<PAGE> 1
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED APRIL 30, 1996
Offering investors the opportunity for a high level of current income and
preservation of capital
"...the changes we witnessed during the period were the result of a
market correction due to changing economic expectations."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
General Economic
Overview
5
Peformance Update
8
Portfolio Statistics
9
Portfolio of
Investments
12
Financial Statements
14
Notes to
Financial Statements
18
Financial Highlights
At a Glance
Kemper Income and Capital Preservation Fund Total Returns for the six months
ended April 30, 1996 (unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Class A 0.06%
Class B -0.41%
Class C -0.39%
Lipper Corporate Debt A Rated
Funds Category Average* -0.37%
- -------------------------------------------------------------------------------
</TABLE>
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.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
4/30/96 10/31/95
- ---------------------------------------------
<S> <C> <C>
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS A $8.33 $ 8.62
- ---------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS B $8.30 $ 8.59
- ---------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS C $8.32 $ 8.61
- ---------------------------------------------
</TABLE>
KEMPER INCOME AND
CAPITAL PRESERVATION
FUND RANKINGS*
COMPARED TO ALL OTHER FUNDS IN THE LIPPER CORPORATE DEBT A RATED FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #12 OF #41 OF #34 OF
116 FUNDS 116 FUNDS 116 FUNDS
------------------------------------------------------
5-YEAR #12 OF N/A N/A
46 FUNDS
------------------------------------------------------
10-YEAR #9 OF N/A N/A
26 FUNDS
------------------------------------------------------
15-YEAR #6 OF N/A N/A
22 FUNDS
------------------------------------------------------
20-YEAR #8 OF N/A N/A
16 FUNDS
------------------------------------------------------
</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 and, if they had, results may have been less favorable.
DIVIDEND AND YIELD REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF APRIL 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -----------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.3010 $0.2606 $0.2621
- -----------------------------------------------
APRIL DIVIDEND: $0.0475 $0.0414 $0.0416
- -----------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 6.84% 5.99% 6.00%
- -----------------------------------------------
SEC YIELD+: 6.02% 5.37% 5.38%
- -----------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on April 30, 1996. Distribution rate
simply measures the level of dividends and is not a complete measure of
performance. The SEC yield is net investment income per share earned over the
month ended April 30, 1996 shown as an annualized percentage of the maximum
offering price on that date. The SEC yield is computed in accordance with a
standardized method prescribed by the Securities and Exchange Commission.
TERMS TO KNOW
DURATION Duration is a measure of the interest rate sensitivity of a fixed-
income portfolio incorporating time to maturity and coupon size. The larger the
duration number, the greater the interest rate risk.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one month or 30-day period expressed as a percentage of the
maximum offering price of the fund's shares at the end of the period.
<PAGE> 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]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
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)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
3
<PAGE> 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]
<TABLE>
<CAPTION>
Now
(4/30/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
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
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on 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
<PAGE> 5
PERFORMANCE UPDATE
[CESSINE PHOTO]
ROBERT CESSINE JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN JANUARY 1993.
HE IS SENIOR VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND PORTFOLIO MANAGER OF
KEMPER INCOME AND CAPITAL PRESERVATION FUND. MR. CESSINE RECEIVED BOTH A B.S
AND M.S. DEGREE FROM THE UNIVERSITY OF WISCONSIN AND IS A CHARTERED FINANCIAL
ANALYST.
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
CONDITONS.
KEMPER INCOME AND CAPITAL PRESERVATION FUND PORTFOLIO MANAGER ROBERT CESSINE
EXPLAINS WHY THE FUND WAS IMPACTED BY A STRONGER ECONOMY AND HIGHER INTEREST
RATES.
Q. WHEN WE LAST SPOKE AT THE END OF OCTOBER, THE BOND MARKET WAS PERFORMING
QUITE WELL. THAT SCENARIO SEEMS TO HAVE CHANGED IN RECENT MONTHS. WOULD YOU
EXPLAIN WHAT'S HAPPENED?
