<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1997
KEMPER CASH RESERVES FUND
"... The economy continues to look good. Growth
remains strong and should continue to be good,
consumer confidence is high, unemployment
levels are low and corporate profits are
strong. ..."
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<PAGE> 2
CONTENTS
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, 1997
- ---------------------------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS A 4.45%
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS B 3.23%
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS C 3.79%
- ----------------------------------------------------------------------------------------------------------------
</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 net asset value of $1.00 per share.
- ---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- ---------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1997 (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 FUND CLASS A 4.57% 3.98% N/A 3.81% (since 1/10/92)
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS B 0.49 2.84% 4.18% 4.62 (since 2/6/84)
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS C 3.85 N/A N/A 3.89 (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 percent; 5-year, 1 percent; since inception, 0
percent. The maximum CDSC for B shares is 4 percent. For Class C shares, there
is a 1 percent 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.
EASE A short-hand term indicating the Federal Reserve Board of Governors has
adjusted monetary conditions to help stimulate the economy.
TIGHTEN The opposite of ease or a move by the Federal Reserve Board of Governors
to adjust monetary conditions to slow the rate of economic growth.
YIELD The amount of net investment income (income minus expenses including
management fees) your investment has produced over a specific period, expressed
as a percentage of your investment. Capital gains and losses, which are
infrequent in a money market fund, are not included.
7-DAY AVERAGE YIELD Every money market fund calculates its yield according to a
standardized method prescribed by the Securities and Exchange Commission. Each
day's yield is an average taken over a 7-day period. This average helps to
minimize the effect of daily fluctuations in fund income.
<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.
IN WHAT WAS CONSIDERED A PREEMPTIVE MOVE TO KEEP INFLATION IN CHECK,
THE FEDERAL RESERVE BOARD RAISED SHORT-TERM RATES BY 0.25 PERCENT IN LATE
MARCH. KEMPER CASH RESERVES FUND PORTFOLIO MANAGER FRANK RACHWALSKI DISCUSSES
THIS AND OTHER ECONOMIC EVENTS THAT AFFECTED MONEY MARKETS DURING THE PAST
TWELVE MONTHS.
Q DURING THE FUND'S FISCAL YEAR, THE FEDERAL RESERVE BOARD (THE FED) RAISED
SHORT-TERM INTEREST RATES. HOW DID THAT AND OTHER ECONOMIC EVENTS IMPACT THE
PERFORMANCE OF KEMPER CASH RESERVES FUND DURING THE PERIOD?
A At the start of the fiscal year, October 1, 1996, there was some political
uncertainty about the potential outcome of the presidential and congressional
elections. Investors feared the Republican party might lose control of Congress
which would reduce the likelihood of a balanced budget agreement in 1997.
Investment markets rallied, however, with news that the Republicans would
maintain control of Congress. Some market participants intimated that the
election outcome was evidence of the public's desire for a true "checks and
balances" government.
The bullish environment began to change in December, when Federal Reserve
Board Chairman Alan Greenspan implied that financial assets might be overvalued.
This shook the market and caused yields to rise and securities prices to fall.
Early in 1997, strong economic reports surfaced and Greenspan reiterated his
concern about the values of securities and the potential for a rise in wage
inflation. In what was considered to be a preemptive move at keeping inflation
in check, the Fed raised short-term rates by 0.25 percent in late March.
While economic growth remained strong, even after the Fed tightening,
inflation remained uncharacteristically low. The money market yields fluctuated
with the release of varying economic data but remained relatively range-bound.
Q WITH THESE ECONOMIC FACTORS IN MIND, WHAT APPROACH DID YOU AND YOUR TEAM
TAKE IN MANAGING THE FUND?
A Generally, we were defensive. We made minor adjustments in durations to
take advantage of any opportunities the market provided, but we kept maturities
short for the most part. The short-term yield curve was flat for much of the
period so there was no reward for extension. Also, quality spreads were
extremely narrow so there was little incentive to buy any credits that weren't
of premium quality. The Treasury Bill market was exceedingly rich because of the
lack of Treasury needs for borrowing and financing, so there was a scarcity of
Treasury Bills and the spread between Treasury Bills and corporate obligations
was extremely wide.
