<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER CASH RESERVES FUND
". . . We will continue to hold the fund's average maturity of securities on the
shorter side to respond quickly to changing market conditions . . . to provide
the best yield possible for our shareholders. . . ."
[KEMPER FUNDS LOGO]
<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, 1998
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
KEMPER CASH RESERVES FUND CLASS A 4.46%
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS B 3.49%
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS C 3.80%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
An investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Company (FDIC) or any other government agency. Although the fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the fund.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1998 (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 4.58% 4.41% N/A 3.93% (since 1/10/92)
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS B 0.53 3.23 3.97 4.54 (since 2/6/84)
- ----------------------------------------------------------------------------------------------------------------
KEMPER CASH RESERVES FUND CLASS C 3.90 N/A N/A 3.89 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is not a guarantee of future performance. Returns and yields
will 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 the fund's investments over the periods specified, assuming
reinvestment of dividends and, where indicated, adjustment for the maximum sales
charge. There is no initial sales charge for Class A shares. However, applicable
sales charges apply on exchanges. For Class B shares, the maximum contingent
deferred sales charge (CDSC) is 4 percent. Class C shares have no sales charge
adjustment, but redemptions within one year of purchase may be subject to a CDSC
of 1 percent. share classes invest in the same underlying portfolio. Average
annual total return reflects annualized change. For additional information, see
the Prospectus and Statement of Additional Information and the Financial
Highlights at the end of the report.
TERMS TO KNOW
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 fluctuation in fund income.
YIELD CURVE Yields tend to vary directly with a security's length of time to
maturity. When the relationship between yield and maturity is plotted on a graph
it is called the YIELD CURVE. If yields for long-term investments drop relative
to yields on short-term investments, the YIELD CURVE will "flatten" since there
will be less of a difference in yield between shorter-term and longer-term
investments. When this happens, it also means longer-term securities are
relatively less attractive. When long-term yields increase relative to
short-term yields, the curve steepens and longer-term securities become
relatively more desirable.
<PAGE> 3
PERFORMANCE UPDATE
[RACHWALSKI PHOTO]
FRANK RACHWALSKI IS A SENIOR VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, INC.
AND LEAD PORTFOLIO MANAGER OF KEMPER CASH RESERVES FUND. RACHWALSKI HOLDS B.B.A.
AND M.B.A. DEGREES FROM LOYOLA UNIVERSITY.
JOHN W. STUEBE JOINED SCUDDER KEMPER INVESTMENTS IN 1979 AND IS A VICE
PRESIDENT. HE IS A PORTFOLIO MANAGER OF KEMPER CASH RESERVES FUND. STUEBE
RECEIVED A B.S. IN FINANCE FROM THE UNIVERSITY OF ILLINOIS AND AN M.A. IN
ECONOMICS FROM DEPAUL UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY 3 TIME, BASED ON MARKET AND OTHER
CONDITIONS.
ALTHOUGH THE U.S. ECONOMY SUSTAINED ITS HEALTHY GROWTH TREND THROUGHOUT KEMPER
CASH RESERVE FUND'S FISCAL YEAR (10/1/97 TO 9/30/98), THE ECONOMIC CRISIS IN
ASIA EXTINGUISHED MANY SIGNS OF INFLATION. THE FEDERAL RESERVE BOARD HELD ITS
POSITION ON INTEREST RATES AS IT MAINTAINED A "WAIT AND SEE" POLICY UNTIL THE
VERY END OF THE FUND'S REPORTING PERIOD, AT WHICH TIME IT LOWERED RATES 25 BASIS
POINTS. LEAD PORTFOLIO MANAGER FRANK RACHWALSKI DISCUSSES THE MARKET AND KEMPER
CASH RESERVES FUND PERFORMANCE.
Q FRANK, IN LOOKING OVER THE LAST 12 MONTHS, WE SAW STEADY ECONOMIC GROWTH
WITH MINIMAL INFLATION. WHAT FACTORS HELPED MAINTAIN THIS HEALTHY FINANCIAL
CLIMATE?
A Employment levels remained strong throughout this period giving more
people money to spend. While this fueled the U.S. economy, Asia's economic
problems surfaced in October 1997 and continued well into 1998. Initially, the
Japanese yen fell relative to the U.S. dollar. Consequently, low-priced exports
from Asia minimized demand for American-made products causing increased
inventories domestically. Production slowed as manufacturers sold product from
existing inventories and this, in turn, slowed the economy just enough to keep
inflation in check. Exports still remain quite weak.
