<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED APRIL 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[LOGO]
Offering investors the opportunity for a high level
of current income and preservation of capital
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
"... [When the corporate bond market fell in January],
we decided that rather than decrease our exposure
to corporate bonds, we would ride out the storm.
Within two months we had erased the January
losses and were back where we wanted to be. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO STATISTICS
8
SHAREHOLDERS' MEETING
9
PORTFOLIO OF
INVESTMENTS
13
FINANCIAL STATEMENTS
15
NOTES TO
FINANCIAL STATEMENTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 3.29%
CLASS B 2.84%
CLASS C 2.84%
LIPPER CORPORATE DEBT A RATED FUNDS CATEGORY AVERAGE* 3.26%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the
effect of sales charges and, if they had, results may have been less
favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
4/30/98 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS A $8.54 $8.54
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS B $8.51 $8.51
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS C $8.53 $8.53
- --------------------------------------------------------------------------------
</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 #80 of #125 of #124 of
140 funds 140 funds 140 funds
- --------------------------------------------------------------------------------
3-YEAR #34 of #93 of #87 of
115 funds 115 funds 115 funds
- --------------------------------------------------------------------------------
5-YEAR #15 of N/A N/A
63 funds
- --------------------------------------------------------------------------------
10-YEAR #17 of N/A N/A
35 funds
- --------------------------------------------------------------------------------
15-YEAR #10 of N/A N/A
25 funds
- --------------------------------------------------------------------------------
20-YEAR #10 of N/A N/A
19 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF APRIL 30, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2780 $.2392 $.2400
- --------------------------------------------------------------------------------
APRIL DIVIDEND: $.0440 $.0374 $.0375
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION
RATE+: 6.18% 5.27% 5.28%
- --------------------------------------------------------------------------------
SEC YIELD+: 5.17% 4.51% 4.52%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on April 30, 1998. 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, 1998, shown as an annualized percentage of the maximum
offering price on that date. The SEC yield is computed in accordance with the
standardized method prescribed by the Securities and Exchange Commission.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- --------------------------------------------------------------------------------
[MATURITY EQUITY DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312-696-6000). (Morningstar's Style Box
is based on a portfolio date as of April 30, 1998.) The Income Style Box
placement is based on a fund's average effective maturity or duration and the
average credit rating of the bond portfolio.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. Please consult the prospectus for a
description of investment policies.
FLIGHT-TO-QUALITY BUYING A term describing investors who increase their
allocation to U.S. Treasuries and other high quality securities from riskier
securities in times of global economic uncertainty.
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.
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. Total return assumes the
reinvestment of all dividends and it represents the aggregate percentage or
dollar value change over the period.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained lower inflation have
continued to produce a beneficial market environment for investors in the second
quarter of 1998. Despite heightened sensitivity to earnings estimates and
announcements, the market continued to support financial assets. We expect this
favorable climate to continue -- in spite of the sensitivity -- at least over
the shorter term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
On April 27, expectations were tested by reports that the Federal Reserve
Board ("the Fed") was considering a hike in interest rates. The markets reacted
immediately to this news, driving stock prices downward. But at its monetary
policy meeting on May 19, the Fed chose to leave interest rates alone. In the
coming months, the Fed could raise rates if inflation accelerates or if growth
appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing price
increases for goods and services or a downturn in the housing market, both of
which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 14 percent in the first
quarter of 1998 and returned more than 13 percent year-to-date through the end
of May. Bonds have also rewarded investors in terms of real return, which is
total return less the rate of inflation. The high yield and corporate debt
fixed-income markets also have performed well.
