-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UrdzthPpBa1Ocy86kkGvaugN+dLOP7hqcGJhNPk6aZAk6Hga1GMqducT7e62Jr+B vyYpKeW0B7jUa8i+SqQqxA== 0000950124-96-003044.txt : 19960709 0000950124-96-003044.hdr.sgml : 19960709 ACCESSION NUMBER: 0000950124-96-003044 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960708 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER BLUE CHIP FUND CENTRAL INDEX KEY: 0000823342 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363542349 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05357 FILM NUMBER: 96592118 BUSINESS ADDRESS: STREET 1: 120 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3127811121 N-30D 1 BLUE CHIP FUND SAR 1 KEMPER BLUE CHIP FUND SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED APRIL 30, 1996 SEEKING GROWTH OF CAPITAL AND OF INCOME "...We had disagreed with the people who believed that rising interest rates would send the economy into a recession..." 2 Table of Contents 2 Terms to Know 3 General Economic Overview 5 Performance Update 8 Industry Sectors 9 Largest Holdings 10 Portfolio of Investments 14 Financial Statements 17 Notes to Financial Statements 21 Financial Highlights At A Glance - -------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] - -------------------------------------------------------------------------------- CLASS A 14.54% CLASS B 14.18% CLASS C 14.08% LIPPER GROWTH & INCOME FUNDS CATEGORY AVERAGE* 13.74% - --------------------------------------------------------------------------------
Returns and rankings are historical and do not represent future results. Returns and net asset value fluctuate. Shares are redeemable at current net asset value, which may be more or less than original cost. *Lipper Analytical Services, Inc. returns and rankings are based upon changes in net asset value with all dividends reinvested and do not include the effect of sales charges and, if they had, results may have been less favorable. - -------------------------------------------------------------------------------- NET ASSET VALUE - --------------------------------------------------------------------------------
AS OF AS OF 4/30/96 10/31/95 - -------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND CLASS A $15.56 $14.87 - -------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND CLASS B $15.52 $14.82 - -------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND CLASS C $15.57 $14.88 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEMPER BLUE CHIP FUND LIPPER RANKINGS* - -------------------------------------------------------------------------------- COMPARED TO ALL OTHER FUNDS IN THE LIPPER GROWTH & INCOME FUNDS CATEGORY 1-YEAR 5-YEAR - -------------------------------------------------------------------------------- CLASS A #104 OF 479 FUNDS #167 OF 198 FUNDS - -------------------------------------------------------------------------------- CLASS B #145 OF 479 FUNDS N/A - -------------------------------------------------------------------------------- CLASS C #152 OF 479 FUNDS N/A - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- DURING THE PERIOD, KEMPER BLUE CHIP FUND PAID THE FOLLOWING DIVIDENDS: CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- INCOME DIVIDEND $0.125 $0.0649 $0.0691 - -------------------------------------------------------------------------------- SHORT-TERM CAPITAL GAIN $0.68 $0.68 $0.68 - -------------------------------------------------------------------------------- LONG-TERM CAPITAL GAIN $0.52 $0.52 $0.52 - --------------------------------------------------------------------------------
TERMS TO KNOW BLUE CHIP COMPANIES Blue chip companies are generally identified by their substantial capitalization, established history of earnings and dividends, easy access to credit, good industry position and superior management structure. They are believed to generally exhibit less investment risk and less price volatility than companies lacking these high quality characteristics, such as smaller, less seasoned companies. CORRECTION A reverse movement, usually downward, in the price of a group of stocks or the overall market. Corrections are to be expected over a long term. INDEX An unmanaged group of stocks that is considered representative of the stock or bond markets. An index does not take into account any fees or expenses related to the individual securities that it tracks. However, for performance comparisons, the index is adjusted to reflect reinvestment of dividends of the securities in the index. TOTAL RETURN A fund's total return measures both the net investment income generated by, and the effect of, any realized and unrealized appreciation or depreciation of the underlying investments in its portfolio for the period. Total return assumes the reinvestment of all dividends and it represents the aggregate percentage or dollar value change over the period. 3 GENERAL ECONOMIC OVERVIEW [TIMBERS PHOTO] STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY. DEAR SHAREHOLDER, The first five months of 1996 have provided a few surprises. As the year began, most of us expected sluggish economic and corporate growth -- which the Federal Reserve Board would address by reducing short-term interest rates. Yet, what we experienced was stronger-than-anticipated economic growth, better corporate earnings and rising interest rates. Although such surprises unsettled the bond market, the stock market has followed a spectacular 1995 with strength so far this year. Where is the economy headed now? Its direction is even less predictable as we draw nearer to the November elections. Half of the country's leading economists are forecasting 3 percent growth while an equal number are looking for no better than 1 percent growth. At Kemper Funds, we suspect that the economy is growing at a subpar rate of 2 percent. Although commodity prices may suggest otherwise, we think inflation is holding at less than 3 percent. We see no reason to expect the Fed to reduce rates to stimulate growth but neither is it likely to raise rates significantly to control growth. In an environment of stable or gently rising rates, we would expect corporate earnings to grow at a rate of about 7 to 8 percent -- that's somewhat higher than we believed likely at the start of the year. Our forecast calls for a generally comfortable environment for investors. But both the economy and the general direction of the markets are due for a reversal. In June, the U.S. economy entered its 63rd month of consecutive growth. This is the longest expansion without a single quarter of negative output growth since George Washington was president. Today's bull market started in October 1990, which makes it one of the longest running bull markets in history. By virtue of its length alone, the stock market is vulnerable to a correction. As expected, volatility has returned to the market this year. For example: The stock market's performance on March 8, the date that a surprisingly strong employment report was released, betrayed some level of investor skittishness. But while the Standard & Poor's lost 3.1 percent that day, it quickly regained the ground and moved higher. - ---------------------------------------------------------------------------- CONSUMERS AND JOB SECURITY - ---------------------------------------------------------------------------- The restructuring of corporate America, which is generally credited for its improved profitability, has been an important influence on the consumer. Economic growth is heavily dependent upon consumer spending which, in turn, is a function of inflation, pay raises and fear of job loss. While the first two have not been a recent concern, fear of losing one's job has dampened consumer confidence. Such anxiety in the workplace was the subject of a recent study by the Council of Economic Advisors. According to that report, more than two-thirds of the new jobs created in the United States in 1994 and 1995 paid better than the average job. The report found that the rate at which jobs were eliminated has risen slightly despite strong economic growth of recent years - however, it reported that the length of time most workers spend unemployed has declined. The graph below tracks Bureau of Labor Statistics data that show the recent relationship between number of jobs created versus the number of jobs lost. [LINE GRAPH]
