<PAGE> 1
KEMPER
CASH RESERVES FUND
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
" . . . when there was a likelihood of rising rates . . . the
average maturity of the fund was reduced . . . This placed us in a position to
capture higher rates if they became available . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
Table of
Contents
2
At a Glance
2
Terms to Know
3
Performance Update
4
Portfolio
Statistics
5
Portfolio of
Investments
7
Report of
Independent Auditors
8
Financial Statements
10
Notes to
Financial Statements
13
Financial Highlights
At A Glance
- -------------------------------------------------------------------------------
Yields
- -------------------------------------------------------------------------------
7-DAY ANNUALIZED YIELD FOR THE PERIOD ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS A 4.35%
- --------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS B 3.40%
- --------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS C 3.69%
- --------------------------------------------------------------------------------------------------------
</TABLE>
An investment in money market funds is neither insured nor guaranteed by the
U.S. Government, and there can be no assurance that a fund will be able to
maintain a stable value of $1.00 per share.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1996 (SHARES ADJUSTED FOR THE APPLICABLE SALES
CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER CASH RESERVES CLASS A 4.67% N/A N/A 3.65% (SINCE 1/10/92)
- -------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES CLASS B 0.73 2.59% 4.26% 4.71 (SINCE 2/6/84)
- -------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES CLASS C 3.93 N/A N/A 3.90 (SINCE 5/31/94)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance. Returns fluctuate.
Performance of share classes will differ. Consult the prospectus for details.
* Average annual total return measures net investment income and capital gain or
loss from portfolio investments, assuming reinvestment of all dividends, and for
Class B shares, adjustment for the applicable contingent deferred sales charge
(CDSC) as follows: 1-year, 3%; 5-year, 1%; since inception 0%. The maximum CDSC
for B shares is 4%. For Class C shares purchased on or after 4/1/96, there is a
1% CDSC on certain redemptions within the first year of purchase. There is no
initial sales charge for direct purchases of Class A shares, but applicable
sales charges apply on exchange into Class A shares of other Kemper funds. There
is no sales charge adjustment for C shares. For additional information, see the
Prospectus and Statement of Additional Information and the Financial Highlights
at the end of this report.
TERMS TO KNOW
AVERAGE MATURITY The weighted average number of days in which each security in
the portfolio matures.
GROSS DOMESTIC PRODUCT (GDP) The dollar value of all goods and services produced
in the United States. Market observers track the change in GDP as a measure of
how fast the economy is growing.
FEDERAL FUNDS RATE The interest rate banks charge each other for overnight loans
that are needed to meet reserve requirements. The federal funds rate is often
considered the most sensitive indicator of the direction of interest rates.
<PAGE> 3
PERFORMANCE UPDATE
[RACHWALSKI PHOTO]
FRANK RACHWALSKI IS SENIOR VICE PRESIDENT OF ZURICH KEMPER INVESTMENTS, INC. AND
VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER CASH RESERVES FUND SINCE ITS
INCEPTION. RACHWALSKI HOLDS A B.B.A. AND AN M.B.A. DEGREE FROM LOYOLA
UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
SHORT-TERM INTEREST RATES FELL AND THEN ROSE, CAUSING INVESTORS TO CONTINUE TO
MARVEL AT THE RESILIENCE OF THE ECONOMIC EXPANSION. IN A YEAR OF OFTEN
CONFLICTING MARKET DIRECTION, PORTFOLIO MANAGER FRANK RACHWALSKI DISCUSSES HOW
HE MANAGED KEMPER CASH RESERVES FUND.
Q. FRANK, LET'S BEGIN WITH A REVIEW OF THE INTEREST RATE ENVIRONMENT IN THE
LAST 12 MONTHS (FROM OCTOBER 1, 1995 TO SEPTEMBER 30, 1996).
A. It was a year of transition. In the first half of the fiscal year, interest
rates were declining, aided by two cuts by the Federal Reserve Board (Fed). The
Fed reduced rates to stimulate what had been sluggish economic growth.
In fact, the rate reductions worked -- the economy began to pick up speed.