U.S. economic growth, as measured by the gross domestic product (GDP)
growth rate, was slightly above 4 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profits have grown between 5 and 10 percent, which appears to
be acceptable in an environment of stable interest rates. U.S. employment growth
has ranged from 2 to 2.25 percent, continuing to exceed expectations. Consumer
confidence has continued to hit near all-time highs. The increase in output
prices, an indicator of inflation measured by the Consumer Price Index (CPI),
has remained at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy
front. At the end of February, the U.S. federal budget deficit essentially
vanished. Recent efforts to reduce the deficit, combined with higher federal
revenues due to the robust economy, have left us with an expected budget
surplus of $60 billion to $80 billion for fiscal 1998. To date, our Democratic
president and Republican Congress have not agreed on any significant
legislation regarding tax credits, spending cuts or health care that could
threaten the newfound federal budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
The crisis has yet
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (5/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.65 5.81 6.49 6.91
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.5 1.89 2.23 2.89
THE U.S. DOLLAR(4) 6.86 10.26 5.52 9.15
CAPITAL GOODS ORDERS(5)* 9.28 10.28 7.16 3.48
INDUSTRIAL PRODUCTION(5)* 3.85 5.76 4.28 3.79
EMPLOYMENT GROWTH(6) 2.61 2.8 2.5 2.13
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of April 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
to hurt most U.S. businesses and investors. Quite the contrary. While the mere
threat of repercussions from the Asian crisis added to the anxiety mentioned
earlier, it has also had the effect of keeping U.S. interest rates and prices in
check, making the U.S. economy all the more attractive to investors around the
world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S. markets
as investors generally avoid Asia. Europe also has been benefiting from the
crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of countries to
participate in Europe's single currency next year. Many European countries are
adopting more restrictive fiscal policy and reducing inflation in anticipation
of the momentous European Economic and Monetary Union (EMU). But after the EMU
is established in 1999, tensions may indeed mount as countries work to adapt to
the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the end of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
June 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[CESSINE PHOTO]
ROBERT CESSINE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN JANUARY 1993. HE IS A
MANAGING DIRECTOR AND LEAD PORTFOLIO MANAGER OF KEMPER INCOME AND CAPITAL
PRESERVATION FUND. CESSINE RECEIVED BOTH A B.S. AND AN M.S. DEGREE FROM THE
UNIVERSITY OF WISCONSIN, MADISON, 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
CONDITIONS.
KEMPER INCOME AND CAPITAL PRESERVATION FUND STRUGGLED WITH THE CORPORATE BOND
MARKET IN JANUARY. LEAD PORTFOLIO MANAGER ROBERT CESSINE, HOWEVER, STAYED
TRUE TO THE FUND'S CORPORATE BOND INVESTMENT OBJECTIVE, WEATHERING THE DOWNTURN
AND ENABLING THE FUND (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGE) TO
OUTPERFORM ITS LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDING APRIL 30,
1998.
Q HOW DID KEMPER INCOME AND CAPITAL PRESERVATION FUND PERFORM DURING THE
LATEST SEMIANNUAL PERIOD, NOVEMBER 1, 1997 THROUGH APRIL 30, 1998?
A The fund's Class A shares gained 3.29 percent (unadjusted for any sales
charge) during the period, outperforming the Lipper Analytical Services
Corporate Debt A Rated Funds Category average of 3.26 percent. The fund's Class
B and C shares gained 2.84 percent.
Q WHAT WERE THE MAJOR ECONOMIC AND MARKET EVENTS THAT AFFECTED PERFORMANCE
DURING THE PERIOD?
A The biggest event was a brief, but major downturn in the corporate market
in January. There were two reasons behind this: a continuing lack of investor
confidence caused by the ongoing economic turmoil in Southeast Asia, and an
enormous supply of corporate bonds in the market without strong demand.
Since the majority of the fund's holdings are corporate bonds,
performance is likely to lag when the corporate bond market has a bad month. In
October we had reduced our exposure to our most illiquid and volatile corporate
assets as we saw tension in the Asian market. We were therefore confident that
what was happening in January was not indicative of the strength of our
corporate holdings, and that it was in fact just a short-term market event. We
decided that rather than decrease our exposure to corporate bonds, we would
ride out the storm. Within two months we had erased the January loss and were
back where we wanted to be.
