<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 2000
Seeking the highest total return, a combination of income
and capital appreciation, consistent with reasonable risk
KEMPER
TOTAL RETURN FUND
"... the bond portion of the portfolio has made a
significant contribution to fund performance as
weakness in the equity markets broadened. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
PERFORMANCE UPDATE
10
TERMS TO KNOW
12
INDUSTRY SECTORS
13
LARGEST HOLDINGS
14
PORTFOLIO OF INVESTMENTS
20
FINANCIAL STATEMENTS
23
FINANCIAL HIGHLIGHTS
25
NOTES TO FINANCIAL STATEMENTS
29
REPORT OF INDEPENDENT AUDITORS
30
TAX INFORMATION
AT A GLANCE
KEMPER TOTAL RETURN FUND TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN KEMPER TOTAL RETURN LIPPER BALANCED FUNDS
KEMPER TOTAL RETURN FUND CLASS A FUND CLASS B FUND CLASS C CATEGORY AVERAGE*
-------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
6.52 5.58 5.63 7.88
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN
ORIGINAL COST.
*LIPPER, 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; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/00 10/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND
CLASS A $11.34 $11.35
.........................................................
KEMPER TOTAL RETURN FUND
CLASS B $11.34 $11.34
.........................................................
KEMPER TOTAL RETURN FUND
CLASS C $11.31 $11.32
.........................................................
</TABLE>
KEMPER TOTAL RETURN FUND
RANKINGS AS OF 10/31/00
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER BALANCED FUNDS CATEGORY*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #270 of #305 of #302 of
475 funds 475 funds 475 funds
..........................................................................................
5-YEAR #85 of #120 of #116 of
255 funds 255 funds 255 funds
..........................................................................................
10-YEAR #17 of n/a n/a
65 funds
..........................................................................................
15-YEAR #15 of n/a n/a
34 funds
..........................................................................................
20-YEAR #19 of n/a n/a
29 funds
..........................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 2000, KEMPER TOTAL RETURN FUND MADE THE
FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.............................................................
<S> <C> <C> <C> <C> <C>
INCOME DIVIDEND $0.275 $0.162 $0.176
.............................................................
SHORT-TERM CAPITAL GAIN $0.060 $0.060 $0.060
.............................................................
LONG-TERM CAPITAL GAIN $0.400 $0.400 $0.400
.............................................................
</TABLE>
YOUR FUND'S STYLE
MORNINGSTAR EQUITY AND INCOME STYLE BOXES(TM)
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL (312)
BOX] 696-6000. The Morningstar Style Box(TM) placement
is based on two variables: a fund's market
capitalization relative to the movements of the
market and a fund's valuation, which is
calculated by comparing the stocks in the fund's
portfolio with the most relevant of the three
market-cap groups.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN
EXACT ASSESSMENT OF RISK AND DO NOT REPRESENT
FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES
FROM DAY TO DAY. A LONGER-TERM VIEW IS
REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY,
WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE AS
MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS
OVER THE PAST THREE YEARS. MORNINGSTAR HAS PLACED
KEMPER TOTAL RETURN FUND IN THE DOMESTIC HYBRID
CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A
DESCRIPTION OF INVESTMENT POLICIES.
</TABLE>
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.43 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- while volatile month-to-month, they have been up an average of 15
to 20 percent compared to a year ago for the past six months.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. We saw the first
evidence of how productivity slows along with economic growth in the third
quarter: Productivity gains dipped to just 3.3 percent from the second quarter's
remarkable 6.1 percent. Second, interest expense will surge (thanks to higher
rates and all that new debt. Third, depreciation costs are escalating. And
finally, the excessively weak euro and higher oil costs will sap earnings.
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 (11/30/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.40 6.00 4.80
Prime rate (2) 9.50 9.25 8.50 8.00
Inflation rate (3)* 3.50 3.10 2.60 1.40
The U.S. dollar (4) 11.10 4.30 -0.70 1.20
Capital goods orders (5)* 7.00 17.10 12.30 -0.60
Industrial production (5)* 5.20 6.50 4.40 4.00
Employment growth (6)* 1.80 2.50 2.30 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 10/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE> 5
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for good quality borrowers. Capital goods
orders are strong, so there's a lot of life left in business spending. Shoppers
are a little pickier, but they're still more interested in visiting the mall
than in filling their piggy banks. And after the election, no matter who wins,
fiscal policy is likely to be more stimulative than it has been for years. The
price to pay will likely be a rise in core inflation (inflation excluding food
and energy). We expect it to hit 3 percent next year, up from its recent rate of
2.5 percent. We believe we'll make it safely through 2001, but investors should
keep their hands on the wheel and their eyes peeled.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED
TO BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE
OPINIONS AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER
KEMPER INVESTMENTS, INC. AS OF DECEMBER 6, 2000, AND MAY NOT ACTUALLY COME TO
PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS
INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
Sincerely,
Scudder Kemper Investments, Economics Group
5
<PAGE> 6
ECONOMIC OVERVIEW
[THIS PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
PERFORMANCE UPDATE
[LANGBAUM PHOTO]
LEAD PORTFOLIO MANAGER GARY A. LANGBAUM HAS BEEN A MANAGING DIRECTOR OF SCUDDER
KEMPER INVESTMENTS, INC. SINCE 1988. LANGBAUM IS A CHARTERED FINANCIAL ANALYST
AND HAS MORE THAN 30 YEARS OF EXPERIENCE IN EQUITY RESEARCH AND PORTFOLIO
MANAGEMENT.
[MCCORMICK PHOTO]
PORTFOLIO MANAGER TRACY MCCORMICK IS A MANAGING DIRECTOR AND HAS MORE THAN 15
YEARS OF INVESTMENT INDUSTRY EXPERIENCE. MCCORMICK FOCUSES HER CONTRIBUTIONS ON
THE EQUITY PORTION OF THE PORTFOLIO. PORTFOLIO MANAGER ROBERT CESSINE, A
MANAGING DIRECTOR WITH THE FIRM, WITH NEARLY 20 YEARS OF INVESTMENT INDUSTRY
EXPERIENCE, CONTRIBUTES TO THE MANAGEMENT OF THE BOND PORTION OF THE PORTFOLIO.
HE IS ALSO A CHARTERED FINANCIAL ANALYST.
THE MANAGEMENT TEAM IS SUPPORTED BY SCUDDER KEMPER INVESTMENTS' LARGE STAFF OF
ANALYSTS, RESEARCHERS, TRADERS AND ECONOMISTS.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER TOTAL RETURN FUND MET THE MARKET VOLATILITY CHALLENGES HEAD-ON DURING
THE ANNUAL PERIOD BY POSTING A SOLID RETURN. BELOW, LEAD PORTFOLIO MANAGER GARY
LANGBAUM DISCUSSES HOW THE PORTFOLIO'S BALANCED STOCK AND BOND ALLOCATIONS
ALLOWED THE FUND TO GENERATE POSITIVE PERFORMANCE WHILE MINIMIZING RISK.
Q BEFORE YOU REVIEW KEMPER TOTAL RETURN FUND'S PERFORMANCE, WILL YOU PROVIDE
US WITH AN OVERVIEW OF THE MARKET CLIMATE DURING THE ANNUAL PERIOD?