Q HOW DID KEMPER CASH RESERVES FUND PERFORM?
A The fund adhered to its objective of seeking maximum income while
maintaining principal stability. The fund continues to be an excellent place to
"park" money between longer term investments or commitments in capital markets
because of its ability to help preserve capital.
3
<PAGE> 4
PERFORMANCE UPDATE
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We saw our first upward change in interest rates from the Federal Reserve
Board in March. It is extremely rare for the Fed to make a rate adjustment only
once. It is usually multiple. Within this historical context, it is possible and
likely that the Fed will move to tighten again. The economy continues to look
good. Growth remains strong and should continue to be good, consumer confidence
is high, unemployment levels are low and corporate profits are strong.
Basically, there are a lot of good things going on.
Q ARE THERE ANY HAZARDS TO YOUR OUTLOOK?
A The wild card is really consumer confidence. I like to look at consumer
confidence as being about a mile wide and a sixteenth of an inch thick. Any
negative event can affect consumer confidence and alter spending plans pretty
quickly. While we don't think it will happen, a slowdown in the economy is one
factor that could prove unsettling for the consumer and affect the expected
outlook.
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
[PIE CHART]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
ON 9/30/97
- -----------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER, FIRST TIER 85%
.......................................................................
DOMESTIC BANK CDS 13
.......................................................................
FEDERAL AGENCIES 2
- -----------------------------------------------------------------------
TOTAL 100%
</TABLE>
* Portfolio composition is subject to change.
4
<PAGE> 5
PORTFOLIO OF INVESTMENTS
KEMPER CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1997
(VALUE IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS VALUE
- -----------------------------------------------------------
<S> <C> <C>
BANKING--1.5%
- ----------------------------------------------------------
Credit Lyonnais N.A., Inc.
5.71%, 10/21/97 $ 4,984
- ----------------------------------------------------------
BUSINESS LOANS--23.5%
- ----------------------------------------------------------
Ace Overseas Corp.
5.59%, 10/17/97 9,975
Broadway Capital Corp.
5.62%, 10/20/97 9,971
First Brands Commercial, Inc.
5.61%, 11/21/97 4,961
Jet Funding Corp.
5.65%, 11/20/97 1,984
Madison Funding Corp.
5.63%, 10/16/97 3,292
Monte Rosa Capital Corp.
5.62%, 11/21/97 9,921
Preferred Receivables Funding
Corp.
5.56%, 10/16/97 9,977
Sigma Finance, Inc.
5.60% - 5.62%, 10/9/97 -
11/26/97 9,951
Strategic Asset Funding Corp.
5.68%, 12/1/97 4,953
Windmill Funding Corp.
5.58%, 10/29/97 9,957
Working Capital Management Co.
5.68%, 10/6/97 4,996
-----------------------------------------------
79,938
- ----------------------------------------------------------
CAPITAL AND EQUIPMENT LENDING--20.4%
- ----------------------------------------------------------
BTM Capital Corp.
5.64% - 5.68%, 10/3/97 -
10/15/97 7,992
Caterpillar Financial Services
Corp.
(a) 5.58%, 10/28/97 5,000
5.55%, 11/19/97 9,925
Eiger Capital Corp.
5.54%, 10/9/97 9,988
Ford Motor Credit Co.
5.52%, 10/8/97 9,989
Mitsubishi Motors Credit of
America, Inc.
5.64%, 10/1/97 - 10/28/97 9,979
SRD Finance, Inc.
5.66%, 10/16/97 4,290
(a) Sanwa Business Credit Corp.
5.68%, 10/16/97 6,000
Showa Leasing (USA), Inc.
