<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED APRIL 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[Morningstar Ratings Logo]
OFFERING INVESTORS THE OPPORTUNITY FOR A HIGH LEVEL
OF CURRENT INCOME AND PRESERVATION OF CAPITAL
KEMPER INCOME AND
CAPITAL PRESERVATION FUND
"... The particularly strong high yield bond market
restrained the fund's performance. ... we weren't willing
to add risk to the portfolio by moving into lower-quality
or cyclical corporate sectors -- which is where much of
the strong performance was being generated. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
6
Terms to Know
7
Portfolio Statistics
8
Portfolio of Investments
11
Financial Statements
13
Notes to Financial Statements
16
Financial Highlights
18
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 0.08
CLASS B -0.45
CLASS C -0.32
LIPPER CORPORATE DEBT A RATED FUNDS CATEGORY AVERAGE* 0.38
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH 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
4/30/99 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS A $8.42 $8.67
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS B $8.39 $8.64
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND CLASS C $8.41 $8.66
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INCOME AND CAPITAL
PRESERVATION FUND RANKINGS
AS OF 4/30/99*
- --------------------------------------------------------------------------------
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 #93 of 156 funds #128 of 156 funds #124 of 156 funds
- --------------------------------------------------------------------------------
3-YEAR #76 of 128 funds #122 of 128 funds #121 of 128 funds
- --------------------------------------------------------------------------------
5-YEAR #24 of 85 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #22 of 42 funds N/A N/A
- -------------------------------------------------------------------------------
15-YEAR #15 of 26 funds N/A N/A
- -------------------------------------------------------------------------------
20-YEAR #12 of 20 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF APRIL 30, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTH INCOME $0.2480 $0.2126 $0.2134
- --------------------------------------------------------------------------------
APRIL DIVIDEND $0.0400 $0.0339 $0.0348
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE+ 5.70% 4.85% 4.96%
- --------------------------------------------------------------------------------
SEC YIELD+ 4.68% 3.98% 4.06%
- --------------------------------------------------------------------------------
</TABLE>
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON APRIL 30, 1999. 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, 1999, 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.
YIELDS AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- --------------------------------------------------------------------------------
[MATURITY/QUALITY DIAGRAM]
Source: Morningstar, Inc., Chicago, IL (312) 696-6000. 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.
THE STYLE BOX REPRESENTS A SNAPSHOT OF A FUND'S PORTFOLIO ON A SINGLE DAY. IT IS
NOT AN EXACT ASSESSMENT OF RISK AND DOES NOT REPRESENT FUTURE PERFORMANCE. THE
FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY. A LONGER-TERM VIEW IS REPRESENTED BY
THE FUND'S MORNINGSTAR CATEGORY, WHICH IS BASED ON ITS ACTUAL INVESTMENT STYLE
AS MEASURED BY ITS UNDERLYING PORTFOLIO HOLDINGS OVER THE PAST THREE-YEARS.
MORNINGSTAR HAS PLACED KEMPER INCOME AND CAPITAL PRESERVATION FUND IN THE
INTERMEDIATE-TERM BOND CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION
OF INVESTMENT POLICIES.
<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.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
In April, investor enthusiasm drove the market to its second milestone in a
year -- the Dow Jones Industrial Average rose to 11,000 just a month after it
broke 10,000 for the first time. In May, expectations of rising inflation and
higher short-term interest rates led to a slowdown. But in early June, the
market rallied again. What drove the market rallies, and what, at the same time,
led to investor anxiety?
Inflation worries have been seeping into the market for months. The growing
conviction that Asian and Latin American economies are recovering is raising
commodity prices, particularly oil. The price of West Texas Intermediate oil
surged from less than $12 in February to almost $19 in early May. That alone
almost guarantees a rise in the "headline" inflation rate this year, which is
the rate of inflation as measured by the entire CPI. But it's important to note
that the Federal Reserve Board looks primarily at the core inflation rate, which
is the CPI minus food and energy -- and the core inflation rate looks at if it
will remain low at about 2 percent this year. Investors should note, however,
that the Federal Reserve Board also considers what will happen to inflation next
year -- and all indications are that the Fed expects inflation to increase in
2000.