Q WHAT TYPES OF PORTFOLIO ADJUSTMENTS DID YOU MAKE TO THE FUND?
A After recovering from the January downturn, we began to reduce our
corporate position somewhat in order to take advantage of opportunities in other
sectors of the bond market, such as mortgages.
As of April 30, mortgage investments represented 8 percent of the
portfolio. We plan to increase this position as we find mortgages at favorable
prices. The mortgages should help enhance the fund's income level. If we add
more mortgages, we'd probably reduce our Treasury position, rather than
reducing our corporate exposure any further.
The increase in mortgages has improved the fund's credit quality
somewhat. The average quality of the fund at the end of the period was AA-, up
from A+ last year.
5
<PAGE> 6
PERFORMANCE UPDATE
Q THE FUND'S DIVIDEND WAS REDUCED RECENTLY. WHAT WAS THE REASON?
A As you may know, the U.S. economy has experienced steady growth with
little threat of inflation for the past few years. In this type of environment,
interest rates have generally declined. Lower interest rates are positive for
bond fund investors because the market value of an existing bond will increase
as interest rates decline. However, as the fund purchases newly issued bonds to
replace those that have matured or been sold, the income earned by its portfolio
is reduced. For this reason, the dividend was reduced. Despite this reduction,
the fund's distribution rate remains competitive with other funds that share
similar investment objectives. Looking back, in the past seven years, the fund
has cut the dividend only three times. Interest rates, however, have declined
with regularity during that same period.
Q ARE THERE ANY INVESTMENT DECISIONS THAT YOU MADE DURING THE PERIOD THAT
YOU NOW REGRET? OR, ON THE FLIP SIDE, ANY THAT REALLY PAID OFF?
A I don't regret any of the moves we made. There was no way to avoid the
particularly tough situation in January, when the market dropped off for
nonfundamental reasons. We did the appropriate thing in keeping our corporate
portfolio intact and waiting it out until the market recovered -- and it paid
off.
Probably the biggest pay off we enjoyed was in issues we hold in the
banking industry. In April the announcement of two separate national banking
mergers was announced. We had a fairly substantial bank position that benefited
tremendously from the announced mergers and all the ongoing consolidation in
the banking industry. Additionally, many other financial services issues that
we own are performing quite well on the coattails of what's happening in the
banking sector.
Q WHAT IS YOUR OUTLOOK FOR KEMPER INCOME AND CAPITAL PRESERVATION FUND AND
THE CORPORATE BOND MARKET?
A As long as the economy continues to grow moderately and there are no signs
of a recession, the corporate market will remain resilient, delivering good
returns relative to Treasuries. As far as the fund is concerned, I don't plan to
do anything fancy, just stay the course, keeping moderate positions in each
sector in which the fund may invest -- corporate bonds, mortgages, Treasuries
and foreign bonds. As the fund's objective states, the fund seeks as high a
level of current income as is consistent with prudent investment management,
preservation of capital and ready marketability of its portfolio.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/98 ON 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
TREASURY BONDS AND NOTES 26% 26%
- --------------------------------------------------------------------------------
MORTGAGES 8 --
- --------------------------------------------------------------------------------
FOREIGN BONDS 6 8
- --------------------------------------------------------------------------------
CORPORATE BONDS 58 61
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 4/30/98 ON 10/31/97
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/98 ON 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS 1% 5%
- --------------------------------------------------------------------------------