Jobs Created Jobs Lost 12/31/91 (300,000) 40,000 12/31/92 120,000 (30,000) 12/31/93 300,000 70,000 12/31/94 180,000 70,000 12/31/95 (80,000) (40,000) 3/31/96 490,000 (10,000)
SOURCE: BUREAU OF LABOR STATISTICS 3 4 GENERAL ECONOMIC OVERVIEW - ------------------------------------------------------------------------------ ECONOMIC GUIDEPOSTS - ------------------------------------------------------------------------------ Economic activity is a key influence on investment performance and shareholder decision-making. Periods of recession or boom, inflation or deflation, credit expansion or credit crunch have a significant impact on mutual fund performance. The following are some significant economic guideposts and their investment rationale that may help your investment decision-making. The 10-year Treasury rate and the prime rate are prevailing interest rates. The other data report year-to-year percentage changes. [BAR GRAPH]
Now (4/30/96) 6 months ago 1 year ago 2 years ago 10-year Treasury rate(1) 6.51 5.93 6.63 7.18 Prime rate(2) 8.25 8.75 9.00 6.99 Inflation rate(3) 2.90 2.60 3.12 2.29 The U.S. dollar(4) 8.94 -1.57 -10.02 2.34 Capital goods orders(5) 7.94 10.38 17.84 19.99 Industrial production(6) 2.56 1.71 3.31 6.22 Employment growth(7) 1.47 1.55 2.30 2.93
(1) Falling interest rates in recent years have been a big plus for financial assets. (2) The interest rate that commercial lenders charge their best borrowers. (3) Inflation reduces an investor's real return. In the last five years, inflation has been as high as 6%. The low, moderate inflation of the last few years has meant high real returns. (4) Changes in the exchange value of the dollar impact U.S. exporters and the value of U.S. firms' foreign profits. (5) These influence corporate profits and equity performance. (6) An influence on corporate profits and equity performance. (7) An influence on family income and retail sales. SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC. Such ebb and flow is to be expected in investing, especially at this point in the cycle. Attempting to "prepare" for a correction is futile, we believe. Those whose caution caused them to excuse themselves from the market early this year, for example, would have forgone its significant gain year to date. Several opportunities exist today for the careful investor. First, having settled down some from a raucous 1995, the technology sector continues to enjoy the product and market demand that make it the dominant sector of the 1990s. Second, equity investors willing to look overseas may find opportunities in countries whose economies today are at a point where the U.S. economy was in 1995. Our forecast assumes that strength in foreign markets could boost those countries' currencies, which would weaken the value of the dollar. We expect the fixed-income markets to continue to be sensitive to interest rate and inflation news. However, for as long as economic growth is positive and earnings are growing, we believe the high-yield market is one market segment that has significant potential. Finally, we look for political activity to have less and less bearing on the markets' performance. Although they may continue to debate tax reform, federal budget deficit reduction and health care reform, the incumbent legislators are running out of time to take action before the November elections. If there is any suspense by November, it is likely to be in whether the Republicans can retain control of Congress. Their success would make a balanced budget and tax reform likely agenda topics for 1997. With that as an economic backdrop, we encourage you to read the following detailed report of your fund, including an interview with your fund's portfolio management. Thank you for your continued support. We appreciate the opportunity to serve your investment needs. Sincerely, /s/ Stephen B. Timbers STEPHEN B. TIMBERS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER ZURICH KEMPER INVESTMENTS, INC. June 5, 1996 4 5 PERFORMANCE UPDATE [CHESTER PHOTO] TRACY MCCORMICK CHESTER JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1994 AND IS NOW A FIRST VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND THE PORTFOLIO MANAGER OF KEMPER BLUE CHIP FUND. CHESTER RECEIVED BOTH HER B.A. AND M.B.A. DEGREES FROM MICHIGAN STATE UNIVERSITY. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. KEMPER BLUE CHIP FUND'S PERFORMANCE IN THE LAST SIX MONTHS IS DUE TO ITS SUCCESS IN ANTICIPATING CHANGE -- AND POSITIONING THE PORTFOLIO APPROPRIATELY. Q. TRACY, KEMPER BLUE CHIP FUND'S MOMENTUM HAS CONTINUED. IN THE LAST SIX MONTHS, THE FUND MOVED INTO THE FIRST QUARTILE OF THE LIPPER GROWTH AND INCOME CATEGORY. CLASS A SHARES RANKED #104 OF 479 FUNDS FOR THE ONE-YEAR PERIOD AND #167 OF 198 FUNDS FOR THE FIVE-YEAR PERIOD ENDED APRIL 30, 1996.* WHAT'S BEEN DRIVING THIS IMPROVEMENT? A. We can talk about the general economic climate and company specifics later, but the most significant difference in the way I've been managing the fund** is in my desire to recognize change early. Remember that investors react to a company's prospects. If we can succeed in recognizing a change in those prospects before the overall market does, we stand to benefit. The fund's performance in the last six months is the result of our identifying and acquiring stocks that enjoyed a significant runup in price, in part because of a broader market recognition after we owned the stock. *SEE "AT A GLANCE" ON PAGE 2 FOR MORE INFORMATION. **CHESTER BECAME PORTFOLIO MANAGER IN SEPTEMBER 1994. Q. WHAT TYPE OF CHANGE DO YOU LOOK FOR? A. All kinds of changes can influence a company's prospects. A turn in the economic cycle can have an effect on an economically-dependent company. A trend toward consolidation in a given industry can strengthen some companies while weakening others. And then there are company-specific changes: new management, a maturing of the product cycle, a redirection of the corporate philosophy. All of these can have an effect on a company's profitability and, in the kinds of blue chip companies that we invest in, most will eventually attract the attention of investors. Our objective is to spot these changes early. Q. WHAT'S AN EXAMPLE OF HOW THIS STRATEGY RECENTLY WORKED FOR THE FUND? A. I'll give you two. The first is Betz Laboratories, which is a $1 billion company in the water treatment business. We bought our first shares at $43.80 in March because we liked the company's position in its industry. The industry is consolidating, which should improve pricing and that should in turn help revenues and earnings. In addition, the stock offered a 3.5% yield, which supports our dividend-paying objectives. Betz' recent acquisition of Dearborn initially hurt its stock price. But 5 6 PERFORMANCE UPDATE people don't understand that the acquisition provides Betz with