As a result, the Fed is considering a change in monetary policy. Recent Fed
policy has been reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. That may change as the Fed tries to
preemptively halt inflation momentum. Such a change in monetary policy would
likely lead to an increase in short-term interest rates before the end of the
year. However, the change is likely to be small. Because we don't see pressure
toward sustained inflation, there's no reason for the Fed to want a sharp
slowdown in the overall economy.
The long-term economic situation, however, appears to be positive. The
federal budget surplus continues to benefit from good revenue gains (which are
based on good income gains, especially for households), good capital gains and
continued restraint in federal spending. The surplus this year is expected to
approach $100 billion.
This positive environment is exactly what sometimes poses risk for
investors, and is key to understanding recent volatility in the market. A strong
economy has the potential to feed inflation fears and drive up interest rates.
Indeed, recent market events illustrate the domino effect of investors reacting
to positive economic news, which they consider troubling at this point, more
than eight years into the economic expansion. In April, the steady stream of
positive economic news led to a sell-off in the financial markets based on fears
that the strong pace of economic growth would eventually lead to higher
inflation. The benchmark 30-year Treasury bond yield rose, which pulled stocks
lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., rose at an annual rate of 4.5 percent in the
first quarter, following a tremendous fourth-quarter surge of 6 percent. This is
very much in line with what we've grown accustomed to over the past year -- over
the four quarters of 1998, the U.S. economy expanded by 4.3 percent. Some people
aren't surprised at all by strong GDP growth that once would have alarmed them.
That's partially because we've grown accustomed to a strong economy. But it's
also because we've been able to absorb growth without driving up inflation.
That's important for investors. If prices had been rising as the economy was
growing, the Fed would have most likely raised short-term interest rates by now,
and that would have changed the financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first quarter while imports soared. This reflects the fact that the U.S. is one
of the few countries financially fit enough to buy goods produced elsewhere in
the world. But for as long as less vibrant international economies are unable to
buy U.S. goods, the profitability of U.S. companies trying to export will be
challenged.
When you think about it, vulnerability in regard to the international
economy is nothing new. Globally, the outlook is slightly more positive than it
was a few months ago. For example, the European markets are slowing down, which
has already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
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 (5/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10 Year Treasury Rate(1) 5.54 5.34 5.57 6.42
Prime Rate(2) 7.75 8.5 8.5 8.25
Inflation Rate(3)* 2.28 1.68 1.63 3.04
The U.S. Dollar(4) -1.22 8.17 5.05 7.67
Capital goods orders(5)* 11.67 3.05 12.61 3.93
Industrial production (5)* 2.01 2.71 5.92 6.44
Employment growth(6) 2.14 2.67 2.76 2.44
</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, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates. As an example, consider Italy, which
recently asked for more leeway on its deficit targets. When leeway was granted,
this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of
a U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF JUNE 9, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[CESSINE PHOTO]
ROBERT CESSINE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN JANUARY 1993. HE IS A
MANAGING DIRECTOR AND HAS SERVED AS LEAD PORTFOLIO MANAGER OF KEMPER INCOME AND
CAPITAL PRESERVATION FUND SINCE 1994. HE 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.
THE ECONOMIC ENVIRONMENT OF THE PAST SIX MONTHS WAS CHALLENGING FOR KEMPER
INCOME AND CAPITAL PRESERVATION FUND, BUT SHAREHOLDERS SHOULD BE COMFORTED BY
KNOWING THAT ITS MANAGEMENT TEAM STAYED THE COURSE AND DID NOT COMPROMISE THE
FUND'S RISK PROFILE. LEAD PORTFOLIO MANAGER ROB CESSINE DISCUSSES THE MOVES HE
MADE DURING THE PERIOD, AND HOW THE FUND IS POSITIONED TO SEEK ITS LONG-TERM
OBJECTIVES.
Q ROB, BEFORE WE GET INTO THE SPECIFIC PERFORMANCE OF KEMPER INCOME AND
CAPITAL PRESERVATION FUND, PLEASE TELL US A LITTLE ABOUT THE ECONOMIC
ENVIRONMENT FOR THIS REPORTING PERIOD, NOVEMBER 1, 1998 THROUGH APRIL 30, 1999.
A The period is defined by what happened at its beginning -- the Federal
Reserve Board (the Fed) cut rates three times in the second half of 1998 --
September 29, October 15, both before this reporting period started, and again
November 17.
When the Fed lowers the Federal Fund's rate (see Terms To Know on page 6)
it makes money less expensive to borrow. The goal is to help stimulate the
economy, which is typically weak when the Fed cuts rates.