A. Basically, the changes we witnessed during the first part of 1996 were the
result of a market correction due to changing economic expectations. Let me
explain.
In November and December of 1995, interest rates fell quite dramatically.
The reason? Good bond market fundamentals. The economy was growing, but at a
very slow pace. The Federal Reserve Board had reduced the federal funds rate.
And the market was optimistic that a federal budget agreement would be reached
in Washington. This fueled higher market prices and yields fell accordingly.
In January, however, expectations about the pace of economic growth began
to shift. Economic data was released, which indicated that the slowdown in
economic growth witnessed in late 1995 was likely the result of severe weather
conditions as opposed to any fundamental weakness in the economy.
Additionally, federal budget negotiations stalled, and an impasse
developed, which effectively eliminated the chances for a balanced budget in the
first months of 1996. Columnist and presidential candidate Patrick Buchanan's
strong early showing in the Republican primaries also caused concern as the
market viewed many of his proposals as potentially inflationary. Furthermore, in
his testimony before Congress, Fed Chairman Alan Greenspan intimated that the
pace of economic growth was improving. This caused some investors to conclude
that another reduction in interest rates was not imminent. These events prompted
investors to sell, and as they did interest rates rose dramatically.
Another sharp spike in market rates occurred in early March, when the U.S.
Department of Labor announced an unanticipated and dramatic increase in
employment growth. Many bond investors saw this data as evidence that the
economy was gaining momentum. The news caused a sell-off in the market because
more rapid economic growth is associated with higher inflation, which erodes the
value of fixed-income investments. Rates continued to rise through the end of
April as demand in the market declined.
Q. HOW DID THIS SHIFT IN ECONOMIC EXPECTATIONS IMPACT THE PERFORMANCE OF
KEMPER INCOME AND CAPITAL PRESERVATION FUND?
A. The shift in expectations hurt the fund's performance. Fortunately, in
the first three months of the period, the fund performed very well.
5
<PAGE> 6
PERFORMANCE UPDATE
But, like most of the fixed-income market, we had expected that the declining
interest rate environment would continue well into the first quarter of 1996. We
positioned the fund for that scenario by maintaining a long duration stance
beyond the average of our peers. Remember, duration is a measurement of a fund's
sensitivity to interest rates. The longer the duration, the more sensitive it is
to interest rate changes. This means that as interest rates rose, the fund's
performance began to suffer.
We were impacted most by the sharp rise in yields that resulted when the
budget negotiations fell apart in February. So we reduced the duration of the
fund and positioned it for a slightly higher rate environment. This helped
reduce the fund's losses that occurred when the market traded down after the
employment release in March.
Q. THE FUND INVESTS PRIMARILY IN INVESTMENT-GRADE CORPORATE BONDS AND U.S.
GOVERNMENT SECURITIES. HOW DID THESE SECTORS PERFORM DURING THE SIX-MONTH PERIOD
NOVEMBER 1995, THROUGH APRIL 1996?
A. Corporates and government securities performed well through the first part
of January 1996 -- a result of the declining interest rate environment. However,
the rising rates we experienced during the last part of the period produced
lackluster returns for the six-month period. According to the Salomon Brothers
Total Rate-of-Return Indexes, mortgages were the best performers and gained
1.57 percent. Corporate bonds ended the period pretty much unchanged, with a
gain of only 0.01 percent. And Treasuries lost ground during the six months,
posting a negative 0.04 percent return. In part, by virtue of their being
shorter duration securities, mortgages outperformed longer duration corporates
and Treasuries in 1996 as interest rates rose.
Q. HOW DOES THIS COMPARE TO YOUR POSITIONING IN THESE SECTORS?
A. Our investment in corporate bonds was fairly constant -- between 64 percent
to 69 percent throughout the period. And Treasuries ranged between 14 percent
and 18 percent of the fund. However, as mentioned in our report last October, we
had eliminated our investment in mortgages.