an international presence that could take them 10 years to develop on their own. Since we've owned it, Betz has advanced to almost $45 share. Cincinnati Bell is another example of a company that most people overlooked. The regional carrier business is considered boring and predictable. But the regional carrier operation is just one-third of Cincinnati Bell's business. It's also in the fast growing businesses of direct marketing and cellular billing. We saw this stock make a huge move to $49.25 per share on April 30, 1996, from $27, the price of the first shares we bought in October 1995. Q. SO, THE CHANGES THAT YOU LOOK FOR ARE POSITIVE CHANGES THAT HAVE THE POTENTIAL TO BOOST A STOCK'S PERFORMANCE? A. Well, it's true that we want to be holding stocks that improve but it's also important to recognize a negative turn as early as possible. As I've said before, avoiding potholes can help performance, too. Q. THE STOCK MARKET HAS BEEN SO ROBUST -- HAVE THERE BEEN MANY POTHOLES TO AVOID? A. Absolutely. The market has rotated from sector to sector and, during these rotations, it has been important to be exposed to the right sectors with minimal exposure to the wrong sectors. On page 8 of this report, we provide a look at the sector breakdown of the fund, compared to its sector breakdown one year ago and compared to its benchmark, the Russell 1000 Growth Index*. But, these comparisons don't represent our sector shifts at various points during the year. *THE RUSSELL 1000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF COMMON STOCKS OF LARGER U.S. COMPANIES WITH GREATER THAN AVERAGE GROWTH ORIENTATION. IT REPRESENTS THE UNIVERSE OF STOCKS FROM WHICH "EARNINGS/GROWTH" MONEY MANAGERS TYPICALLY SELECT. Q. WOULD YOU ELABORATE ON A FEW OF THOSE SHIFTS? A. In the last report to shareholders (reporting on the fiscal year ended October 31, 1995), we explained that the portfolio was positioned for a slight economic rebound. We had disagreed with the people who believed that rising interest rates would send the economy into a recession. To the contrary, we heightened our investment in several attractively priced stocks that stood to benefit from an improving economy. Monsanto Co. and GM Hughes Electronics Corp. were a few stocks with whom this strategy worked. As growth became more evident, our retail (May Department Stores, Federated Department Stores, Pep Boys - Manny Moe & Jack) and gaming (Circus Circus Enterprises) stocks began to contribute. Having said that, however, we have since cut back our economically-sensitive holdings. Our minimal exposure to the technology and financial sectors for most of the period is an example of how we have managed to avoid potholes. The absence of these stocks helped quite a bit as technology suffered in late 1995 and financials struggled in early 1996. During such periods of weakness, we try to be opportunistic by accumulating depressed shares of high-quality stocks that we expect to improve. We had increased our position in both sectors by the end of April. Our exposure to technology, a sector I continue to be somewhat leery of, is concentrated in the software and servicing businesses (Computer Sciences Corporation and GM - Electronic Data Systems), which offer some consistency. But our more dramatic change was in our exposure to financial holdings, which we more than doubled in less than one month. Immediately after the close of the first quarter, we began to buy financial stocks whose prices were depressed. Q. BUT WHAT HAD CHANGED YOUR MIND? A. We had watched the financial stocks suffer in early 1996 from worries that inflation was heating up and that consumer credit problems were on the horizon. But neither of these concerns materialized. Group corrections tar and feather everyone -- even companies whose individual circumstances seem capable of overcoming a sectorwide concern. That's when we have been able to recognize opportunities and establish positions in companies that appear to have promise. ITT Hartford Group and Allstate Corp. are two stocks we bought then. Our move into financial stocks following a period of rising interest rates might seem as if we 6 7 were anticipating a drop in interest rates but we weren't making an interest rate forecast. No one -- including us -- knew if interest rates were going to continue to rise. But what we did know was that these companies showed promise and could do well when rates bottomed out, which they would eventually. Q. AND HOW HAVE THE STOCKS PERFORMED IN THE SHORT TIME YOU'VE OWNED THEM? A. Well, that's the thing about a rotational market. When a group gets undervalued, money quickly flows in. By the end of April, many financial stocks were up 10 to 15 percent from their lows. Q. WERE THERE ANY DISAPPOINTMENTS OR MISCALCULATIONS IN THE LAST SIX MONTHS? A. Of course there were. Our work in the health care sector serves as a reminder of how it is possible to overwork a sector. As we recognized that many of our favorite high-quality names (Eli Lilly & Co., Pfizer Inc.) were becoming fully valued, perhaps we should have just lightened up on the group for a while rather than traded down to laggards that appeared to be less expensive. Q. WHAT KIND OF A BURDEN DOES IT IMPOSE ON YOU AND YOUR STAFF TO ATTEMPT TO BE AHEAD OF WHAT'S GENERALLY RECOGNIZED BY THE MARKET? A. Our strategy has a few implications. One is that we could be too early and that the investment is deadweight while you're waiting for it to perform as expected. When that happens, obviously, you want to re-examine why you liked the stock and the likelihood of its ability to contribute. On the whole, I don't mind being too early. I prefer it to being too late and chasing stocks. A second implication is the need to be alert after the stock performs. Some stocks have gained dramatically in just a short time. When that happens, it may be time to cut back because the price went so far so fast. The burden here is that you can't get too committed to a stock -- and that you always need to be cultivating fresh ideas. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS, IN TERMS OF YOUR ABILITY TO CONTINUE TO FIND PROMISING STOCKS AND IN TERMS OF THE ECONOMY AS A WHOLE? A. We may be in a lull right now but I think the general attitude of the market is positive. Interest rates may be stabilizing, and economic growth is neither taking off nor screeching to a halt. It's an environment where hard work and careful stock selection should be capable of producing good results. 7 8 INDUSTRY SECTORS A SIX-MONTH COMPARISON DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR REPRESENTED ON APRIL 30, 1996, AND ON OCTOBER 31, 1995. [YEAR TO YEAR BAR GRAPH]
Kemper Blue Chip Fund Kemper Blue Chip Fund on 4/30/96 on 10/31/95 Consumer non-durables 19.1% 19.0% Helth care 14.9% 16.0% Technology 12.8% 16.7% Finance 12.5% 9.0% Capital goods 10.8% 17.6% Basic Industries 10.2% 5.6% Utilities 8.2% 7.2% Energy 6.6% 4.7% Consumer durables 3.7% 2.6% Transportation 1.2% 1.6%
A COMPARISON WITH THE RUSSELL 1000 GROWTH INDEX* DATA SHOW THE PERCENTAGE OF THE COMMON STOCKS IN THE PORTFOLIO THAT EACH SECTOR OF KEMPER BLUE CHIP FUND REPRESENTED ON APRIL 30, 1996, COMPARED TO THE INDUSTRY SECTORS THAT MAKE UP THE FUND'S BENCHMARK, THE RUSSELL 1000 GROWTH INDEX. [RUSSELL COMPARISON BAR GRAPH]
Kemper Blue Chip Fund Russell 1000 Growth Index on 4/30/96 on 4/30/96 Consumer non-durables 19.1% 33.4% Health care 14.9% 16.7% Technology 12.8% 19.9% Finance 12.5% 6.1% Capital goods 10.8% 10.5% Basic industries 10.2% 4.6% Utilities 8.2% 5.0% Energy 6.6% 2.3% Consumer durables 3.7% 0.9% Transportation 1.2% 0.6%