But by March, investors had swung from worrying about the health of the economy
to worrying that it was growing so fast that it could overheat. The Fed is known
to consider 2.5% to 3% an acceptable, non-inflationary rate of growth for the
country's gross domestic product (GDP). Growth beyond that range -- and the
economy was reported to have grown at 4.2% in the second quarter -- heightens
expectations that intervention is needed to force a slowdown.
So, from March through the end of September, investors anticipated rising
short-term interest rates. No action was taken by the Fed, however, based on its
expectations of slower growth in the second half of the year.
Q. HOW DID THIS TURNABOUT IN THE DIRECTION OF INTEREST RATES AFFECT YOUR
MANAGEMENT OF KEMPER CASH RESERVES FUND?
A. Our strategy was to adjust the average maturity of the fund to coordinate
with our interest rate outlook. Our general practice has been to conservatively
manage the fund's average maturity in a range of 25 to 50 days. At the beginning
of the reporting period, when we expected interest rates to decline, we extended
the average maturity to a range of 40 to 45 days, attempting to lock in the
higher rates for as long as possible. But in March, when there was a likelihood
of rising rates, we took the opposite approach, reducing average maturity to a
range of 30 to 40 days. By July, when there was no doubting the economic
expansion was underway, the average maturity of the fund was reduced to
approximately 30 days. This placed us in a position to capture higher rates if
they became available.
Q. SO, KEMPER CASH RESERVES FUND ENDED THE FISCAL YEAR POSITIONED DEFENSIVELY.
WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS?
A. When we look at the recent solid levels of job creation, growth in personal
income and
3
<PAGE> 4
PERFORMANCE UPDATE
prospects for trade with improving foreign economies, we think the economy will
continue to expand. Assuming that growth continues at the pace we expect, we'd
look for the Federal Reserve Board to increase short-term interest rates by at
least 0.25% at some point early next year. Based on this scenario and to take
full advantage of higher rates, we will remain defensive with a shorter average
maturity.
Q. WHAT ABOUT RISKS TO THIS OUTLOOK?
A. The obvious risk is that our expectation of continued strong economic
growth is incorrect and rates fail to rise. On the positive side, being
defensive with a shorter average maturity will provide the opportunity and
flexibility to quickly lengthen if our outlook changes. But based on positive
economic data we have observed, we rate the probability of weak economic growth
low.
PORTFOLIO STATISTICS
[PIE CHART]
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
<S> <C>
ON 9/30/96
COMMERCIAL PAPER, FIRST TIER 91%
- --------------------------------------------------------------------------------------------------
DOMESTIC BANK CDS 7
- --------------------------------------------------------------------------------------------------
U.S. TREASURIES 2
- --------------------------------------------------------------------------------------------------
TOTAL 100%
</TABLE>
* Portfolio composition is subject to change.
4
<PAGE> 5
KEMPER CASH RESERVES FUND
Portfolio of Investments at September 30, 1996
(VALUE IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS VALUE
<C> <S> <C>
BANKING--4.3%
Credit Lyonnais North America Inc.
5.41%, 10/21/96 $ 4,985
UBS Finance, Inc.
5.85%, 10/1/96 4,000
--------------------------------------------------
8,985
BUSINESS LOANS--16.6%
Broadway Capital Corp.
5.43%, 10/11/96 1,498
First Brands Commercial Inc.
5.39%, 10/9/96 9,988
Gotham Capital Corp.
5.53%, 11/13/96 4,967
(a) Heller Financial, Inc.
5.66%, 10/1/96 5,002
Madison Funding Corp.
5.38%, 10/21/96 4,985
WCP Funding Inc.
5.43%, 11/18/96 4,964
Working Capital Management Co., L.P.
5.53%, 10/18/96 2,992
--------------------------------------------------
34,396
CAPITAL AND EQUIPMENT LENDING--12.0%
(a) American Honda Finance Corporation
5.44%, 10/4/96 4,999
Golden Manager's Acceptance Corp.
5.40%, 10/16/96 9,978
IBM Credit Corp.
5.26%, 2/28/97 4,995
(a) USL Capital Corporation
5.66%, 10/31/96 5,001
--------------------------------------------------
24,973
CAPTIVE BUSINESS LENDING--14.4%
CSW Credit, Inc.