A The 12-month period ended October 31, 2000, was a challenging time
characterized by large swings in the market. From the beginning of this period
through the first few months of 2000, we saw technology issues drive robust
market growth. Advances in the tech sector -- specifically in semiconductors and
wireless communications -- and an active initial public offering (IPO) market
drove this performance. At first, many investors continued to ride high with
tech stocks, even as concern over Y2K mounted. The tech-dominated market
maintained strength as Y2K came and went and as the Federal Reserve Board
continued to increase interest rates. However, after the market peaked in
February, there was a sharp correction in growth and technology issues as
investors began reexamining the sustainability of the revenue and earnings
growth rates as well as the high price-to-earnings multiples (P/E) of many
technology issues, and more specifically Internet-related stocks. No tech names
were immune from the correction's domino-like effect, although some rebounded
more quickly than others.
Spooked by the correction, many investors moved into nontech, large-cap names,
which was good news for more defensive areas of the market. Value stocks gained
some ground on growth stocks during this period on fears about the more
aggressive Fed policy and the continued concerns over high valuations of tech
stocks. But some growth areas with more defensive characteristics also
benefited, such as select pharmaceuticals and financial services. Surprisingly,
big discount retail names that historically perform well during this type of
market posted disappointing returns on the heels of the correction.
The market has shown some signs of rebounding, but economic data suggest that
the Fed has succeeded in slowing the economy. As the one-year period came to a
close, the market remained volatile as performance continued to broaden beyond
tech names.
Q HOW DID THE FUND PERFORM DURING THIS ONE-YEAR PERIOD? HOW DID THIS
PERFORMANCE COMPARE WITH ITS BENCHMARKS?
A Kemper Total Return Fund gained 6.52 percent (Class A shares, unadjusted
for any sales charges), outperforming the S&P 500 stock index which was up 6.08
percent. The fund slightly trailed its typical peer -- the average return for
the Lipper Balanced Fund category was 7.88 percent -- lagging due to its higher
equity exposure in a challenging market and its greater exposure to growth
stocks versus value names.
7
<PAGE> 8
PERFORMANCE UPDATE
When comparing fund returns with the all-equity S&P 500 stock index, it is
important to keep in mind that Kemper Total Return Fund is a balanced fund.
Balanced funds invest in both stocks and bonds. During the annual period, we did
not change the portfolio's asset allocation mix -- the fund generally held 65
percent of its assets in stocks. The remaining 35 percent was invested in a core
bond portfolio that included a mix of high-grade and high-yield corporate bonds,
as well as U.S. Treasury and agency bonds. For comparison purposes, you should
also examine the Lehman Brothers Government/ Corporate Bond index*, which rose
7.13 percent for the annual period.
* THE LEHMAN BROTHERS GOVERNMENT/ CORPORATE BOND INDEX IS AN UNMANAGED INDEX
COMPRISING INTERMEDIATE- AND LONG-TERM GOVERNMENT AND INVESTMENT-GRADE
CORPORATE DEBT SECURITIES. SOURCE IS LIPPER, INC. AS OF 10/31/00.
Q WHAT EFFECT DID THE FUND'S BALANCED APPROACH HAVE ON PERFORMANCE?
A As you know, Kemper Total Return Fund seeks both capital growth and
current income. To pursue these goals, we combine stocks and bonds in a single
portfolio. Stocks generally have a higher return potential but also tend to be
more volatile. Bonds, meanwhile, typically offer a lower level of return but
also carry a lower degree of risk compared with stocks. Because the fund
provides exposure to both stocks and bonds, our shareholders' eggs aren't all in
one basket. If stocks falter, bond returns may partially offset the losses.
The fund performed as it was designed to during this type of volatile market
climate and protected principal. Early in the period, stocks -- particularly
technology stocks -- dramatically outperformed everything else. Our significant
bond position, while appropriate for this balanced fund, limited gains in
comparison with all-equity funds. As the market shifted in March and many stocks
fell, the fund's bond position limited losses. Since then, the bond portion of
the portfolio has made a significant contribution to fund performance as
weakness in the equity markets broadened. Overall, our balanced stock and bond
allocation allowed us to post positive returns while minimizing downside risk.
Q HOW DID RISING INTEREST RATES IMPACT PORTFOLIO PERFORMANCE?
A Rising interest rates have had an impact on the fund. However, that impact
was not all negative; the portfolio's mixture of stocks and bonds once again
assisted in limiting fund losses usually associated with rising rates.
Bond market returns for the 12 months were generally positive across the
board. Early in the period, as interest rates rose, bonds struggled, but as
rates began to level off, bonds staged a rally. This exemplifies the inverse
relationship between bonds and interest rates. Typically, when interest rates
rise, the prices of bonds fall. As the equity markets corrected, investors
gravitated to investments that provided more security. Government bonds posted
the best performance, up 8 percent. High-grade and high-yield corporate bonds
also posted positive returns. The bond portion of the portfolio did what it was
supposed to -- it tempered volatility and mitigated losses as the stock market
tumbled.
Although many stocks were adversely affected by the correction in the equity
market, some stocks benefited from rate hikes. We chose to focus on financial
stocks that are less sensitive to rate movements, such as brokerage and
diversified financial firms Morgan Stanley Dean Witter, Marsh & McLennan and
Merrill Lynch. These types of firms benefited from a strong IPO market and an
overall healthy economy. But weakness in the financials subsector could be found
in banks, which suffered because of investor concern that bank loan business
would decline as rates rose. The portfolio had a below-average position in these
types of interest-rate-sensitive stocks, however, so overall, the fund benefited
from its stake in the financial sector.
Q WILL YOU EXPLAIN YOUR STOCK SELECTION PROCESS?
A We understand that investors choose Kemper Total Return Fund for its
quality-focused approach. Accordingly, within our stock allocation, we favor
established, large-cap growth domestic companies with excellent fundamentals,
strong earnings-growth potential and reasonable stock prices. We are currently
not invested in small-cap stocks (under $1 billion in market capitalization) and
have minimal exposure in mid-cap stocks (between $1 billion and $5 billion in
market capitalization). The portfolio has virtually no foreign stock exposure,
although we do have the ability to invest in any size company, as well as
foreign companies. Generally, we begin to sell stocks when their prices reach
our predetermined targets. A key objective of this discipline is to have logic,
not emotion, drive the process. We also sell stocks when we see indications of
potentially deteriorating fundamentals or signs of slowing earnings growth. We
rely
8
<PAGE> 9
PERFORMANCE UPDATE
on independent and rigorous research to guide our stock selection. We use both
fundamental and quantitative measures. Throughout, we actively leverage Scudder
Kemper Investments' extensive research and analytical capabilities.
Q MICROSOFT HAS BEEN A TOPIC OF MUCH DISCUSSION THIS YEAR AND REMAINED A TOP
HOLDING IN THE PORTFOLIO DURING THE ANNUAL PERIOD. WHAT IS YOUR OUTLOOK ON THIS
ISSUE?
A The worst of Microsoft's legal troubles may be behind it. However, the
stock has been a disappointment, and its drop in price had a negative effect on
fund performance. The litigation created anxiety among investors, and we saw
that anxiety reflected in the volatility of the company's short-term stock
price. We had hoped that the legal proceedings would not be a major issue and
looked forward to a resolution with the government. When that didn't come, the
stock reacted adversely. But as the legal troubles have begun to fade, the price
has rebounded somewhat.
Our fundamental analysis of Microsoft's business prospects shows that the
company and its technology-sector peers are well positioned to expand sales and
earnings in the coming months. Given this outlook, we have not changed our
holdings during the sell-off, content that we are well positioned in Microsoft
and its tech-sector peers.
Q HOW IS KEMPER TOTAL RETURN FUND INVESTING IN OTHER AREAS OF TECHNOLOGY?