5.67%, 10/27/97 5,976
-----------------------------------------------
69,139
<CAPTION>
- ----------------------------------------------------------
VALUE
- ----------------------------------------------------------
CAPTIVE BUSINESS LENDING--10.2%
- ----------------------------------------------------------
<S> <C> <C>
BAT Capital Corp.
5.62%, 11/20/97 $ 4,961
CSW Credit, Inc.
5.60%, 12/4/97 9,902
(a) FINOVA Capital Corp.
5.71%, 10/14/97 5,000
Orix America, Inc.
5.64%, 10/14/97 4,990
Sony Capital Corp.
5.56%, 10/16/97 9,977
-----------------------------------------------
34,830
- ----------------------------------------------------------
COMMUNICATIONS AND MEDIA--2.9%
- ----------------------------------------------------------
Tribune Co.
5.61%, 10/31/97 9,954
- ----------------------------------------------------------
CONSUMER LENDING--5.9%
- ----------------------------------------------------------
Countrywide Home Loans
5.56%, 10/10/97 9,986
Transamerica Finance Group
5.56%, 10/30/97 9,955
------------------------------------------------
19,941
- -----------------------------------------------------------
DIVERSIFIED FINANCE--7.3%
- -----------------------------------------------------------
CIT Group Holdings, Inc.
5.54%, 11/3/97 9,950
Dynamic Funding Corp.
5.68%, 10/10/97 4,993
General Electric Capital Corp.
5.52%, 10/7/97 9,991
------------------------------------------------
24,934
- -----------------------------------------------------------
FINANCIAL SERVICES--5.9%
- -----------------------------------------------------------
(a) Bear Stearns Companies, Inc.
5.63%, 10/20/97 5,000
(a) Goldman Sachs Group, L.P.
5.58%, 10/17/97 5,000
(a)(b) Lehman Brothers Holdings, Inc.
5.62%, 10/15/97 5,000
(a) Morgan Stanley Group, Inc.
5.63%, 10/20/97 5,000
------------------------------------------------
20,000
- ----------------------------------------------------------
HEALTH CARE--2.9%
- ----------------------------------------------------------
A.H. Robins Co., Inc.
5.57%, 11/24/97 9,917
</TABLE>
5
<PAGE> 6
PORTFOLIO OF INVESTMENTS
(VALUE IN THOUSANDS)
<TABLE>
<CAPTION> VALUE
- ----------------------------------------------------------
UTILITIES--4.3%
- ----------------------------------------------------------
<S> <C> <C>
GTE Corp.
5.60%, 10/24/97 $ 9,964
New Hampshire Industrial
Development Authority
5.65%, 12/8/97 4,500
------------------------------------------------
14,464
------------------------------------------------
TOTAL CORPORATE
OBLIGATIONS--84.8%
(average maturity: 26 days) 288,101
------------------------------------------------
BANK OBLIGATIONS
- ----------------------------------------------------------
CERTIFICATES OF DEPOSIT
- ----------------------------------------------------------
(a) AmSouth Bank of Alabama
5.56%, 10/7/97 5,000
(a) Bankers Trust Co.
5.69%, 10/1/97 4,999
(a) Comerica Bank
5.58%, 12/22/97 4,997
(a) CoreStates Bank, N.A.
5.63%, 10/6/97 2,000
(a) Key Bank, N.A.
5.64%, 10/6/97 4,998
MBNA America Bank, N.A.
5.64%, 11/6/97 5,000
(a) Morgan Guaranty Trust
5.63%, 10/1/97 4,999
(a) Old Kent Bank
5.70%, 10/1/97 5,000
(a) PNC Bank, N.A.