Although we maintained a heavy weighting in corporate bonds, we adjusted the
types of those bonds we held. We sold some long maturity issues from cyclical
industries to help reduce the fund's duration and its level of risk. Companies
within these types of industries tend to flourish when the economy is expanding
but are normally the first to suffer when the economy contracts. Since we were
uncertain about the direction of the economy, we wanted to reduce the fund's
exposure to these types of issues.
Q. WERE THERE ANY SECTORS OR NAMES WITHIN THE CORPORATE SECTOR THAT PERFORMED
PARTICULARLY WELL?
A. The airlines industry continued to perform well as a result of cost
reduction programs and gains in operational efficiencies. The banking sector
also posted gains for the six-month period, and we added several Yankee bank
issues to the portfolio. Yankee banks are foreign banks that issue debt in the
United States, denominated in U.S. dollars. We added these to the portfolio
because they offered potential for appreciation. Because they're foreign, the
banks seem to be less understood by the market. As a result they're less
expensive to buy than many domestic bank issues. Our credit analysts' research
and understanding of these institutions enabled us to make some appropriate buy
decisions. Three of our Yankee bank investments performed particularly well for
the fund during the period. They are Banco Central Hispano, a Spanish bank;
Bangkok Bank, a Thai bank and Kansallis Osake Pankki, a Finnish bank.
Q. CLASS A SHARES OF THE FUND OUTPERFORMED THE AVERAGE RETURN OF THE FUND'S
LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD. TO WHAT DO YOU ATTRIBUTE THIS
PERFORMANCE?
A. Our good comparative performance is really the result of having sufficient
exposure to falling interest rates
6
<PAGE> 7
PERFORMANCE UPDATE
during the first part of the period and reducing our duration before the sharp
spike in rates that occurred in March.
Q. WHAT FACTORS LEAD TO THE REDUCTION OF THE FUND'S DIVIDEND IN MARCH?
A. As you know, dividend distributions are dependent on the fund's earnings.
Kemper Income and Capital Preservation Fund's dividend has not been reduced in
over three years, since December 1992. In that time, market interest rates have
fallen substantially. The dividend was reduced by one-half the amount that
interest rates have fallen since the last cut.
Q. WHAT IS YOUR OUTLOOK FOR THE INVESTMENT-GRADE BOND MARKET?
A. We are cautiously optimistic. Moderate economic growth should benefit
corporate bond issuers. We think that issue selection will continue to be
important in attaining strong performance, and we believe there are still good
values available in the market. As far as the economy goes, we're looking for
rates to stabilize somewhere in the range of 6.5 percent to 7.25 percent. There
continues to be no threat of inflation and although economic growth has picked
up slightly, we don't anticipate a strong surge in the near term.
