<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED OCTOBER 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Seeking the highest total return, a combination of income
and capital appreciation, consistent with reasonable risk
KEMPER
TOTAL RETURN FUND
"... Technology holdings have contributed more to the fund's performance than
any other sector. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
10
INDUSTRY SECTORS
11
LARGEST HOLDINGS
12
PORTFOLIO OF INVESTMENTS
20
FINANCIAL STATEMENTS
22
NOTES TO FINANCIAL STATEMENTS
26
FINANCIAL HIGHLIGHTS
29
REPORT OF INDEPENDENT AUDITORS
AT A GLANCE
TERMS TO KNOW
KEMPER TOTAL RETURN FUND TOTAL RETURNS
FOR THE YEAR ENDED OCTOBER 31, 1999 (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>
17.91 16.76 16.64 11.30
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
10/31/99 10/31/98
..................................................................
<S> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A $11.35 $10.54
..................................................................
KEMPER TOTAL RETURN FUND CLASS B $11.34 $10.52
..................................................................
KEMPER TOTAL RETURN FUND CLASS C $11.32 $10.54
..................................................................
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
KEMPER TOTAL RETURN FUND
RANKINGS AS OF 10/31/99
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 #49 of 431 funds #73 of 431 funds #77 of 431 funds
....................................................................................
5-YEAR #49 of 207 funds #80 of 207 funds #75 of 207 funds
....................................................................................
10-YEAR #12 of 60 funds N/A N/A
....................................................................................
15-YEAR #13 of 29 funds N/A N/A
....................................................................................
20-YEAR #9 of 28 funds N/A N/A
....................................................................................
</TABLE>
DIVIDEND REVIEW
DURING THE YEAR ENDED OCTOBER 31, 1999, 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 $0.31 $0.19 $0.22
...........................................................
SHORT-TERM CAPITAL GAIN $0.01 $0.01 $0.01
...........................................................
LONG-TERM CAPITAL GAIN $0.67 $0.67 $0.67
...........................................................
</TABLE>
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES; IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS
FAVORABLE.
YOUR FUND'S STYLE
MORNINGSTAR EQUITY STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Morningstar, Inc. Chicago, IL (312)
BOX] 696-6000. The Morningstar Style Box 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>
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.
INDEX An unmanaged pool of stocks or bonds that is not available for direct
investment. Often, indices serve as tools to gauge the relative performance of a
fund.
<PAGE> 3
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.
ECONOMIC Overview
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers were buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight
labor -- i.e., many "help-wanted" signs -- forces companies to pay a premium for
talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data released in
late October: The Bureau of Economic Analysis released its third-quarter
estimate of gross domestic product (GDP), the value of all goods and services
produced in the United States, and the Bureau of Labor Statistics released its
employment cost index (ECI), which measures what employers pay for their
workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
Nevertheless, the Federal Reserve Board raised the federal funds rate and the
discount rate by one quarter of a point (0.25%) each at its Nov. 16 meeting. Do
we think the Fed made a bad decision? Actually, no.
First, the Fed has to guard against the possibility that the old relationship
between growth and inflation will soon reassert itself. Even if the Fed shared
our belief that
3
<PAGE> 4
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 (11/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6)* 2.10 2.10 2.30 2.70
</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 10/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
Economic OVERVIEW
strong consumer demand and low unemployment isn't igniting wage-driven
inflation, the organization wouldn't be doing its job if it didn't act in the
face of any possibility that inflation might reassert itself.
More important, the Fed has to be concerned about the explosion in credit
we've seen during the last year. Almost everyone but Uncle Sam has been loading
up on debt. Companies have borrowed heavily to fund mergers, share buybacks and
new investments. Homeowners have taken out bigger mortgages on their houses and
new home equity loans. Equity shareholders have ramped up their margin debt.
Financial institutions have issued record amounts of new paper to fund their
aggressive growth. The Fed's decision to raise interest rates, thereby making
borrowing costlier, should take the frenzy out of this borrowing binge. That is
a good thing for future financial stability.
Indeed, the early positive market reaction to the Fed's move suggests that the
markets share our views that the Fed made the right decision.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 NOVEMBER 18, 1999, 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.
4
<PAGE> 5
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
WITH 29 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.
IN A VOLATILE MARKET, KEMPER TOTAL RETURN FUND POSTED STRONG RETURNS. LEAD
PORTFOLIO MANAGER GARY LANGBAUM DISCUSSES HIS INVESTMENT STRATEGY AND HOW HE LED
THE FUND TO GAIN MORE THAN 17 PERCENT.
Q BEFORE YOU DISCUSS THE FUND, COULD YOU PROVIDE US WITH AN OVERVIEW OF THE
MARKET CLIMATE DURING THE PERIOD?
A The market was robust during the last 12 months. Despite frequent bouts of
volatility, large growth stocks -- those in which the fund invests -- performed
quite well during the year.
At the start of the period last November, the market was still shrouded in
concern over the likelihood of a global economic crisis and global recession.
The Russian debt default and the failure of Long-Term Capital Management's hedge
fund were still fresh in the minds of investors. The equity market was declining
as investors were looking to the bond market for some sense of "safety" during
this uncertain time.
The market's confidence was renewed as the Federal Reserve Board (the Fed)
reduced interest rates three times and the investment community bailed out the
failing hedge fund. The Fed's easing had a very positive effect on equity
markets -- and on growth stocks specifically, as they tend to be more sensitive
to declines in interest rates.
Through the early part of 1999, investors favored large-cap growth stocks over
small-cap and value stocks. The global volatility of recent months still cast a
shadow across the market, and leading large-cap growth stocks were viewed as
more likely to meet or exceed earnings expectations and were therefore better
able to generate higher confidence. Consumer cyclical stocks -- especially
retail and media -- flourished. Excitement about the Internet contributed to a
strong technology rally.
Economic growth remained slow and steady, while inflation and interest rates
remained low. High employment rates, paired with strong consumer confidence,
further bolstered healthy economic growth and corporate profits. By April, it
became clear that there would be no global recession. The market began to
broaden and shift. Cyclical stocks -- basic industries, capital goods and more
commodity-oriented companies -- began to gain ground as global economies
continued to improve. This shift to cyclicals buoyed value-style stocks but was
short lived. By June, we began to witness some weakness in some of these
companies. The market subsequently returned its favor to large growth stocks,
although some of the best cyclical companies continued to shine.
The economy continued to grow, and in a preemptive move, the Fed began to
raise interest rates to slow down inflationary trends that it believed were
emerging. This tightening worked against the bond market and had some short-term
effect on the performance of equities.
For the remainder of the period, we saw the leadership in the equity market
continue to narrow in companies but broaden in industries. The market favored
only those companies that met or beat earnings expectations -- the best of the
best. Although there were fewer companies rising in each industry, there was a
broadening of industries in which those shining companies were found. We saw
some small-cap and
5
<PAGE> 6
PERFORMANCE UPDATE
value stocks gain, which was a significant shift from 1998, when only large-cap
growth companies rallied.