A The portfolio is diversified across a variety of tech subsectors, such as
computer hardware and software services. While Internet companies, up until
March and April, had been some of the most dynamic market performers, we had
exposure to this subsector only by investing in more established companies that
provide goods and services that make the Internet work. Companies such as Oracle
and Sun Microsystems rallied alongside the Internet frenzy but carried less risk
due to their diverse businesses, long-term track records and strong
fundamentals. So, when the market corrected in March, these more conservative,
established names generally proved more resilient than many of the unproven,
Internet-focused start-ups. This is one reason the fund has not been investing
directly in the "dot-com" stocks. However, we do believe that the portfolio is
well positioned to participate in the still-growing technology sector.
Another way we are participating is through investments in companies that are
using the Internet to build their market share and increase profit potential.
More and more established companies are embracing the Internet business model.
We're watching companies closely, placing a premium on companies that have the
"first move" advantage when it comes to exploiting the opportunities of
electronic commerce. Although tech is off from its high earlier in the year, the
long-term outlook for these types of established, well-managed companies remains
positive.
One tech subsector that has shown such signs of resiliency lately is
semiconductors, where equipment manufacturers helped support the fund's
performance. These firms produce the equipment needed to manufacture chips, as
well as the chips themselves, which are the building blocks for cellular and
wireless telecommunications, computers, calculators and a host of other goods.
In this subsector, Intel, Applied Materials and Teradyne were all huge winners.
And semiconductor demand continues to grow on a global basis. Despite its recent
downturn, the fund's best-performing sector during the annual period was still
technology. Therefore, we are maintaining our slight overweight position
relative to the S&P 500 benchmark.
Q WHAT WORKED FOR KEMPER TOTAL RETURN FUND DURING THIS PERIOD?
A Besides the previously mentioned technology issues, we found strength in
other select stocks. But it was challenging because, like technology, market
weakness was broad, and positive-performing issues were difficult to find.
The energy sector contributed notable returns to the fund. The big integrated
oil companies, such as Exxon Mobil, have seen good performance as of late. But
the real story has been in oil services, specifically drilling and exploration
companies. The fund's position in these types of oil service stocks benefited
from higher-than-usual oil prices as companies increased their budgets to search
for oil. We anticipate that these higher oil prices will be maintained, and that
should continue to help boost returns for many oil-related stocks.
Health care is an area we continue to examine closely. We have had exposure in
both the large-cap pharmaceuticals and rapidly growing specialty
pharmaceuticals, as well as the fastest growing companies in health care -- the
biotech sector. We saw some price appreciation here as investors, concerned
about
9
<PAGE> 10
PERFORMANCE UPDATE
technology valuations, made a defensive shift into large-cap pharmaceutical
issues with consistent earnings. We still like the long-term outlook for this
sector and continue to seek out opportunities in companies with acceptable
valuations.
Q WHAT WERE SOME AREAS THAT DID NOT PERFORM AS WELL AS ANTICIPATED?
A In addition to the weaknesses in banks and some specific technology
companies, areas such as retail and media did not perform as well as we had
anticipated. We remain optimistic about retail companies, although many big
names here such as Home Depot and WalMart underperformed during the period amid
concerns of an economic slowdown. We believe this underperformance is just a
temporary situation. Looking ahead, we see demographics continuing to favor
growth in the labor force, which would create more income and likely result in
increased consumer discretionary spending. This would, of course, be positive
for retail stocks.
Media holdings were solid performers for the fund during much of the annual
period but were recently hurt due to mergers within the industry, as well as the
loss of advertising revenue from the coffers of Internet start-ups that folded.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A There are still attractive issues in the market. Some of these names are
in technology, where valuations have come down to more reasonable levels and
growth rates still look very good. But we need to keep an especially close eye
on tech as market volatility continues. The fundamentals appear to be in place
for a positive market cycle: inflation is in check, the Fed appears to be
finished raising rates, and although the economy has slowed, it is still strong
overall. We believe this economic slowdown has been fundamentally sound and good
for the market as a whole. But if the slowdown turns into a recession, that
would not be good for stocks. Regardless of market direction, we feel that
because of the portfolio's stock/bond mix, the fund is well positioned to take
advantage of continuing volatility.
TERMS TO KNOW
BENCHMARK A point of comparison for gauging relative performance. A fund's
benchmark may be the overall stock market, an index or a peer-group average. To
use a given benchmark effectively, it's essential to consider any differences
between the benchmark and the fund.
CONSUMER STAPLE Consumer staple companies produce nondurable goods or services
that tend to be consumed or replaced within a relatively short period of time.
Due to the steadier demand for consumer nondurables, stocks in this sector are
often considered more defensive in nature than other stocks.
CYCLICAL STOCK Cyclical stocks carry a higher degree of economic sensitivity. In
accelerating economies, cyclical stocks tend to rise quickly; in decelerating
economies, they tend to decline quickly. Cyclical industries include industrial
machinery, paper and forestry, automobiles and construction.
GROWTH STOCK A stock in a company that is expected to experience rapid growth
resulting from strong sales, talented management and dominant market position.
Because growth stocks are typically in demand, they tend to carry relatively
high price tags and also can be volatile, based on changing perceptions of the
companies' growth.
PRICE-TO-EARNINGS RATIO (P/E) The P/E ratio indicates how much investors are
paying for a company's earning power. The higher the P/E, the more investors are
paying and the more earnings growth they are expecting.
10
<PAGE> 11
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR FUND
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A 0.42% 12.39% 13.09% 11.80% (since 3/2/64)
..................................................................................................
KEMPER TOTAL RETURN FUND CLASS B 2.58 12.53 n/a 12.46 (since 5/31/94)
..................................................................................................
KEMPER TOTAL RETURN FUND CLASS C 5.63 12.70 n/a 12.55 (since 5/31/94)
..................................................................................................
