13,249
Matsushita Electric Industrial Co., Ltd. 44,000 704
Murata Manufacturing 21,000 774
Sundstrand Corp. 309,800 15,103
Technip S.A. 15,606 1,650
(a)USA Waste Services 425,500 13,935
(a)U.S. Filter Corp. 550,000 16,706
(a)U.S. Industries 170,000 6,141
United Technologies 203,200 15,367
WMX Technologies Inc. 320,000 9,400
----------------------------------------------------------------------------
234,739
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--4.1% CVS Corp. 332,300 16,490
Carnival Corp. 800,000 29,500
(a)Consolidated Stores Corp. 501,000 20,040
Walt Disney Co. 225,000 18,450
R.R. Donnelley & Sons Co. 350,000 11,988
(a)Federated Department Stores 400,000 13,600
May Department Stores Co. 295,000 13,644
Reed International PLC 40,357 745
Sony Corp. 7,700 561
----------------------------------------------------------------------------
125,018
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.9% Brunswick Corp. 185,000 5,226
Goodyear Tire & Rubber Co. 370,000 19,471
Honda Motor Co., Ltd. 29,000 900
(a)Lear Corp. 300,000 10,725
Leggett & Platt Inc. 711,500 24,725
Magna International Inc., "A" 508,900 26,526
----------------------------------------------------------------------------
87,573
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--5.7% CPC International 225,000 18,591
Gillette Co. 210,000 17,850
H.J. Heinz Co. 200,000 8,300
McDonald's Corp. 300,000 16,088
Newell Co. 475,000 16,625
PepsiCo 700,000 24,413
Philip Morris Cos. 1,020,600 40,186
Procter & Gamble Co. 179,900 22,622
RJR Nabisco Holdings Corp. 300,000 8,925
----------------------------------------------------------------------------
173,600
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--4.1% AMOCO Corp. 250,000 20,906
British Petroleum PLC 53,520 615
Exxon Corp. 536,800 30,396
Mobil Corp. 167,000 21,710
Royal Dutch Petroleum 120,000 21,630
Union Pacific Resources Group 210,000 13,387
Unocal Corp. 450,000 17,156
----------------------------------------------------------------------------
125,800
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--13.2% ADVANTA Corp. 250,000 $ 5,938
Allstate Corp. 380,000 24,890
American Express Co. 305,000 20,092
American General Corp. 375,000 16,359
BankAmerica Corp. 130,000 15,194
Bank of Ireland 112,075 1,167
CITIC Pacific Ltd. 187,000 1,011
Chase Manhattan Corp. 134,000 12,412
Cheung Kong Holdings Ltd. 101,000 887
(a)College Construction Loan Insurance
Association, "A", convertible preferred 534,189 6,672
Dean Witter Discover 590,000 22,568
Development Bank of Singapore 59,000 702
Federal National Mortgage Association 503,000 20,686
First Chicago NBD Corp. 225,000 12,656
First USA 444,800 21,406
Fleet Financial Group Inc. 305,000 18,605
Great Western Financial Corp. 227,600 9,534
ITT Hartford Group 300,000 22,350
Internationale Nederlanden Groep 26,280 1,032
Jefferson-Pilot Corp. 381,000 22,003
KeyCorp 267,000 13,949
MGIC Investment Corp. 121,000 9,831
Mellon Bank Corp. 222,500 18,495
Merrill Lynch & Co.