Most of the bond market presented lackluster returns this fiscal year. By the
start of the fiscal year, the bond market had already factored in the Fed's
interest-rate reductions. Later in the year, the rising-rate environment hurt
them. However, the fund's bond allocation performed exactly as it should have.
It helped dampen volatility and provided a steady stream of income, which was
beneficial for the fund's shareholders.
Q HOW DID KEMPER TOTAL RETURN FUND PERFORM DURING THE YEAR?
A Kemper Total Return Fund made strong gains during the period. For the 12
months ending October 31, 1999, Kemper Total Return Fund earned 17.91 percent
(Class A shares, unadjusted for any sales charges). This compares favorably with
its peers. For the annual period, the average return for the Lipper Balanced
Funds Category was up 11.30 percent. Kemper Total Return Fund's gain surpassed
the category average by a wide margin.
Q HOW DID KEMPER TOTAL RETURN FUND PERFORM RELATIVE TO THE STANDARD & POOR'S
500 STOCK INDEX?
A Reflecting the overall strength of the large-cap equity environment during
the annual period, the S&P 500 returned 25.66 percent. Bonds, in contrast,
enjoyed more muted performance, with index returns ranging from 4.9 to -5.3
percent depending on type and maturity.
When you compare the gains of the fund with an all-stock benchmark (see Terms
To Know on page 2) such as the S&P 500, it's essential to keep in mind that
Kemper Total Return Fund is a balanced fund. Balanced funds invest in both
stocks and bonds.
Throughout the 12-month period, we were optimistic about the prospects of the
stock market. We therefore invested about 65 percent of the fund's assets in
stocks. This is generally the most aggressive equity position we'll take in this
fund. By investing any more in stocks, we would have increased the fund's risk
to an uncomfortable level.
The remainder was invested in a core bond portfolio -- a mix of high-grade and
high-yield corporate bonds and U.S. Treasury bonds. Given the portion of assets
we did invest in stocks, the fund remained quite competitive with the S&P 500.
Q WHAT ARE THE BENEFITS OF INVESTING IN BOTH STOCKS AND BONDS WITHIN A
SINGLE FUND?
A Kemper Total Return Fund seeks both capital growth and current income. To
pursue these goals, we combine stocks and bonds in a single portfolio. In
exchange for their higher return potential, stocks have tended to be more
volatile. Bonds, meanwhile, typically offer a lower level of return but also
carry a lower degree of risk compared with stocks.
Kemper Total Return Fund provides exposure to both stocks and bonds. That
means your eggs aren't all in one basket. If stocks falter, bond returns may at
least partially offset the losses, and vice versa. Most important, we actively
manage the equity and bond mix. We make changes whenever we feel it is
warranted, and we keep the mix within preestablished parameters.
Because of this diversification, the fund may be a good choice for cautious
investors who would like a more conservative approach to growth, or for
investors who'd like the opportunity to pursue current income as well as growth.
Q HOW HAVE YOU POSITIONED THE FUND'S BOND COMPONENT?
A Within the fixed-income allocation, we seek a balance of stability and
income. Emphasizing quality, we've invested primarily in U.S. Treasury bonds and
investment-grade corporate bonds. To bolster income potential, we include a
smaller high-yield bond component. As of October 31, 1999, the fund held about
23 percent of total net assets in U.S. Treasury bonds and about 10 percent in a
combination of high-grade corporate issues and high-yield bonds.
Q CAN YOU EXPLAIN YOUR STOCK-SELECTION PROCESS?
A We understand that investors choose the 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-caps and have scant exposure to foreign stocks or mid-caps
(although we have the ability to invest in any size company, as well as foreign
companies). We begin to sell stocks when their prices reach the targets we've
preset. 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 on independent and rigorous research to guide our stock
6
<PAGE> 7
PERFORMANCE UPDATE
selection. We use both fundamental and quantitative measures. Throughout, we
actively leverage Scudder Kemper Investments' extensive research and analytical
capabilities. Both Tracy McCormick and I bring extensive research backgrounds to
the fund, and we conduct independent work to supplement the firm's vast research
capabilities.
Q HOW ARE YOU POSITIONING THE STOCK PORTION OF THE PORTFOLIO?
A We continue to be relatively heavily weighted in technology. We've also
got large positions in financial-services, health care and consumer cyclicals
stocks. On the flip side, we are significantly underweighted in basic industry
firms and have no position in electric utilities.
Q THE TECHNOLOGY SECTOR HAS BEEN OUTPERFORMING FOR THE LAST SEVERAL YEARS.
DO YOU THINK ITS STRONG PERFORMANCE CAN BE SUSTAINED?
A Yes, we do think it will continue to perform well. Technology has been the
driving force behind productivity gains in U.S. businesses. U.S. companies are a
major supplier of technology around the world. We believe that technology
companies will continue to benefit from not only the strong U.S. economy but a
fast-growing worldwide economy as well.
Technology holdings have contributed more to the fund's performance than any
other sector. Within the technology area, we are concentrated in electronic and
semiconductor firms such as Motorola, Applied Materials and Xilinx, which we
believe have tremendous growth prospects. Firms such as Cisco Systems that
provide computer networking -- an essential component for the build-out of the
Internet's infrastructure -- also comprise a meaningful position in the fund.
Q FINANCIAL-SERVICES STOCKS HAVE STRUGGLED THIS YEAR. ARE YOU STILL
ENTHUSIASTIC ABOUT THE SECTOR?
A Financial-services stocks have struggled as interest rates have risen. For
the most part, however, their fundamentals remain strong. Earnings are intact,
and many companies are expanding their business lines. Although the recent
interest-rate-driven declines dampened the fund's financial-services sector
performance, the lower valuations throughout the financial industry have made
these stocks more attractive. We've therefore taken the opportunity to add to
the sector because we feel this is a temporary setback. As of October 31, 1999,
about 11 percent of the fund was invested in financial-services stocks.
The largest growth companies interest us most -- large diversified,
multinational companies such as Citigroup, American Express and American
International Group. These companies seem to have a wealth of opportunity for
continued growth both domestically and abroad. They also seem to have an edge on
some of their foreign competitors that were badly hurt by the Southeast Asia
crisis and last year's Russian debt default. We also like the credit-card
operations of Capital One Finance, which continue to grow at a quick clip.
Q HOW DID THE FUND'S HEALTH-CARE STOCKS PERFORM?
A Health-care stocks were generally weak this year, and our holdings also
underperformed the market. We did, however, mostly avoid the worst-performing
areas of hospital management and specialty care.
The fund maintains a significant position in health-care companies --
primarily large pharmaceutical firms -- that we believe have the strongest
growth prospects. Of course, the aging of the population will help support these
types of companies, but we also look for firms with well-known, strong-selling
products and a robust pipeline of new products. We've begun to see consolidation
within the large pharmaceutical companies, and we expect this trend to continue.
If it does, the resulting cost savings and combined research-and-development
efforts should help their performance. Aside from pharmaceutical companies, we
also have positions in some fast-growing biotech companies.