5.42%, 10/22/96 4,984
Enterprise Funding Corp.
5.34%, 10/10/96 4,993
(a) FINOVA Capital Corporation
5.58%, 10/16/96 5,000
Orix America, Inc.
5.45%, 10/4/96 4,998
Sony Capital Corporation
5.44%, 10/29/96 4,979
Whirlpool Financial Corp.
5.39%, 10/3/96 4,999
--------------------------------------------------
29,953
COMMUNICATIONS AND MEDIA--2.4%
Electronic Data Systems Corp.
5.44%, 10/24/96 4,983
CONSUMER LENDING--7.2%
Countrywide Funding Corporation
5.35%, 10/8/96 $ 4,995
Household International, Inc.
5.43%, 10/11/96 4,992
Sears Roebuck Acceptance Corp.
5.47%, 11/12/96 4,968
--------------------------------------------------
14,955
DIVERSIFIED FINANCE--7.2%
(a) CIT Group Holdings, Inc.
5.38%, 10/1/96 4,997
General Electric Capital Corp.
5.35%, 10/17/96 4,988
Old Line Funding Corp.
5.42%, 10/24/96 4,983
--------------------------------------------------
14,968
FINANCIAL SERVICES--10.8%
(a) Bear Stearns Companies Inc.
5.52%, 10/21/96 5,000
(a) CS First Boston, Inc.
5.55%, 10/9/96 4,500
(a) Goldman Sachs Group, L.P.
5.62%, 10/25/96 5,000
(a)(b) Lehman Brothers Holdings Inc.
5.56%, 11/20/96 3,000
Salomon Inc.
6.42%, 4/21/97 4,828
--------------------------------------------------
22,328
MANUFACTURING AND INDUSTRIAL--4.8%
Bridgestone/Firestone, Inc.
5.48%, 10/4/96 4,998
Whirlpool Corporation
5.43%, 10/11/96 4,992
--------------------------------------------------
9,990
UTILITIES--10.4%
AES Shady Point, Inc.
5.46%, 10/21/96 4,985
Brazos River Authority, Texas
5.40%, 10/8/96 5,115
GTE Corporation
5.38%, 10/7/96 4,996
New Hampshire
Industrial Development Authority
5.40%, 10/8/96 6,500
--------------------------------------------------
21,596
--------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--90.1%
(AVERAGE MATURITY: 24 DAYS) 187,127
--------------------------------------------------
</TABLE>
5
PORTFOLIO OF INVESTMENTS
<PAGE> 6
PORTFOLIO OF INVESTMENTS
(Value in thousands)
<TABLE>
<CAPTION>
BANK OBLIGATIONS VALUE
CERTIFICATES OF DEPOSIT
<S> <C> <C>
(a) Bankers Trust Company
5.40%, 10/1/96 $ 4,997
(a) Key Bank of Maine
5.39%, 11/13/96 4,997
MBNA America Bank N.A.
5.59%, 12/16/96 5,000
--------------------------------------------------
TOTAL BANK OBLIGATIONS--7.2%
(AVERAGE MATURITY: 40 DAYS) 14,994
--------------------------------------------------
U.S. TREASURY NOTES--2.2%
(average maturity: 122 days)
5.04%, 1/31/97 4,535
--------------------------------------------------
TOTAL INVESTMENTS--99.5%
(AVERAGE MATURITY: 27 DAYS) 206,656
--------------------------------------------------
CASH AND OTHER ASSETS, LESS LIA-
BILITIES--.5% 960
--------------------------------------------------
NET ASSETS--100% $207,616
--------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
Interest rates represent annualized yield to date of maturity, except for
variable rate securities described in Note (a). For each security, cost (for
financial reporting and federal income tax purposes) and carrying value are the
same. Likewise, carrying value approximates principal amount.
(a) Variable rate securities. The rates shown are the current rates at September
30, 1996. The dates shown represent the demand date or next interest rate
change date.
(b) Illiquid security representing 1.4% of net assets at September 30, 1996.
See accompanying Notes to Financial Statements.