common stock 234,000 22,289
convertible preferred 100,000 6,988
NationsBank 280,000 16,905
PNC Bank Corp. 390,000 16,039
Signet Banking Corp. 315,000 9,726
Travelers Group 443,333 24,550
Washington Mutual 170,000 8,394
----------------------------------------------------------------------------
403,330
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--8.5% Abbott Laboratories 525,000 32,025
C.R. Bard 268,000 8,509
Bristol-Myers Squibb Co. 400,000 26,200
(a)British Bio-Technology Group 166,000 650
(a)Fresenius Medical Care, A.G. 9,450 679
(a)HealthCare COMPARE Corp. 438,900 19,037
Johnson & Johnson 474,200 29,045
Eli Lilly & Co. 430,000 37,786
Medtronic, Inc. 100,000 6,925
Merck & Co. 270,000 24,435
Perkin-Elmer Corp. 440,000 31,955
Pfizer Inc. 150,000 14,400
Roche Holding A.G. 90 760
(a)Tenet Healthcare Corp. 400,000 10,400
United Healthcare Corp. 200,000 9,725
Warner-Lambert Co. 75,000 7,350
----------------------------------------------------------------------------
259,881
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--11.5% (a)Applied Materials, Inc. 332,000 $ 18,219
(a)Ascend Communications, Inc. 275,000 12,581
(a)Atmel Corp. 700,000 17,413
(a)Cadence Design Systems 540,000 17,280
(a)Cimlinc Inc., convertible preferred 37,716 141
(a)Cisco Systems 325,000 16,819
L.M. Ericsson Telephone Co., "B" 36,205 1,144
Harris Corp. 210,600 18,006
Hewlett-Packard Co. 325,000 17,063
Intel Corp. 365,000 55,891
Linear Technology Corp. 375,000 18,844
(a)McAfee Associates 315,000 17,561
(a)Microsoft Corp. 75,000 9,113
Motorola 225,000 12,881
(a)National Semiconductor Corp. 105,000 2,625
(a)Oracle Corp. 335,000 13,316
(a)Parametric Technology Corp. 266,800 12,073
(a)PeopleSoft Inc. 200,000 8,300
Pitney Bowes Inc. 300,000 19,200
(a)Solectron Corp. 300,000 17,212
(a)Sterling Commerce Inc. 629,800 16,296
(a)Tellabs, Inc. 400,000 15,950
(a)Teradyne 450,000 14,738
----------------------------------------------------------------------------
352,666
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.1% Canadian National Railway Co. 39,452 1,519
Swire Pacific Ltd., "A" 88,000 679
----------------------------------------------------------------------------
2,198
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--2.4% Ameritech Corp. 420,000 25,672
Iberdrola, S.A. 78,000 881
SBC Communications Inc. 385,000 21,367
Telefonica del Peru S.A., ADR 37,500 900
(a)WorldCom, Inc. 1,015,600 24,374
----------------------------------------------------------------------------
73,194
----------------------------------------------------------------------------
TOTAL COMMON STOCKS--62.4%
(Cost: $1,550,767) 1,906,822
----------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--1.0% Euramax International, 11.25%, 2006 $ 8,400 8,799
Owens-Illinois, Inc., 11.00%, 2003 13,590 15,102
Stone Container Corp., 11.875%, 2016 3,500 3,570
Stone Container Finance Corp., 11.50%, 2006 2,500 2,338
----------------------------------------------------------------------------
29,809
- ---------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--.3% Continental Homes Holding Corp., 10.00%, 2006 4,000 4,020
Nortek, Inc., 9.875%, 2004 5,220 5,194
----------------------------------------------------------------------------
9,214
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER CYCLICALS--6.7% AMF Group
(b)12.25%, 2006 $ 1,700 $ 1,145
10.875%, 2006 3,500 3,657
Cablevision Systems Corp., 9.25%, 2005 8,200 7,892