1-10 YEARS 60 59
- --------------------------------------------------------------------------------
11-20 YEARS 15 15
- --------------------------------------------------------------------------------
21+ YEARS 24 21
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 4/30/98 ON 10/31/97
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/98 ON 10/31/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 9.3 years 8.2 years
- --------------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
7
<PAGE> 8
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Income And Capital Preservation Fund shareholders were asked
to vote on five separate issues: election of the nine members to the Board of
Trustees, ratification of Ernst & Young LLP as independent auditors, approval of
a new investment management agreement with Scudder Kemper Investments, Inc.,
approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure and approval of a new rule 12b-1 distribution plan
with Zurich Kemper Distributors, Inc. for Class B shares and Class C shares. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 41,649,964 748,181
Lewis A. Burnham 41,663,962 734,183
Donald L. Dunaway 41,669,219 728,926
Robert B. Hoffman 41,671,041 727,104
Donald R. Jones 41,667,537 730,608
Shirley D. Peterson 41,636,979 761,166
Daniel Pierce 41,652,996 745,149
William P. Sommers 41,671,020 727,124
Edmond D. Villani 41,628,835 769,310
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
41,384,094 260,841 753,210
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
39,019,721 658,734 1,307,908 1,411,783
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
37,849,941 1,651,604 2,260,824
</TABLE>
5) To approve a new rule 12b-1 distribution plan with Zurich Kemper
Distributors, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 5,058,624 76,377 139,536 663,984
Class C 521,277 5,685 28,545 901
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER INCOME AND CAPITAL PRESERVATION FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--36.9% PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND U.S. Treasury Notes
AGENCY OBLIGATIONS--34.8%
9.25%, 1998 $ 10,000 $ 10,111
7.875%, 2004 7,675 8,560
7.25%, 2004 1,000 1,078
7.50%, 2005 13,625 14,960
5.50%, 2008 7,290 7,193
U.S. Treasury Bonds
10.75%, 2003 60,000 73,087
6.375%, 2027 13,250 13,954
6.125%, 2027 39,475 40,412
Federal National Mortgage Association
5.75%, 2008 7,750 7,604
6.50%, 2012 and 2027 7,917 7,877
7.00%, 2012 and 2027 14,703 14,900
7.50%, 2027 8,829 9,061
Government National Mortgage Association
7.00%, 2027 4,915 4,974
7.50%, 2027 3,829 3,934
Tennessee Valley Authority, 6.25%, 2017 4,900 4,914
------------------------------------------------------------------------------
222,619
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT Province of Nova Scotia, 8.75%, 2022 4,000 5,010
OBLIGATIONS--2.1%
Province of Quebec, 8.625%, 2005 7,500 8,427
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
------------------------------------------------------------------------------
13,437
------------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost: $237,825) 236,056
------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--62.3%
- -----------------------------------------------------------------------------------------------------------------------
ASSET BACKED Southern California Edison Co.
SECURITIES--.7% 6.22%, 2004 950 956
6.28%, 2005 450 453
6.42%, 2008 2,900 2,934
------------------------------------------------------------------------------
4,343
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKS--15.4% Abbey National, PLC, 6.69%, 2005 $ 2,000 $ 2,035
ABN-AMRO Bank, 8.25%, 2009 7,000 7,585
BCH Cayman Islands, Ltd.
7.50%, 2005 7,500 7,882
7.70%, 2006 2,480 2,647
Capital One Bank, 8.125%, 2000 7,500 7,729
Crestar Financial Corp., 8.75%, 2004 5,000 5,599
Den Danske Bank, 7.40%, 2010 8,350 8,772
First Fidelity Bancorporation, 9.625%,
1999 5,000 5,215
Firstar Bank Milwaukee, 6.25%, 2002 4,700 4,712
Fleet Financial Group, Inc.