5.62%, 10/1/97 4,998
------------------------------------------------
TOTAL BANK OBLIGATIONS--12.4%
(AVERAGE MATURITY: 16 DAYS) 41,991
------------------------------------------------
<CAPTION>
VALUE
- ----------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES--1.5%
- ----------------------------------------------------------
<S> <C> <C>
(a) Student Loan Marketing
Association
5.27%, 10/7/97 $ 4,994
------------------------------------------------
TOTAL INVESTMENTS--98.7%
(average maturity: 24 days) 335,086
------------------------------------------------
OTHER ASSETS, LESS
LIABILITIES--1.3% 4,569
------------------------------------------------
NET ASSETS--100% $ 339,655
------------------------------------------------
</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, 1997. The dates shown represent the demand date or next interest rate
change date.
(b) Illiquid security representing 1.5% of net assets at September 30, 1997.
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, 1997, 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 1993. 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, 1997 by correspondence with the custodian and brokers. 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, 1997, 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 1993 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
7
<PAGE> 8
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(IN THOUSANDS)
<TABLE>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
<S> <C>
Investments, at amortized cost $335,086
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 11,348
- ------------------------------------------------------------------------
Interest 358
- ------------------------------------------------------------------------
TOTAL ASSETS 346,792
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 103
- ------------------------------------------------------------------------
Payable for:
Dividends 228
- ------------------------------------------------------------------------
Fund shares redeemed 1,210
- ------------------------------------------------------------------------
Securities purchased 4,998
- ------------------------------------------------------------------------
Management fee 112
- ------------------------------------------------------------------------
Distribution services fee 156
- ------------------------------------------------------------------------
Administrative services fee 63
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 171
- ------------------------------------------------------------------------
Trustees' fees and other 96
- ------------------------------------------------------------------------
Total liabilities 7,137
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $339,655
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
Net asset value and redemption price per share
- ------------------------------------------------------------------------
CLASS A SHARES
($90,524 / 90,524 shares outstanding) $1.00
- ------------------------------------------------------------------------
CLASS B SHARES
(subject to contingent deferred sales charge)
($216,980 / 216,980 shares outstanding) $1.00
- ------------------------------------------------------------------------
CLASS C SHARES
(subject to contingent deferred sales charge)
($32,151 / 32,151 shares outstanding) $1.00
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1997
(IN THOUSANDS)
<TABLE>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
<S> <C>
Interest income $14,853
- -----------------------------------------------------------------------
Expenses:
Management fee 1,059
- -----------------------------------------------------------------------
Distribution services fee 1,617
- -----------------------------------------------------------------------
Administrative services fee 648
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,740
- -----------------------------------------------------------------------
Professional fees 36
- -----------------------------------------------------------------------
Reports to shareholders 101
- -----------------------------------------------------------------------
Trustees' fees and other 28
- -----------------------------------------------------------------------
Total expenses 5,229
- -----------------------------------------------------------------------
NET INVESTMENT INCOME $ 9,624
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
- ------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 9,624 8,717
- ------------------------------------------------------------------------------------------------
Net realized loss -- (2,833)
- ------------------------------------------------------------------------------------------------
Change in unrealized depreciation -- 2,833
- ------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (9,624) (8,717)
- ------------------------------------------------------------------------------------------------
Net increase from capital share transactions and total
increase in net assets 132,039 31,059
- ------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 207,616 176,557
- ------------------------------------------------------------------------------------------------
END OF YEAR $339,655 207,616
- ------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Cash Reserves Fund is a separate series of
FUND 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 a
contingent deferred sales charge payable upon
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 INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES 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 MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES 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 $1,059,000 for the
year ended September 30, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors
Inc. (ZKDI). For services under the distribution
services agreement, the Fund pays ZKDI a fee of