Cinemark USA, Inc., 9.625%, 2008 7,000 6,965
Cole National Group, 9.875%, 2006 3,360 3,461
Comcast Cable Communications, 8.375%, 2007 9,500 9,586
Comcast Corp., 9.375%, 2005 8,500 8,670
(b)Comcast UK Cable Partners Ltd., 11.20%, 2007 13,120 9,200
Delco Remy International, 10.625%, 2006 10,000 10,400
Federated Department Stores, 10.00%, 2001 9,500 10,315
Frontiervision, 11.00%, 2006 5,000 5,025
Granite Broadcasting Corp., 9.375%, 2005 5,640 5,407
K-III Communications Corp., 8.50%, 2006 4,250 4,207
Kinder-Care Learning Centers, 9.50%, 2009 8,500 8,054
News American Holdings, 9.25%, 2013 9,500 10,309
Pathmark Stores, Inc., 9.625%, 2003 3,700 3,432
J.C. Penney Co., 7.60%, 2007 9,500 9,619
Rogers Cantel Mobile Inc., 11.125%, 2002 6,990 7,277
Royal Caribbean Cruises Ltd., 8.25%, 2005 9,500 9,895
Sears Roebuck Acceptance Corp., 6.75%, 2005 9,500 9,148
Sinclair Broadcasting Group, Inc., 10.00%, 2003 7,790 7,917
Station Casinos Inc., 10.125%, 2006 8,800 8,734
TCI Communications, 8.65%, 2004 4,750 4,881
(b)TeleWest Communications PLC, 11.00%, 2007 17,250 11,687
Time Warner Entertainment Co., L.P., 8.875%,
2012 4,750 5,118
Time Warner Inc., 9.125%, 2013 4,750 5,111
Trump Atlantic City, 11.25%, 2006 8,200 7,974
Viacom Inc., 8.00%, 2006 9,475 8,847
(b)Videotron Holdings, 11.125%, 2004 2,800 2,464
----------------------------------------------------------------------------
206,397
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES--.6% American Radio Systems, 9.00%, 2006 5,740 5,683
Del Webb Corp., 9.75%, 2008 8,400 8,180
WestPoint Stevens, 9.375%, 2005 5,100 5,215
----------------------------------------------------------------------------
19,078
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.4% Nabisco Inc., 8.00%, 2000 4,500 4,607
Riverwood International, 10.25%, 2006 8,350 7,849
----------------------------------------------------------------------------
12,456
- ---------------------------------------------------------------------------------------------------------------------
ENERGY--1.5% Gulf Canada Resources Ltd., 9.25%, 2004 7,000 7,245
Parker & Parsley Petroleum, 8.25%, 2007 9,500 9,881
Petronas Dagangan Bhd, 7.125%, 2006 4,500 4,424
Repsol International Finance, 7.00%, 2005 5,000 4,944
Tennessee Gas Pipeline, 7.00%, 2027 9,500 9,347
USX Corp., 9.375%, 2012 9,500 10,725
----------------------------------------------------------------------------
46,566
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCE--3.1% AB Spintab, 7.50%, 2049 $ 9,500 $ 9,374
ABN-AMRO Bank, 8.25%, 2009 9,500 9,816
Abbey National PLC, 7.35%, 2049 6,300 6,209
BCH Cayman Islands Ltd., 7.70%, 2006 1,000 1,004
Banco Central Hispano Americano, 7.50%, 2005 4,000 3,971
Bangkok Bank Ltd., 7.25%, 2005 9,500 9,109
Corporacion Andina De Fomento, 7.79%, 2017 8,650 8,546
Empress River Casino Finance, 10.75%, 2002 2,000 2,125
Lehman Brothers Holdings, 7.375%, 2007 9,500 9,287
Morgan Stanley Group, 6.875%, 2007 7,400 7,121
Salomon Inc., 7.50%, 2003 4,000 4,008
Skandinaviska Enskilda Banken, 6.625%, 2049 6,000 5,873
SunTrust Banks, Atlanta, 7.25%, 2006 9,500 9,450
Svenska Handelsbanken, 7.125%, 2049 7,700 7,433
----------------------------------------------------------------------------
93,326
- ---------------------------------------------------------------------------------------------------------------------
HEALTH CARE--.7% MedPartners Inc., 7.375%, 2006 9,500 9,344
Tenet Healthcare Corp.