8.125%, 2004 750 814
8.625%, 2007 4,500 5,130
Kansallis Osake Bank, 10.00%, 2002 5,000 5,619
Kansallis Osake Pankki, 8.65%, 2049 5,000 5,141
NationsBank Corp., 9.50%, 2004 5,000 5,791
Riggs National Corp., 8.50%, 2006 7,000 7,292
Scotland International, 8.80%, 2004 2,850 3,176
Svenska Handelsbanken, 7.125%, 2049 7,950 8,092
Wells Fargo & Co., 8.75%, 2002 5,000 5,448
---------------------------------------------------------------------------
98,679
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS, MEDIA AND Cable & Wireless Communications, 6.625%,
ELECTRONICS--10.8% 2005 2,400 2,409
Comcast Cablevision, 8.50%, 2027 2,400 2,796
CSC Holdings, Inc., 7.875%, 2007 4,800 4,932
GTE North, Inc., 6.90%, 2008 5,200 5,400
News American Holdings, Inc.
9.25%, 2013 4,100 4,930
8.15%, 2036 5,700 6,219
Tele-Communications, Inc., 9.80%, 2012 12,500 15,683
Time Warner Entertainment Co., L.P.,
8.375%, 2023 4,800 5,509
Time Warner, Inc., 9.125%, 2013 4,750 5,706
Viacom, Inc., 7.75%, 2005 6,375 6,728
WorldCom, Inc., 7.75%, 2007 and 2027 8,400 9,181
---------------------------------------------------------------------------
69,493
- --------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS, Dayton Hudson Corp., 7.25%, 2004 5,000 5,211
SERVICES AND RETAIL--8.8% Dell Computer Corp., 7.10%, 2028 1,500 1,499
Dimon, Inc., 8.875%, 2006 2,275 2,298
Federated Department Stores, 10.00%,
2001 7,500 8,224
May Department Stores Co., 6.875%, 2005 4,950 5,082
Phillip Morris Cos., 7.20%, 2007 7,300 7,481
Nabisco, Inc., 6.375%, 2035 7,600 7,395
Royal Caribbean Cruises, Ltd., 8.25%,
2005 7,480 8,073
Sears Roebuck Acceptance Corp., 7.00%,
2007 5,850 6,065
Sony Corp., 6.125%, 2003 5,100 5,086
---------------------------------------------------------------------------
56,414
- --------------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE--1.0% Tenet Healthcare, 8.625%, 2003 6,050 6,405
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ENERGY AND CHEMICALS--.8% Repsol International Finance, 7.00%,
2005 5,000 5,177
---------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES--8.6% AB Spintab, 7.50%, 2049 $ 2,600 $ 2,692
Aegon, N.V., 8.00%, 2006 5,000 5,490
African Development Bank, 9.30%, 2000 4,000 4,263
Associates Corp., N.A., 8.25%, 1999 5,000 5,176
Case Credit Corp., 6.75%, 2007 5,200 5,291
FINOVA Capital Corp., 9.125%, 2002 5,000 5,468
General Electric Capital Corp.
8.75%, 2007 2,100 2,452
8.625%, 2008 3,050 3,540
Lehman Brothers Holdings
7.25%, 2003 2,650 2,751
7.375%, 2007 7,500 7,889
Morgan Stanley, Dean Witter, Discover &
Co., 6.875%, 2007 4,950 5,089
TriNet Corporate Realty Trust, 7.30%,
2001 5,000 5,111
---------------------------------------------------------------------------
55,212
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--9.6% Continental Airlines, Inc.
7.75%, 2014 3,891 4,131
6.90%, 2018 3,950 3,959
CSX Corp., 7.45%, 2007 4,850 5,146
Delta Airlines
9.32%, 2009 3,949 4,410
9.75%, 2021 7,200 9,292
Ford Motor Credit, 7.75%, 2005 5,000 5,361
General Motors Acceptance Corp., 8.875%,
2010 5,000 5,959
Lockheed Martin, 7.25%, 2006 4,850 5,097
Norfolk Southern, 7.35%, 2007 6,200 6,603
Penske Truck Leasing, 8.25%, 1999 5,000 5,170
Raytheon Co., 6.75%, 2007 6,100 6,226
---------------------------------------------------------------------------
61,354
- --------------------------------------------------------------------------------------------------------------------
UTILITIES--6.6% Centerior Energy, 7.67%, 2004 5,900 6,169
Chesapeake and Potomac Telephone Company
of Virginia, 8.375%, 2029 5,000 6,130
Cleveland Electric Illuminating, 7.43%,
2009 5,200 5,366
Commonwealth Edison
7.375%, 2004 3,225 3,348
7.00%, 2005 1,100 1,132
Hyder, PLC, 6.875%, 2007 5,500 5,602
Northwest Pipeline Corp., 6.625%, 2007 4,900 4,941
U.S. West Capital Funding, Inc.