Q NOT ONLY DID INFLATION REMAIN IN CHECK WHILE ECONOMIC GROWTH KEPT STEADY,
BUT BY SOME MEASURES, THE ECONOMY STRENGTHENED DURING THE FIRST HALF OF THE
FUND'S FISCAL YEAR. HOW DID THE FEDERAL RESERVE (THE FED) REACT TO THIS
CONTINUED RUN OF ECONOMIC GROWTH?
A Well, ordinarily the Board of Governors (of the Federal Reserve) would
have increased the Fed Funds rate to slow growth. But, with the Asian problems
and low inflation, they were content to maintain their prevailing policy for
most of the year. Then, at the end of September, the Fed changed its position,
actually easing rates by 25 basis points. The Fed reacted to global economic
problems, stresses developing in worldwide financial markets and prospects for
slower growth in the months ahead.
Q WITH ALL THESE FACTORS COMING INTO PLAY, WHAT WAS YOUR STRATEGY FOR
MANAGING THE FUND?
A When there was no change in monetary policy, which as I said, was the case
until the very end of the fund's reporting period, we saw a continued flattening
and actual inversion of the yield curve. This meant long-term interest rates
fell relative to short-term interest rates. Since we had no yield incentive to
invest in securities with longer maturities, we kept our average maturity at
approximately 30 days. Even with the change by the Fed, we're managing Kemper
Cash Reserves Fund with relatively short average maturities to provide liquidity
and take advantage of developing market opportunities.
3
<PAGE> 4
PERFORMANCE UPDATE
Q A 30-DAY AVERAGE MATURITY IS SHORTER THAN THE INDUSTRY AVERAGE WHICH IS
APPROXIMATELY 51 DAYS FOR GENERAL PURPOSE MONEY MARKET FUNDS. WHY DID YOU STAY
IN THAT RANGE AND HOW DID THIS STRATEGY AFFECT PERFORMANCE?
A When there's not a big difference in yields among the investments we're
considering for the portfolio, the challenge is trying to maximize returns. With
a short average maturity, we have the flexibility to react and take advantage of
whatever fluctuations in short-term interest rates occur. This strategy works
well for us because we were able to invest in the best issues possible, as they
became available.
Q WHERE DO YOU THINK THE ECONOMY IS GOING FROM HERE AND HOW WILL THAT
INFLUENCE YOUR INVESTMENT MANAGEMENT CHOICES?
A The biggest problem facing our economy is uncertainty on both a political
plane with a troubled presidency and a financial plane due to stresses emanating
from much-publicized worldwide economic and financial concerns. Tightening
credit standards and slower economic growth are possible. We will continue to
hold the fund's average maturity of securities on the shorter side to respond
quickly to changing market conditions. We want to provide the best yield
possible for our shareholders, and to maintain the flexibility to be in a
position to take advantage of opportunities. Overall, I still believe the
economy is on good footing, with low unemployment, low interest rates and high
consumer confidence continuing.
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER, FIRST TIER 65%
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 7
- --------------------------------------------------------------------------------
FEDERAL AGENCIES 28
- --------------------------------------------------------------------------------
TOTAL 100%
</TABLE>
[PIE CHART]
- COMMERCIAL PAPER, FIRST TIER
- CERTIFICATE OF DEPOSIT
ON 9/30/98 - FEDERAL AGENCIES
- -------------------------------------------------
* Portfolio composition is subject to change.
4
<PAGE> 5
PORTFOLIO OF INVESTMENTS
KEMPER CASH RESERVES FUND
Portfolio of Investments at September 30, 1998
(Value in thousands)
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS VALUE
- ---------------------------------------------------------
<S> <C>
BANKING--7.3%
- ---------------------------------------------------------
Merita, N.A.
5.34% - 5.61%, 10/6/98 $ 39,970
- ---------------------------------------------------------
BUSINESS LOANS--23.8%
- ---------------------------------------------------------
Apex Funding Corp.
5.83%, 10/30/98 4,977
Asset Portfolio Funding Corp.
5.58%, 10/22/98 4,984
Asset Securitization Cooperative
Corp.
5.36%, 10/9/98 24,970
Broadway Capital Corp.
5.78%, 10/26/98 4,980
Fairway Finance Corp.