10.125%, 2005 6,420 6,869
8.625%, 2007 5,000 4,937
----------------------------------------------------------------------------
21,150
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.6% Delta Airlines, 9.75%, 2021 9,250 10,832
Hayes Wheels International, Inc., 11.00%, 2006 8,000 8,630
----------------------------------------------------------------------------
19,462
- ---------------------------------------------------------------------------------------------------------------------
UTILITIES--1.6% (b)Call-Net Enterprises Inc., 13.25%, 2004 6,350 5,366
(b)Diamond Cable Communication PLC, 10.75%, 2007 4,500 2,689
(b)International CableTel Inc., 11.50%, 2006 13,000 8,482
(b)PanAmSat, L.P., 11.375%, 2003 8,200 7,800
Tenaga Nasional Berhad, 7.875%, 2004 8,000 8,238
USA Mobile Communications, Inc., 9.50%, 2004 7,950 6,758
U.S. West Capital Funding Inc., 7.30%, 2007 9,450 9,295
----------------------------------------------------------------------------
48,628
----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--16.5%
(Cost: $509,122) 506,086
----------------------------------------------------------------------------
MONEY MARKET Yield--5.55% to 5.76%
INSTRUMENTS--4.1%
Due--May and June 1997
(Cost: $125,263) 125,500 125,260
----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.7%
(Cost: $2,730,536) 3,078,004
----------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(.7)% (22,301)
----------------------------------------------------------------------------
NET ASSETS--100% $3,055,703
----------------------------------------------------------------------------
</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 $2,730,536,000 for federal income tax
purposes at April 30, 1997, the gross unrealized appreciation was $374,415,000,
the gross unrealized depreciation was $26,947,000 and the net unrealized
appreciation on investments was $347,468,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,730,536) $3,078,004
- --------------------------------------------------------------------------
Receivable for:
Investments sold 56,253
- --------------------------------------------------------------------------
Fund shares sold 253
- --------------------------------------------------------------------------
Dividends and interest 26,197
- --------------------------------------------------------------------------
TOTAL ASSETS 3,160,707
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Cash overdraft 10,774
- --------------------------------------------------------------------------
Payable for:
Investments purchased 89,788
- --------------------------------------------------------------------------
Fund shares redeemed 1,165
- --------------------------------------------------------------------------
Management fee 1,320
- --------------------------------------------------------------------------
Distribution services fee 682
- --------------------------------------------------------------------------
Administrative services fee 535
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 606
- --------------------------------------------------------------------------
Trustees' fees 134
- --------------------------------------------------------------------------
Total liabilities 105,004
- --------------------------------------------------------------------------
NET ASSETS $3,055,703
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $2,529,604
- --------------------------------------------------------------------------
Undistributed net realized gain on investments 166,990
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 347,480
- --------------------------------------------------------------------------
Undistributed net investment income 11,629
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,055,703
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($1,917,180 / 184,992 shares outstanding) $10.36
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $10.99
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,112,455 / 107,459 shares outstanding) $10.35
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($14,099 / 1,361 shares outstanding) $10.36
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($11,969 / 1,156 shares outstanding) $10.35
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------
Interest $ 45,227
- ------------------------------------------------------------------------------------------
Dividends 14,348
- ------------------------------------------------------------------------------------------
Total investment income 59,575
- ------------------------------------------------------------------------------------------
Expenses:
Management fee 8,252
- ------------------------------------------------------------------------------------------
Distribution services fee 4,331
- ------------------------------------------------------------------------------------------
Administrative services fee 3,516
- ------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 4,513
- ------------------------------------------------------------------------------------------
Professional fees 53
- ------------------------------------------------------------------------------------------
Reports to shareholders 386
- ------------------------------------------------------------------------------------------
Trustees' fees and other 32
- ------------------------------------------------------------------------------------------
Total expenses 21,083
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 38,492
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- ------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions 163,492
- ------------------------------------------------------------------------------------------
Net realized gain from futures transactions 58