6
<PAGE> 7
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER CASH RESERVES FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Cash Reserves Fund, a series
of Kemper Portfolios, as of September 30, 1996, the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal periods since 1992. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Cash Reserves Fund at September 30, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal periods
since 1992 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
7
<PAGE> 8
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at amortized cost $206,656
- -------------------------------------------------------------------------------------------------------
Cash 622
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1,450
- -------------------------------------------------------------------------------------------------------
Interest 386
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 209,114
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Dividends 240
- -------------------------------------------------------------------------------------------------------
Fund shares redeemed 956
- -------------------------------------------------------------------------------------------------------
Management fee 72
- -------------------------------------------------------------------------------------------------------
Distribution services fee 111
- -------------------------------------------------------------------------------------------------------
Administrative services fee 43
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 33
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 43
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,498
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $207,616
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
($35,807 divided by 35,807 shares outstanding) $1.00
=======================================================================================================
CLASS B SHARES
(subject to contingent deferred sales charge)
($161,911 divided by 161,911 shares outstanding) $1.00
=======================================================================================================
CLASS C SHARES
(subject to contingent deferred sales charge)
($9,898 divided by 9,898 shares outstanding) $1.00
=======================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest income $12,929
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 922
- -------------------------------------------------------------------------------------------------------
Distribution services fee 1,428
- -------------------------------------------------------------------------------------------------------
Administrative services fee 554
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,192
- -------------------------------------------------------------------------------------------------------
Professional fees 35
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 56
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 25
- -------------------------------------------------------------------------------------------------------
Total expenses 4,212
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,717
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (2,833)
- -------------------------------------------------------------------------------------------------------
Change in unrealized depreciation on investments 2,833
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 8,717
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, JULY 31,
1996 1995 1995
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 8,717 1,431 12,247
- ------------------------------------------------------------------------------------------------------------
Net realized loss (2,833) -- --
- ------------------------------------------------------------------------------------------------------------
Change in unrealized depreciation 2,883 -- (2,833)
- ------------------------------------------------------------------------------------------------------------
Capital contribution from investment manager -- -- 2,833
- ------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (8,717) (1,431) (12,247)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions and
total increase (decrease) in net assets 31,059 (36,474) (211,286)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Beginning of period 176,557 213,031 424,317
- ------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 207,616 176,557 213,031
- ------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Cash Reserves Fund is a separate series of
Kemper Portfolios, an open-end management
investment company organized as a business trust
under the laws of Massachusetts. The Fund offers
three classes of shares. Class A shares are sold
without an initial sales charge but are subject to
the applicable sales charge if exchanged into Class
A shares of another Kemper Mutual Fund. Class B
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions. Class B shares
automatically convert to Class A shares six years
after issuance. Class C shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and, for
shares sold on or after April 1, 1996, a contingent
deferred sales charge payable on certain
redemptions within one year of purchase. Class C
shares do not convert into another class.
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
amortized cost, which approximates market value. In
the event that a deviation of 1/2 of 1% or more
exists between the Fund's $1.00 per share net asset
value, calculated at amortized cost, and the net
asset value calculated by reference to market-based
values, or if there is any other deviation that the
Board of Trustees believes would result in a
material dilution to shareholders or purchasers,
the Board of Trustees will promptly consider what
action should be initiated.
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 amortization of premium
and discount on investments.
FUND SHARE VALUATION AND DIVIDENDS TO
SHAREHOLDERS. Fund shares are sold and redeemed on
a continuous basis at net asset value. 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. The
Fund declares a daily dividend, equal to its net
investment income for that day, payable monthly.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) and pays a management fee at an annual rate
of .40% of the first $250 million of average daily
net assets declining to .25% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $922,000 for the year
ended September 30, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares, and the CDSC received
in connection with the redemption of such shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION PAID BY KDI
FEES AND CDSC ----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended
September 30, 1996 $ 2,195,000 2,982,000 28,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, the Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets. KDI in turn has various arrangements with
financial services firms that provide these
services and pays these firms based on assets of
Fund accounts that the firms service.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY ----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended
September 30, 1996 $ 554,000 690,000 7,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$1,122,000 for the year ended September 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the year ended September 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $20,000 to independent trustees.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (dollar amounts and
number of shares are the same).