Q. WHAT WILL BE YOUR STRATEGY GOING FORWARD?
A. We intend to concentrate on finding value in the market -- issues with cash
flow growth and debt reduction potential that may be undervalued today. Our
credit research staff will be an integral part of our efforts to locate the
winners. We also plan to maintain the fund's neutral to slightly defensive
duration until interest rates stabilize and the economy's direction becomes more
clear.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- --------------------------------------------------------------------------
<S> <C> <C>
TREASURY BONDS AND NOTES 13% 18%
- --------------------------------------------------------------------------
FOREIGN BONDS 8 5
- --------------------------------------------------------------------------
CORPORATE BONDS 66 65
- --------------------------------------------------------------------------
CASH AND EQUIVALENTS 13 12
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHARTS]
YEARS TO MATURITY
AS A PERCENTAGE OF THE PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- --------------------------------------------------------------------------
<S> <C> <C>
CASH AND EQUIVALENTS 6% 12%
- --------------------------------------------------------------------------
1-10 YEARS 69 49
- --------------------------------------------------------------------------
10-20 YEARS 17 20
- --------------------------------------------------------------------------
20+ YEARS 8 19
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHARTS]
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- ------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 12.7 YEARS 12.4 YEARS
- ------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER INCOME AND CAPITAL PRESERVATION FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT--20.1%
U.S. Treasury Notes and Bonds
8.875%, 1997 $10,000 $ 10,428
9.25%, 1998 30,000 31,983
10.75%, 2003 60,000 73,837
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $118,131) 116,248
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENTS--5.3%
Republic of Finland, 7.875%, 2004 5,000 5,270
Republic of Italy, 6.875%, 2023 5,000 4,418
Province of Manitoba, 7.75%, 2016 5,000 5,138
Republic of Mexico, 9.75%, 2001 3,500 3,472
Province of Nova Scotia, 8.75%, 2022 4,000 4,429
Province of Quebec, 8.625%, 2005 7,500 8,108
-----------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $31,457) 30,835
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------
BANKS--19.3%
Abbey National First Capital, 8.20%, 2004 5,000 5,299
ABN-Amro Holding N.V., 8.25%, 2009 7,000 7,279
Banco Central Hispano, 7.50%, 2005 7,500 7,445
Bangkok Bank, 7.25%, 2005 7,500 7,219
Capital One Bank, 8.125%, 2000 7,500 7,757
Citicorp, 7.625%, 2005 7,500 7,656
Corporation Andina De Formento
7.375%, 2000 3,000 2,995
7.10%, 2003 3,000 2,888
Crestar Financial Corporation, 8.75%, 2004 5,000 5,431
First Fidelity Bancorp., 9.625%, 1999 5,000 5,405
First USA Bank, 8.10%, 1997 7,500 7,614
Fleet Financial Group, Inc., 8.625%, 2007 5,000 5,435
Kansallis Osake Bank, 10.00%, 2002 5,000 5,675
Kansallis Osake Pankki, 8.65%, 2050 5,000 5,215
NationsBank Corporation, 9.50%, 2004 5,000 5,675
Riggs National Corp., 8.50%, 2006 7,000 7,007
Royal Bank of Scotland, 7.375%, 2049 5,000 4,885
Svenska Handelbamken, 8.35%, 2004 5,000 5,297
Wells Fargo and Company, 8.75%, 2002 5,000 5,363
-----------------------------------------------------------------------------
111,540
- --------------------------------------------------------------------------------------------------------------
COMMUNICATIONS, MEDIA
AND ELECTRONICS--8.3%
Cox Communications, 6.875%, 2005 7,500 7,261
News American Holdings, Inc., 9.25%, 2013 7,500 8,115
Rogers Cablesystems Limited, 10.00%, 2005 3,500 3,588
Tele-Communications, Inc., 9.80%, 2012 6,000 6,440
360 Communications, 7.50%, 2006 8,250 7,877
Time Warner Entertainment Company, L.P., 8.875%,
2012 3,750 4,002
Time Warner Inc., 9.125%, 2013 3,750 3,908
Viacom International Inc., 8.00%, 2006 7,500 7,012
-----------------------------------------------------------------------------
48,203
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER PRODUCTS,
SERVICES AND RETAIL--9.4%
Dayton Hudson Corp., 6.40%, 2003 $ 7,500 $ 7,134
Federated Department Stores, 10.00%, 2001 7,500 7,988
Grand Metropolitan Investment Corp., 8.625%, 2001 5,000 5,376
ITT Corporation, 7.375%, 2015 7,500 7,051
La Quinta Motor Inns, 7.25%, 2004 5,000 4,783
Philip Morris Inc.
8.25%, 2003 3,500 3,684
7.25%, 2003 4,000 3,995
Philips Electronics N.V., 8.375%, 2006 3,500 3,730
RJR Nabisco, Inc.