- ------------------------------------------------------------------------------------------
Net realized gain 163,550
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 6,824
- ------------------------------------------------------------------------------------------
Net gain on investments 170,374
- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $208,866
- ------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, OCTOBER 31,
1997 1996
- -------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 38,492 70,717
- -------------------------------------------------------------------------------------------------
Net realized gain 163,550 396,108
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 6,824 (58,142)
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 208,866 408,683
- -------------------------------------------------------------------------------------------------
Net equalization charges (928) (2,799)
- -------------------------------------------------------------------------------------------------
Distribution from net investment income (40,540) (83,169)
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain (395,023) (136,617)
- -------------------------------------------------------------------------------------------------
Total dividends to shareholders (435,563) (219,786)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 262,530 (91,842)
- -------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 34,905 94,256
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------
Beginning of period 3,020,798 2,926,542
- ------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$11,629 and $14,605, respectively) $3,055,703 3,020,798
- ------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
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
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
deferred sales charge. On each day the New York
Stock Exchange is open for trading, the net asset
value per share is determined as of the earlier of
3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended April 30, 1997.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income 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 $8,252,000 for the six
months ended April 30, 1997. Zurich Investment
Management Limited, an affiliate of ZKI, serves as
sub-adviser with respect to foreign securities
investments in the Fund and is paid by ZKI for its
services.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS ALLOWED BY ZKDI
RETAINED BY ZKDI TO FIRMS
---------------- ---------------
<S> <C> <C>
Six months ended April 30, 1997 $110,000 785,000
</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
19
<PAGE> 20
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>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY ZKDI BY ZKDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended April 30, 1997 $5,060,000 1,850,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these services and pays
these firms based on assets of Fund accounts the
firms service. Administrative services fees (ASF)
paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY -------------------------------
THE FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Six months ended April 30, 1997 $3,516,000 3,651,000 11,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of
$3,837,000 for the six months ended April 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended April 30, 1997, the
Fund made no payments to its officers and incurred
trustees' fees of $20,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended April 30, 1997, investment
TRANSACTIONS transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $1,791,931
Proceeds from sales 1,936,434
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1997 1996
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 8,777 $ 94,402 14,891 $ 157,710
--------------------------------------------------------------------------------
Class B 6,918 73,591 13,124 139,556
--------------------------------------------------------------------------------
Class C 362 3,800 572 6,084
--------------------------------------------------------------------------------
Class I 200 2,115 298 3,158
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 25,708 256,602 12,664 128,872
--------------------------------------------------------------------------------
Class B 15,396 153,617 7,404 75,047
--------------------------------------------------------------------------------
Class C 164 1,634 43 435
--------------------------------------------------------------------------------
Class I 161 1,606 99 1,011
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (19,498) (206,604) (34,314) (361,075)
--------------------------------------------------------------------------------
Class B (10,848) (114,715) (22,191) (234,855)
--------------------------------------------------------------------------------
Class C (146) (1,523) (139) (1,482)
--------------------------------------------------------------------------------
Class I (188) (1,995) (596) (6,303)
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 4,550 47,882 5,021 53,080
--------------------------------------------------------------------------------
Class B (4,558) (47,882) (5,028) (53,080)
--------------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM
CAPITAL SHARE
TRANSACTIONS $ 262,530 $ (91,842)
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FORWARD FOREIGN
CURRENCY CONTRACTS In order to help protect itself against a decline
in the value of particular foreign currencies
against the U.S. Dollar, the Fund has entered into
forward contracts to deliver foreign currency in
exchange for U.S. Dollars as described below. The
Fund bears the market risk that arises from changes
in foreign exchange rates, and accordingly, the net
unrealized gain on these contracts is reflected in