For instance, a cut in the Fed funds rate typically trickles down to lower
mortgage rates, so more people are likely to purchase homes because borrowing
the money to do so is not as expensive.
Similarly, corporations are more likely to borrow money when it's cheap to
borrow, to expand their businesses.
Additionally, when the Fed eases or lowers the Fed Funds rate, it usually
has a very strong positive psychological impact on the financial markets,
particularly stocks. The Fed's aggressive easing last fall sent a positive
signal to the U.S. and global equity markets that the Fed would do whatever it
took to keep the world economy from slowing down dramatically.
Q WHAT DID THESE INTEREST RATE CUTS MEAN FOR THE CORPORATE BOND MARKETS?
A The rate cuts buoyed the performance of high-yield bonds (see Terms To
Know on page 6), which outperformed investment-grade corporate bonds and
Treasuries during the period. With a strengthening domestic and global economy,
bond investors became more willing to invest in riskier issues such as high
yield bonds in return for higher coupon rates than those offered by
investment-grade corporate bonds and Treasuries. This exuberance in the high
yield market overshadowed most other classes of bonds.
However, we feel that this disparity will narrow, particularly if interest
rates continue to move higher and real fears of inflation reemerge. Generally,
higher-quality bonds do better during times of uncertainty.
Q HOW DID THE FUND PERFORM AND WHAT CONTRIBUTED TO ITS PERFORMANCE?
A The fund's Class A shares gained 0.08 percent (unadjusted for any sales
charge) during the six months.
The particularly strong high yield bond market restrained the fund's
performance. Although we would have liked for the fund to generate higher
returns, we weren't willing to add risk to the portfolio by moving into
lower-quality or cyclical corporate sectors -- which is where much
5
<PAGE> 6
PERFORMANCE UPDATE
of the strong performance was being generated.
Performance was also hindered by the fund's longer than average duration
(See Terms To Know below) at the start of 1999. We had lengthened duration in
1998 to take advantage of declining interest rates. However, we were incorrect
in our assumption that the downward trend in rates would continue. At the start
of the year, there was some uncertainty in the market about whether inflation
would resurface. As a result, market interest rates began to rise, though the
Fed took no action. The fund's relatively long duration hurt its performance.
Remember, the longer a portfolio's duration, the more sensitive it is to changes
in interest rates.
Q HOW WILL YOU POSITION THE FUND IN LIGHT OF THIS HIGHER INTEREST RATE
ENVIRONMENT?
A We may increase our mortgage exposure as another way of generating
portfolio income should rates continue to rise. Also, we would take less
interest rate risk and shorten the fund's duration. But, overall, we will likely
stick to the same basic portfolio. We believe shareholders should benefit in the
long term from our commitment to quality in this fund.
Q WHAT IS YOUR OUTLOOK FOR THE CORPORATE BOND MARKET?
A In general the corporate bond market is expected to remain healthy and
vibrant due to the strength in the overall economy. Overall corporate profits
are expected to be better than last year. However, there are some signs of
strain. High yield defaults are rising and general valuation levels for all
corporate bonds are relatively high. Therefore, we will continue to add
corporate bonds to the fund judiciously, only when the valuations make sense.
TERMS TO KNOW
DURATION A measure of the interest rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer the duration, the
greater the interest rate risk.
EASE Occurs when the Federal Reserve Board of Governors changes monetary policy
by decreasing the federal funds rate.
FEDERAL FUNDS (Fed funds) Commercial banks are required to keep these funds on
deposit at the Federal Reserve Bank in their district. In order to meet these
reserve requirements, occasionally commercial banks need to borrow funds. These
funds are borrowed from banks that have an excess of the required amount on hand
in what is called the "Fed funds market." The interest rate on these loans is
called the "Fed funds rate" and is the key money market rate that influences all
other short-term rates.
FEDERAL FUNDS RATE The interest rate banks charge each other for overnight loans
that are needed to meet reserve requirements. Often considered the most
sensitive indicator of the direction of interest rates.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment.
