-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ggEOa3qMmqQy9SkpTHq8falBdu8yP/rXEHijpgBlFqCcNryBUTLUEVKz20WVCaGc s9YS0lm1iNyZqwm7BG5X3Q== 0000950124-95-001932.txt : 19950710 0000950124-95-001932.hdr.sgml : 19950710 ACCESSION NUMBER: 0000950124-95-001932 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER INCOME & CAPITAL PRESERVATION FUND INC CENTRAL INDEX KEY: 0000055185 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 362797860 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02305 FILM NUMBER: 95551903 BUSINESS ADDRESS: STREET 1: 120 S LASALLE ST CITY: CHICAGO STATE: IL ZIP: 60603 BUSINESS PHONE: 3127811121 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER INCOME SECURITIES INC DATE OF NAME CHANGE: 19740214 FORMER COMPANY: FORMER CONFORMED NAME: SUPERVISED INVESTORS CONVERTIBLE FUND IN DATE OF NAME CHANGE: 19721106 N-30D 1 SAR-INCOME & CAP. PRESERVATION FUND 1 Kemper Income and Capital Preservation Fund Semiannual Report to Shareholders For the Period Ended April 30, 1995 Offering investors the opportunity for a high level of current income and preservation of capital (LOGO) 2 KEMPER FIXED INCOME FUNDS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1994 Kemper Adjustable Rate U.S. Government Fund Kemper Diversified Income Fund Kemper U.S. Government Securities Fund Kemper High Yield Fund Kemper Income and Capital Preservation Fund Kemper Portfolios comprised of the following three series: Kemper Cash Reserves Fund Kemper U.S. Mortgage Fund Kemper Short-Intermediate Government Fund ------------------------- Kemper Corporation, the parent of Kemper Financial Services, Inc. ("KFS," the investment manager for the Funds), has entered into an agreement in principle with an investor group led by Zurich Insurance Company ("Zurich") pursuant to which Kemper Corporation would be acquired by the investor group in a merger transaction. As part of the transaction, Zurich or an affiliate would purchase KFS. A definitive agreement is expected in early May 1995, subject to the completion of the investor group's due diligence. Consummation of the transaction is subject to a number of contingencies, including approval by the board and stockholders of Kemper Corporation and the Zurich board and regulatory approvals. Because the transaction would constitute an assignment of the Funds' investment management agreements with KFS and, where applicable, Rule 12b-1 agreements under the Investment Company Act of 1940, and therefore a termination of such agreements, the transaction is subject also to approval of new agreements by Kemper Fund boards and shareholders. If the contingencies are timely met, the transaction is expected to close early in the fourth quarter of 1995. After consummation of the transaction, it is anticipated that the KFS management team and the Kemper Fund portfolio managers would remain in place and that the Kemper Funds would be operated in the same manner as they are currently. Also, Paul F. Sloan has been named the portfolio manager of Kemper U.S. Government Securities Fund and Kemper U.S. Mortgage Fund and portfolio co-manager of Kemper Short-Intermediate Government Fund and Kemper Adjustable Rate U.S. Government Fund replacing J. Patrick Beimford, Jr. Mr. Beimford continues as Director of Fixed Income Investments at KFS. Prior to joining KFS, Mr. Sloan was the director of institutional portfolio management at an investment management company and prior thereto he was a vice president and investment officer for a regional bank. He received a B.A. in English Literature from the University of Detroit, Detroit, Michigan, and an M.B.A. in Finance and Business Economics from Wayne State University, Detroit, Michigan. In addition, Kemper Diversified Income Fund is now managed by a team of portfolio managers who are specialists in the basic sectors in which it invests. Messrs. Robert S. Cessine, Gordon K. Johns, Michael A. McNamara, Harry E. Resis, Jr., Paul F. Sloan and Jonathan W. Trutter are the members of the team. Mr. Cessine is senior vice president and director of investment grade corporate and sovereign bond research at KFS. Prior to joining KFS in January 1993, he was a senior corporate bond analyst and chairman of the bond selection committee at an investment management company. He received a masters degree in Finance from the University of Wisconsin, Madison, Wisconsin, a masters degree in Agricultural Economics from the University of Maryland, Baltimore/College Park, Maryland, and a B.S. in Economics from the University of Wisconsin, Madison, Wisconsin. Mr. Cessine is a Chartered Financial Analyst. Mr. Johns joined Kemper in 1988 and currently is executive vice president of KFS and managing director of Kemper Investment Management Company Limited in London. Previously, he was head of international fixed income fund management at an investment bank in London. He received a B.A. in law from Balliol College in Oxford, United Kingdom. Mr. McNamara joined KFS in February 1972 and is currently a senior vice president of KFS. He received a B.S. in Business Administration from the University of Missouri, St. Louis, Missouri, and an M.B.A. in Finance from Loyola University, Chicago, Illinois. Mr. Resis joined KFS in June 1988 and is currently a senior vice president of KFS. He received a B.A. in Finance from Michigan State University, East Lansing, Michigan. Mr. Sloan's background is discussed above. Mr. Trutter is a first vice president of KFS. Before joining KFS in April 1989, he was a vice president in commercial banking. Mr. Trutter has an A.B. with dual majors in East Asian Languages and International Relations from University of Southern California, Los Angeles and an M.B.A. from Kellogg Graduate School of Management at Northwestern