.75% of average daily net assets of the Class B an
Class C shares. Pursuant to the agreement, ZKDI
enters into related selling group agreements with
various firms at various rates for sales of Class
and Class C shares. In addition, ZKDI 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>
DISTRIBUTION COMMISSIONS AND
FEES AND CDSC DISTRIBUTION FEES PAID BY
RECEIVED BY ZKDI ZKDI TO FIRMS
----------------- -------------------------
<S> <C> <C>
Year ended September 30, 1997 $2,441,000 3,908,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, the Fund pays ZKDI a fee at an
annual rate of up to .25% of average daily net
assets. ZKDI 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 ASF PAID BY ZKDI
THE FUND TO ZKDI TO FIRMS
---------------- ----------------
<S> <C> <C>
Year ended September 30, 1997 $648,000 824,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $1,300,000 for the year ended September 30,
1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the year ended September 30, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $17,000 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>
YEAR ENDED SEPTEMBER 30,
1997 1996
--------------------------
(IN THOUSANDS)
----------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
----------------------------------------------------------------------------
Class A $287,087 83,271
----------------------------------------------------------------------------
Class B 761,916 578,233
----------------------------------------------------------------------------
Class C 162,655 48,599
============================================================================
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
Class A 1,966 1,673
----------------------------------------------------------------------------
Class B 6,813 6,108
----------------------------------------------------------------------------
Class C 619 205
============================================================================
SHARES REDEEMED
----------------------------------------------------------------------------
Class A (247,433) (91,408)
----------------------------------------------------------------------------
Class B (700,563) (554,442)
----------------------------------------------------------------------------
Class C (141,021) (41,180)
============================================================================
CONVERSION OF SHARES
----------------------------------------------------------------------------
Class A 13,097 8,605
----------------------------------------------------------------------------
Class B (13,097) (8,605)
----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS AND TOTAL
INCREASE IN NET ASSETS $132,039 31,059
----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS A SHARES
--------------------------------------------------
YEAR ENDED
SEPTEMBER TWO MONTHS YEAR ENDED JULY
30, ENDED 31,
------------ SEPTEMBER 30, ------------------
1997 1996 1995 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<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 .05 .01 .05 .03 .02
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.57% 4.67 .85 4.99 2.78 2.42
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 1.16% 1.08 .92 .89 .92 .93
- --------------------------------------------------------------------------------------------------
Net investment income 4.45% 4.53 5.11 4.75 2.86 2.42
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS B SHARES
--------------------------------------------------
YEAR ENDED
SEPTEMBER TWO MONTHS YEAR ENDED JULY
30, ENDED 31,
------------ SEPTEMBER 30, ------------------
1997 1996 1995 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<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 .03 .04 .01 .04 .02 .02
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.49% 3.73 .71 4.08 1.78 1.56
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------
Expenses 2.19% 1.99 1.79 1.78 1.89 1.82
- --------------------------------------------------------------------------------------------------
Net investment income 3.42% 3.62 4.24 3.86 1.89 1.53
- --------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------
CLASS C SHARES
---------------------------------------------------
YEAR ENDED
SEPTEMBER TWO MONTHS MAY 31
30, ENDED YEAR ENDED TO
------------ SEPTEMBER 30, JULY 31, JULY 31,
1997 1996 1995 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <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
- ------------------------------------------------------------------------------------------------
Net investment income and dividends declared .04 .04 .01 .04 --
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.85% 3.93 .71 4.08 .42
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.84% 1.79 1.78 1.76 1.80
- ------------------------------------------------------------------------------------------------
Net investment income 3.77% 3.82 4.25 3.88 2.64
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS
SEPTEMBER 30, ENDED YEAR ENDED JULY 31,
------------------ SEPTEMBER 30, ---------------------------
1997 1996 1995 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $339,655 207,616 176,557 213,031 424,317 166,808
- --------------------------------------------------------------------------------------------------------------
</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).
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM ROBERT C. PECK, JR.
Trustee Vice President
DONALD L. DUNAWAY FRANK J. RACHWALSKI, JR.
Trustee Vice President
ROBERT B. HOFFMAN RICHARD L. VANDENBERG
Trustee Vice President
DONALD R. JONES PHILIP J. COLLORA
Trustee Vice President
and Secretary
SHIRLEY D. PETERSON
Trustee JEROME L. DUFFY
Treasurer
WILLIAM P. SOMMERS
Trustee ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED 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 (11/97) 1039870
Printed in the U.S.A.
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
