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SIGNATURE JEROME L. DUFFY
TITLE TREASURER
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,610
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,091
<NUMBER-OF-SHARES-REDEEMED> (209)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 6.27
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .88
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.15
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
SUPPLEMENTARY REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Kemper Funds
In planning and performing our audit of the financial statements of
each of the Kemper Funds listed in Exhibit A attached hereto (the
"Funds") for the year ended September 30, 1995, we considered their
internal control structure, including procedures for safeguarding
securities, in order to determine our auditing procedures for the
purpose of expressing our opinion on their financial statements and
to comply with the requirements of Form N-SAR, not to provide
assurance on the internal control structure.
The management of the Funds is responsible for establishing and
maintaining an internal control structure. In fulfilling this
responsibility, estimates and judgments by management are required to
assess the expected benefits and related costs of internal control
structure policies and procedures. Two of the objectives of an
internal control structure are to provide management with reasonable,
but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and recorded
properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure,
errors or irregularities may occur and not be detected. Also,
projection of any evaluation of the structure to future periods is
subject to the risk that it may become inadequate because of changes
in conditions or that the effectiveness of the design and operation
may deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure
that might be material weaknesses under standards established by the
American Institute of Certified Public Accountants. A material
weakness is a condition in which the design or operation of the
specific internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in
amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving the
internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined
above as of September 30, 1995.
This report is intended solely for the information and use of
management and the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
November 14, 1995
Kemper Funds Exhibit A
September 30, 1995
Tax-Exempt California Money Market Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper High Yield Fund
Kemper Portfolios:
Kemper Cash Reserve Fund
Kemper U.S. Mortgage Fund
Kemper Short-Intermediate Government Fund
Report of Independent Auditors
The Board of Trustees
Kemper Funds
We have examined the accompanying description of Kemper Financial
Services, Inc. ("KFS") policies and procedures applicable to the
multiple distribution system for calculating the net asset value,
dividends and distributions of, and for allocating income and
expenses to, various classes of shares of each of the Kemper
Funds listed in Exhibit A attached hereto (the "Funds"). Our
examination included procedures to obtain reasonable assurance
about whether (1) the accompanying description presents fairly,
in all material respects, the aspects of KFS policies and
procedures that may be relevant to the Funds' internal control
structure, (2) the control structure policies and procedures
included in the description were suitably designed to achieve the
control objectives specified in the description, if those
policies and procedures were complied with satisfactorily, and
(3) such policies and procedures had been placed in operation as
of September 30, 1995. The control objectives were specified by
KFS. Our examination was performed in accordance with standards
established by the American Institute of Certified Public
Accountants and included those procedures we considered necessary
in the circumstances to obtain a reasonable basis for rendering
our opinion.
In our opinion, the accompanying description of the
aforementioned portions of the internal control structure
presents fairly, in all material respects, the relevant aspects
of KFS's policies and procedures that had been placed in
operation as of September 30, 1995. Also, in our opinion, the
policies and procedures, as described, are suitably designed to
provide reasonable assurance that the specified control
objectives would be achieved if the described policies and
procedures were complied with satisfactorily.
In addition to the procedures we considered necessary to render
our opinion as expressed in the previous paragraph, we applied
tests to specific policies and procedures, listed in Section III.
The nature, timing, extent, and results of the tests are listed
in Section IV. This information has been provided to the Funds
and to their auditors to be taken into consideration, along with
information about the internal control structure at the Funds,
when making assessments of control risks for the Funds. In our
opinion, the policies and procedures that were tested, were
operating with sufficient effectiveness to provide reasonable,
but not absolute, assurance that the control objectives specified
in Section II were achieved as of September 30, 1995.
The relative effectiveness and significance of specific policies
and procedures at KFS and their effect on assessments of control
risk at the Funds are dependent on their interaction with the
policies, procedures, and other factors present at the Funds.
The description and tests of operating effectiveness of the
policies and procedures at KFS are as of September 30, 1995. Any
projection of such information to the future is subject to the
risk that, because of change, the description may no longer
portray the system in existence. The potential effectiveness of
specified policies and procedures at KFS is subject to inherent
limitations and, accordingly, errors or irregularities may occur
and not be detected. Furthermore, the projection of any
conclusions, based on our findings, to future periods is subject
to the risk that changes may alter the validity of such
conclusions.
This report is intended for use by the management of KFS, the
Funds and their auditors, and the Securities and Exchange
Commission.