University, Evanston, Illinois. He is also a Certified Public Accountant. Separately, effective February 1, 1995, KFS transferred all its duties and responsibilities as principal underwriter, distributor and administrator of the Funds to Kemper Distributors, Inc., a wholly-owned subsidiary of KFS. KFS continues to provide investment management services. See "Investment Manager and Underwriter" in the prospectus. May 8, 1995 KFIF-1A 5/95 3 DEAR SHAREHOLDER: We are pleased to provide you with an overview of the performance of your fund for the six-month period ended April 30, 1995. In addition, following the economic overview is a question and answer interview with your fund's Portfolio Manager. - - -------------------------------------------- PERFORMANCE & DIVIDEND REVIEW - - ---------------------------------------------------------- Total Return Performance* FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1995 (UNADJUSTED FOR ANY SALES CHARGE) Kemper Income and Capital Preservation Fund A 7.23% Kemper Income and Capital Preservation Fund B 6.73% Kemper Income and Capital Preservation Fund C 6.75% Lipper Corporate Debt A Rated Funds Category Average** 6.72% - - ----------------------------------------------------------
Returns are historical and do not represent future performance. Returns and net asset value fluctuate. Shares are redeemable at current net asset value, which may be more or less than original cost. When comparing Kemper Income and Capital Preservation Fund A to other Corporate Debt A Rated funds in its Lipper** category for the following time periods ended April 30, 1995, this fund ranked: 1-YEAR 5-YEAR 10-YEAR 15-YEAR 12 of 104 12 of 48 10 of 24 11 of 18
The following table shows dividend and yield information for Kemper Income and Capital Preservation Fund as of April 30, 1995. - - ----------------------------------------------------------------------- A Shares B Shares C Shares --------- --------- --------- April Dividend: $0.0515 $0.0448 $0.0449 Net Asset Value: $8.16 $8.15 $8.15 Annualized Distribution Rate+: 7.57% 6.60% 6.61% SEC Yield+: 6.84% 6.19% 6.22% - - -----------------------------------------------------------------------
- - --------------------------------------- GENERAL ECONOMIC OVERVIEW Comfortable with the pace of economic growth and the level of interest rates, investors enjoyed generally positive performance in both the fixed-income and stock markets in the first five months of 1995. But as we enter the summer months, we are seeing a decided weakening in the economy and heightened uncertainty. What effect has the recent economic growth had on price inflation? Have higher interest rates slowed the economy so much that a recession is now a true threat--and will the Federal Reserve Board now reverse itself and start to ease rates? Of course, these are the questions that only time will answer. At Kemper, we believe that economic growth in the second quarter will be flat or possibly even negative. Such a scenario is more severe than the press-heralded "soft landing" and could conceivably set the scene for lower interest rates. At this point--before the release of second quarter data--we believe we have seen only signs of a slowdown, not a recession. We think that the Fed is not likely to alter direction quickly. Against this backdrop, we believe that the opportunities for investors will be concentrated in high quality investments. Companies can no longer count on the economy to provide an above average earnings boost. Rather, stocks that have proven themselves with a pattern of consistent earnings are likely to attract investor support. Specifically, industries that produce more consistent earnings, such as consumer nondurables, technology and selected capital goods can be expected to do well. Picking the right sectors to invest in will be the key challenge for equity investors during the next few quarters. We look for the fixed-income markets to continue their strong performance as they tend to do well during periods of slow growth and low inflation. Leading international economies are lagging the U.S. economy. Japan and Germany, whose economies typically follow U.S. growth, are not as robust as in past cycles. This phenomenon makes international investing very complex currently. Moreover, conditions in emerging market countries underline the importance of careful research and experience in understanding how these markets work. We are calm about what has been described as a dollar crisis. While it's true that the dollar has depreciated against the Japanese yen and many European currencies, we note that the dollar has appreciated in value against the currency of Canada and Mexico, two of our largest trading partners. Political leadership also has some bearing on the progress of the economy and the state of the financial markets. In the months preceding a presidential election year, it has not been uncommon for incumbents to attempt to stimulate growth. Given our Republican Congress and Democratic President, however, we do not consider this a foregone conclusion as we move closer to 1996. 1 4 With that as an economic backdrop, we encourage you to read the following detailed report of your fund, including an interview with your fund's portfolio manager. Thank you for your continued support. We appreciate the opportunity to serve your investment needs. Sincerely, [SIG] Stephen B. Timbers Chief Investment and Executive Officer June 13, 1995 Stephen Timbers is Chief Executive Officer and is also Chief Investment Officer of Kemper Financial Services, Inc. (KFS). KFS and its [PHOTO] affiliates manage approximately $60 billion in assets, including $42 billion in retail mutual funds. Timbers is a graduate of Yale University and holds an M.B.A. from Harvard University.