</TABLE>
KEMPER TOTAL RETURN FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 12/31/72 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S 500 GOVERNMENT/CREDIT
FUND CLASS A1 STOCK INDEX+ INDEX++
------------------- --------------------- -----------------
<S> <C> <C> <C>
12/31/72 9416.00 10000.00 10000.00
8553.00 8263.00 10228.00
7117.00 5808.00 10245.00
9641.00 7640.00 11505.00
13042.00 9103.00 13298.00
13689.00 8056.00 13695.00
15172.00 8141.00 13857.00
19959.00 9144.00 14176.00
28219.00 11500.00 14610.00
12/31/81 28308.00 10381.00 15670.00
34772.00 11914.00 20543.00
41737.00 13971.00 22185.00
41273.00 14167.00 25517.00
53023.00 17898.00 30953.00
62404.00 20514.00 35788.00
60882.00 20930.00 36609.00
66218.00 23526.00 39384.00
12/31/89 79353.00 29936.00 44991.00
82610.00 27973.00 48717.00
115783.00 35332.00 56573.00
118669.00 36909.00 60862.00
132420.00 39513.00 67576.00
120270.00 38905.00 65205.00
151301.00 52175.00 77752.00
175882.00 62748.00 80009.00
209548.00 82205.00 87816.00
242896.00 104128.00 96148.00
278353.00 124460.00 94069.00
10/31/00 280269.00 121085.00 101438.00
</TABLE>
KEMPER TOTAL RETURN FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 05/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S 500 GOVERNMENT/CREDIT
FUND CLASS B1 STOCK INDEX+ INDEX++
------------------- --------------------- -----------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9556.00 9732.00 9977.00
9850.00 10136.00 10026.00
9644.00 10061.00 10063.00
10282.00 10968.00 10564.00
11060.00 11933.00 11250.00
11606.00 12802.00 11465.00
12011.00 13492.00 11999.00
3/31/96 12241.00 14140.00 11718.00
12600.00 14691.00 11774.00
13188.00 15057.00 11981.00
13847.00 16227.00 12347.00
13715.00 16585.00 12241.00
15460.00 19390.00 12685.00
16338.00 20751.00 13130.00
16333.00 21258.00 13552.00
17814.00 24135.00 13758.00
18021.00 24838.00 14109.00
9/30/98 16774.00 22278.00 14820.00
18731.00 26927.00 14838.00
19264.00 28179.00 14661.00
20149.00 30070.00 14501.00
19270.00 28099.00 14577.00
21271.00 32185.00 14517.00
21572.00 32828.00 14906.00
21258.00 31864.00 15122.00
21451.00 31468.00 15556.00
10/31/00 21264.00 31312.00 15654.00
</TABLE>
KEMPER TOTAL RETURN FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 05/31/94 to 10/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S 500 GOVERNMENT/CREDIT
FUND CLASS C1 STOCK INDEX+ INDEX++
------------------- --------------------- -----------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9567.00 9732.00 9977.00
9851.00 10136.00 10026.00
9646.00 10061.00 10063.00
10286.00 10968.00 10564.00
11079.00 11933.00 11250.00
11640.00 12802.00 11465.00
12052.00 13492.00 11999.00
3/31/96 12274.00 14140.00 11718.00
12638.00 14691.00 11774.00
13230.00 15057.00 11981.00
13894.00 16227.00 12347.00
13763.00 16585.00 12241.00
15515.00 19390.00 12685.00
16398.00 20751.00 13130.00
16394.00 21258.00 13552.00
17882.00 24135.00 13758.00
18096.00 24838.00 14109.00
9/30/98 16867.00 22278.00 14820.00
18819.00 26927.00 14838.00
19350.00 28179.00 14661.00
20238.00 30070.00 14501.00
19372.00 28099.00 14577.00
21375.00 32185.00 14517.00
21684.00 32828.00 14906.00
21395.00 31864.00 15122.00
21576.00 31468.00 15556.00
10/31/00 21368.00 31312.00 15654.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN ORIGINAL COST.
*THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 5.75%. FOR CLASS B SHARES,
THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE (CDSC) IS 4%. CLASS C SHARES
HAVE NO SALES CHARGE ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. WHEN
REVIEWING THE PERFORMANCE CHART,
PLEASE NOTE THAT THE INCEPTION DATE
FOR THE LEHMAN BROTHERS GOVERNMENT/
CREDIT BOND INDEX IS DECEMBER 31,
1972. AS A RESULT, WE ARE UNABLE TO
ILLUSTRATE THE LIFE-OF-FUND
PERFORMANCE (SINCE MARCH 2, 1964)
FOR KEMPER TOTAL RETURN FUND CLASS A
SHARES. IN COMPARING THE KEMPER
TOTAL RETURN FUND WITH THE INDICES,
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 STANDARD & POOR'S 500 STOCK INDEX
IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK
MARKET. SOURCE IS WIESENBERGER(R).
++THE LEHMAN BROTHERS GOVERNMENT/ CREDIT
BOND INDEX IS AN UNMANAGED INDEX
COMPRISING INTERMEDIATE-AND LONG-TERM
GOVERNMENT AND INVESTMENT-GRADE
CORPORATE DEBT SECURITIES. SOURCE IS
WIESENBERGER(R).
11
<PAGE> 12
INDUSTRY SECTORS
A LOOK AT THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND
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, 2000, and on October 31, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND ON KEMPER TOTAL RETURN FUND ON
10/31/00 10/31/99
--------------------------- ---------------------------
<S> <C> <C>
Technology 23.40 18.40
Finance 20.00 15.80
Health 18.10 12.50
Consumer non-durables 13.10 18.90
Capital goods 9.10 9.50
Communication services 8.20 18.60
Energy 5.10 5.50
Basic materials 3.00 0.00
Transportation 0.00 0.80
</TABLE>
A COMPARISON WITH THE STANDARD & POOR'S 500 STOCK INDEX*, THE FUND'S BENCHMARK
FOR THE EQUITY PORTION OF THE FUND
The equity portion of Kemper Total Return Fund can be compared to the S&P 500
stock 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, 2000, compared with the industry sectors of the S&P
500.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND ON STANDARD & POOR'S 500 STOCK
10/31/00 INDEX ON 10/31/00
--------------------------- ---------------------------
<S> <C> <C>
Technology 23.40 29.50
Finance 20.00 15.70
Health 18.10 11.40
Consumer non-durables 13.10 17.10
Capital goods 9.10 8.60
Communication services 8.20 6.30
Energy 5.10 5.90
Basic materials 3.00 1.70
Transportation 0.00 0.50
Utilities 0.00 3.30
</TABLE>
* THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
SOURCE IS WIESENBERGER(R).
12
<PAGE> 13
LARGEST HOLDINGS
KEMPER TOTAL RETURN FUND'S 10 LARGEST HOLDINGS*
Representing 16.4 percent of the fund's total portfolio on October 31, 2000
<TABLE>
<CAPTION>
COMPANY DESCRIPTION % OF FUND
<S> <C> <C> <C>
--------------------------------------------------------------------------------
1. GENERAL ELECTRIC A broadly diversified 2.6%
company with major
business in power
generators, appliances,
lighting, plastics,
medical systems, aircraft
engines, financial
services and broadcasting.
--------------------------------------------------------------------------------
2. PEPSICO One of the largest 1.8%
international soft drink
and snack food producers.
--------------------------------------------------------------------------------
3. CISCO SYSTEMS Large, comprehensive 1.8%
supplier of routing
software and related
systems that direct the
flow of data between local
networks.
--------------------------------------------------------------------------------
4. INTEL Engaged in the design, 1.7%
development, manufacture
and sale of advanced
microcomputer components.
--------------------------------------------------------------------------------
5. PFIZER A research-based 1.6%
pharmaceutical company
involved in the discovery,
development, manufacturing
and marketing of medicines
for humans and animals.
--------------------------------------------------------------------------------
6. AMERICAN INTERNATIONAL GROUP A holding company engaged 1.5%
in insurance and
insurance-related
activities in the United
States and abroad. AIG's
primary activities are
general insurance and life
insurance operations.
--------------------------------------------------------------------------------
7. MICROSOFT Develops, markets and 1.5%
supports a variety of
microcomputer software,
operating systems,
language and application
programs, related books
and peripheral devices.
--------------------------------------------------------------------------------
8. BAXTER INTERNATIONAL An international 1.3%
market-leader in health
care that develops,
manufactures and
distributes a diversified
line of products, systems
and services to hospitals,
clinical and medical
research laboratories,
blood and dialysis
centers, rehabilitation
centers and nursing homes.
--------------------------------------------------------------------------------
9. ABBOTT LABORATORIES Develops, manufactures and 1.3%
markets pharmaceutical and
nutritional products and
services that improve
diagnostic, therapeutic
and nutritional practices.
--------------------------------------------------------------------------------
10. EXXON MOBIL Engaged in the 1.3%
exploration, production,
manufacture,
transportation and sale of
crude oil, natural gas and
petroleum products.