8.00%, 2000 3,500 3,607
8.75%, 2005 3,750 3,683
Sears Roebuck Acceptance Corporation, 8.45%, 1998 3,000 3,128
---------------------------------------------------------------------------
54,159
- ------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH
CARE--2.1%
Columbia/HCA Healthcare, 7.50%, 2095 5,000 4,624
Tenet Healthcare, 8.625%, 2003 7,500 7,650
---------------------------------------------------------------------------
12,274
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--9.5%
Aegon N.V., 8.00%, 2006 5,000 5,238
African Development Bank, 9.30%, 2000 4,000 4,357
Associates Corporation, N.A., 8.25%, 1999 5,000 5,244
Commercial Credit, 7.375%, 2005 5,000 5,035
Equitable Life, 6.95%, 2005 5,000 4,800
Finova Capital Corporation, 9.125%, 2002 5,000 5,480
General Electric Capital Corporation, 8.625%, 2008 5,000 5,584
Household Finance, 8.00%, 2004 5,000 5,226
International Bank for Reconstruction & Development,
14.90%, 1997 3,500 3,855
Salomon Inc., 7.50%, 2003 5,000 4,923
United States Leasing International, Inc., 8.75%,
2001 5,000 5,396
---------------------------------------------------------------------------
55,138
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING AND
CAPITAL GOODS--3.0%
American Standard Inc., 10.875%, 1999 3,000 3,210
BHP Finance USA, 7.875%, 2002 7,500 7,818
Northrop Grumman , 7.00%, 2006 4,250 4,106
Owens-Illinois, Inc., 11.00%, 2003 2,000 2,187
---------------------------------------------------------------------------
17,321
- ------------------------------------------------------------------------------------------------------------
OIL, GAS AND PETROLEUM
SERVICES--4.5%
Parker & Parsley Petroleum, 8.875%, 2005 5,000 5,376
Petronas Dagangan Bhd, 7.75%, 2015 7,500 7,469
Repsol International Finance, 7.00%, 2005 5,000 4,929
USX Corporation, 9.375%, 2012 7,500 8,262
---------------------------------------------------------------------------
26,036
- ------------------------------------------------------------------------------------------------------------
PAPER AND FOREST
PRODUCTS--1.5%
Boise Cascade Company
9.85%, 2002 2,000 2,245
9.45%, 2009 5,500 6,134
---------------------------------------------------------------------------
8,379
- ------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--8.0%
Delta Airlines
9.32%, 2009 $ 4,519 $ 4,879
9.75%, 2021 6,000 6,848
Ford Motor Credit, 7.75%, 2005 5,000 5,136
General American Transportation Corp., 10.29%, 1999 5,000 5,470
General Motors Acceptance Corporation, 8.875%, 2010 5,000 5,663
The Hertz Corporation, 7.00%, 2003 5,000 4,875
Penske Truck Leasing, 8.25%, 1999 5,000 5,238
United Airlines, 9.56%, 2018 7,500 8,249
-----------------------------------------------------------------------------
46,358
- --------------------------------------------------------------------------------------------------------------
UTILITIES--2.9%
Ameritech Capital Funding, 7.50%, 2005 6,150 6,322
Chesapeake and Potomic Telephone Company of
Virginia, 8.375%, 2029 5,000 5,560
Tenaga, Nasional Berhad, 7.50%, 2025 5,000 4,701
-----------------------------------------------------------------------------
16,583
-----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--68.5%
(Cost: $400,556) 395,991
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--3.2%
Yield--5.3%-5.4%
Due--May 1996
(Cost: $18,187) 18,200 18,187
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--97.1%
(Cost: $568,331) 561,261
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.9% 16,689
-----------------------------------------------------------------------------
NET ASSETS--100% $577,950
-----------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $568,331,000 for federal income tax purposes
at April 30, 1996, the gross unrealized appreciation was $5,618,000, gross
unrealized depreciation was $12,688,000 and the net unrealized depreciation of
investments was $7,070,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $568,331) $561,261
- -------------------------------------------------------------------------------------------------------
Cash 3,569
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 724
- -------------------------------------------------------------------------------------------------------
Investments sold 9,646
- -------------------------------------------------------------------------------------------------------
Interest 13,861
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 589,061
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 198
- -------------------------------------------------------------------------------------------------------
Investments purchased 10,250
- -------------------------------------------------------------------------------------------------------
Management fee 258
- -------------------------------------------------------------------------------------------------------
Administrative services fee 122
- -------------------------------------------------------------------------------------------------------
Distribution services fee 41
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 199
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 43
- -------------------------------------------------------------------------------------------------------
Total liabilities 11,111
- -------------------------------------------------------------------------------------------------------
NET ASSETS $577,950
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $587,243