* The Russell 1000 Growth Index is an unmanaged index comprised of common stocks of larger U.S. companies with greater than average growth orientation and represents the universe of stocks from which "earnings/growth" money managers typically select. 8 9 LARGEST HOLDINGS THE FUND'S 20 LARGEST HOLDINGS REPRESENTING 34.8% OF THE FUND'S TOTAL NET ASSETS ON APRIL 30, 1996
HOLDINGS PERCENT - --------------------------------------------------------------------------------------- 1. PHILIP MORRIS Cigarettes, food products, brewing 2.5% COMPANIES - --------------------------------------------------------------------------------------- 2. CINCINNATI Regional telephone, cellular billing services, 2.3% BELL direct marketing services - --------------------------------------------------------------------------------------- 3. AT&T Telecommunications equipment and long-distance 2.1% service provider - --------------------------------------------------------------------------------------- 4. AMERICAN HOME Drugs, food, packaged medicine 2.0% PRODUCTS - --------------------------------------------------------------------------------------- 5. BAXTER Hospital supply and medical technology 1.9% INTERNATIONAL - --------------------------------------------------------------------------------------- 6. MOBIL CORP. International oil/gas exploration, development 1.9% - --------------------------------------------------------------------------------------- 7. XEROX Document and image processing 1.9% CORPORATION - --------------------------------------------------------------------------------------- 8. DURACELL Manufactures alkaline batteries 1.9% INTERNATIONAL INC. - --------------------------------------------------------------------------------------- 9. HARRIS CORP. Government systems/communications 1.8% - --------------------------------------------------------------------------------------- 10. BETZ Water treatment chemicals 1.7% LABORATORIES - --------------------------------------------------------------------------------------- 11. PERKIN-ELMER Analytical instruments, optics, life sciences 1.6% CORP. - --------------------------------------------------------------------------------------- 12. GM ELECTRONIC Computer service, major outsourcing contractor 1.6% DATA SYSTEMS - --------------------------------------------------------------------------------------- 13. KEYCORP Commercial banking in several states 1.5% - --------------------------------------------------------------------------------------- 14. ALCO STANDARD Distributes paper and office equipment 1.5% CORPORATION - --------------------------------------------------------------------------------------- 15. MONSANTO CO. Agricultural chemicals, food additives, Searle 1.5% Pharmaceuticals - --------------------------------------------------------------------------------------- 16. ENRON CORP. Gathers, transports and markets natural gas 1.5% - --------------------------------------------------------------------------------------- 17. SBC COMMUNICATIONS, International telecommunications 1.4% INC. - --------------------------------------------------------------------------------------- 18. HARCOURT Retail stores, publishing, theaters, insurance 1.4% GENERAL - --------------------------------------------------------------------------------------- 19. BOEING CO. Manufactures airplanes and missiles 1.4% - --------------------------------------------------------------------------------------- 20. MARSH & MCCLENNAN Insurance brokerage 1.4% COMPANIES, INC. - ---------------------------------------------------------------------------------------
9 10 PORTFOLIO OF INVESTMENTS KEMPER BLUE CHIP FUND Portfolio of Investments at April 30, 1996 (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------- COMMON STOCKS NUMBER OF SHARES VALUE - ----------------------------------------------------------------------------------------------------------- BASIC INDUSTRIES--8.9% Air Products & Chemicals 33,600 $ 1,919 Alco Standard Corporation, convertible preferred 31,000 3,069 Betz Laboratories 78,700 3,512 Consolidated Papers 30,000 1,642 Crown Cork & Seal Co., convertible preferred 55,000 2,516 (a)FMC Corp. 10,000 694 Georgia-Pacific Corp. 20,000 1,555 Mitsubishi Heavy Industries 9,000 80 Monsanto Co. 20,200 3,060 Sumitomo Metal Industries 23,000 74 Technip S.A. 352 32 Toray Industries 11,000 75 ------------------------------------------------------------------------------- 18,228 - ---------------------------------------------------------------------------------------------------------------- CAPITAL GOODS--9.4% Boeing Co. 35,000 2,874 Emerson Electric Co. 33,000 2,760 Fluor Corp. 31,000 2,050 General Electric Co. 22,000 1,705 GM Hughes Electronics Corp. 45,000 2,751 B.F. Goodrich Co. 58,300 2,317 Matsushita Electric Industrial Co., Ltd. 4,500 79 Murata Manufacturing 2,200 85 Xerox Corporation 26,500 3,882 York International Corp. 17,900 859 ------------------------------------------------------------------------------- 19,362 - ---------------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS--8.9% (a)AutoZone, Inc. 25,000 912 Burton Group PLC 37,784 89 (a)Circus Circus Enterprises 30,000 1,102 Walt Disney Company 39,000 2,418 Harcourt General 67,000 2,948 Hilton Hotels 20,000 2,110 (a)Liberty Media Group, "A" 65,000 1,779 Lowes Companies 20,000 647 Marriott International 50,000 2,438 May Department Stores Co. 51,000 2,601 Moet Hennessey Louis Vuitton 351 90 Pep Boys - Manny Moe & Jack 35,000 1,168 Reed International PLC 4,719 81 VNU BV 1,931 32 ------------------------------------------------------------------------------- 18,415 - ---------------------------------------------------------------------------------------------------------------- CONSUMER DURABLES--3.2% Armstrong World Industries 28,000 1,596 Avon Products 25,000 2,222 Leggett & Platt Incorporated 70,000 1,802 Shaw Industries 75,000 928 ------------------------------------------------------------------------------- 6,548 - ----------------------------------------------------------------------------------------------------------------
10 11 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES--7.7% Duracell International Inc. 85,000 $ 3,846 Heineken N.V. 405 85 PepsiCo 28,000 1,778 Philip Morris Companies 57,000 5,137 Procter & Gamble Co. 13,000 1,099 Sara Lee Corp. 64,000 1,984 Warnaco Group 70,000 1,838 --------------------------------------------------------------------------- 15,767 - ------------------------------------------------------------------------------------------------------------ ENERGY--5.7% Enron Corp. 75,000 3,019 Enron Oil & Gas Co. 80,000 2,050 Mobil Corp. 34,000 3,910 Schlumberger Ltd. 32,300 2,850 --------------------------------------------------------------------------- 11,829 - ------------------------------------------------------------------------------------------------------------ FINANCE--10.9% Allstate Corp. 40,000 1,555 Bank of Ireland 10,920 78 Boatmen's Bancshares 50,000 1,937 CITIC Pacific Ltd. 14,000 55 Cheung Kong (Holdings) Limited 7,000 50 Development Bank of Singapore 3,000 38 Federal National Mortgage Association 60,000 1,837 (a)Internationale Nederlanden Groep 1,136 88 ITT Hartford Group 48,000 2,346 Jefferson-Pilot Corp., convertible preferred 25,000 2,025 KeyCorp 80,000 3,090 Krung Thai Bank Public Co. Ltd. 14,400 71 MBIA Inc. 27,000 1,927 Marsh & McLennan Companies, Inc. 30,400 2,858 Merrill Lynch & Co., convertible preferred 45,000 2,346 Nomura Securities Co. Ltd. 3,850 84 Northern Trust Co. 35,000 1,969 --------------------------------------------------------------------------- 22,354 - ------------------------------------------------------------------------------------------------------------ HEALTH CARE--12.9% American Home Products 40,000 4,220 Astra AB 1,780 79 C.R. Bard 30,000 1,095 Baxter International 90,000 3,982 (a)Forest Laboratories 20,000 922 Glaxo Wellcome common stock 5,256 64 ADR 110,000 2,654 Eli Lilly & Co. 40,000 2,360 Medtronic, Inc. 18,000 956 Perkin-Elmer Corp. 60,000 3,293 Pfizer Inc. 25,000 1,722 Roche Holding AG 9 71 Sandoz, Ltd. 35,000 1,908 SmithKline Beecham PLC 40,000 2,160 U.S. Healthcare 20,000 1,043 --------------------------------------------------------------------------- 26,529 - ------------------------------------------------------------------------------------------------------------