5.46%, 10/9/98 24,970
Falcon Asset Securitization Corp.
5.55%, 11/9/98 4,970
FCAR Owner Trust I
5.58% - 5.59%, 10/2/98 - 10/7/98 15,993
(a) FINOVA Capital Corp.
5.26%, 10/1/98 5,000
Gotham Capital Corp.
5.77%, 10/13/98 4,991
Madison Funding Corp.
5.61%, 10/8/98 4,995
Monte Rosa Capital Corp.
5.58%, 10/15/98 4,989
Quincy Capital Corp.
5.36%, 10/20/98 24,930
----------------------------------------------
130,749
- ---------------------------------------------------------
CAPITAL AND EQUIPMENT LENDING--4.5%
- ---------------------------------------------------------
Centric Capital Corp.
5.60%, 10/26/98 7,969
(a) IBM Credit Corp.
5.64%, 10/1/98 5,000
(a) John Deere Capital Corp.
5.56%, 11/9/98 4,999
Moat Funding, LLC
5.50%, 12/15/98 6,921
----------------------------------------------
24,889
- ---------------------------------------------------------
CONSUMER PRODUCTS AND SERVICES--4.5%
- ---------------------------------------------------------
Seagram Company, Ltd.
5.39%, 10/13/98 24,955
- ---------------------------------------------------------
CONSUMER LENDING--.9%
- ---------------------------------------------------------
(a) Ford Motor Credit Co.
5.71%, 10/1/98 $ 5,000
- ---------------------------------------------------------
DIVERSIFIED FINANCE--9.7%
- ---------------------------------------------------------
Alpine Securitization Corp.
5.60%, 10/1/98 23,527
Thunder Bay Funding, Inc.
5.59%, 10/27/98 4,980
Variable Funding Capital Corp.
5.60%, 10/20/98 4,985
Xerox Credit Corp.
5.51%, 10/1/98 20,000
----------------------------------------------
53,492
- ---------------------------------------------------------
FINANCIAL SERVICES--5.8%
- ---------------------------------------------------------
(a) Bear Stearns Cos., Inc.
5.56%, 10/19/98 5,000
(a) Goldman Sachs Group, L.P.
5.26%, 10/1/98 5,000
(a) Lehman Brothers Holdings, Inc.
5.64%, 10/20/98 5,000
(a) Merrill Lynch & Co., Inc.
5.57%, 10/21/98 7,000
(a) Morgan Stanley, Dean Witter & Co.
5.55%, 10/19/98 5,000
Nomura Holding America, Inc.
5.73%, 10/29/98 4,978
----------------------------------------------
31,978
- ---------------------------------------------------------
MANUFACTURING/INDUSTRIAL--6.4%
- ---------------------------------------------------------
E.I. du Pont de Nemours & Co.
5.31% - 5.53%, 10/8/98 34,964
- ---------------------------------------------------------
UTILITIES--.9%
- ---------------------------------------------------------
GTE Corp.
5.59%, 10/6/98 4,996
----------------------------------------------
TOTAL CORPORATE
OBLIGATIONS--63.8%
(AVERAGE MATURITY: 13 DAYS) 350,993
----------------------------------------------
</TABLE>
5
<PAGE> 6
PORTFOLIO OF INVESTMENTS
(Value in thousands)
<TABLE>
<CAPTION>
BANK OBLIGATIONS VALUE
- ---------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT--
U.S. BANKS -- 5.5%
- ---------------------------------------------------------
(a) Bank One
5.00%, 10/6/98 $ 5,000
(a) FCC National Bank
5.55%, 10/1/98 4,998
(a) Key Bank, N.A.
4.97%, 10/6/98 5,000
(a) Mellon Bank Corp.
5.60%, 11/9/98 5,000
(a) J.P. Morgan & Co., Inc.
5.52%, 10/7/98 4,998
(a) Northern Trust Corp.
5.52%, 10/8/98 4,997
----------------------------------------------
29,993
- ---------------------------------------------------------
CERTIFICATES OF DEPOSIT--
FOREIGN BANKS--1.8%
- ---------------------------------------------------------
(a) National Bank of Canada
5.57%, 10/5/98 4,999
Svenska Handelsbanken
5.51%, 10/2/98 4,998
----------------------------------------------
9,997
----------------------------------------------
TOTAL BANK OBLIGATIONS--7.3%
(AVERAGE MATURITY: 9 DAYS) 39,990
----------------------------------------------
- ---------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES
- ---------------------------------------------------------
Federal Home Loan Mortgage Corp.