HIGH-YIELD BONDS Issued by companies, often without long track records of sales
and earnings, or by those with questionable credit strength and pay a higher
yield to investors to help compensate for their greater risk of loss to
principal and interest. High-yield bonds carry a credit rating of BB or lower
from either Moody's or Standard & Poor's bond rating services and are considered
to be "below investment grade" by these rating agencies. Such bonds may also be
unrated. The bonds present greater risk to principal and income than higher
quality bonds.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/99 ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
TREASURY BONDS AND NOTES 37% 35%
- --------------------------------------------------------------------------------
MORTGAGES 9 9
- --------------------------------------------------------------------------------
FOREIGN BONDS 5 6
- --------------------------------------------------------------------------------
CORPORATE BONDS 45 44
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 4 6
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 4/30/99 ON 10/31/98
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/99 ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 65% 62%
- --------------------------------------------------------------------------------
11-20 YEARS 10 13
- --------------------------------------------------------------------------------
21+ YEARS 21 19
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 4 6
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 4/30/99 ON 10/31/98
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 4/30/99 ON 10/31/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 9.3 years 8.8 years
- --------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER INCOME AND CAPITAL PRESERVATION FUND
Portfolio of Investments at April 30, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--46.7% PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS--44.8%
U.S. Treasury Notes
10.75%, 2003 $60,000 $ 71,672
5.25%, 2003 7,750 7,746
7.875%, 2004 29,900 33,507
7.50%, 2005 29,305 32,419
5.625%, 2008 30,215 30,668
4.75%, 2008 19,135 18,277
U.S. Treasury Bonds
6.375%, 2027 24,600 26,272
6.125%, 2027 16,910 17,505
5.50%, 2028 3,840 3,659
5.25%, 2028 5,000 4,626
5.25%, 2029 11,200 10,514
Federal National Mortgage Association
Agency Notes
6.00%, 2008 15,250 15,388
5.75%, 2008 7,750 7,704
Federal National Mortgage Association
Pass Through Certificates
6.50%, 2013 and 2027 6,797 6,791
7.00%, 2012 through 2029 14,965 15,197
Government National Mortgage
Association Pass Through Certificates
7.50%, 2028 3,296 3,399
7.00%, 2029 999 1,014
Tennessee Valley Authority, 6.25%, 2017 4,900 4,888
------------------------------------------------------------------------
311,246
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT
OBLIGATIONS--1.9%
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
Province of Nova Scotia, 8.75%, 2022 4,000 4,964
Province of Quebec, 8.625%, 2005 7,500 8,420
------------------------------------------------------------------------
13,384
------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost: $308,977) 324,630
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--49.4%
- -----------------------------------------------------------------------------------------------------------------------
AEROSPACE AND
DEFENSE--1.5%
Raytheon Co.
6.75%, 2007 6,100 6,262
6.15%, 2008 4,500 4,416
------------------------------------------------------------------------
10,678
- -----------------------------------------------------------------------------------------------------------------------
BANKS--12.8%
ABN-AMRO Bank, 8.25%, 2009 7,000 7,547
Abbey National, PLC, 6.69%, 2005 2,000 2,036
African Development Bank, 9.30%, 2000 4,000 4,169
Capital One Bank, 8.125%, 2000 7,500 7,643
Crestar Financial Corp., 8.75%, 2004 5,000 5,561
Den Danske Bank, 6.375%, 2008 8,250 8,198
First Fidelity Bancorporation, 9.625%,
1999 5,000 5,060
Firstar Bank Corp., 6.25%, 2002 4,700 4,744
Kansallis Osake Pankki
10.00%, 2002 5,000 5,514
8.65%, 2049 5,000 5,038
NationsBank Corp., 9.50%, 2004 5,000 5,719
Northern Trust Corp., 6.25%, 2008 5,500 5,446
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Riggs National Corp., 8.50%, 2006 $ 7,000 $ 7,287
Scotland International, 8.80%, 2004 2,850 3,130
Svenska Handelsbanken, 7.125%, 2049 3,950 4,000
Wells Fargo & Co.
8.75%, 2002 5,000 5,392
6.875%, 2006 2,350 2,433
------------------------------------------------------------------------
88,917
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS, MEDIA AND
ELECTRONICS--10.2%
Cable & Wireless Communications, PLC,
6.75%, 2008 4,600 4,594
Comcast Cable Communications, 8.50%,
2027 2,400 2,792
GTE North, Inc., 6.90%, 2008 5,200 5,437
News American Holdings, Inc.
9.25%, 2013 4,100 4,907
8.15%, 2036 5,700 6,201
Tele-Communications, Inc., 9.80%, 2012 12,500 16,103
Time Warner, Inc.