11 12 PORTFOLIO OF INVESTMENTS (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------ NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------ TECHNOLOGY--11.1% AMP, Inc. 50,100 $ 2,242 (a)Compaq Computer Corp. 25,000 1,166 (a)Computer Sciences Corp. 35,000 2,590 LM Ericsson Telephone Co., "B" 2,459 50 General Motors-Electronic Data Systems 57,234 3,227 Harris Corp. 60,000 3,705 Hewlett-Packard, Co. 20,000 2,117 Intel Corp. 9,800 664 (a)Microsoft Corp. 18,000 2,041 NEC Corporation 4,000 51 Reynolds & Reynolds Co. 40,000 1,850 (a)Sun Microsystems 22,000 1,194 Texas Instruments 35,000 1,978 --------------------------------------------------------------------------- 22,875 - ------------------------------------------------------------------------------------------------------------ TRANSPORTATION--1.0% Canadian National Railway Company 4,276 81 Nippon Express 7,400 77 Swire Pacific Ltd. 6,500 55 Union Pacific Corp. 28,000 1,908 --------------------------------------------------------------------------- 2,121 - ------------------------------------------------------------------------------------------------------------ UTILITIES--7.1% AT&T 69,000 4,226 (a)AirTouch Communications 90,000 2,812 Cincinnati Bell 95,600 4,708 SBC Communications Inc. 59,600 2,980 --------------------------------------------------------------------------- 14,726 --------------------------------------------------------------------------- TOTAL COMMON STOCKS--86.8% (Cost: $157,649) 178,754 --------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ CONVERTIBLE CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ CONSUMER CYCLICALS--3.2% Carnival Corp., 4.50%, 1997 $ 1,000 1,676 Federated Department Stores, 5.00%, 2003 1,800 2,025 Interpublic Group of Companies, 3.75%, 2002 400 415 Lowes Companies, 3.00%, 2003 1,400 1,740 Pep Boys - Manny Moe & Jack, 4.00%, 1999 800 824 --------------------------------------------------------------------------- 6,680 - ------------------------------------------------------------------------------------------------------------ CONSUMER DURABLES--1.0% Magna International Inc., 5.00%, 2002 2,000 2,060 --------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------ HEALTH CARE--1.4% ALZA Corp., 5.00%, 2006 2,000 2,003 Sandoz Capital BVI, 2.00%, 2002 800 864 --------------------------------------------------------------------------- 2,867 - ------------------------------------------------------------------------------------------------------------ TECHNOLOGY--2.3% First Financial Management Corporation, 5.00%, 1999 1,000 1,811 LSI Logic Corp., 5.50%, 2001 550 1,638 3Com Corporation, 10.25%, 2001 800 1,232 --------------------------------------------------------------------------- 4,681 - ------------------------------------------------------------------------------------------------------------
12 13 PORTFOLIO OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------- UTILITIES--.3% LDDS Metromedia Communications, 5.00%, 2003 $ 500 631 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- TOTAL CONVERTIBLE CORPORATE OBLIGATIONS--8.2% (Cost: $15,695) 16,919 ------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS--5.6% Yield-5.50% Due-May 1996 Baxter International 1,100 1,097 ConAgra, Inc. 6,000 5,999 Mid-Atlantic Fuel Company 4,500 4,491 ------------------------------------------------------------------------------- TOTAL MONEY MARKET INSTRUMENTS--5.6% (Cost: $11,587) 11,587 ------------------------------------------------------------------------------- TOTAL INVESTMENTS--100.6% (Cost: $184,931) 207,260 ------------------------------------------------------------------------------- LIABILITIES, LESS CASH AND OTHER ASSETS--(.6)% (1,293) ------------------------------------------------------------------------------- NET ASSETS--100% $205,967 -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (a) Non-income producing security. Based on the cost of investments of $184,931,000 for federal income tax purposes at April 30, 1996, the gross unrealized appreciation was $24,037,000, the gross unrealized depreciation was $1,708,000 and the net unrealized appreciation on investments was $22,329,000. See accompanying Notes to Financial Statements. 13 14 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES April 30, 1996 (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------- Investments, at value (Cost: $184,931) $207,260 - ------------------------------------------------------------------------------------------------------- Cash 1,879 - ------------------------------------------------------------------------------------------------------- Receivable for: Fund shares sold 114 - ------------------------------------------------------------------------------------------------------- Investments sold 3,124 - ------------------------------------------------------------------------------------------------------- Dividends and interest 401 - ------------------------------------------------------------------------------------------------------- TOTAL ASSETS 212,778 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------------------------------------- Payable for: Fund shares redeemed 68 - ------------------------------------------------------------------------------------------------------- Investments purchased 6,484 - ------------------------------------------------------------------------------------------------------- Management fee 98 - ------------------------------------------------------------------------------------------------------- Distribution services fee 19 - ------------------------------------------------------------------------------------------------------- Administrative services fee 43 - ------------------------------------------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 75 - ------------------------------------------------------------------------------------------------------- Other 24 - ------------------------------------------------------------------------------------------------------- Total liabilities 6,811 - ------------------------------------------------------------------------------------------------------- NET ASSETS $205,967 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------------------------------------- Paid-in capital $158,854 - ------------------------------------------------------------------------------------------------------- Undistributed net realized gain on investments 24,445 - ------------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments 22,337 - ------------------------------------------------------------------------------------------------------- Undistributed net investment income 331 - ------------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO SHARES OUTSTANDING $205,967 