5.42%, 10/8/98 $ 74,921
Federal National Mortgage Association
5.16%, 10/9/98 74,914
(a) Student Loan Marketing Association
4.75%, 10/6/98 4,998
----------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
NOTES--28.2%
(AVERAGE MATURITY: 8 DAYS) 154,833
----------------------------------------------
TOTAL INVESTMENTS--99.3%
(AVERAGE MATURITY: 11 DAYS) 545,816
----------------------------------------------
CASH AND OTHER ASSETS, LESS
LIABILITIES--.7% 3,573
------------------------------------------------
NET ASSETS--100% $549,389
------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIOS 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, 1998. The dates shown represent the demand date or next interest rate
change date.
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, 1998, 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 1994. 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, 1998 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, 1998, 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 1994 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1998
7
<PAGE> 8
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at amortized cost $545,816
- ------------------------------------------------------------------------
Cash 260
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 8,438
- ------------------------------------------------------------------------
Interest 643
- ------------------------------------------------------------------------
TOTAL ASSETS 555,157
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Dividends 385
- ------------------------------------------------------------------------
Fund shares redeemed 4,260
- ------------------------------------------------------------------------
Management fee 283
- ------------------------------------------------------------------------
Distribution services fee 132
- ------------------------------------------------------------------------
Administrative services fee 56
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 423
- ------------------------------------------------------------------------
Trustees' fees and other 229
- ------------------------------------------------------------------------
Total liabilities 5,768
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $549,389
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
Net asset value and redemption price per share
- ------------------------------------------------------------------------
CLASS A SHARES
($196,771 / 196,771 shares outstanding) $1.00
- ------------------------------------------------------------------------
CLASS B SHARES
(subject to contingent deferred sales charge)
($284,735 / 284,735 shares outstanding) $1.00
- ------------------------------------------------------------------------
CLASS C SHARES
(subject to contingent deferred sales charge)
($67,883 / 67,883 shares outstanding) $1.00
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1998
(in thousands)
<TABLE>
- -----------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $16,532
- -----------------------------------------------------------------------
Expenses:
Management fee 1,269
- -----------------------------------------------------------------------
Distribution services fee 1,388
- -----------------------------------------------------------------------
Administrative services fee 655
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,800
- -----------------------------------------------------------------------
Professional fees 28
- -----------------------------------------------------------------------
Reports to shareholders 177
- -----------------------------------------------------------------------
Trustees' fees and other 142
- -----------------------------------------------------------------------
Total expenses 5,459
- -----------------------------------------------------------------------
NET INVESTMENT INCOME $11,073
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------
Net investment income $ 11,073 9,624
- ----------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (11,073) (9,624)
- ----------------------------------------------------------------------------------------------------------
Net increase from capital share transactions and total
increase in net assets 209,734 132,039
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Beginning of year 339,655 207,616
- ----------------------------------------------------------------------------------------------------------
END OF YEAR $549,389 339,655
- ----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Cash Reserves Fund (the Fund) is a separate
FUND 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 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
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'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.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the 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 $1,269,000 for the
year ended September 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the Fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination. The
Board of Trustees of the Fund will seek shareholder
approval of the new investment management agreement
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
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 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, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION COMMISSIONS AND
FEES AND CDSC DISTRIBUTION FEES PAID BY
RECEIVED BY KDI KDI TO FIRMS
---------------- -------------------------
<S> <C> <C>
Year ended September 30, 1998 $2,225,000 3,735,000
</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 ASF PAID BY KDI
THE FUND TO KDI TO FIRMS
--------------- ---------------
<S> <C> <C>
Year ended September 30, 1998 $655,000 913,000
</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
$1,353,000 for the year ended September 30, 1998.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended September 30,
1998, the Fund made no payments to its officers and
incurred trustees' fees of $28,000 to independent
trustees.