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, JULY 31,
1996 1995 1995
-------------------------------------------------
(IN THOUSANDS)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES SOLD
--------------------------------------------------------------------------------
Class A $ 83,271 1,168 39,705
--------------------------------------------------------------------------------
Class B 578,233 32,163 521,185
--------------------------------------------------------------------------------
Class C 48,599 1,970 18,754
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
--------------------------------------------------------------------------------
Class A 1,673 276 1,945
--------------------------------------------------------------------------------
Class B 6,108 1,009 8,701
--------------------------------------------------------------------------------
Class C 205 29 133
--------------------------------------------------------------------------------
SHARES REDEEMED
--------------------------------------------------------------------------------
Class A (91,408) (4,166) (73,055)
--------------------------------------------------------------------------------
Class B (554,442) (64,120) (714,110)
--------------------------------------------------------------------------------
Class C (41,180) (4,803) (14,544)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
--------------------------------------------------------------------------------
Class A 8,605 928 14,213
--------------------------------------------------------------------------------
Class B (8,605) (928) (14,213)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS AND TOTAL
INCREASE (DECREASE)
IN NET ASSETS $ 31,059 (36,474) (211,286)
--------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
CLASS A SHARES
--------------------------------------------------------------------------------
TWO MONTHS JANUARY 10
YEAR ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED JULY 31, JULY 31,
1996 1995 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .05 .01 .05 .03 .02 .01
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.67% .85 4.99 2.78 2.42 1.57
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.08% .92 .89 .92 .93 1.39
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.53% 5.11 4.75 2.86 2.42 2.75
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
CLASS B SHARES
-------------------------------------------------------------------------------
TWO MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED JULY 31,
1996 1995 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .04 .01 .04 .02 .02 .03
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.73% .71 4.08 1.78 1.56 2.65
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------------------
Expenses 1.99% 1.79 1.78 1.89 1.82 2.22
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.62% 4.24 3.86 1.89 1.53 2.69
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: The total returns for the year ended July 31, 1995 include the effect of
a capital contribution from the investment manager. Without the capital
contribution, the total returns would have been 4.07% in Class A, 3.16% in Class
B and 3.16% in Class C.
ZKI temporarily agreed to absorb certain operating expenses of the Fund during a
portion of the fiscal years ended July 31, 1994 and 1993. Absent this agreement,
ratios of expenses and net investment income to average net assets would have
been as follows: Class A shares (1.15% and 2.63% for 1994 and 1.18% and 2.17%
for 1993); Class B shares (2.12% and 1.66% for 1994 and 2.07% and 1.28% for
1993).
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES
- ---------------------------------------------------------------------------------------------------------
MAY 31
TWO MONTHS TO
YEAR ENDED ENDED YEAR ENDED JULY
SEPTEMBER 30, SEPTEMBER 30, JULY 31, 31,
1996 1995 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .04 .01 .04 --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.93% .71 4.08 .42
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------
Expenses 1.79% 1.78 1.76 1.80
- ---------------------------------------------------------------------------------------------------------
Net investment income 3.82% 4.25 3.88 2.64
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------------------
TWO MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED JULY 31,
1996 1995 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $207,616 176,557 213,031 424,317 166,808 156,219
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR. JEROME L. DUFFY
President and Trustee Vice President Treasurer
DAVID W. BELIN MICHELLE M. KEELEY ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
LEWIS A. BURNHAM CHARLES R. MANZONI, JR.
Trustee Vice President
DONALD L. DUNAWAY JOHN E. NEAL
Trustee Vice President
ROBERT B. HOFFMAN FRANK J. RACHWALSKI, JR.
Trustee Vice President
DONALD R. JONES RICHARD L. VANDENBERG
Trustee Vice President
DOMINIQUE P. MORAX PHILIP J. COLLORA
Trustee Vice President
and Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Fund prospectus.
KCRF - 2 (11/96) [KEMPER FUNDS LOGO]
1024070
Printed in the U.S.A.