ERNST & YOUNG
LLP
Chicago, Illinois
November 14, 1995
SECTION I
Description of the System
Kemper Financial Services, Inc. ("KFS") implemented plans which
allow each of the Kemper Funds listed in Exhibit A attached
hereto (the "Funds") to issue multiple classes of shares.
Under the multiple distribution system, the Funds provide
investors with the option of purchasing shares in any or all of
the following four ways: (i) with a front-end sales load and a
service fee (the "Front-End Load Option" or "Class A shares");
(ii) without a front-end sales load, but subject to a contingent
deferred sales charge as well as to a distribution fee pursuant
to a Rule 12b-1 Plan and to a service fee (the "Deferred Option"
or "Class B shares"); (iii) without a front-end sales load or
contingent deferred sales charge but subject to a Rule 12b-1 Plan
providing for a distribution fee and to a service fee (the Level
Load Option" or "Class C shares"); and (iv) without a front-end
sales load, contingent deferred sales charge, distribution fee or
service fee ("Institutional Option" or "Class I shares"). In
addition, the Funds may from time to time create one or more
additional classes of shares, the terms of which may differ from
the Class A, B, C and I shares. Class B shares are converted to
Class A shares six years after issuance. Class C and I shares
have no conversion feature.
The net asset value of all outstanding shares of each class is
computed based on the net assets and shares outstanding
attributable to each class. All expenses incurred by each Fund
are allocated to each class based on the relative percentage of
adjusted net assets except for the expenses of the distribution
plan which are allocated to Class B and C shares, administrative
service fees which are allocated to Class A, B and C shares, and
class specific expenses which will be borne exclusively by that
class. Due to the specific allocation of expenses that are borne
solely by certain classes, the net income attributable to, and
the dividends paid by, each class may vary.
SECTION II
Specific Control Objectives
Following are the specific control objectives of each Fund's
system of internal accounting control relating to the allocation
of income, expenses, gains and losses and the calculation of NAV
and dividends/distributions for the four classes of shares:
1. Direct expenses charged to each class of shares are
correctly recorded in the Fund accounting records and
allocated to the correct class of shares.
2. Income, other operating expenses and realized and unrealized
gains and losses are allocated properly to each class of
shares based upon the relative net assets of each class of
shares at the beginning of the day after adjusting for the
prior day's Fund share activity.
3. Dividend rates and daily per share NAV's for each class of
shares reflect the proper allocation of income, expenses and
realized and unrealized gains and losses, including the
proper amount of any direct expenses charged to each class
of shares.
SECTION III
Procedures to Achieve Specific Control Objectives
The following additional procedures will be performed for each
Fund to meet the specific control objectives:
1. Preparation of the Multi-Class Pricing-NAV Worksheet
("Worksheet") daily.
2. A determination of the dividends by class is made by
dividing daily net investment income allocated to each class
by the number of shares of that class eligible to receive
dividends (record shares).
The periodic distribution rate for realized gains will be
determined by taking total net realized gains for each class
and dividing by total record date shares.
3. Upon completion of the Worksheet and the calculation of the
dividend rate, and prior to furnishing the computed NAV and
dividend rate to the Shareholder Service Agent, the
Worksheet and calculation will be reviewed for accuracy by
an accounting supervisor ("Final Reviewer"). The Final
Reviewer will initial the Worksheet as evidence of the
review.
4. If the Final Reviewer notes any unusual fluctuation in the
NAV or daily dividend rates between the classes of shares of
a Fund, he or she will research the matter and document the
reasons for, and the reasonableness of, the fluctuation.
5. On a monthly basis, a reconciliation of all account balances
for each class of shares to the general ledger will be
performed. The reconciliation will be reviewed and
initialed by the reviewer.
SECTION IV
Tests of Effectiveness of Control Structure Policies and
Procedures
Our tests of the effectiveness of control structure policies and
procedures were designed to determine whether:
1. The description of the KFS' policies and procedures included
in Section I of this report presents fairly, in all material
respects, those aspects of the KFS' control structure that
may be relevant to a user organization's internal control
structure,
2. the control structure policies and procedures described in
Section III of this report were suitably designed to achieve
the control objectives defined in Section II of this report,
if those policies and procedures were complied with
satisfactorily,
3. the control structure policies and procedures described in
Section III of this report had been placed in operation as
of the date specified, and
4. the control structure policies and procedures were operating
with sufficient effectiveness to provide reasonable, but not
absolute, assurance that the control objectives in Section
II were achieved as of the date listed in Exhibit A attached
hereto ("Report Date").