7.90%, 2027 5,000 5,690
7.95%, 2097 3,400 3,916
---------------------------------------------------------------------------
42,294
---------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $391,981) 399,371
---------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.55% and 5.56%
INSTRUMENTS--1.4% Due--May 1998
(Cost: $8,988) $ 9,000 $ 8,988
---------------------------------------------------------------------------
TOTAL INVESTMENTS--100.6%
(Cost: $638,794) 644,415
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.6)% (3,950)
---------------------------------------------------------------------------
NET ASSETS--100% $ 640,465
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $638,794,000 for federal income tax purposes
at April 30, 1998, the gross unrealized appreciation was $11,163,000, the gross
unrealized depreciation was $5,542,000 and the net unrealized appreciation on
investments was $5,621,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $638,794) $644,415
- ------------------------------------------------------------------------
Cash 1,444
- ------------------------------------------------------------------------
Receivable for:
Interest 14,421
- ------------------------------------------------------------------------
Fund shares sold 1,011
- ------------------------------------------------------------------------
TOTAL ASSETS 661,291
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 19,932
- ------------------------------------------------------------------------
Fund shares redeemed 176
- ------------------------------------------------------------------------
Management fee 284
- ------------------------------------------------------------------------
Administrative services fee 115
- ------------------------------------------------------------------------
Distribution services fee 64
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 200
- ------------------------------------------------------------------------
Trustees' fees and other 55
- ------------------------------------------------------------------------
Total liabilities 20,826
- ------------------------------------------------------------------------
NET ASSETS $640,465
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $635,018
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (10,733)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 5,621
- ------------------------------------------------------------------------
Undistributed net investment income 10,559
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $640,465
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($531,492 / 62,228 shares outstanding) $8.54
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $8.94
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($90,417 / 10,624 shares outstanding) $8.51
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($12,279 / 1,439 shares outstanding) $8.53
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($6,277 / 735 shares outstanding) $8.54
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------
Interest income $22,987
- --------------------------------------------------------------------------------------------
Expenses:
Management fee 1,682
- --------------------------------------------------------------------------------------------
Administrative services fee 671
- --------------------------------------------------------------------------------------------
Distribution services fee 367
- --------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 739
- --------------------------------------------------------------------------------------------
Reports to shareholders 119
- --------------------------------------------------------------------------------------------
Professional fees 23
- --------------------------------------------------------------------------------------------
Trustees' fees and other 27
- --------------------------------------------------------------------------------------------
Total expenses 3,628
- --------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 19,359
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------
Net realized gain on sales of investments 8,171
- --------------------------------------------------------------------------------------------
Net realized loss from futures transactions (2,752)
- --------------------------------------------------------------------------------------------
Net realized gain 5,419
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (4,593)
- --------------------------------------------------------------------------------------------
Net gain on investments 826
- --------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $20,185
- --------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
1998 OCTOBER 31,
(UNAUDITED) 1997
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 19,359 39,304
- -----------------------------------------------------------------------------------------------
Net realized gain 5,419 1,934
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (4,593) 3,456
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,185 44,694
- -----------------------------------------------------------------------------------------------
Net equalization credits 262 371
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (20,080) (39,211)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 26,628 34,618
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 26,995 40,472
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of period 613,470 572,998
- -----------------------------------------------------------------------------------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $10,559 AND $11,019, RESPECTIVELY) $640,465 613,470
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
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 a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are sold to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. 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 domestic 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. Financial futures and options are valued
at the settlement price established each day by the
board of trade or exchange on which they are
traded. Over-the-counter traded options are valued
based upon prices provided by market makers. 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
fixed income securities. Realized gains and losses
from investment transactions are reported on an
identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent 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.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
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, 1998. The accumulated net
realized loss on sales of investments for federal
income tax purposes at April 30, 1998, amounting to
approximately $10,705,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 and 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 INVESTMENT MANAGER COMBINATION. Effective December
31, 1997, Zurich Insurance Company, the parent of
Zurich Kemper Investments, Inc. (ZKI), acquired a
majority interest in Scudder, Stevens & Clark, Inc.