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (12,639)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (7,070)
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 10,416
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $577,950
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($501,640 / 60,253 shares outstanding) $8.33
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $8.72
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($63,894 / 7,697 shares outstanding) $8.30
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sale charge) per share
($3,017 / 363 shares outstanding) $8.32
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($9,399 / 1,130 shares outstanding) $8.32
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended April 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest income $ 24,015
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,676
- -------------------------------------------------------------------------------------------------------
Administrative services fee 616
- -------------------------------------------------------------------------------------------------------
Distribution services fee 326
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 663
- -------------------------------------------------------------------------------------------------------
Professional fees 51
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 61
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 14
- -------------------------------------------------------------------------------------------------------
Total expenses 3,407
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 20,608
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 8,012
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 394
- -------------------------------------------------------------------------------------------------------
Net realized gain 8,406
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (26,575)
- -------------------------------------------------------------------------------------------------------
Net loss on investments (18,169)
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,439
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 20,608 39,636
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) 8,406 (2,954)
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (26,575) 49,840
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,439 86,522
- ---------------------------------------------------------------------------------------------------------
Net equalization charges (366) (381)
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (21,445) (40,603)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (52,105) 93,457
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (71,477) 138,995
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of period 649,427 510,432
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $10,416, and $11,619 respectively) $577,950 649,427
- ---------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Income and Capital Preservation Fund is an
open-end management investment company organized as
a business trust under the laws of Massachusetts.
The Fund offers four classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and, for shares sold on or
after April 1, 1996, a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares, 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. 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. Portfolio securities that are
traded on a national securities exchange are valued
at the last sale price on the exchange where
primarily traded 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 are valued at the last
current bid quotation if market quotations are
available. Exchange traded options are valued at
the last sale price unless there is no sale price,
in which event prices provided by market makers are
used. Over-the-counter traded options are valued
based upon prices provided by market makers.
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. 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). Interest income is recorded on the
accrual basis and includes discount amortization on
all fixed income securities and premium
amortization on mortgage-backed securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C
14
<PAGE> 15
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 for the six
months ended April 30, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at April 30, 1996, amounting to
approximately $12,619,000 is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 through
2003.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any 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 .55% of the first $250 million of average daily
net assets declining to .40% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $1,676,000 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:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $73,000 607,000 49,000
</TABLE>
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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Class C shares and the CDSC received in connection
with the redemption of such shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC ----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $ 388,000 949,000 91,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $ 616,000 613,000 30,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENTS. 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 $463,000
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.