9.125%, 2013 7,150 8,706
6.875%, 2018 2,700 2,670
9.15%, 2023 7,500 9,258
WorldCom, Inc.
6.40%, 2005 1,000 1,012
7.75%, 2007 4,450 4,811
7.75%, 2027 3,950 4,374
------------------------------------------------------------------------
70,865
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS,
SERVICES AND RETAIL--6.8%
Dayton Hudson Corp., 7.25%, 2004 5,000 5,242
Delphi Auto Systems Corp., 6.50%, 2009 3,500 3,447
Federated Department Stores, 6.125%,
2001 5,000 5,030
May Department Stores Co., 6.875%, 2005 4,950 5,171
Phillip Morris Cos., 7.20%, 2007 7,300 7,553
Royal Caribbean Cruises, Ltd., 8.25%,
2005 7,480 7,996
Safeway, 6.05%, 2003 1,750 1,746
Sears Roebuck Acceptance Corp., 7.00%,
2007 5,850 6,063
Sony Corp., 6.125%, 2003 5,100 5,137
------------------------------------------------------------------------
47,385
- -----------------------------------------------------------------------------------------------------------------------
ENERGY AND CHEMICALS--1.5%
Conoco, Inc.
5.90%, 2004 2,000 1,983
6.35%, 2009 1,000 990
6.95%, 2029 2,000 1,955
Repsol International Finance, 7.00%,
2005 5,000 5,151
------------------------------------------------------------------------
10,079
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES--6.3%
Associates Corp., N.A., 8.25%, 1999 $ 5,000 $ 5,085
FINOVA Capital Corp., 9.125%, 2002 5,000 5,396
Ford Motor Credit, 7.75%, 2005 5,000 5,386
General Electric Capital Corp.
8.75%, 2007 2,100 2,461
8.625%, 2008 3,050 3,591
General Motors Acceptance Corp.,
8.875%, 2010 5,000 5,916
Household Finance Corp., 6.50%, 2008 16,000 15,917
------------------------------------------------------------------------
43,752
- -----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--3.6%
Continental Airlines, Inc.
7.75%, 2014 3,813 4,038
6.90%, 2017 3,950 3,992
Delta Air Lines, Inc.
9.32%, 2009 3,582 4,037
9.75%, 2021 2,400 2,984
Lockheed Martin, 7.25%, 2006 4,850 5,067
Penske Truck Leasing, 8.25%, 1999 5,000 5,062
------------------------------------------------------------------------
25,180
- -----------------------------------------------------------------------------------------------------------------------
UTILITIES--6.7%
AT&T Corp, 6.00%, 2009 4,500 4,398
BellSouth Telecommunications, Inc.,
6.375%, 2028 5,500 5,170
Chesapeake and Potomac Telephone
Company of Virginia, 8.375%, 2029 5,000 5,923
Cincinnati Bell, Inc., 6.30%, 2028 3,700 3,446
Cleveland Electric/Toledo Edison,
7.67%, 2004 5,900 6,168
Commonwealth Edison
7.375%, 2004 3,225 3,398
7.00%, 2005 1,100 1,139
El Paso Electric Co., 8.90%, 2006 7,150 7,974
Sprint Capital Corp., 6.875%, 2028 9,200 8,933
------------------------------------------------------------------------
46,549
------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $365,733) 343,405
------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--3.9%
Yield--4.54 % to 4.78%
Due--May 1999
(Cost: $27,441) 27,500 27,441
------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $702,151) $695,476
------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $702,151,000 for federal income tax purposes
at April 30, 1999, the gross unrealized appreciation was $7,111,000, the gross
unrealized depreciation was $13,786,000 and the net unrealized depreciation on
investments was $6,675,000.