- --------------------------------------------------------------------------------
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,
---------------------------------
1998 1997
(IN THOUSANDS)
-----------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
-----------------------------------------------------------------------------
Class A $ 2,248,959 287,087
-----------------------------------------------------------------------------
Class B 635,811 761,916
-----------------------------------------------------------------------------
Class C 868,930 162,655
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-----------------------------------------------------------------------------
Class A 2,882 1,966
-----------------------------------------------------------------------------
Class B 5,110 6,813
-----------------------------------------------------------------------------
Class C 851 619
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SHARES REDEEMED
-----------------------------------------------------------------------------
Class A (2,173,206) (247,433)
-----------------------------------------------------------------------------
Class B (545,554) (700,563)
-----------------------------------------------------------------------------
Class C (834,049) (141,021)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
CONVERSION OF SHARES
-----------------------------------------------------------------------------
Class A 27,612 13,097
-----------------------------------------------------------------------------
Class B (27,612) (13,097)
-----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS AND TOTAL
INCREASE IN NET ASSETS $ 209,734 132,039
-----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS A SHARES
-------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JULY 31,
------------------- SEPTEMBER 30, -----------
1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------------
<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 .04 .04 .05 .01 .05 .03
- ------------------------------------------------------------------------------------------------------
Less dividends declared .04 .04 .05 .01 .05 .03
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.58% 4.57 4.67 .85 4.99 2.78
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------
Expenses 1.21% 1.16 1.08 .92 .89 .92
- ------------------------------------------------------------------------------------------------------
Net investment income 4.49% 4.45 4.53 5.11 4.75 2.86
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS B SHARES
-------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JULY 31,
------------------- SEPTEMBER 30, -----------
1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------------
<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 .03 .03 .04 .01 .04 .02
- ------------------------------------------------------------------------------------------------------
Less dividends declared .03 .03 .04 .01 .04 .02
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.53% 3.49 3.73 .71 4.08 1.78
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------
Expenses 2.22% 2.19 1.99 1.79 1.78 1.89
- ------------------------------------------------------------------------------------------------------
Net investment income 3.48% 3.42 3.62 4.24 3.86 1.89
- ------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------------------
CLASS C SHARES
--------------------------------------------------------------
MAY 31
YEAR ENDED TWO MONTHS TO
SEPTEMBER 30, ENDED YEAR ENDED JULY
------------------- SEPTEMBER 30, JULY 31, 31,
1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------------------
<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 .04 .04 .04 .01 .04 --
- ------------------------------------------------------------------------------------------------------------
Less dividends declared .04 .04 .04 .01 .04 --
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.90% 3.85 3.93 .71 4.08 .42
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------------------
Expenses 1.88% 1.84 1.79 1.78 1.76 1.80
- ------------------------------------------------------------------------------------------------------------
Net investment income 3.82% 3.77 3.82 4.25 3.88 2.64
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------
TWO MONTHS
YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED JULY 31,
---------------------------- SEPTEMBER 30, -------------------
1998 1997 1996 1995 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period
(in thousands) $549,389 339,655 207,616 176,557 213,031 424,317
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: The total returns for the year ended July 31, 1995 include the effect of
a capital contribution from Scudder Kemper. 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.
Scudder Kemper agreed to absorb certain operating expenses of the Fund during a
portion of the year ended July 31, 1994. 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%); Class B shares (2.12% and 1.66%).
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
All of the dividends are taxable as ordinary income. These dividends, whether
received in cash or reinvested in shares, must be included in your federal
income tax return and must be reported by the Fund to the Internal Revenue
Service in accordance with U.S. Treasury Department Regulations.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
14
<PAGE> 15
NOTES
15
<PAGE> 16
TRUSTEES AND OFFICERS
<TABLE>
TRUSTEES OFFICERS
<S> <C> <C>
DANIEL PIERCE MARK S. CASADY RICHARD L. VANDENBERG
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President Vice President
and Secretary
LEWIS A. BURNHAM MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
DONALD R. JONES BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
SHIRLEY D. PETERSON
Trustee ROBERT C. PECK, JR.
Vice President
WILLIAM P. SOMMERS
Trustee KATHRYN L. QUIRK
EDMOND D. VILLANI Vice President
Trustee
FRANK J. RACHWALSKI, JR.
Vice President
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ---------------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- ---------------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
- ---------------------------------------------------------------------------------------
INDEPENDENT ERNST & YOUNG LLP
AUDITORS 233 South Wacker Drive
Chicago, IL 60606
- ---------------------------------------------------------------------------------------
PRINCIPAL KEMPER DISTRIBUTORS, INC.
UNDERWRITER 222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed in the U.S.A. on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Cash Reserves Fund prospectus.
KCRF - 2 (11/98) 1059720