(Scudder), another major investment manager. As a
result of this transaction, the operations of ZKI
were combined with Scudder to form a new global
investment organization named Scudder Kemper
Investments, Inc. (Scudder Kemper). The transaction
resulted in the termination of the Fund's
investment management agreement with ZKI, however,
a new investment management agreement between the
Fund and Scudder Kemper was approved by the Fund's
Board of Trustees and by the Fund's shareholders.
The new management agreement, which was effective
December 31, 1997, is the same in all material
respects as the previous management agreement,
except that Scudder Kemper is the new investment
adviser to the Fund. In addition, the names of the
Fund's principal underwriter and shareholder
service agent were changed to Kemper Distributors,
Inc. (KDI) and Kemper Service Company (KSvC),
respectively.
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper, 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 $1,682,000 for the six months
ended April 30, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- -------------------
<S> <C> <C>
Six months ended April 30, 1998 $40,000 343,000
</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
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Six months ended April 30, 1998 $461,000 486,000
</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 ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
---------------- ---------------
<S> <C> <C>
Six months ended April 30, 1998 $671,000 685,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENTS. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $503,000 for the six months ended
April 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended April 30,
1998, 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, 1998, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $503,240
Proceeds from sales 454,767
17
<PAGE> 18
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
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 7,875 $ 66,070 22,073 $ 182,796
------------------------------------------------------------------------------
Class B 2,122 18,225 3,288 27,633
------------------------------------------------------------------------------
Class C 470 4,095 655 5,545
------------------------------------------------------------------------------
Class I 553 4,796 133 1,118
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 1,362 11,408 2,715 20,630
------------------------------------------------------------------------------
Class B 225 1,880 420 3,525
------------------------------------------------------------------------------
Class C 28 204 41 349
------------------------------------------------------------------------------
Class I 25 216 55 465
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (7,632) (63,985) (22,089) (180,977)
------------------------------------------------------------------------------
Class B (1,160) (9,939) (2,604) (21,912)
------------------------------------------------------------------------------
Class C (124) (1,067) (295) (2,495)
------------------------------------------------------------------------------
Class I (609) (5,275) (243) (2,059)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 351 3,016 377 3,183
------------------------------------------------------------------------------
Class B (353) (3,016) (378) (3,183)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 26,628 $ 34,618
------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect itself
from anticipated market conditions and, as such,
bears the risk that arises from entering into 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 its broker as the market value
of the futures contract fluctuates. At April 30,
1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $2,214,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures positions
open at April 30, 1998 (in thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN (LOSS) AT
TYPE AMOUNT MONTH 4/30/98
--------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond $42,003 June '98 $(74)
--------------------------------------------------------------------------
U.S. Treasury Note 20,234 June '98 18
--------------------------------------------------------------------------
Total $(56)
--------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
--------------------------------------------
CLASS A
--------------------------------------------
SIX MONTHS
ENDED
APRIL 30,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------
Net asset value, beginning of period $8.54 8.46 8.62 7.91 8.97
- ---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .27 .57 .58 .61 .61
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 .08 (.15) .72 (1.03)
- ---------------------------------------------------------------------------------------
Total from investment operations .28 .65 .43 1.33 (.42)
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .28 .57 .59 .62 .59
- ---------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .05