--------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
KEMPER TOTAL RETURN FUND
Investment Portfolio as of October 31, 2000
<TABLE>
<CAPTION>
REPURCHASE AGREEMENT--2.9% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
State Street Bank, 6.55%, to be
repurchased at $103,026,742, on
11/01/2000
(Cost $103,008,000) (b) $103,008,000 $ 103,008,000
--------------------------------------------------------------------------------
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS--17.2%
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bond, 6.125%, 08/15/2029 50,000,000 51,781,000
U.S. Treasury Bond, 6.250%, 05/15/2030 11,275,000 12,007,875
U.S. Treasury Bond, 6.500%, 02/15/2010 53,775,000 56,287,368
U.S. Treasury Bond, 8.000%, 11/15/2021 7,450,000 9,207,753
U.S. Treasury Bond, 9.375%, 02/15/2006 90,450,000 104,469,750
U.S. Treasury Bond, 10.375%, 11/15/2012 29,800,000 37,133,482
U.S. Treasury Note, 5.750%, 08/15/2010 49,450,000 49,403,517
U.S. Treasury Note, 6.750%, 05/15/2005 135,775,000 140,760,658
U.S. Treasury Note, 7.500%, 02/15/2005 134,000,000 142,186,060
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $599,725,945) 603,237,463
--------------------------------------------------------------------------------
<CAPTION>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--2.4%
<S> <C> <C> <C> <C> <C>
Government National Mortgage Association
6.500%, with various maturities to
04/15/2029 20,446,355 19,740,260
Government National Mortgage Association
7.000% with various maturities to
12/15/2028 45,679,787 45,042,357
Government National Mortgage Association
8.000% with various maturities to
09/15/2030 19,634,338 19,961,110
--------------------------------------------------------------------------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
(Cost $84,488,952) 84,743,727
--------------------------------------------------------------------------------
<CAPTION>
U.S. GOVERNMENT AGENCY PASS-THRUS--4.9%
<S> <C> <C> <C> <C> <C>
Federal National Mortgage Association,
6.500% with various maturities to
07/01/2030 74,700,534 71,829,232
Federal National Mortgage Association,
7.000%, with various maturities to
09/01/2030 39,375,962 38,790,769
Federal National Mortgage Association,
7.500% with various maturities to
09/01/2030 39,031,122 39,098,238
Federal National Mortgage Association,
8.000% with various maturities to
08/01/2030 22,864,561 23,228,873
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $171,605,788) 172,947,112
--------------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ASSET BACKED--0.4% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
AUTOMOBILE
RECEIVABLES--0.2%
Daimler Chrysler Auto Trust Series
2000-C, 6.820%, 09/06/2004 $ 7,875,000 $ 7,903,783
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
CREDIT CARD
RECEIVABLES--0.2%
Citibank Credit Card Issuance Trust
Series 2000-A1, 6.900%, 10/17/2007 6,900,000 6,917,250
--------------------------------------------------------------------------------
TOTAL ASSET BACKED
(Cost $14,770,326) 14,821,033
--------------------------------------------------------------------------------
<CAPTION>
CORPORATE BONDS--10.6%
<S> <C> <C> <C> <C> <C>
CONSUMER
DISCRETIONARY--0.4%
AFC Enterprises, 10.250%, 05/15/2007 2,840,000 2,698,000
Cinemark USA, Inc., 8.500%, 08/01/2008 5,350,000 2,193,500
MGM Grand Inc., 9.750%, 06/01/2007 5,725,000 5,932,531
Park Place Entertainment, Inc., 8.500%,
11/15/2006 3,900,000 3,878,199
--------------------------------------------------------------------------------
14,702,230
-----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--0.2%
Unilever Capital Corp., 6.875%,
11/01/2005 6,075,000 6,031,321
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
HEALTH--0.2%
Magellan Health Services, Inc., 9.000%,
02/15/2008 9,410,000 6,210,600
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--1.9%
Deutsch Telekom Int Fin, 7.750%,
06/15/2005 3,250,000 3,304,015
Esprit Telecom Group, PLC, 11.500%,
12/15/2007 2,370,000 474,000
Intermedia Communications, 8.600%,
06/01/2008 11,370,000 10,687,800
McLeod USA, Inc., Step-up Coupon, 0% to
03/01/2002, 10.500% to 03/01/2007*** 6,550,000 5,371,000
MetroNet Communications Corp., Step-up
Coupon, 0% to 06/15/2003, 9.950%,
06/15/2008*** 14,700,000 11,778,375
Nextel Communications, 9.375%, 11/15/2009 8,320,000 7,987,200
Qwest Communications International,
7.500%, 11/01/2008 6,450,000 6,379,437
Rogers Cantel Inc., 8.800%, 10/01/2007 7,900,000 7,742,000
Sprint Capital Corp., 6.125%, 11/15/2008 6,450,000 5,728,697
Vodafone Airtouch PLC, 7.75%, 02/15/2010 6,450,000 6,548,621
--------------------------------------------------------------------------------
66,001,145
-----------------------------------------------------------------------------------------------------------------------
FINANCIALS--3.6%
ABN AMRO, 8.250%, 08/01/2009 4,250,000 4,313,835
Bell Atlantic Financial Services, 7.600%,
03/15/2007 4,225,000 4,307,388
Chase Manhattan Corp., 5.750%, 04/15/2004 6,450,000 6,191,742
Citigroup, Inc., 7.250%, 10/01/2010 6,450,000 6,408,914
Den Danske Bank, 6.375%, 06/15/2008** 2,075,000 2,033,002
Fannie Mae, 7.00%, 07/15/2005 24,900,000 25,370,859
Firstar Bank, 7.125%, 12/01/2009 5,500,000 5,326,585
FleetBoston Financial Corp. Series
2000-C, 7.250%, 09/15/2005 5,775,000 5,805,434
Ford Motor Credit Co., 6.700%, 07/16/2004 6,450,000 6,317,969
General Electric Capital Corp., 7.000%,
02/03/2003 6,450,000 6,485,862
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
General Motors Acceptance Corp., 6.150%,
04/05/2007 $ 6,450,000 $ 5,977,731
MBNA Master Credit Card Trust, 6.900%,
01/15/2008 8,050,000 8,100,313
Merrill Lynch & Co., Inc., 6.000%,
02/17/2009 6,450,000 5,892,140
PNC Funding Corp., 7.500%, 11/01/2009 6,450,000 6,373,245
Province of Quebec, 8.625%, 01/19/2005 8,250,000 8,795,903
Prudential Insurance Co., 6.375%,
07/23/2006 4,000,000 3,780,560
Repsol International Finance, 7.450%,
07/15/2005 6,600,000 6,633,396
Wells Fargo Company, 7.250%, 08/24/2005 6,450,000 6,499,278
--------------------------------------------------------------------------------
124,614,156
-----------------------------------------------------------------------------------------------------------------------
MEDIA--1.8%
Cablevision Systems Corp., 7.875%,
12/15/2007 8,000,000 7,740,000
Charter Communications Holdings LLC,
8.625%, 04/01/2009 8,500,000 7,650,000
Frontiervision LP, 11.000%, 10/15/2006 5,000,000 5,000,000
NTL, Inc., Step-up Coupon, 0% to
02/01/2001, 11.500% to 02/01/2006*** 11,330,000 10,423,600
News America Holdings, Inc., 9.250%,
02/01/2013 6,450,000 6,988,704
Sinclair Broadcasting Group, Inc.,
8.750%, 12/15/2007 3,890,000 3,423,200
TeleWest Communications, PLC, 11.000%,
10/01/2007** 17,250,000 15,180,000
Time Warner, Inc., 9.125%, 01/15/2013 6,450,000 7,229,870
--------------------------------------------------------------------------------
63,635,374
-----------------------------------------------------------------------------------------------------------------------
DURABLES--0.1%
Daimler-Chrysler NA Holdings, 7.375%,
09/15/2006 2,925,000 2,924,766
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.7%
Dow Chemical, 7.000%, 08/15/2005 6,450,000 6,411,042
International Paper Co., 8.000%,
07/08/2003 6,450,000 6,533,463
Plainwell, Inc., 0.000%, 03/01/2008* 4,230,000 846,000
Riverwood International Corp., 10.250%,
04/01/2006 7,750,000 7,595,000
Stone Container Corp., 11.500%,
08/15/2006 2,500,000 2,550,000
--------------------------------------------------------------------------------
23,935,505
-----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--0.1%
PSINet, Inc., 10.000%, 02/15/2005 3,210,000 1,572,900
PSINet, Inc., 11.500%, 11/01/2008 4,030,000 2,055,300
--------------------------------------------------------------------------------
3,628,200
-----------------------------------------------------------------------------------------------------------------------
ENERGY--0.9%
Conoco, Inc., 6.350%, 04/15/2009 6,450,000 6,134,015
Gulf Canada Resources, Inc., 9.250%,
01/15/2004 7,000,000 7,113,750
Petroleum Geo-Services, 7.500%,
03/31/2007 6,450,000 6,333,836
Phillips Petroleum, 8.750%, 05/25/2010 6,450,000 7,034,628