* Total return measures net investment income and capital gain or loss from portfolio investments, assuming reinvestment of all dividends. During the period noted, securities prices fluctuated. For additional information, see the Prospectus and Statement of Additional Information and the Financial Highlights at the end of this report. **Lipper Analytical Services, Inc. performance and rankings are based upon changes in net asset value with all dividends reinvested and do not include the effect of sales charges and, if they had, results may have been less favorable. Performance and rankings are historical and do not reflect future performance. + Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on April 30, 1995. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The SEC yield is net investment income per share earned over the month ended April 30, 1995 shown as an annualized percentage of the maximum offering price on that date. 2 5 Q&A AN INTERVIEW WITH PORTFOLIO MANAGER ROBERT CESSINE Robert Cessine joined Kemper Financial Services, Inc. (KFS) in 1993 and is now a Senior Vice President of KFS and the Portfolio Manager of [PHOTO] Kemper Income and Capital Preservation Fund. Mr. Cessine received both his B.S. and M.B.A. degrees from the University of Wisconsin. He also is a Chartered Financial Analyst. Q: WHEN WE LAST SPOKE AT THE END OF OCTOBER, THE BOND MARKET WAS IN THE MIDST OF A DIFFICULT YEAR. THAT SCENARIO SEEMS TO HAVE CHANGED IN RECENT MONTHS. A: Yes, the environment for bonds has actually been quite positive. Since mid-November of last year, interest rates have trended lower, boosting all sectors of the bond market. To give you an idea of the improvement, the Lehman Brothers Aggregate Bond Index+, which is a broad measure of bond market activity, fell 2.92% in 1994. For the first four months of 1995 the index returned 6.51%, more than recovering last year's losses. Q: WHAT'S BEHIND THIS DECLINE IN INTEREST RATES? A: In late November, we began to see signs that the economy had slowed from the very strong pace of earlier in 1994. As you may know, slower economic growth is usually positive for bond prices because it implies that inflation, which erodes the value of fixed payments, is less likely to rise. Throughout the first quarter of 1995, economic data such as industrial production, retail sales, employment and consumer confidence continued to be weak. Since these suggested slower economic growth, yields declined and bond prices rallied. Q: THE FUND PRIMARILY INVESTS IN INVESTMENT-GRADE CORPORATE BONDS AND U.S. GOVERNMENT SECURITIES. HOW DID THESE SECTORS PERFORM FOR THE PAST SIX MONTHS? A: The corporate market performed exceptionally well versus Treasuries and advanced 8.42% according to the Lehman Brothers Corporate Bond Index++. Mortgages followed, advancing 7.25% according to the Lehman Brothers Mortgage-Backed Index+++. Treasuries rose 6.48% according to the Lehman Brothers Treasury Index++++. Both corporate bonds and mortgage-backed securities outperformed Treasuries over the six-month period. These sectors benefited from greater investor demand relative to the supply, because of their higher yields. Q: HOW DOES THIS COMPARE TO YOUR POSITIONING IN THESE SECTORS? A: Because of our cautious outlook, we chose to lower the fund's weightings in long-term corporates, which tend to be more vulnerable to price declines if interest rates rise or if the demand for corporates diminishes. For example, on December 31, 1994, the fund's weighting in long-term corporates was 54%, down from 62% at the end of October. In January, our outlook improved. We saw better relative value in corporates, particularly those of BBB quality, and in mortgages, which we thought offered attractive yields relative to Treasuries. We gradually increased our position in both of these sectors so that in April, we held a 63% position in corporates and 12% in mortgages. All things considered, then, our sector allocation was fairly well-timed. Long-term securities advanced in December, so our cautious positioning hurt us somewhat. But, our solid weighting in long-term, BBB quality corporates and mortgages for the remainder of the period served us well, since these were among the best performing sectors of the bond market. 