Some of the large pharmaceutical firms, such as Abbott Laboratories,
Schering-Plough and American Home Products, struggled during the year,
particularly when the markets took a cyclical turn in the springtime. These
firms also struggled with slowing product pipelines, as well as with regulatory
uncertainty. American Home Products' struggles were exacerbated in the wake of
litigation concerns surrounding the diet drug fen-phen. We believe, however,
that the fundamentals of all of these firms remain intact, and we expect to see
improved performance during the coming year.
Q WHAT ABOUT THE CONSUMER CYCLICALS AREA?
A Our exposure to the consumer cyclicals sector comprises primarily media
and retail holdings.
The fund's media stocks bolstered performance. As consumer confidence
improved, the revenues from
7
<PAGE> 8
PERFORMANCE UPDATE
advertising buoyed media stocks. Consolidation trends within the industry also
helped performance. Revenue streams from many fledgling Internet companies
increased dramatically as they used radio advertising to establish name and
brand recognition.
Companies such as Clear Channel Communications, a leading provider of outdoor
advertising and radio broadcasting, have benefited from these trends. In
addition to benefiting from advertising revenue, some firms such as AT&T
Corp.-Liberty Media are also providers of premium bandwidth, an integral part of
the Internet's infrastructure -- and a significant source of revenue. Other
top-performing media stocks include CBS, Infinity Broadcasting and Univision
Communications. While Univision may not be a household name today, we believe
that it offers tremendous potential. Univision is a leading player in the
rapidly growing segment of Spanish-language radio and television broadcasting.
Univision is a well-managed company and it has demonstrated an ability to
dominate an expanding market niche.
Retail stocks such as Wal-Mart, Dayton Hudson (because of its Target division)
and Home Depot have turned in strong performance. We've concentrated on these
names because their large-discount format has been working well and they
continue to grow their businesses. We've stayed away from the large, older
department-store companies, which seem a bit tired at this point.
Q WHAT'S KEEPING YOU AWAY FROM BASIC INDUSTRIES?
A The lack of pricing power is what concerns us most about basic-industry
firms. With inflation in check, they have been unable to pass along price
increases, yet some of their costs are rising. Since last year, petroleum -- a
major raw material for many firms -- has nearly doubled in price.
Q WERE THERE OTHER AREAS THAT DIDN'T PERFORM AS WELL AS ANTICIPATED?
A Several food and beverage companies disappointed. H. J. Heinz and PepsiCo
slowed the fund's pace. Although Bestfoods posted positive performance, it was
much less than we had anticipated. We still hold stakes in several of these
stocks, however, as our analysis indicates that the market has driven the prices
of these stocks to unsustainably low levels.
It's important to remember that we don't always sell stocks as they decline.
Our approach is to buy good companies with positive fundamentals as they are
coming down in price. Sometimes that means we endure short-term losses, but
we're likely to ultimately enjoy long-term gains as the market recognizes their
improving fundamentals.
Waste Management, however, is not an example of a stock we wanted to hold on
to. It proved to be a very disappointing investment. The stock fell short of
earnings, and it became apparent that company management was not appropriately
addressing accounting issues. By relying on our proprietary research rather than
Wall Street analysts, we liquidated our position promptly and were able to avoid
much of the price decline that followed.
We will sell a position -- as we did with Waste Management -- when we don't
see the fundamentals of the company improving in a short enough time horizon. We
also liquidated our position in Xerox for this reason.
Q WHAT'S YOUR OUTLOOK FOR THE MARKET AND KEMPER TOTAL RETURN FUND IN
PARTICULAR?
A We're in a benign economic environment. The Fed's interest-rate tightening
has had some effect in slowing the economy. We think the inflationary
environment is pretty modest and the bond market is reasonably priced. Although
we expect the rate of corporate profits to slow in the coming year, we still
anticipate relatively strong and consistent earnings. Basically, we believe all
the fundamentals are in line for another positive year for the market.
The one fly in the ointment might be the Y2K effect. If there is no Y2K impact
(which is what we're expecting), companies that built up inventory in
anticipation of potential problems could be adversely affected. An
increased-inventory situation would cause a greater than expected slowdown in
the first quarter of 2000. If that happens, the economy would slow, which would
likely be positive for the bond market and remove fears of another Fed
tightening.
In short, we're optimistic, and we're looking forward to a strong year. We
believe that large-cap, quality growth stocks should continue to perform well,
and we plan to maintain our bullish equity position.
8
<PAGE> 9
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED OCTOBER 31, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER TOTAL RETURN FUND CLASS A 11.16% 15.00% 12.11% 11.95% (since 3/2/64)
...............................................................................................
KEMPER TOTAL RETURN FUND CLASS B 13.76 15.17 N/A 13.68 (since 5/31/94)
...............................................................................................
KEMPER TOTAL RETURN FUND CLASS C 16.64 15.38 N/A 13.88 (since 5/31/94)
...............................................................................................
</TABLE>
[LINE GRAPH]
KEMPER TOTAL RETURN FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 12/31/78 to 10/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE
FUND CLASS A1 500 STOCK INDEX+ INDEX++ BOND INDEX+++
------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
12/31/78 9426.00 10000.00 10000.00 10000.00
12394.00 11231.00 13538.00 10600.00
17523.00 14125.00 16974.00 11280.00
17578.00 12751.00 19492.00 12466.00
21592.00 14633.00 25059.00 15720.00
25917.00 17161.00 29064.00 17072.00
25629.00 17401.00 28787.00 19525.00
12/31/85 32925.00 21983.00 38245.00 23052.00
38750.00 25197.00 44121.00 26079.00
37805.00 25708.00 46462.00 27034.00
41118.00 28895.00 51697.00 28837.00
49274.00 36770.00 70268.00 32519.00
51297.00 34359.00 70085.00 35497.00
71896.00 43397.00 98935.00 40686.00
12/31/92 73687.00 45335.00 103881.00 43606.00
82226.00 48633.00 106898.00 47437.00
74682.00 47786.00 109737.00 46521.00
93951.00 64086.00 150543.00 53655.00
109214.00 77072.00 185352.00 55829.00
130119.00 100971.00 241860.00 60219.00
150827.00 127898.00 335470.00 65293.00
10/31/99 163380.00 141809.00 383887.00 65685.00
</TABLE>
[LINE GRAPH]
KEMPER TOTAL RETURN FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 5/31/94 to 10/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE
FUND CLASS B1 500 STOCK INDEX+ INDEX++ BOND INDEX+++
------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00 10000.00
9644.00 10061.00 10529.00 10072.00
12/31/95 12011.00 13492.00 14444.00 11616.00
13847.00 16227.00 17784.00 12087.00
12/31/97 16333.00 21258.00 23206.00 13037.00
18731.00 26927.00 32188.00 14135.00
10/31/99 20042.00 29856.00 36834.00 14220.00
</TABLE>
[LINE GRAPH]
KEMPER TOTAL RETURN FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 5/31/94 to 10/31/99
<TABLE>
<CAPTION>
LEHMAN BROTHERS
KEMPER TOTAL RETURN STANDARD & POOR'S RUSSELL 1000 GROWTH GOVERNMENT/CORPORATE
FUND CLASS C1 500 STOCK INDEX+ INDEX++ BOND INDEX+++
------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00 10000.00
9646.00 10061.00 10529.00 10072.00
12/31/95 12052.00 13492.00 14444.00 11616.00
13894.00 16227.00 17784.00 12087.00
12/31/97 16394.00 21258.00 23206.00 13037.00
18819.00 26927.00 32188.00 14135.00
10/31/99 20230.00 29856.00 36834.00 14220.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING
REINVESTMENT OF ALL DIVIDENDS AND FOR
CLASS A SHARES ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE OF 5.75%, CLASS
B SHARES ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) OF 3% AND FOR CLASS C
SHARES NO ADJUSTMENT FOR SALES
CHARGE. THE MAXIMUM CDSC FOR CLASS B
SHARES IS 4%. FOR CLASS C SHARES,
THERE IS A 1% CDSC ON CERTAIN
REDEMPTIONS WITHIN THE FIRST YEAR OF
PURCHASE. SHARE CLASSES INVEST IN THE
SAME UNDERLYING PORTFOLIO. AVERAGE
ANNUAL TOTAL RETURN REFLECTS
ANNUALIZED CHANGE, WHILE TOTAL RETURN
REFLECTS AGGREGATE CHANGE. DURING THE
PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
AND THE FINANCIAL HIGHLIGHTS AT THE
END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT
OF DIVIDENDS AND ADJUSTMENT FOR
THE MAXIMUM SALES CHARGE FOR CLASS
A SHARES AND THE CONTINGENT
DEFERRED SALES CHARGE IN EFFECT AT
THE END OF THE PERIOD FOR CLASS B
SHARES. WHEN REVIEWING THE
PERFORMANCE CHART, PLEASE NOTE
THAT THE INCEPTION DATE FOR THE
RUSSELL 1000 GROWTH INDEX IS
DECEMBER 31, 1978. 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.