Williams Gas Pipeline Center, 7.375%,
11/15/2006 6,450,000 6,435,939
--------------------------------------------------------------------------------
33,052,168
-----------------------------------------------------------------------------------------------------------------------
METALS AND MINERALS--0.2%
Euramax International, PLC, 11.250%,
10/01/2006 8,400,000 6,972,000
--------------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
CONSTRUCTION--0.3%
Del Webb Corp., 9.750%, 01/15/2008 $ 6,010,000 $ 5,649,400
Hovnanian Enterprises Inc., 10.500%,
10/01/2007 6,775,000 6,368,500
--------------------------------------------------------------------------------
12,017,900
-----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.1%
Delta Air Lines, 7.900%, 12/15/2009 3,400,000 3,151,018
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
UTILITIES--0.1%
Alabama Power Co., 7.125%, 08/15/2004 3,500,000 3,503,150
--------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $388,423,315) 370,379,533
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--61.6% SHARES
<S> <C> <C> <C> <C> <C>
CONSUMER
DISCRETIONARY--2.9%
DEPARTMENT &
CHAIN STORES
Home Depot, Inc. 547,504 23,542,648
Kohl's Corp.* 445,000 24,113,438
Target Corp. 688,000 19,006,000
Wal-Mart Stores, Inc. 793,200 35,991,450
--------------------------------------------------------------------------------
102,653,536
-----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--5.1%
FOOD & BEVERAGE--3.2%
Coca-Cola Co. 283,500 17,116,313
H.J. Heinz Co. 722,300 30,291,456
PepsiCo, Inc. 1,340,000 64,906,250
--------------------------------------------------------------------------------
112,314,019
PACKAGED GOODS/
COSMETICS--1.9%
Clorox Co. 533,500 23,807,438
Colgate-Palmolive Co. 400,000 23,504,000
Procter & Gamble Co. 280,000 20,002,500
--------------------------------------------------------------------------------
67,313,938
-----------------------------------------------------------------------------------------------------------------------
HEALTH--11.2%
BIOTECHNOLOGY--1.6%
Genzyme Corporation (General Division)* 185,000 13,135,000
Immunex Corp.* 260,000 11,066,250
PE Corp-PE Biosystems Group 260,000 30,420,000
--------------------------------------------------------------------------------
54,621,250
HOSPITAL
MANAGEMENT--0.3%
Tenet Healthcare Corp.* 285,000 11,204,063
--------------------------------------------------------------------------------
MEDICAL SUPPLY--2.7%
Baxter International, Inc. 567,900 46,674,281
Becton, Dickinson & Co. 860,000 28,810,000
Guidant Corp.* 345,000 18,263,438
--------------------------------------------------------------------------------
93,747,719
PHARMACEUTICALS--6.6%
Abbott Laboratories 870,000 45,946,875
Allergan, Inc. 282,700 23,764,469
Alza Corp.* 355,000 28,732,813
American Home Products Corp. 430,000 27,305,000
Eli Lilly & Co. 212,000 18,947,500
Merck & Co., Inc. 350,000 31,478,125
Pfizer, Inc. 1,297,500 56,035,781
--------------------------------------------------------------------------------
232,210,563
-----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--2.4%
TELEPHONE/
COMMUNICATIONS
BroadWing, Inc.* 823,000 23,249,750
Qwest Communications International Inc.* 565,000 27,473,125
SBC Communications, Inc. 578,000 33,343,375
--------------------------------------------------------------------------------
84,066,250
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
FINANCIAL--12.3%
BANKS--3.1%
Citigroup, Inc. $ 801,664 $ 42,187,568
FleetBoston Financial Corp. 590,000 22,420,000
Washington Mutual, Inc. 425,000 18,700,000
Wells Fargo Co. 540,000 25,008,750
--------------------------------------------------------------------------------
108,316,318
INSURANCE--5.6%
Allstate Corp. 285,000 11,471,250
American International Group, Inc. 532,500 52,185,000
Aon Corp. 655,800 27,174,713
Cigna Corp. 175,200 21,365,640
Hartford Financial Services Group, Inc. 435,000 32,380,313
Jefferson Pilot Corp. 275,500 18,940,625
St. Paul Companies, Inc. 615,000 31,518,750
--------------------------------------------------------------------------------
195,036,291
CONSUMER FINANCE--2.3%
American Express Co. 540,000 32,400,000
Capital One Finance Corp. 322,400 20,351,500
Household International, Inc. 608,022 30,591,107
--------------------------------------------------------------------------------
83,342,607
OTHER FINANCIAL
COMPANIES--1.3%
Marsh & McLennan Companies, Inc. 215,800 28,215,850
Morgan Stanley Dean Witter & Co. 230,000 18,471,875
--------------------------------------------------------------------------------
46,687,725
-----------------------------------------------------------------------------------------------------------------------
MEDIA--2.6%
ADVERTISING--0.2%
Omnicom Group, Inc. 97,700 9,012,825
--------------------------------------------------------------------------------
BROADCASTING &
ENTERTAINMENT--1.8%
Infinity Broadcasting Corp.* 357,400 11,883,550
The Walt Disney Co. 575,000 20,592,188
Viacom, Inc "B"* 521,813 29,678,114
--------------------------------------------------------------------------------
62,153,852
CABLE TELEVISION--0.6%
AT&T Corp. -- Liberty Media Group "A"* 1,190,000 21,420,000
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--1.9%
ENVIRONMENTAL SERVICES--0.7%
Transocean Sedo Forex, Inc. 426,960 22,628,880
--------------------------------------------------------------------------------
INVESTMENT--0.5%
Merrill Lynch & Co., Inc. 268,000 18,760,000
--------------------------------------------------------------------------------
MISCELLANEOUS
COMMERCIAL SERVICES--0.3%
Siebel Systems, Inc.* 97,000 10,178,938
--------------------------------------------------------------------------------
PRINTING/PUBLISHING--0.4%
McGraw-Hill, Inc. 212,200 13,620,588
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
DURABLES--2.2%
AEROSPACE
Boeing Co. 490,000 33,228,125
United Technologies Corp. 640,000 44,680,000
--------------------------------------------------------------------------------
77,908,125
-----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.4%
DIVERSIFIED
MANUFACTURING
General Electric Co. 1,679,000 92,030,188
Tyco International Ltd. 456,528 25,879,431
--------------------------------------------------------------------------------
117,909,619
-----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--14.5%
COMPUTER SOFTWARE--3.1%
America Online, Inc.* 408,000 20,575,429
Microsoft Corp.* 750,000 51,656,250
Oracle Corp.* 1,083,000 35,739,000
--------------------------------------------------------------------------------
107,970,679
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
DIVERSE ELECTRONIC
PRODUCTS--2.5%
Applied Materials, Inc.* $ 270,000 $ 14,343,750
General Motors Corp. "H" (New)* 675,000 21,870,000
Motorola Inc. 870,000 21,695,625
Solectron Corp.* 680,000 29,920,000
--------------------------------------------------------------------------------
87,829,375
EDP PERIPHERALS--1.0%
EMC Corp.* 185,000 16,476,563
VERITAS Software Corp.* 125,000 17,626,953
--------------------------------------------------------------------------------
34,103,516
ELECTRONIC COMPONENTS/
DISTRIBUTORS--2.3%
Analog Devices, Inc.* 160,000 10,400,000
Cisco Systems, Inc.* 1,165,000 62,764,375
Juniper Networks, Inc.* 46,000 8,970,000
--------------------------------------------------------------------------------
82,134,375
ELECTRONIC DATA
PROCESSING--2.8%
International Business Machines Corp. 327,500 32,258,750
Radioshack Corp 392,800 23,420,700
Sun Microsystems, Inc.* 370,000 41,023,750
--------------------------------------------------------------------------------
96,703,200
SEMICONDUCTORS--2.8%
Intel Corp. 1,350,000 60,750,000
Texas Instruments, Inc. 420,000 20,606,250
Xilinx, Inc.* 214,800 15,559,575
--------------------------------------------------------------------------------
96,915,825
MISCELLANEOUS--0.00%
Cimline Incorporated, convertible
preferred* 37,716 141,435
--------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
ENERGY--3.1%
OIL & GAS
PRODUCTION--2.2%
Exxon Mobil Corp. 508,916 45,388,947
Nabors Industries, Inc.* 250,000 12,725,000
Royal Dutch Petroleum Co.