Our tests of the effectiveness of control structure policies and
procedures included the following procedures, to the extent we
considered necessary: (a) a review of the KFS' organizational
structure, including the segregation of functional
responsibilities, policy statements, and personnel policies, (b)
discussions with management, accounting, administrative and other
personnel who are assigned responsibilities for developing,
ensuring adherence to and applying control structure policies and
procedures, and (c) observations of personnel in the performance
of their assigned duties.
Our tests of the effectiveness of control structure policies and
procedures included such other tests as we considered necessary
in the circumstances to evaluate whether those policies and
procedures, and the extent of compliance with them, are
sufficient to provide reasonable, but not absolute, assurance
that the specified control objectives were achieved as of
September 30, 1995. Our tests of the operational effectiveness
of control structure policies and procedures were designed to
cover the calculation as of September 30, 1995 for each of the
procedures listed in Section III which satisfy the control
objectives listed in Section II of this report. In selecting
particular tests of the operational effectiveness of control
structure policies and procedures, we considered (a) the nature
of the items being tested, (b) the kinds and competence of
available evidential matter, (c) the nature of the audit
objectives to be achieved, (d) the assessed level of control
risk, and (e) the expected efficiency and effectiveness of the
tests.
Tests of effectiveness of control structure policies and
procedures included:
Tests of source documentation to ensure validity of
information.
Tests of input and supervisory control procedures in place
to ensure accuracy, completeness, validity and integrity of
processing.
Tests of recalculation of output to verify accuracy.
Tests of output control procedures and resultant documents
and reports relative to specific calculations to ensure
accurate and timely updates of accounting records were
achieved.
Testing procedures were designed and performed to enable us to
conclude that the control objectives listed in Section II of this
report were achieved as of
Report Date.
Kemper Funds Exhibit A
September 30, 1995
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper High Yield Fund
Kemper Portfolios:
Kemper Cash Reserve Fund
Kemper U.S. Mortgage Fund
Kemper Short-Intermediate Government Fund
Exhibit 77C
Kemper Small Capitalization Equity Fund
Form N-SAR for the period ended 9/30/95
File No. 811-1702
Page 1
A special meeting of Registrant's shareholders was held on
September 19, 1995. Votes regarding the items submitted to
shareholder vote are set forth below.
Item 1: Election of the Board of Trustees
David W. Belin
Vote Number
---- -----------
FOR 68,461,155
WITHHELD 1,561,505
Lewis A. Burnham
Vote Number
---- -----------
FOR 68,531,177
WITHHELD 1,491,483
Donald L. Dunaway
Vote Number
---- -----------
FOR 68,482,161
WITHHELD 1,540,499
Robert B. Hoffman
Vote Number
---- -----------
FOR 68,517,173
WITHHELD 1,505,487
Donald R. Jones
Vote Number
---- -----------
FOR 68,531,177
WITHHELD 1,491,483
David B. Mathis
Vote Number
---- -----------
FOR 68,363,123
WITHHELD 1,659,537
Exhibit 77C
Kemper Small Capitalization Equity Fund
Form N-SAR for the period ended 9/30/95
File No. 811-1702
Page 2
Shirley D. Peterson
Vote Number
---- -----------
FOR 68,447,150
WITHHELD 1,575,510
William P. Sommers
Vote Number
---- -----------
FOR 68,489,164
WITHHELD 1,533,496
Stephen B. Timbers
Vote Number
---- -----------
FOR 68,545,182
WITHHELD 1,477,478
Item 2: Selection of Independent Auditors
Vote Number
---- -----------
F0R 66,803,291
AGAINST 916,326
ABSTAIN 2,303,041
Exhibit 77C
Kemper Small Capitalization Equity Fund
Form N-SAR for the period ended 9/30/95
File No. 811-1702
Page 3
Item 3: New Investment Management Agreement
Vote Number
---- ----------
F0R 65,690,248
AGAINST 1,375,097
ABSTAIN 2,957,314
Item 4B: New Rule 12B-1 Distribution Plan (For Class B
Shareholders Only)
Kemper Municipal Bond Fund
Vote Number
---- ----------
F0R 14,184,834
AGAINST 531,044
ABSTAIN 1,197,133
Item 4C: New Rule 12B-1 Distribution Plan (For Class C
Shareholders Only)
Vote Number
---- ----------
F0R 163,501
AGAINST 3,057
ABSTAIN 19,158
MRB|W:\FUNDS\NSAR.EXH\KSCF995.77C|111795