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investment, at value
(Cost: $702,151) $695,476
- ------------------------------------------------------------------------
Receivable for:
Investments sold 4,073
- ------------------------------------------------------------------------
Fund shares sold 724
- ------------------------------------------------------------------------
Interest 15,354
- ------------------------------------------------------------------------
TOTAL ASSETS 715,627
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 195
- ------------------------------------------------------------------------
Payable for:
- ------------------------------------------------------------------------
Investments purchased 3,479
- ------------------------------------------------------------------------
Fund shares redeemed 869
- ------------------------------------------------------------------------
Management fee 316
- ------------------------------------------------------------------------
Administrative services fee 126
- ------------------------------------------------------------------------
Distribution services fee 87
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 234
- ------------------------------------------------------------------------
Trustees' fees and other 21
- ------------------------------------------------------------------------
Total liabilities 5,327
- ------------------------------------------------------------------------
NET ASSETS $710,300
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $725,593
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (8,794)
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments (6,675)
- ------------------------------------------------------------------------
Futures 176
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $710,300
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share ($566,167 /
67,220 shares outstanding) $8.42
- ------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
4.71% of net asset value or 4.50% of offering price) $8.82
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($116,823 /
13,924 shares outstanding) $8.39
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($19,525 /
2,321 shares outstanding) $8.41
- ------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share ($7,785 /
925 shares outstanding) $8.42
- ------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended April 30, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Interest income $ 23,926
- ------------------------------------------------------------------------
Expenses:
Management fee 1,887
- ------------------------------------------------------------------------
Administrative services fee 783
- ------------------------------------------------------------------------
Distribution services fee 506
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 839
- ------------------------------------------------------------------------
Reports to shareholders 70
- ------------------------------------------------------------------------
Professional fees 21
- ------------------------------------------------------------------------
Trustees' fees and other 45
- ------------------------------------------------------------------------
Total expenses 4,151
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 19,775
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (3,735)
- ------------------------------------------------------------------------
Futures 2,952
- ------------------------------------------------------------------------
(783)
- ------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) on:
Investments (20,246)
- ------------------------------------------------------------------------
Futures 176
- ------------------------------------------------------------------------
(20,070)
- ------------------------------------------------------------------------
Net loss on investments (20,853)
- ------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (1,078)
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
1999 OCTOBER 31,
(UNAUDITED) 1998
- ------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 19,775 39,451
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) (783) 8,202
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) (20,070) 3,357
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (1,078) 51,010
- ------------------------------------------------------------------------------------------------------
Distribution from net investment income (19,994) (40,288)
- ------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 37,315 69,865
- ------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 16,243 80,587
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------
Beginning of period 694,057 613,470
- ------------------------------------------------------------------------------------------------------
END OF PERIOD $710,300 694,057
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Income and Capital Preservation Fund (the
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 generally 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 SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities with remaining
maturities greater than sixty days are valued by
pricing agents approved by the officers of the
fund, whose quotations reflect broker/dealer
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. Futures contracts are
valued at the most recent settlement price. All
other securities are valued at their fair market
value as determined in good faith by the Valuation
Committee of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for
on the trade date. 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 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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At October 31, 1998, the fund had a tax basis net
loss carryforward of approximately $7,984,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized, or it will expire during the period 2002
through 2003.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .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 $1,887,000 for the six
months ended April 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended April
30, 1999 are $39,000.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales 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 CDSC received by KDI
for the six months ended April 30, 1999 are
$644,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees paid by the
fund to KDI for the six months ended April 30, 1999
are $783,000, of which $1,000 was paid by KDI to
affiliates.
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 $515,000
for the six months ended April 30, 1999.
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,
1999, the fund made no payments to its officers and
incurred trustees' fees of $15,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended April 30, 1999, investment
transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $211,686
Proceeds from sales 164,906
14
<PAGE> 15
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, OCTOBER 31,
1999 1998
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 9,770 $ 84,001 18,576 $ 156,805
----------------------------------------------------------------------------------
Class B 4,303 36,972 7,612 65,658
----------------------------------------------------------------------------------
Class C 891 7,654 1,290 11,135
----------------------------------------------------------------------------------
Class I 144 1,240 779 6,803
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 1,358 11,626 2,368 21,766
----------------------------------------------------------------------------------
Class B 269 2,295 457 3,685