(New York shares) 355,000 21,078,125
--------------------------------------------------------------------------------
79,192,072
OILFIELD SERVICES/
EQUIPMENT--0.9%
Schlumberger Ltd. 400,000 30,450,000
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,530,428,379) 2,160,547,583
--------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $2,892,450,705) (a) $3,509,684,451
--------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security.
** Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon equivalent of
the U.S. Treasury bill rate. The securities shown are at their rate as of
October 31, 2000.
*** Deferred interest obligation; currently zero coupon under terms of initial
offering.
(a) The cost for federal income tax purposes was $2,896,047,563. At October
31, 2000, net unrealized appreciation for all securities based on tax cost
was $613,636,888. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $679,834,479 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $66,197,591.
(b) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
As of October 31, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $2,892,450,705) $3,509,684,451
------------------------------------------------------------------------------
Cash 767
------------------------------------------------------------------------------
Receivable for investments sold 8,113,703
------------------------------------------------------------------------------
Dividends receivable 1,032,680
------------------------------------------------------------------------------
Interest receivable 21,157,353
------------------------------------------------------------------------------
Receivable for Fund shares sold 1,495,489
------------------------------------------------------------------------------
TOTAL ASSETS 3,541,484,443
------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 30,736,055
------------------------------------------------------------------------------
Payable for Fund shares redeemed 5,352,341
------------------------------------------------------------------------------
Accrued management fee 1,563,467
------------------------------------------------------------------------------
Other payables and accrued expenses 3,272,362
------------------------------------------------------------------------------
Total liabilities 40,924,225
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $3,500,560,218
------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 4,834,913
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
securities 617,233,746
------------------------------------------------------------------------------
Accumulated net realized gain (loss) 254,472,951
------------------------------------------------------------------------------
Paid-in capital 2,624,018,608
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $3,500,560,218
------------------------------------------------------------------------------
NET ASSETS VALUE
CLASS A SHARES
Net asset value and redemption price per share
($2,861,841,930 / 252,461,133 shares outstanding of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $11.34
------------------------------------------------------------------------------
Maximum offering price per share (100/94.25 of $11.34) $12.03
------------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($566,449,334
/ 49,971,135 shares outstanding of beneficial interest,
$.01 par value, unlimited number of shares authorized) $11.34
------------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($61,068,560 /
5,399,105 shares outstanding of beneficial interest, $.01
par value, unlimited number of shares authorized) $11.31
------------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price
($11,200,394 / 984,944 shares outstanding of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $11.37
------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Period ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $37,593) $ 18,617,030
----------------------------------------------------------------------------
Interest 101,332,309
----------------------------------------------------------------------------
Total income 119,949,339
----------------------------------------------------------------------------
Expenses:
Management fee 19,297,715
----------------------------------------------------------------------------
Services to shareholders 7,821,765
----------------------------------------------------------------------------
Custodian fees 97,390
----------------------------------------------------------------------------
Distribution services fees 5,244,254
----------------------------------------------------------------------------
Administrative service fees 9,052,817
----------------------------------------------------------------------------
Auditing 80,592
----------------------------------------------------------------------------
Legal 63,460
----------------------------------------------------------------------------
Trustees' fees and expenses 83,810
----------------------------------------------------------------------------
Reports to shareholders 1,122,871
----------------------------------------------------------------------------
Registration fees 82,152
----------------------------------------------------------------------------
Other 129,459
----------------------------------------------------------------------------
Total expenses before expense reductions 43,076,285
----------------------------------------------------------------------------
Expense reductions (256,246)
----------------------------------------------------------------------------
Total expenses, after expense reductions 42,820,039
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 77,129,300
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments 256,727,100
----------------------------------------------------------------------------
Foreign currency related transactions 723
----------------------------------------------------------------------------
256,727,823
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the year
on investments (108,116,973)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions 148,610,850
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $225,740,150
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 77,129,300 $ 88,720,995
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) 256,727,823 146,151,777
---------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the year (108,116,973) 337,450,337
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 225,740,150 572,323,109
---------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
---------------------------------------------------------------------------------------------------------
Class A (70,160,860) (74,596,106)
---------------------------------------------------------------------------------------------------------
Class B (9,132,589) (13,995,350)
---------------------------------------------------------------------------------------------------------
Class C (827,264) (699,320)
---------------------------------------------------------------------------------------------------------
Class I (314,796) (341,247)
---------------------------------------------------------------------------------------------------------
From net realized gains
---------------------------------------------------------------------------------------------------------
Class A (115,967,738) (155,081,902)
---------------------------------------------------------------------------------------------------------
Class B (28,527,232) (54,431,309)
---------------------------------------------------------------------------------------------------------
Class C (1,824,608) (1,770,844)
---------------------------------------------------------------------------------------------------------
Class I (453,978) (839,343)
---------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 651,291,066 785,522,939
---------------------------------------------------------------------------------------------------------
Reinvestment of distributions 213,705,889 284,806,801
---------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,044,991,009) (980,127,714)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (179,994,054) 90,202,026
---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (181,462,969) 360,769,714
---------------------------------------------------------------------------------------------------------
NET ASSETS AT BEGINNING OF PERIOD 3,682,023,187 3,321,253,473
---------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $4,834,913 and $8,178,298,
respectively) $ 3,500,560,218 $3,682,023,187
---------------------------------------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.35 10.54 11.34 11.28 10.60
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .26(a) .30(a) .29 .31 .28
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .47 1.50 .77 1.57 1.24
---------------------------------------------------------------------------------------------------------------------
Total from investment operations .73 1.80 1.06 1.88 1.52
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.28) (.31) (.31) (.33) (.34)
---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.46) (.68) (1.55) (1.49) (.50)
---------------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.99) (1.86) (1.82) (.84)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.34 11.35 10.54 11.34 11.28
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) 6.52 17.91 10.47 18.95 15.34
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 2,861,856 2,884,634 2,406,414 2,079,560 1,865,933
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.02 1.02 1.01 1.01 1.05
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.01 1.02 1.01 1.01 1.05
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.29 2.71 2.75 2.92 2.76
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 95 64 80 122 85
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.34 10.52 11.33 11.27 10.59
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .16(a) .19(a) .19 .22 .19
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .46 1.50 .75 1.55 1.23