- ---------------------------------------------------------------------------------------
Total dividends .28 .57 .59 .62 .64
- ---------------------------------------------------------------------------------------
Net asset value, end of period $8.54 8.54 8.46 8.62 7.91
- ---------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.29% 8.00 5.17 17.47 (4.86)
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------
Expenses .99% .97 .96 .90 .94
- ---------------------------------------------------------------------------------------
Net investment income 6.27% 6.75 6.90 7.31 7.34
- ---------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS B
--------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER
ENDED 31, MAY 31 TO
APRIL 30, ------------------- OCTOBER 31,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.51 8.43 8.59 7.90 8.16
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .49 .50 .51 .23
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 .08 (.15) .72 (.26)
- ---------------------------------------------------------------------------------------------
Total from investment operations .24 .57 .35 1.23 (.03)
- ---------------------------------------------------------------------------------------------
Less distribution from net investment
income .24 .49 .51 .54 .23
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $8.51 8.51 8.43 8.59 7.90
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.84% 6.99 4.20 16.12 (.45)
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.90% 1.90 1.93 1.81 1.92
- ---------------------------------------------------------------------------------------------
Net investment income 5.36% 5.82 5.93 6.40 6.72
- ---------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS C
-----------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER
ENDED 31, MAY 31 TO
APRIL ------------------- OCTOBER 31,
30,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.53 8.45 8.61 7.90 8.16
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .49 .50 .53 .23
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 .08 (.15) .72 (.26)
- ---------------------------------------------------------------------------------------------------
Total from investment operations .24 .57 .35 1.25 (.03)
- ---------------------------------------------------------------------------------------------------
Less distribution from net investment income .24 .49 .51 .54 .23
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $8.53 8.53 8.45 8.61 7.90
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.84% 7.03 4.23 16.45 (.44)
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses 1.87% 1.86 1.90 1.78 1.89
- ---------------------------------------------------------------------------------------------------
Net investment income 5.39% 5.86 5.96 6.43 6.75
- ---------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
----------------------------------------
CLASS I
----------------------------------------
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31, JULY 3 TO
APRIL ------------ OCTOBER 31,
30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.53 8.45 8.61 8.52
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .29 .59 .60 .19
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 .08 (.15) .12
- --------------------------------------------------------------------------------------------
Total from investment operations .30 .67 .45 .31
- --------------------------------------------------------------------------------------------
Less distribution from net investment income .29 .59 .61 .22
- --------------------------------------------------------------------------------------------
Net asset value, end of period $8.54 8.53 8.45 8.61
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.57% 8.26 5.45 3.65
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses .69% .70 .72 .62
- --------------------------------------------------------------------------------------------
Net investment income 6.57% 7.02 7.14 6.87
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $640,465 613,470 572,998 649,427 510,432
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 144% 164 74 182 163
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Data for
the period ended April 30, 1998 is unaudited.
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY JOHN R. HEBBLE
Chairman and Trustee President Assistant Treasurer
DAVID W. BELIN PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President, Assistant Secretary
Secretary and Treasurer
LEWIS A. BURNHAM CAROLINE PEARSON
Trustee ROBERT C. CESSINE Assistant Secretary
Vice President
DONALD L. DUNAWAY ELIZABETH C. WERTH
Trustee JERALD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN
Trustee THOMAS W. LITTAUER
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
SHIRLEY D. PETERSON
Trustee ROBERT C. PECK, JR.
Vice President
WILLIAM P. SOMMERS
Trustee KATHRYN L. QUIRK
Vice President
EDMOND D. VILLANI
Trustee LINDA J. WONDRACK
Vice President
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Income Funds prospectus.
KICPF - 3 (6/98) 1048350