BEGINNING WITH THE NEXT ANNUAL
REPORT, THE STANDARD & POOR'S 500
STOCK INDEX, A MORE REPRESENTATIVE
INDEX FOR THE STOCK PORTION OF THE
FUND, WILL BE SHOWN INSTEAD OF THE
RUSSELL 1000 GROWTH INDEX. 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.
++THE RUSSELL 1000 GROWTH INDEX IS AN
UNMANAGED INDEX COMPRISING COMMON
STOCKS OF LARGER U.S. COMPANIES WITH
GREATER THAN AVERAGE GROWTH
ORIENTATION AND REPRESENTS THE
UNIVERSE OF STOCKS FROM WHICH
EARNINGS/GROWTH MONEY MANAGERS
TYPICALLY SELECT. SOURCE IS
WIESENBERGER.
+++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 WIESENBERGER.
9
<PAGE> 10
INDUSTRY SECTORS
A LOOK AT THE EQUITY PORTION OF KEMPER TOTAL RETURN FUND
THE GRAPH BELOW PROVIDES A LOOK AT THE COMMON STOCK PORTION OF THE PORTFOLIO ON
OCTOBER 31, 1999.
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER TOTAL RETURN FUND ON 10/31/99
------------------------------------
<S> <C>
TECHNOLOGY 12.00%
FINANCIAL 10.70%
HEALTH 8.20%
MEDIA 7.00%
CONSUMER DISCRETIONARY 6.90%
COMMUNICATIONS 5.20%
MANUFACTURING 5.20%
ENERGY 3.60%
CONSUMER STAPLES 3.20%
SERVICE INDUSTRIES 2.00%
DURABLES 1.10%
TRANSPORTATION 0.50%
</TABLE>
10
<PAGE> 11
LARGEST HOLDINGS
KEMPER TOTAL RETURN FUND'S 10 LARGEST HOLDINGS*
Representing 15.7 percent of the fund's portfolio on October 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDINGS DESCRIPTION PERCENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. GENERAL ELECTRIC A broadly diversified company with 2.7%
major businesses in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting.
- --------------------------------------------------------------------------------------
2. INTEL Engaged in the design, 2.0%
development, manufacture and sale
of advanced microcomputer
components.
- --------------------------------------------------------------------------------------
3. WAL-MART STORES Large, global retailer with 1.6%
operations in the United States,
Asia and Latin America. Wal-Mart
operates Wal-Marts, Wal-Mart
Supercenters and Sam's Clubs.
Sells branded merchandise under
the Popular Mechanics, Better
Homes & Gardens and Sam's American
Choice labels.
- --------------------------------------------------------------------------------------
4. CISCO SYSTEMS Large, comprehensive supplier of 1.5%
routing software and related
systems that direct the flow of
data between local networks.
- --------------------------------------------------------------------------------------
5. MICROSOFT Develops, markets and supports a 1.5%
variety of microcomputer software,
operating systems, language and
application programs, related
books and peripheral devices.
- --------------------------------------------------------------------------------------
6. TYCO INTERNATIONAL Tyco International is the world 1.3%
leader in security and fire-
protection systems. The firm also
owns ADT, the top U.S. provider of
security monitoring. Tyco's United
States Surgical subsidiary makes
surgical staplers and laparoscopy
devices.
- --------------------------------------------------------------------------------------
7. TANDY Operates company-owned or 1.3%
franchised RadioShack stores.
Tandy is one of the leading
electronics retailers in the U.S.
In addition, RadioShack repairs
products and offers Internet and
wireless phone plans.
- --------------------------------------------------------------------------------------
8. SBC COMMUNICATIONS SBC Communications became the 1.3%
largest local phone company in the
United States after its purchase
of Ameritech. It is involved in
wireless phones, Internet access
and paging businesses and has
stakes in telecom operations
outside the United States.
- --------------------------------------------------------------------------------------
9. MOTOROLA Manufactures components, notably 1.3%
semiconductors, and electronic
communications equipment.
- --------------------------------------------------------------------------------------
10. CITIGROUP Global financial-service provider. 1.2%
Operations include a wide variety
of insurance products and banking
services, managed health-care
programs, asset management,
investment services and
credit-card services.