----------------------------------------------------------------------------------
Class C 43 369 55 489
----------------------------------------------------------------------------------
Class I 28 243 50 395
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (9,338) (80,072) (17,035) (145,297)
----------------------------------------------------------------------------------
Class B (2,493) (21,296) (4,763) (41,165)
----------------------------------------------------------------------------------
Class C (548) (4,697) (475) (4,141)
----------------------------------------------------------------------------------
Class I (119) (1,020) (723) (6,268)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 443 3,791 806 6,945
----------------------------------------------------------------------------------
Class B (442) (3,791) (809) (6,945)
----------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 37,315 $ 69,865
----------------------------------------------------------------------------------
</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, payments are made
on a daily basis between the fund and the broker as
the market value of the futures contract fluctuates
and are recorded for financial reporting purposes
as unrealized gains or losses by the fund. At April
30, 1999, the market value of assets pledged by the
fund to cover margin requirements for open futures
positions was $1,294,000. 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, 1999 (in thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION UNREALIZED
TYPE AMOUNT MONTH GAIN/(LOSS)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond $30,047 June '99 $205
-------------------------------------------------------------------------------
U.S. Treasury Note 20,644 June '99 (29)
-------------------------------------------------------------------------------
TOTAL $176
-------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.67 8.54 8.46 8.62 7.91
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .25 .53 .57 .58 .61
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.25) .14 .08 (.15) .72
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .67 .65 .43 1.33
- -------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .25 .54 .57 .59 .62
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.42 8.67 8.54 8.46 8.62
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .08% 8.13 8.00 5.17 17.47
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses 1.00% 1.01 .97 .96 .90
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 5.72% 6.17 6.75 6.90 7.31
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS B
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.64 8.51 8.43 8.59 7.90
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .46 .49 .50 .51
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.25) .14 .08 (.15) .72
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.04) .60 .57 .35 1.23
- -------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .21 .47 .49 .51 .54
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.39 8.64 8.51 8.43 8.59
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (.45)% 7.20 6.99 4.20 16.12
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses 1.86% 1.88 1.90 1.93 1.81
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 4.86% 5.30 5.82 5.93 6.40
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.66 8.53 8.45 8.61 7.90
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .46 .49 .50 .53
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.25) .14 .08 (.15) .72
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.04) .60 .57 .35 1.25
- -------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .21 .47 .49 .51 .54
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.41 8.66 8.53 8.45 8.61
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (.32)% 7.20 7.03 4.23 16.45
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses 1.80% 1.86 1.86 1.90 1.78
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 4.92% 5.32 5.86 5.96 6.43
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31, JULY 3 TO
APRIL 30, ------------------------------ OCTOBER 31,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.67 8.53 8.45 8.61 8.52
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .26 .56 .59 .60 .19
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.25) .15 .08 (.15) .12
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .71 .67 .45 .31
- -------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .26 .57 .59 .61 .22
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.42 8.67 8.53 8.45 8.61
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .15% 8.62 8.26 5.45 3.65
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses .64% .66 .70 .72 .62
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 6.08% 6.52 7.02 7.14 6.87
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(in thousands) $710,300 694,057 613,470 572,998 649,427
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 51% 121 164 74 182
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Data for
the period ended April 30, 1999 is unaudited.
17
<PAGE> 18
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper Income And Capital Preservation Fund shareholders were
asked to vote on two separate issues: approval of the new Investment Management
Agreement between the fund and Scudder Kemper Investments, Inc., and to modify
or eliminate certain policies and to eliminate the shareholder approval
requirements as to certain other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
55,341,010 1,044,700 3,224,650
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,658,661 2,481,152 4,574,951
</TABLE>
Investment policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,669,622 2,470,191 4,574,951
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,713,103 2,426,710 4,574,951
</TABLE>
Borrowing
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,671,424 2,468,389 4,574,951
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,702,009 2,437,664 4,575,092
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,704,465 2,435,348 4,574,951
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,724,829 2,414,984 4,574,951
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,685,110 2,454,702 4,574,951
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,657,643 2,482,170 4,574,951
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,705,408 2,434,405 4,574,951
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,589,064 2,550,608 4,575,092
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,632,992 2,506,821 4,574,951
</TABLE>
Purchases of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,699,711 2,440,101 4,574,951
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,653,027 2,486,786 4,574,951
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
36,538,164 2,601,649 4,574,951
</TABLE>
18
<PAGE> 19
NOTES
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
JOHN W. BALLENTINE PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Secretary Vice President
LEWIS A. BURNHAM JOHN R. HEBBLE MAUREEN E. KANE
Trustee Treasurer Assistant Secretary
DONALD L. DUNAWAY ROBERT C. CESSINE CAROLINE PEARSON
Trustee Vice President Assistant Secretary
ROBERT B. HOFFMAN ANN M. MCCREARY ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
DONALD R. JONES ROBERT C. PECK, JR. BRENDA LYONS
Trustee Vice President Assistant Treasurer
THOMAS W. LITTAUER
Trustee and Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
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 STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- --------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
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 (6/21/99) 1076860