the accompanying financial statements. The Fund
also bears the credit risk if the counterparty
fails to perform under the contract. At April 30,
1997, the Fund had the following forward foreign
currency contracts outstanding with settlement
dates in July, 1997:
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED GAIN
TO BE DELIVERED IN U.S. DOLLARS AT 4/30/97
-------------------------------------------------------------------
<S> <C> <C>
2,370,000 French Francs $ 408,000 $ 1,000
-------------------------------------------------------------------
306,000 German Marks 178,000 --
-------------------------------------------------------------------
219,000,000 Japanese Yen 1,748,000 10,000
-------------------------------------------------------------------
281,000 Swiss Francs 193,000 1,000
-------------------------------------------------------------------
NET UNREALIZED GAIN $12,000
-------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS A
-----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.28 10.60 9.10 11.23 10.07
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .15 .28 .29 .19 .30
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .59 1.24 1.46 (1.01) 1.54
- ---------------------------------------------------------------------------------------------------
Total from investment operations .74 1.52 1.75 (.82) 1.84
- ---------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .17 .34 .25 .23 .24
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain 1.49 .50 -- 1.08 .44
- ---------------------------------------------------------------------------------------------------
Total dividends 1.66 .84 .25 1.31 .68
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 11.28 10.60 9.10 11.23
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.17% 15.34 19.46 (7.92) 19.08
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses 1.01% 1.05 1.12 1.13 1.02
- ---------------------------------------------------------------------------------------------------
Net investment income 2.85% 2.76 3.00 2.34 2.94
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
CLASS B
----------------------------------------
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31, MAY 31 TO
APRIL 30, ------------- 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 .10 .19 .20 .06
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .58 1.23 1.46 (.16)
- --------------------------------------------------------------------------------------------
Total from investment operations .68 1.42 1.66 (.10)
- --------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .11 .24 .16 .05
- --------------------------------------------------------------------------------------------
Distribution from net realized gain 1.49 .50 -- --
- --------------------------------------------------------------------------------------------
Total dividends 1.60 .74 .16 .05
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.35 11.27 10.59 9.09
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.65% 14.28 18.42 (1.06)
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses 1.95% 1.99 2.05 2.03
- --------------------------------------------------------------------------------------------
Net investment income 1.91% 1.82 2.07 1.57
- --------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------- -----------------------------------
CLASS C CLASS I
----------------------------------------- -----------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED OCTOBER 31, MAY 31 TO ENDED YEAR ENDED JULY 3 TO
APRIL 30, ------------- OCTOBER 31, APRIL 30, 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 .10 .20 .21 .06 .17 .32 .10
- ------------------------------------------------------------------------------ -----------------------------------
Net realized and unrealized gain
(loss) .59 1.22 1.48 (.16) .58 1.23 .52
- ------------------------------------------------------------------------------ -----------------------------------
Total from investment operations .69 1.42 1.69 (.10) .75 1.55 .62
- ------------------------------------------------------------------------------ -----------------------------------
Less dividends:
Distribution from net investment
income .12 .25 .17 .05 .18 .39 .08
- ------------------------------------------------------------------------------ -----------------------------------
Distribution from net realized
gain 1.49 .50 -- -- 1.49 .50 --
- ------------------------------------------------------------------------------ -----------------------------------
Total dividends 1.61 .75 .17 .05 1.67 .89 .08
- ------------------------------------------------------------------------------ -----------------------------------
Net asset value, end of period $10.36 11.28 10.61 9.09 10.35 11.27 10.61
- ------------------------------------------------------------------------------ ---------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.69% 14.31 18.76 (1.05) 7.38 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 1.96% 1.92 2.26 1.60 3.15 3.09 2.97
- ------------------------------------------------------------------------------ -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $3,055,703 3,020,798 2,926,542 2,864,322 1,509,687
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 117% 85 142 121 180
- ---------------------------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the six months ended April 30,
1997 and the year ended October 31, 1996 were $.0572 and $.0580, respectively.
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
23
<PAGE> 24
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
DOMINIQUE P. MORAX
Trustee ELIZABETH C. WERTH
Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed unless preceded
or accompanied by a Kemper Equity
Funds prospectus.
KTRF - 3 (6/97) 1033430
Printed in the U.S.A. [KEMPER FUNDS LOGO]