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- THE PRICING OF SHARES - ------------------------------------------------------------------------------------------------------- CLASS A SHARES Net asset value and redemption price per share ($174,282,900 / 11,201,400 shares outstanding) $15.56 - ------------------------------------------------------------------------------------------------------- Maximum offering price per share (net asset value, plus 6.10% of net asset value or 5.75% of offering price) $16.51 - ------------------------------------------------------------------------------------------------------- CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($30,239,600 / 1,948,500 shares outstanding) $15.52 - ------------------------------------------------------------------------------------------------------- CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($1,440,600 / 92,500 shares outstanding) $15.57 - ------------------------------------------------------------------------------------------------------- CLASS I SHARES Net asset value and redemption price per share ($3,500 / 200 shares outstanding) $15.61 - -------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 14 15 STATEMENT OF OPERATIONS Six months ended April 30, 1996 (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME - ------------------------------------------------------------------------------------------------------- Dividends $ 1,611 - ------------------------------------------------------------------------------------------------------- Interest 893 - ------------------------------------------------------------------------------------------------------- Total investment income 2,504 - ------------------------------------------------------------------------------------------------------- Expenses: Management fee 550 - ------------------------------------------------------------------------------------------------------- Distribution services fee 93 - ------------------------------------------------------------------------------------------------------- Administrative services fee 228 - ------------------------------------------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 346 - ------------------------------------------------------------------------------------------------------- Professional fees 19 - ------------------------------------------------------------------------------------------------------- Reports to shareholders 23 - ------------------------------------------------------------------------------------------------------- Trustees' fees and other 10 - ------------------------------------------------------------------------------------------------------- Total expenses 1,269 - ------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,235 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - ------------------------------------------------------------------------------------------------------- Net realized gain on sales of investments 24,593 - ------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation on investments (474) - ------------------------------------------------------------------------------------------------------- Net gain on investments 24,119 - ------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,354 - -------------------------------------------------------------------------------------------------------
15 16 FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED APRIL 30, OCTOBER 31, 1996 1995 - --------------------------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY - --------------------------------------------------------------------------------------------------------- Net investment income $ 1,235 2,226 - --------------------------------------------------------------------------------------------------------- Net realized gain 24,593 13,899 - --------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (474) 15,753 - --------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 25,354 31,878 - --------------------------------------------------------------------------------------------------------- Net equalization charges (707) (252) - --------------------------------------------------------------------------------------------------------- Distribution from net investment income (1,459) (2,340) - --------------------------------------------------------------------------------------------------------- Distribution from net realized gain (13,966) (244) - --------------------------------------------------------------------------------------------------------- Total dividends to shareholders (15,425) (2,584) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) from capital share transactions 28,479 (13,948) - --------------------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 37,701 15,094 - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- NET ASSETS - --------------------------------------------------------------------------------------------------------- Beginning of period 168,266 153,172 - --------------------------------------------------------------------------------------------------------- END OF PERIOD (including undistributed net investment income of $331 and $1,262, respectively) $205,967 168,266 - ---------------------------------------------------------------------------------------------------------
16 17 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper Blue Chip Fund is an open-end management investment company organized as a business trust under the laws of Massachusetts. The Fund currently offers four classes of shares. Class A shares are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and, for shares sold on or after April 1, 1996, a contingent deferred sales charge payable on certain redemptions within one year of purchase. Class C shares do not convert into another class. Class I shares, which are sold to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Differences in class expenses will result in the payment of different per share income dividends by class. Each share represents an identical interest in the investments of the Fund and has the same rights. - -------------------------------------------------------------------------------- 2 SIGNIFICANT ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at value. Portfolio securities that are traded on a domestic securities exchange or securities listed on the NASDAQ National Market are valued at the last sale price on the exchange or market where primarily traded or listed or, if there is no recent sale, at the last current bid quotation. Portfolio securities that are primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on their respective exchanges where primarily traded. Securities not so traded or listed are valued at the last current bid quotation if market quotations are available. Fixed income securities are valued by using market quotations, or independent pricing services that use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Equity options are valued at the last sale price unless the bid price is higher or the asked price is lower, in which event such bid or asked price is used. Financial futures and options thereon are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Forward foreign currency contracts are valued at the forward rates prevailing on the day of valuation. Other securities and assets are valued at fair value as determined in good faith by the Board of Trustees. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, and interest income is recorded on the accrual basis and includes discount amortization on fixed income securities. Realized gain and losses from investment transactions are reported on an identified cost basis. FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B and Class C 17 18 NOTES TO FINANCIAL STATEMENTS shares will be reduced by the amount of any applicable contingent deferred sales charge. On each day the New York Stock Exchange is open for trading, the net asset value per share is determined as of the earlier of 3:00 p.m. Chicago time or the close of the Exchange. The net asset value per share is determined separately for each class by dividing the Fund's net assets attributable to that class by the number of shares of the class outstanding. FEDERAL INCOME TAXES. The Fund has complied with the special provisions of the Internal Revenue Code available to investment companies during the six months ended April 30, 1996. DIVIDENDS TO SHAREHOLDERS. The Fund declares and pays dividends of net investment income semi-annually and net realized capital gains annually, which are recorded on the ex-dividend date. Dividends are determined in accordance with income tax principles which may treat certain transactions differently from generally accepted accounting principles. EQUALIZATION ACCOUNTING. A portion of proceeds from sales and cost of redemptions of Fund shares is credited or charged to undistributed net investment income so that income per share available for distribution is not affected by sales or redemptions of shares. - -------------------------------------------------------------------------------- 3 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management agreement with Zurich Kemper Investments, Inc. (ZKI) (formerly known as Kemper Financial Services, Inc.) and pays a management fee at an annual rate of .58% of the first $250 million of average daily net assets declining to .42% of average daily net assets in excess of $12.5 billion. The Fund incurred a management fee of $550,000 for the six months ended April 30, 1996. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Underwriting commissions paid in connection with the distribution of Class A shares are as follows:
COMMISSIONS ALLOWED BY KDI COMMISSIONS ---------------------------- RETAINED BY KDI TO ALL FIRMS TO AFFILIATES --------------- ------------ ------------- Six months ended April 30, 1996 $34,000 195,000 6,000
For services under the distribution services agreement, the Fund pays KDI a fee of .75% of average daily net assets of Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, KDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. Distribution fees and commissions paid in connection with the sale of Class B and 18 19 NOTES TO FINANCIAL STATEMENTS Class C shares, and the CDSC received in connection with the redemption of such shares are as follows:
COMMISSIONS AND DISTRIBUTION FEES DISTRIBUTION FEES PAID BY KDI AND CDSC ---------------------------- RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES ------------------- ------------ ------------- Six months ended April 30, 1996 $ 105,000 199,000 2,000
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services agreement with KDI. For providing information and administrative services to Class A, Class B and Class C shareholders, the Fund pays KDI a fee at an annual rate of up to .25% of average daily net assets of each class. KDI in turn has various agreements with financial services firms that provide these services and pays these firms based on assets of Fund accounts the firms service. Administrative services fees (ASF) paid are as follows:
ASF PAID BY KDI ASF PAID BY THE ---------------------------- FUND TO KDI TO ALL FIRMS TO AFFILIATES --------------- ------------ ------------- Six months ended April 30, 1996 $ 228,000 233,000 10,000
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 $303,000 for the six months ended April 30, 1996. OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are also officers or directors of ZKI. During the six months ended April 30, 1996, the Fund made no payments to its officers and incurred trustees' fees of $9,000 to independent trustees. - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the six months ended April 30, 1996, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $153,305 Proceeds from sales 140,404 19 20 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund (in thousands):
SIX MONTHS ENDED YEAR ENDED APRIL 30, 1996 OCTOBER 31, 1995 --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------------- SHARES SOLD ---------------------------------------------------------------------------- Class A 1,437 $ 22,646 1,743 $ 23,136 ------------------------------------------------------------------------------ Class B 1,332 20,087 1,447 19,285 ------------------------------------------------------------------------------ Class C 60 889 102 1,283 ------------------------------------------------------------------------------ ---------------------------------------------------------------------------- SHARES ISSUED IN REINVESTMENT OF DIVIDENDS ---------------------------------------------------------------------------- Class A 928 12,994 198 2,454 ------------------------------------------------------------------------------ Class B 109 1,517 4 46 ------------------------------------------------------------------------------ Class C 6 78 -- -- ------------------------------------------------------------------------------ ---------------------------------------------------------------------------- SHARES REDEEMED ---------------------------------------------------------------------------- Class A (1,517) (22,713) (3,870) (50,273) ------------------------------------------------------------------------------ Class B (404) (6,555) (672) (9,197) ------------------------------------------------------------------------------ Class C (31) (464) (53) (682) ------------------------------------------------------------------------------ ---------------------------------------------------------------------------- CONVERSION OF SHARES ---------------------------------------------------------------------------- Class A 33 468 16 212 ------------------------------------------------------------------------------ Class B (33) (468) (16) (212) ------------------------------------------------------------------------------ NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS $ 28,479 $(13,948) ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 6 FORWARD FOREIGN CURRENCY CONTRACTS In order to protect itself against a decline in the value of particular foreign currencies against the U.S. Dollar, the Fund has entered into forward contracts to deliver foreign currency in exchange for U.S. Dollars as described below. The Fund bears the market risk that arises from changes in foreign exchange rates, and accordingly, the net unrealized gain on these contracts is reflected in the accompanying financial statements. The Fund also bears the credit risk if the counterparty fails to perform under the contract. At April 30, 1996, the Fund had the following forward foreign currency contracts outstanding with settlement dates in May, 1996:
CONTRACT UNREALIZED FOREIGN CURRENCY AMOUNT IN GAIN TO BE DELIVERED U.S. DOLLARS AT 4/30/96 --------------------------------------------------------------- 32,000 British Pounds $ 50,000 $2,000 --------------------------------------------------------------- 51,000 Dutch Guilders 31,000 1,000 --------------------------------------------------------------- 175,000 French Francs 35,000 1,000 --------------------------------------------------------------- 20,913,000 Japanese Yen 202,000 2,000 --------------------------------------------------------------- 42,000 Swiss Francs 35,000 2,000 --------------------------------------------------------------- NET UNREALIZED GAIN $8,000 ---------------------------------------------------------------