- --------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER TOTAL RETURN FUND
Portfolio of Investments as of October 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--.8% PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(d)Repurchase Agreement with State
Street Bank and Trust Company,
5.2%, 11/01/1999
(Cost: $30,023) $ 30,023 $ 30,023
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--23.1%
U.S. Treasury Note, 8.75%, 08/15/2000 56,300 57,655
U.S. Treasury Note, 7.75%, 02/15/2001 77,500 79,401
U.S. Treasury Note, 5.625%, 09/30/2001 4,500 4,485
U.S. Treasury Note, 6.625%, 04/30/2002 16,550 16,837
U.S. Treasury Note, 10.75%, 02/15/2003 11,190 12,739
U.S. Treasury Note, 10.75%, 05/15/2003 9,755 11,188
U.S. Treasury Note, 5.50%, 03/31/2003 30,000 29,602
U.S. Treasury Note, 6.00%, 08/15/2004 3,700 3,709
U.S. Treasury Note, 7.50%, 02/15/2005 158,575 168,510
U.S. Treasury Note, 9.375%, 02/15/2006 95,000 110,527
U.S. Treasury Note, 6.50%, 10/15/2006 11,300 11,500
U.S. Treasury Note, 6.625%, 05/15/2007 120,000 123,131
U.S. Treasury Bond, 10.375%, 11/15/2009 24,405 28,668
U.S. Treasury Bond, 9.125%, 05/15/2009 21,610 24,018
U.S. Treasury Bond, 10.625%, 08/15/2015 90,000 126,408
U.S. Treasury Bond, 8.75%, 08/15/2020 14,000 17,538
U.S. Treasury Bond, 6.625%, 02/15/2027 21,050 21,645
------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCIES
(Cost: $849,575) 847,561
------------------------------------------------------------------------
<CAPTION>
CORPORATE BONDS--10.5%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--1.8%
American Cellular Corp., 10.5%,
05/15/2008 3,920 4,224
BellSouth Telecommunications, Inc.,
6.375%, 06/01/2028 2,500 2,176
Esprit Telecom Group, PLC, 11.5%,
12/15/2007 2,370 2,323
Intermedia Communications, 8.6%,
06/01/2008 11,370 10,006
(b)McLeodUSA, Inc., 10.5%, 03/01/2007 11,700 9,184
(b)MetroNet Communications Corp., 9.95%,
06/15/2008 14,700 11,429
(b)Nextel Communications Inc., 9.95%,
02/15/2008 14,150 9,976
Rogers Cantel Inc., 8.8%, 10/01/2007 7,900 7,900
WorldCom, Inc.,
6.4%, 08/15/2005 5,050 4,908
7.75%, 04/01/2027 3,425 3,515
------------------------------------------------------------------------
65,641
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--1.0%
AFC Enterprises, 10.25%, 05/15/2007 $ 2,840 $ 2,812
(b)AMF Bowling Worldwide, Inc., 12.25%,
03/15/2006 921 470
AMF Bowling, Inc., 10.875%, 03/15/2006 3,500 2,135
Cinemark USA, Inc., Series D, 9.625%,
08/01/2008 5,940 5,257
Cole National Group Inc., 9.875%,
12/31/2006 3,360 2,621
Dayton Hudson Corp., 7.5%, 07/15/2006 2,400 2,425
Dillards, Inc.,
(c) 6.17%, 08/01/2001 9,000 8,846
6.43%, 08/01/2004 2,000 1,882
Federated Department Stores, Inc.,
6.125%, 09/01/2001 4,500 4,446
Royal Caribbean Cruises, Ltd., 8.25%,
04/01/2005 4,250 4,381
-----------------------------------------------------------------------
35,275
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.1%
Pathmark Stores, Inc., 9.625%,
05/01/2003 4,140 3,995
Safeway Inc., 6.05%, 11/15/2003 1,000 962
-----------------------------------------------------------------------
4,957
- --------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--.4%
Del Webb Corp., 9.75%, 01/15/2008 7,920 7,049
Kevco, Inc., 10.375%, 12/01/2007 2,765 1,106
Nortek, Inc., 9.875%, 03/01/2004 5,220 5,115
-----------------------------------------------------------------------
13,270
- --------------------------------------------------------------------------------------------------------------------
DURABLES--.1%
United Rentals, Inc., 9.25%, 01/15/2009 2,660 2,427
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ENERGY--.6%
Benton Oil & Gas Co., 11.625%,
05/01/2003 1,460 1,051
Conoco, Inc., 6.35%, 04/15/2009 12,000 11,405
Gulf Canada Resources, Inc., 9.25%,
01/15/2004 7,000 7,006
Gulfmark Offshore, Inc., 8.75%,
06/01/2008 1,680 1,525
-----------------------------------------------------------------------
20,987
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL--1.6%
Abbey National PLC Global Medium Term
Note, 6.69%, 10/17/2005 $ 3,700 $ 3,602
ABN AMRO, 8.25%, 08/01/2009 4,250 4,353
(c)AB Spintab, 7.5%, 08/14/2049 4,100 3,889
Crestar Financial Corp., 8.25%,
07/15/2002 2,400 2,480
(c)Den Danske Bank, 6.375%, 06/15/2008 4,150 3,894
FINOVA Capital Corp., 6.5%, 07/28/2002 2,950 2,913
Ford Motor Credit Co., 7.75%, 03/15/2005 2,400 2,480
General Electric Capital Corp., 8.625%,
06/15/2008 2,350 2,595
8.75%, 05/21/2007 4,350 4,796
NationsBank Corp., 9.5%, 06/01/2004 2,400 2,614
Province of Quebec, Canada, 8.625%,
01/19/2005 8,250 8,928
Repsol International Finance, 7%,
08/01/2005 5,000 4,895
Scotland International, 8.8%, 01/27/2004 1,350 1,434
(c)Svenska Handelsbanken, 7.125%,
03/29/2049 1,575 1,482
U.S. West Capital Funding Inc., 6.25%,
07/15/2005 2,000 1,913
6.375%, 07/15/2008 2,000 1,874
Wells Fargo & Co., 6.875%, 04/01/2006 5,000 4,917
------------------------------------------------------------------------
59,059
- ---------------------------------------------------------------------------------------------------------------------
HEALTH--.2%
Magellan Health Services, Inc., 9%,
02/15/2008 10,000 8,350
------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MANUFACTURING--1.0%
Delco Remy International, 10.625%,
08/01/2006 8,620 8,361
Hayes Wheels International, Inc., 11%,
07/15/2006 8,000 8,280
Neenah Corp.,
Series B, 11.125%, 05/01/2007 1,600 1,476
Series D, 11.125%, 05/01/2007 2,400 2,214
Plainwell, Inc., 11%, 03/01/2008 4,230 3,046
Riverwood International Corp., 10.25%,
04/01/2006 8,350 8,350
Stone Container Corp.,
11.5%, 08/15/2006 2,500 2,625
12.58%, 08/01/2016 3,500 3,841
-----------------------------------------------------------------------
38,193
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MEDIA--2.6%
AMFM, Inc., 9%, 10/01/2008 $ 5,640 $ 5,774
American Radio Systems, 9%, 02/01/2006 3,680 3,855
Big Flower Press, 8.875%, 07/01/2007 9,500 9,500
CSC Holdings, Inc., 9.25%, 11/01/2005 8,290 8,414
Comcast Cable Communications, 8.5%,
05/01/2027 1,400 1,500
Comcast Corp., 9.375%, 05/15/2005 8,500 8,955
(b)Diamond Cable Communications, PLC
10.75%, 02/15/2007 4,840 3,824
11.75%, 12/15/2005 1,660 1,515
Frontiervision, 11%, 10/15/2006 5,000 5,325
K-III Communications Corp., 8.5%,
02/01/2006 4,250 4,123
(b)NTL Communications Corp., 12.375%,
10/01/2008 750 512
NTL, Inc.,
(b) 11.5%, 02/01/2006 11,330 9,885
11.5%, 10/01/2008 475 515
News America Holdings Inc., 9.25%,
02/01/2013 1,950 2,143
Sinclair Broadcasting Group, Inc.,
8.75%, 12/15/2007 3,890 3,559
Tele-Communications, Inc., 9.8%,
02/01/2012 5,950 7,136
(b)TeleWest Communications, PLC, 11%,
10/01/2007 17,250 15,611
Time Warner Inc.,
9.125%, 01/15/2013 2,075 2,331
9.15%, 02/01/2023 2,325 2,668
------------------------------------------------------------------------
97,145
- ---------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--.3%
Euramax International, PLC, 11.25%,
10/01/2006 8,400 8,400
MMI Products, Inc., 11.25%, 04/15/2007 1,600 1,624
------------------------------------------------------------------------
10,024
- ---------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--.2%
Kindercare Learning Centers Inc., 9.5%,
02/15/2009 8,500 7,969
------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.3%
PSINet, Inc.,
10%, 02/15/2005 3,210 3,178
11.5%, 11/01/2008 4,030 4,151
Raytheon Co., 6.3%, 03/15/2005 3,100 2,936
------------------------------------------------------------------------
10,265
- ---------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.1%
Continental Airlines, Inc.,