---------------------------------------------------------------------------------------------------------------------
Total from investment operations .62 1.69 .94 1.77 1.42
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.19) (.20) (.22) (.24)
---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.46) (.68) (1.55) (1.49) (.50)
---------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (.87) (1.75) (1.71) (.74)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.34 11.34 10.52 11.33 11.27
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) 5.58 16.76 9.30 17.86 14.28
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 556,449 744,232 877,077 1,132,158 1,132,718
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.91 2.03 2.01 1.95 1.99
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.90 2.03 2.01 1.95 1.99
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.40 1.70 1.75 1.98 1.82
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 95 64 80 122 85
---------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED OCTOBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.32 10.54 11.34 11.28 10.61
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .16(a) .20(a) .20 .22 .20
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .47 1.48 .77 1.56 1.22
-----------------------------------------------------------------------------------------------------------------
Total from investment operations .63 1.68 .97 1.78 1.42
-----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.22) (.22) (.23) (.25)
-----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.46) (.68) (1.55) (1.49) (.50)
-----------------------------------------------------------------------------------------------------------------
Total distributions (.64) (.90) (1.77) (1.72) (.75)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.31 11.32 10.54 11.34 11.28
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) 5.63 16.64 9.50 17.92 14.31
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 61,069 42,841 25,681 17,472 11,067
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.87 1.89 1.90 1.90 1.89
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.86 1.89 1.90 1.90 1.89
-----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.44 1.84 1.86 2.03 1.92
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 95 64 80 122 85
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
YEAR ENDED OCTOBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.38 10.54 11.33 11.27 10.61
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .29(a) .34(a) .34 .36 .32
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .47 1.53 .77 1.55 1.23
-----------------------------------------------------------------------------------------------------------------
Total from investment operations .76 1.87 1.11 1.91 1.55
-----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.32) (.35) (.35) (.36) (.39)
-----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.46) (.68) (1.55) (1.49) (.50)
-----------------------------------------------------------------------------------------------------------------
Total distributions (.78) (1.03) (1.90) (1.85) (.89)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.36 11.38 10.54 11.33 11.27
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) 6.80 18.65 10.98 19.40 15.64
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 11,186 10,316 12,082 12,193 11,080
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .63 .67 .64 .71 .72
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .62 .67 .64 .71 .72
-----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.68 3.06 3.12 3.22 3.09
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 95 64 80 122 85
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Total Return Fund (the "Fund") is registered
under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expenses reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
exchange rates at period end. Purchases and sales
of investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made quarterly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund.
--------------------------------------------------------------------------------
2 PURCHASES AND SALES
OF SECURITIES For the year ended October 31, 2000, investment
transactions (excluding short-term investments and
direct U.S. Government obligations) are as follows:
Purchases $2,534,470,216
Proceeds from sales 2,682,185,185
Purchases and sales of direct U.S. Government
obligations are as follows:
Purchases $ 833,676,026
Proceeds from sales 1,081,796,231
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper), and pays a monthly investment
management fee of 1/12 of the 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 $19,297,715 for the
year ended October 31, 2000 which was equivalent to
an annualized effective rate of .53%.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended October
31, 2000 are $255,514.
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 separate Rule 12b-1 plans for
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 for 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 CDSC received by KDI
for the year ended October 31, 2000 are $6,773,794,
of which $394,859 is unpaid at October 31, 2000.
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 paid by the
Fund to KDI for the year ended October 31, 2000 are
$9,052,817, of which $726,229 is unpaid at October
31, 2000. Additionally, $9,734 was paid by KDI to
affiliates.
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
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
services fees of $6,861,994 for the year ended
October 31, 2000 of which $1,681,800 is unpaid at
October 31, 2000.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. The Fund made no payments to its
officers and incurred trustees' fees of $83,810 to
independent trustees.
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
2000 1999
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 24,682,930 $ 280,348,601 29,205,481 $ 321,328,459
--------------------------------------------------------------------------------------------
Class B 13,136,551 148,872,046 15,729,881 173,113,495
--------------------------------------------------------------------------------------------
Class C 3,070,169 34,772,235 2,235,297 24,645,489
--------------------------------------------------------------------------------------------
Class I 481,696 5,496,491 635,107 7,003,950
--------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 15,513,711 174,882,058 20,418,344 216,307,128
--------------------------------------------------------------------------------------------
Class B 3,169,388 35,646,302 6,165,885 64,996,852
--------------------------------------------------------------------------------------------
Class C 214,536 2,412,157 219,206 2,321,361
--------------------------------------------------------------------------------------------
Class I 67,671 765,372 111,780 1,181,460
--------------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (57,964,692) (658,461,950) (47,087,616) (519,741,060)
--------------------------------------------------------------------------------------------
Class B (16,078,688) (180,491,260) (16,139,135) (177,775,452)
--------------------------------------------------------------------------------------------
Class C (1,669,541) (18,883,893) (1,107,339) (12,316,816)
--------------------------------------------------------------------------------------------
Class I (470,996) (5,352,213) (986,847) (10,862,840)
--------------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 16,049,078 $ 181,801,693 23,411,340 259,431,546
--------------------------------------------------------------------------------------------
Class B (15,890,003) (181,801,693) (23,452,311) (259,431,546)
--------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(179,994,054) $ 90,202,026
--------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the period, the Fund's custodian
and transfer agent fees were reduced by $5,950 and
$250,296, respectively, under these arrangements.
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank, for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated pro rata among each of the
Participants. Interest is calculated based on the
market rates at the time of the borrowing. The Fund
may borrow up to a maximum of 33 percent of its net
assets under the agreement.
28
<PAGE> 29
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, 2000, 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 1996. 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 auditing standards generally accepted in
the United States. 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, 2000, by correspondence with the custodian or other auditing
procedures. 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, 2000, 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 1996, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 2000
29
<PAGE> 30
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
The Fund paid distributions of $0.40 per share from net long-term capital gains
during its year ended October 31, 2000, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$273,270,000 as capital gain dividends for its year ended October 31, 2000, of
which 100% represents 20% rate gains.
For corporate shareholders, 19% of the income dividends paid during the Fund's
fiscal year ended October 31, 2000 qualified for the dividends received
deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-621-1048.
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
LINDA C. COUGHLIN CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY BRENDA LYONS
Trustee GARY A. LANGBAUM Assistant Treasurer
Vice President
ROBERT B. HOFFMAN
Trustee KATHRYN L. QUIRK
Vice President
DONALD R. JONES
Trustee WILLIAM F. TRUSCOTT
Vice President
THOMAS W. LITTAUER
Chairman, Trustee
and Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM T. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
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Kemper Equity Funds/Growth Style prospectus.
KTRF - 2 (12/22/00) 4673