20 21 FINANCIAL HIGHLIGHTS
--------------------------------------------------- CLASS A --------------------------------------------------- SIX MONTHS ENDED APRIL 30, YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.87 12.33 13.88 12.72 13.24 - ------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .05 .19 .19 .18 .18 - ------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 1.97 2.57 (.71) 1.13 .41 - ------------------------------------------------------------------------------------------------- Total from investment operations 2.02 2.76 (.52) 1.31 .59 - ------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .13 .20 .19 .15 .14 - ------------------------------------------------------------------------------------------------- Distribution from net realized gain 1.20 .02 .84 -- .97 - ------------------------------------------------------------------------------------------------- Total dividends 1.33 .22 1.03 .15 1.11 - ------------------------------------------------------------------------------------------------- Net asset value, end of period $ 15.56 14.87 12.33 13.88 12.72 - ------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 14.54% 22.74 (3.82) 10.35 4.76 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ------------------------------------------------------------------------------------------------- Expenses 1.23% 1.30 1.48 1.25 1.46 - ------------------------------------------------------------------------------------------------- Net investment income 1.40% 1.47 1.50 1.28 1.63 - -------------------------------------------------------------------------------------------------
------------------------------------------------------------------ CLASS B ------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED MAY 31, 1994 APRIL 30, OCTOBER 31, TO OCTOBER 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.82 12.29 12.30 - ---------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.01) .09 .06 - ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 1.97 2.56 (.01) - ---------------------------------------------------------------------------------------------------------------- Total from investment operations 1.96 2.65 .05 - ---------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .06 .10 .06 - ---------------------------------------------------------------------------------------------------------------- Distribution from net realized gain 1.20 .02 -- - ---------------------------------------------------------------------------------------------------------------- Total dividends 1.26 .12 .06 - ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 15.52 14.82 12.29 - ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 14.18% 21.76 .42 - ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ---------------------------------------------------------------------------------------------------------------- Expenses 2.01% 2.06 2.43 - ---------------------------------------------------------------------------------------------------------------- Net investment income .62% .71 .33 - ----------------------------------------------------------------------------------------------------------------
21 22 FINANCIAL HIGHLIGHTS
------------------------------------------ -------------------- CLASS C CLASS I ------------------------------------------ -------------------- SIX MONTHS MAY 31, NOVEMBER 22, ENDED YEAR ENDED 1994 TO 1995 TO APRIL 30, OCTOBER 31, OCTOBER 31, APRIL 30, 1996 1995 1994 1996 - ---------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - ---------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $14.88 12.32 12.30 15.30 - ---------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (.01) .07 .09 .13 - ---------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 1.97 2.62 (.01) 1.51 - ---------------------------------------------------------------------------------------------------------- Total from investment operations 1.96 2.69 .08 1.64 - ---------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .07 .11 .06 .13 - ---------------------------------------------------------------------------------------------------------- Distribution from net realized gain 1.20 .02 -- 1.20 - ---------------------------------------------------------------------------------------------------------- Total dividends 1.27 .13 .06 1.33 - ---------------------------------------------------------------------------------------------------------- Net asset value, end of period $15.57 14.88 12.32 15.61 - ---------------------------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 14.08% 22.04 .67 9.97 - ---------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - ---------------------------------------------------------------------------------------------------------- Expenses 1.96% 2.01 2.33 .73 - ---------------------------------------------------------------------------------------------------------- Net investment income .67% .76 .43 1.98 - ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA FOR ALL CLASSES - -------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED APRIL 30, YEAR ENDED OCTOBER 31, 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------- Net assets at end of period (in thousands) $205,967 168,266 153,172 196,327 182,553 - -------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (annualized) 140% 117 131 222 178 - -------------------------------------------------------------------------------------------------------------------- Average commission rate paid per share on stock transactions for the six months ended April 30, 1996 was $.0576. - --------------------------------------------------------------------------------------------------------------------
NOTE: Total return does not reflect the effect of any sales charges. 22 23 NOTES 23 24 TRUSTEES AND OFFICERS TRUSTEES OFFICERS STEPHEN B. TIMBERS TRACY M. CHESTER President and Trustee Vice President DAVID W. BELIN JOHN E. NEAL Trustee Vice President LEWIS A. BURNHAM JOHN E. PETERS Trustee Vice President DONALD L. DUNAWAY STEVEN H. REYNOLDS Trustee Vice President ROBERT B. HOFFMAN PHILIP J. COLLORA Trustee Vice President and Secretary DONALD R. JONES Trustee JEROME L. DUFFY Treasurer DOMINIQUE P. MORAX Trustee ELIZABETH C. WERTH Assistant Secretary SHIRLEY D. PETERSON Trustee WILLIAM P. SOMMERS Trustee - -------------------------------------------------------------------------------- LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ 222 North LaSalle Street Chicago, IL 60601 - -------------------------------------------------------------------------------- SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY P.O. Box 419557 Kansas City, MO 64141 1-800-621-1048 - -------------------------------------------------------------------------------- CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY 127 West 10th Street Kansas City, MO 64105 - -------------------------------------------------------------------------------- INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC. PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 120 S. LaSalle Street Chicago, IL 60603 http://www.kemper.com (RECYCLE LOGO) 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 prospectus. KBCF - 3 (6/96) KEMPER LOGO 1016910 Printed in the U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----