6.9%, 01/02/2017 1,830 1,735
7.75%, 07/02/2014 1,860 1,840
------------------------------------------------------------------------
3,575
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTILITIES--.2%
Commonwealth Edison Co.,
7%, 07/01/2005 $ 1,250 $ 1,230
7.375%, 01/15/2004 3,800 3,852
GTE North, Inc., 6.900%, 11/01/2008 2,500 2,464
Yorkshire Power Finance,
6.496%, 02/25/2008 2,125 1,906
---------------------------------------------------------------------------
9,452
---------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost: $403,516) 386,589
---------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS--65.6% SHARES
- -------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--5.2%
TELEPHONE/COMMUNICATIONS
AT&T Corp. 465 $ 21,739
Bell Atlantic Corp. 565 36,689
BellSouth Corp. 420 18,900
GTE Corp. 200 15,000
(a)Global Crossing Ltd. 446 15,438
(a)MCI WorldCom, Inc. 421 36,093
SBC Communications, Inc. 924 47,081
---------------------------------------------------------------------------
190,940
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.9%
DEPARTMENT & CHAIN STORES--4.6%
CVS Corp. 495 21,484
Dayton Hudson Corp. 500 32,313
(a)Federated Department Stores, Inc. 430 18,356
Home Depot, Inc. 505 38,128
Wal-Mart Stores, Inc. 1,043 59,135
---------------------------------------------------------------------------
169,416
RESTAURANTS--1.0%
McDonald's Corp. 865 35,681
---------------------------------------------------------------------------
SPECIALTY RETAIL--1.3%
Tandy Corp. 763 48,009
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.2%
FOOD & BEVERAGE--2.1%
Bestfoods 300 17,625
H.J. Heinz Co. 520 24,830
PepsiCo, Inc. 1,005 34,861
---------------------------------------------------------------------------
77,316
PACKAGE GOODS/
COSMETICS--1.1% Procter & Gamble Co. 365 38,258
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
DURABLES--1.1%
AEROSPACE--.5%
United Technologies Corp. 315 19,058
---------------------------------------------------------------------------
TELECOMMUNICATIONS
EQUIPMENT--.6%
Lucent Technologies, Inc. 315 20,239
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--3.6%
OIL & GAS PRODUCT--1.5%
Coastal Corp. 380 16,007
Conoco, Inc. "A" 500 13,719
Royal Dutch Petroleum Co. (New York
shares) 430 25,773
---------------------------------------------------------------------------
55,499
OIL COMPANIES--1.6%
Exxon Corp. 287 21,241
Mobil Corp. 244 23,546
Texaco, Inc. 240 14,730
---------------------------------------------------------------------------
59,517
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OILFIELD SERVICES/
EQUIPMENT--.5% Schlumberger Ltd. 290 $ 17,563
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--10.7%
BANKS--3.3%
Bank of America Corp. 352 22,647
Chase Manhattan Corp. 215 18,786
First Tennessee National Corp. 515 17,513
J.P. Morgan & Co., Inc. 165 21,594
US Bancorp 335 12,416
Wells Fargo Co. 600 28,725
---------------------------------------------------------------------------
121,681
INSURANCE--3.0%
American International Group, Inc. 355 36,543
CIGNA Corp. 318 23,785
Jefferson Pilot Corp. 326 24,433
St. Paul Companies, Inc. 765 24,480
---------------------------------------------------------------------------
109,241
CONSUMER FINANCE--3.6%
American Express Credit Corp. 200 30,800
Capital One Finance Corp. 552 29,277
Citigroup, Inc. 801 43,368
Household International, Inc. 683 30,480
---------------------------------------------------------------------------
133,925
OTHER FINANCIAL
COMPANIES--.8%
Merrill Lynch & Co. Inc. 160 12,560
Morgan Stanley Dean Witter & Co. 150 16,547
---------------------------------------------------------------------------
29,107
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--8.2%
BIOTECHNOLOGY--.8%
(a)Biogen, Inc. 240 17,790
(a)Genentech, Inc. 91 13,190
---------------------------------------------------------------------------
30,980
MEDICAL SUPPLY &
SPECIALTY--.7%
Baxter International, Inc. 394 25,554
---------------------------------------------------------------------------
PHARMACEUTICALS--6.7%
Abbott Laboratories 495 19,986
Allergan, Inc. 205 22,055
American Home Products Corp. 562 29,359
Bristol-Myers Squibb Co. 560 43,015
Johnson & Johnson 280 29,330
Merck & Co., Inc. 220 17,504
Pfizer, Inc. 585 23,108
Schering-Plough Corp. 525 25,988
Warner-Lambert Co. 435 34,717
---------------------------------------------------------------------------
245,062
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.2%
DIVERSIFIED
MANUFACTURING--4.0%
General Electric Co. 736 99,774
Tyco International Ltd. (New) 1,217 48,585
---------------------------------------------------------------------------
148,359
ELECTRICAL PRODUCTS--.5%
Emerson Electric Co. 275 16,529
---------------------------------------------------------------------------
MACHINERY/COMPONENTS/
CONTROLS--.7% Parker-Hannifin Corp. 590 27,030
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--7.0%
ADVERTISING--.7%
Omnicom Group, Inc. 300 26,374
---------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BROADCASTING &
ENTERTAINMENT--3.8% (a)CBS Corp. 518 $ 25,275
(a)Clear Channel Communications, Inc. 429 34,475
(a)Infinity Broadcasting Corp. 707 24,450
Time Warner, Inc. 392 27,346
(a)Univision Communication, Inc. 317 26,973
---------------------------------------------------------------------------
138,519
CABLE TELEVISION--1.6%
(a)AT&T Corp - Liberty Media Group 770 30,559
Comcast Corp. "A" 420 17,693
(a)Media One Group, Inc. 160 11,370
---------------------------------------------------------------------------
59,622
PRINT MEDIA--.9%
Tribune Co. 563 33,768
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.0%
EDP SERVICES--1.6%
Automatic Data Processing, Inc. 601 28,956
Electronic Data Systems Corp. 510 29,835
---------------------------------------------------------------------------
58,791
PRINTING/PUBLISHING--.4%
McGraw-Hill Companies, Inc. 247 14,739
---------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--12%
COMPUTER SOFTWARE--2.1%
(a)Microsoft Corp. 610 56,463
(a)Oracle Systems Corp. 465 22,117
---------------------------------------------------------------------------
78,580
DIVERSE ELECTRONIC
PRODUCTS--3.4%
(a)Applied Materials, Inc. 325 29,190
Motorola, Inc. 470 45,796
(a)Solectron Corp. 350 26,338
(a)Teradyne, Inc. 579 22,290
---------------------------------------------------------------------------
123,614
ELECTRONIC COMPONENTS/
DISTRIBUTORS--1.9%
(a)Altera Corp. 275 13,372
(a)Cisco Systems, Inc. 770 56,980
---------------------------------------------------------------------------
70,352
ELECTRONIC DATA
PROCESSING--2.0% Hewlett-Packard Co. 285 21,108
International Business Machines Corp. 265 26,069
(a)Sun Microsystems, Inc. 250 26,453
---------------------------------------------------------------------------
73,630
OFFICE/PLANT
AUTOMATION--.0% (a)(e)Cimlinc Incorporated., convertible preferred 38 141
---------------------------------------------------------------------------
SEMICONDUCTORS--2.6%
Intel Corp. 970 75,114
(a)Xilinx, Inc. 274 21,575
---------------------------------------------------------------------------
96,689
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--.5%
RAILROADS
Canadian National Railway Co. 660 20,029
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $1,669,520) 2,413,812
---------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $2,952,634) $3,677,985
---------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Non-income producing security.