For the six months ended April 30, 1996, the Fund
made no direct payments to its officers and
incurred trustees' fees of $14,000 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 $245,622
Proceeds on sales 299,592
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
SHARES SOLD
-----------------------------------------------------------------------------
Class A 6,113 $ 51,808 11,111 $ 90,463
------------------------------------------------------------------------------
Class B 3,866 33,658 13,152 110,374
------------------------------------------------------------------------------
Class C 237 2,057 1,023 8,763
------------------------------------------------------------------------------
Class I 152 1,327 1,374 11,709
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 1,352 11,656 2,950 24,216
------------------------------------------------------------------------------
Class B 231 1,996 254 2,120
------------------------------------------------------------------------------
Class C 12 103 10 92
------------------------------------------------------------------------------
Class I 45 385 26 224
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (9,471) (80,522) (15,124) (121,197)
------------------------------------------------------------------------------
Class B (7,635) (67,255) (3,307) (28,190)
------------------------------------------------------------------------------
Class C (450) (3,968) (520) (4,413)
------------------------------------------------------------------------------
Class I (385) (3,350) (82) (704)
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 101 887 106 883
------------------------------------------------------------------------------
Class B (101) (887) (106) (883)
------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL
SHARE TRANSACTIONS $(52,105) $ 93,457
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect it from
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract changes. At April 30, 1996,
the market value of assets segregated at the
custodian to cover margin requirements was
$1,375,000. The Fund also had liquid securities in
its portfolio sufficient to cover the following
short futures position open at April 30, 1996:
<TABLE>
<CAPTION>
EXPIRATION GAIN AT
TYPE FACE AMOUNT MONTH 4/30/96
-------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $77,849,000 June '96 $1,854,000
-------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------
CLASS A
-----------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 7.91 8.97 8.34 8.22
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .61 .61 .63 .67
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.28) .72 (1.03) .62 .11
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 1.33 (.42) 1.25 .78
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .30 .62 .59 .62 .66
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .05 -- --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .30 .62 .64 .62 .66
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.33 8.62 7.91 8.97 8.34
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 0.06% 17.47 (4.86) 15.48 9.83
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses .95% .90 .94 .82 .82
- --------------------------------------------------------------------------------------------------------------------
Net investment income 6.67 7.31 7.34 7.26 8.01
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------- -------------------------------- ---------------------
CLASS B CLASS C CLASS I
-------------------------------- -------------------------------- ---------------------
SIX MAY 31, SIX MAY 31, SIX
MONTHS YEAR 1994 TO MONTHS YEAR 1994 TO MONTHS JULY 3,
ENDED ENDED OCT. ENDED ENDED OCT. ENDED 1995 TO
APRIL 30, OCT. 31, 31, APRIL 30, OCT. 31, 31, APRIL 30, OCT. 31,
1996 1995 1994 1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------- -------------------------------- ---------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------- -------------------------------- ---------------------
Net asset value, beginning of
period $8.59 7.90 8.16 8.61 7.90 8.16 8.61 8.52
- -------------------------------------------------------------- -------------------------------- ---------------------
Income from investment
operations:
Net investment income .25 .51 .23 .25 .53 .23 .30 .19
- -------------------------------------------------------------- -------------------------------- ---------------------
Net realized and unrealized
gain (loss) (.28) .72 (.26) (.28) .72 (.26) (.28) .12
- -------------------------------------------------------------- -------------------------------- ---------------------
Total from investment
operations (.03) 1.23 (.03) (.03) .25 (.03) .02 .31
- -------------------------------------------------------------- -------------------------------- ---------------------
Less distribution from net
investment income .26 .54 .23 .26 .54 .23 .31 .22
- -------------------------------------------------------------- -------------------------------- ---------------------
Net asset value, end of period $8.30 8.59 7.90 8.32 8.61 7.90 8.32 8.61
- ------------------------------------------------------------- ----------------------------- ------------------
TOTAL RETURN (NOT ANNUALIZED) (0.41)% 16.12 (.45) (0.39) 16.45 (.44) 0.19 3.65
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------
Expenses 1.89% 1.81 1.92 1.86 1.78 1.89 .67 .62
- -------------------------------------------------------------- -------------------------------- ---------------------
Net investment income 5.73 6.40 6.72 5.76 6.43 6.75 6.95 6.87
- -------------------------------------------------------------- -------------------------------- ---------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $577,950 649,427 510,432 569,145 482,009
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 79% 182 163 190 178
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL
President and Trustee Vice President
DAVID W. BELIN JOHN E. PETERS
Trustee Vice President
LEWIS A. BURNHAM J. PATRICK BEIMFORD, JR.
Trustee Vice President
DONALD L. DUNAWAY ROBERT C. CESSINE
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 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
This report is not to be distributed KEMPER LOGO
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
KICPF - 3 (6/96) 1016870
Printed in the U.S.A.