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
(c) 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 are shown at their rate as of
October 31, 1999.
(d) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(e) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $141 (0.0% of net assets). Their values
have been estimated by the Board of Trustees in the absence of readily
ascertainable market values. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and
the difference could be material. The cost of this security at October 31,
1999 aggregated $330. This security may also have certain restrictions as to
resale.
TAX INFORMATION
The cost for federal income tax purpose was $2,952,701. At October 31, 1999, net
unrealized appreciation for all securities based on tax cost was $725,284. This
consisted of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $760,640 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $35,356.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
19
<PAGE> 20
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------
as of October 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $2,952,634) $3,677,985
- --------------------------------------------------------------------------
Receivable for:
Investments sold 13,557
- --------------------------------------------------------------------------
Fund shares sold 2,698
- --------------------------------------------------------------------------
Dividends and interest receivable 25,894
- --------------------------------------------------------------------------
TOTAL ASSETS 3,720,134
- --------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------
Investments purchased 22,464
- --------------------------------------------------------------------------
Fund shares redeemed 10,542
- --------------------------------------------------------------------------
Accrued management fee 1,629
- --------------------------------------------------------------------------
Other payables and accrued expenses 3,476
- --------------------------------------------------------------------------
Total liabilities 38,111
- --------------------------------------------------------------------------
NET ASSETS $3,682,023
- --------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income $ 8,178
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 725,351
- --------------------------------------------------------------------------
Accumulated net realized gain 144,519
- --------------------------------------------------------------------------
Paid-in capital 2,803,975
- --------------------------------------------------------------------------
NET ASSETS $3,682,023
- --------------------------------------------------------------------------
NET ASSETS VALUE
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
(2,884,634 / 254,180 shares outstanding) $11.35
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 6.10% of
net asset value or 5.75% of offering price) $12.04
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(744,232 / 65,634 shares outstanding $11.34
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(42,841 / 3,784 shares outstanding) $11.32
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
(10,316 / 906 shares outstanding) $11.38
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------
Year ended October 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest $108,671
- ------------------------------------------------------------------------
Dividends (Net of foreign taxes withheld of $181) 25,056
- ------------------------------------------------------------------------
Total investment income 133,727
- ------------------------------------------------------------------------
Expenses:
Management fee 19,069
- ------------------------------------------------------------------------
Transfer agent fee and related expenses 9,560
- ------------------------------------------------------------------------
Administrative services fee 8,765
- ------------------------------------------------------------------------
Distribution fees 6,448
- ------------------------------------------------------------------------
Reports to shareholders 752
- ------------------------------------------------------------------------
Custodian fees 217
- ------------------------------------------------------------------------
Trustees' fees 49
- ------------------------------------------------------------------------
Auditing 70
- ------------------------------------------------------------------------
Legal 15
- ------------------------------------------------------------------------
Registration fees 15
- ------------------------------------------------------------------------
Other 123
- ------------------------------------------------------------------------
Expenses, before expense reductions 45,083
- ------------------------------------------------------------------------
Expense, reductions (77)
- ------------------------------------------------------------------------
Expenses, net 45,006
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 88,721
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
- ------------------------------------------------------------------------
Net realized gain from:
Investments 146,152
- ------------------------------------------------------------------------
Net unrealized appreciation during the period on:
Investments 337,450
- ------------------------------------------------------------------------
Net gain on investment transactions 483,602
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $572,323
- ------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1999 1998
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------------------------------------
Net investment income $ 88,721 82,585
- -----------------------------------------------------------------------------------------------
Net realized gain 146,152 212,374
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation during the period 337,450 30,147
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 572,323 325,106
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (89,632) (86,123)
- -----------------------------------------------------------------------------------------------
Distribution from realized gains (212,124) (439,382)
- -----------------------------------------------------------------------------------------------
Total dividends to shareholders (301,756) (525,505)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 90,202 280,270
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 360,769 79,871
- -----------------------------------------------------------------------------------------------
Net assets at beginning of year 3,321,254 3,241,383
- -----------------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR (including undistributed net
investment income of $8,178 and $9,118, respectively) $3,682,023 3,321,254
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
DESCRIPTION OF
THE FUND 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 generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the fund in the
preparation of its financial statements.
- --------------------------------------------------------------------------------
2
SIGNIFICANT
ACCOUNTING POLICIES 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
22
<PAGE> 23
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 as gains and
losses
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
- --------------------------------------------------------------------------------
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 $19,069,000 for the
year ended October 31, 1999.
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 year ended October 31,
1999 are $276,000, of which $1,000 was paid by KDI
to affiliates.
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 charger
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the year ended October 31, 1999 are $7,876,000,
of which $470,000 is unpaid.
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, 1999 are
$8,765,000, of which $938,000 is unpaid.
Additionally, $11,000 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 services fees of
$7,110,000 for the year ended October 31, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. During the year ended October 31,
1999, the fund made no payments to its officers and
incurred trustees' fees of $49,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended October 31, 1999, investment
transactions (excluding short-term investments and
direct U.S. Government obligations) are as follows
(in thousands):
Purchases $1,549,819
Proceeds from sales 1,684,986
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
Purchases and sales of direct U.S. Government
obligations are as follows (in thousands):
Purchases $580,055
Proceeds from sales 535,748
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund: (in thousands)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1999 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 29,207 $ 321,329 21,584 $ 229,022
--------------------------------------------------------------------------------
Class B 15,729 173,114 13,596 146,824
--------------------------------------------------------------------------------
Class C 2,235 24,645 1,252 13,430
--------------------------------------------------------------------------------
Class I 635 7,004 408 4,356
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 20,418 216,307 32,505 327,702
--------------------------------------------------------------------------------
Class B 6,166 64,997 16,317 163,540
--------------------------------------------------------------------------------
Class C 219 2,321 280 2,818
--------------------------------------------------------------------------------
Class I 112 1,181 202 2,032
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (47,088) (519,741) (38,307) (411,357)
--------------------------------------------------------------------------------
Class B (16,139) (177,775) (17,413) (185,508)
--------------------------------------------------------------------------------
Class C (1,107) (12,317) (636) (6,892)
--------------------------------------------------------------------------------
Class I (987) (10,863) (540) (5,697)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 23,411 259,432 29,080 315,751
--------------------------------------------------------------------------------
Class B (23,452) (259,432) (29,137) (315,751)
--------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 90,202 $ 280,270
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 EXPENSE OFF-SET
ARRANGEMENTS The fund has entered into arrangements with its
custodian 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 fees were reduced by $77,000
under these arrangements.
- --------------------------------------------------------------------------------
7 LINE OF CREDIT The fund and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility 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.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------
1999(A) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of year $10.54 11.34 11.28 10.60 9.10
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .30 .29 .31 .28 .29
- ----------------------------------------------------------------------------------
Net realized and unrealized gain 1.50 .77 1.57 1.24 1.46
- ----------------------------------------------------------------------------------
Total from investment operations 1.80 1.06 1.88 1.52 1.75
- ----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .31 .31 .33 .34 .25
- ----------------------------------------------------------------------------------
Distribution from net realized gain .68 1.55 1.49 .50 --
- ----------------------------------------------------------------------------------
Total dividends .99 1.86 1.82 .84 .25
- ----------------------------------------------------------------------------------
Net asset value, end of year $11.35 10.54 11.34 11.28 10.60
- ----------------------------------------------------------------------------------
TOTAL RETURN 17.91% 10.47 18.95 15.34 19.46
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses, before expense reductions 1.02% 1.01 1.01 1.05 1.12
- ----------------------------------------------------------------------------------
Expenses, net 1.02% 1.01 1.01 1.05 1.12
- ----------------------------------------------------------------------------------
Net investment income 2.71% 2.75 2.92 2.76 3.00
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------
1999(A) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of year $10.52 11.33 11.27 10.59 9.09
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .19 .22 .19 .20
- ----------------------------------------------------------------------------------
Net realized and unrealized gain 1.50 .75 1.55 1.23 1.46
- ----------------------------------------------------------------------------------
Total from investment operations 1.69 .94 1.77 1.42 1.66
- ----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .20 .22 .24 .16
- ----------------------------------------------------------------------------------
Distribution from net realized gain .68 1.55 1.49 .50 --
- ----------------------------------------------------------------------------------
Total dividends .87 1.75 1.71 .74 .16
- ----------------------------------------------------------------------------------
Net asset value, end of year $11.34 10.52 11.33 11.27 10.59
- ----------------------------------------------------------------------------------
TOTAL RETURN 16.76% 9.30 17.86 14.28 18.42
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses, before expense reductions 2.03% 2.01 1.95 1.99 2.05
- ----------------------------------------------------------------------------------
Expenses, net 2.03% 2.01 1.95 1.99 2.05
- ----------------------------------------------------------------------------------
Net investment income 1.70% 1.75 1.98 1.82 2.07
- ----------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
---------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------
1999(A) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of year $10.54 11.34 11.28 10.61 9.09
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .20 .20 .22 .20 .21
- ----------------------------------------------------------------------------------
Net realized and unrealized gain 1.48 .77 1.56 1.22 1.48
- ----------------------------------------------------------------------------------
Total from investment operations 1.68 .97 1.78 1.42 1.69
- ----------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .22 .22 .23 .25 .17
- ----------------------------------------------------------------------------------
Distribution from net realized gain .68 1.55 1.49 .50 --
- ----------------------------------------------------------------------------------
Total dividends .90 1.77 1.72 .75 .17
- ----------------------------------------------------------------------------------
Net asset value, end of year $11.32 10.54 11.34 11.28 10.61
- ----------------------------------------------------------------------------------
TOTAL RETURN 16.64% 9.50 17.92 14.31 18.76
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------
Expenses, before expense reductions 1.89% 1.90 1.90 1.89 1.86
- ----------------------------------------------------------------------------------
Expenses, net 1.89% 1.90 1.90 1.89 1.86
- ----------------------------------------------------------------------------------
Net investment income 1.84% 1.86 2.03 1.92 2.26
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------
YEAR ENDED OCTOBER 31, JULY 3 TO
------------------------------- OCTOBER 31,
1999(A) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $10.54 11.33 11.27 10.61 10.07
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .34 .34 .36 .32 .10
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain 1.53 .77 1.55 1.23 .52
- ----------------------------------------------------------------------------------------
Total from investment operations 1.87 1.11 1.91 1.55 .62
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .35 .35 .36 .39 .08
- ----------------------------------------------------------------------------------------
Distribution from net realized gain .68 1.55 1.49 .50 --
- ----------------------------------------------------------------------------------------
Total dividends 1.03 1.90 1.85 .89 .08
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.38 10.54 11.33 11.27 10.61
- ----------------------------------------------------------------------------------------
TOTAL RETURN (not annualized) 18.65% 10.98 19.40 15.64 6.21
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------
Expenses, before expense reductions .67% .64 .71 .72 .61
- ----------------------------------------------------------------------------------------
Expenses, net .67% .64 .71 .72 .61
- ----------------------------------------------------------------------------------------
Net investment income 3.06% 3.12 3.22 3.09 2.97
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $3,682,023 3,321,254 3,241,383 3,020,798 2,926,542
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 64% 80 122 85 142
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
(a) Per share data was determined based on monthly average shares outstanding
during the period.
27
<PAGE> 28
FINANCIAL HIGHLIGHTS
TAX INFORMATION
The fund paid a distribution of $.67 per share from net long-term capital gains
during its year ended 10/31/99, of which 100% represents 20% rate gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$140,545,000 as capital gain dividends for its year ended 10/31/99, of which
100% represents 20% rate gains.
For corporate shareholders, 26% of the income dividends paid during the fund's
fiscal year ended 10/31/99 qualified for the dividends received deduction.
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, 1999, 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 1995. These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1999, by correspondence with the custodian. 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, 1999, 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 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
December 17, 1999
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES & OFFICERS
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
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
ROBERT B. HOFFMAN BRENDA LYONS
Trustee GARY A. LANGBAUM Assistant Treasurer
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
THOMAS W. LITTAUER
Trustee and Vice President KATHRYN L. QUIRK
Vice President
SHIRLEY D. PETERSON
Trustee
CORNELIA SMALL
Trustee and Vice President
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 219557
Kansas City, MO 64121
- --------------------------------------------------------------------------------
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
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
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Equity Funds/Growth Style prospectus.
KTRF - 2 (12/27/99) 1096610
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