3 6 Q: WAS SHIFTING FROM SHORT-TERM TO LONGER-TERM SECURITIES ALSO PART OF YOUR STRATEGY? A: Yes, definitely. Our purchase of longer-term Treasuries in the early months of 1995 boosted the fund's duration from 4.7 years at year-end, to 5.6 years at the end of April. Remember that duration is essentially a weighted average term to maturity, where cash flows are expressed in terms of their current values. The longer a portfolio's duration, the more its price can be expected to fluctuate in response to changes in interest rates. So, by increasing duration we were able to give the fund more exposure to the bond market rally. Q: WERE THERE ANY SECTORS OR NAMES WITHIN THE CORPORATE SECTOR THAT PERFORMED PARTICULARLY WELL? A: The airlines, media, cable, paper and forest and chemicals and processing sectors all did well because of continued economic growth. Specific names in the fund also benefited from what we call "spread contraction." This occurs when a corporate bond appreciates in price, so that its yield exceeds Treasuries by a smaller amount. For example, Westinghouse Electric rallied with expectations of continued reductions in their debt. News American Holdings and Black and Decker benefited from predictions that their credit ratings would be upgraded. RJR Nabisco and Phillip Morris gained when it became apparent that the risk related to a breakup of these companies would not impair their bond prices. Q: THE FUND'S CLASS A SHARES ROSE 7.23% IN THE SIX-MONTH PERIOD, WHEREAS THE AVERAGE RETURN OF ITS LIPPER PEER GROUP WAS 6.72%.* TO WHAT DO YOU ATTRIBUTE THIS GOOD PERFORMANCE? A: As I mentioned earlier, we benefited from a heavy weighting in the corporate sector, sufficient exposure to falling interest rates, and choosing the right corporate issues with the experience of our credit research team. Our good performance was really the result of all of these. Q: WHAT IS YOUR OUTLOOK FOR THE HIGH-GRADE BOND MARKET? A: We continue to be cautiously optimistic. Moderate economic growth should continue to benefit corporate bond issuers, while favorable levels of supply and demand are expected to continue. We think that issue selection will continue to be important to attain strong performance. PORTFOLIO COMPOSITION
April 30, 1995 December 31, 1994 October 31, 1994 -------------- ----------------- ---------------- MORTGAGE-BACKED 12% 6% 6% TREASURY BONDS AND NOTES 13 13 12 (with maturities of at least 1 year) FOREIGN GOVERNMENTS 3 1 2 CORPORATE BONDS 63 54 62 CASH AND EQUIVALENTS 9 26 18 DURATION 5.6 years 4.7 years 5.0 years
+ The Lehman Brothers Aggregate Bond Index is an unmanaged index generally representative of intermediate-term government bonds, investment grade corporate debt securities and mortgage-backed securities. Source is Bloomberg. ++ The Lehman Corporate Bond Index is an unmanaged index including all publicly issued, fixed-rate, nonconvertible investment grade domestic corporate debt. Source is Bloomberg. +++ Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that covers all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). Source is Bloomberg. ++++ Lehman Brothers Treasury Index is an unmanaged index that includes all public obligations of the U.S. Treasury excluding flower bonds and foreign-targeted issues. Source is Bloomberg. * Lipper Analytical Services, Inc. performance is based upon changes in net asset value with all dividends reinvested and does not include the effect of sales charges and, if it had, results may have been less favorable. Performance is historical and does not reflect future performance. 4 7 PORTFOLIO OF INVESTMENTS April 30, 1995 (Dollars in thousands)
Principal Amount Value --------- -------- U.S. GOVERNMENT OBLIGATIONS GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES-11.9% - - ------------------------------------------------------------ 7.50%, 2023 and 2024 $33,037 $ 32,222 - - ------------------------------------------------------------ 8.50%, 2024 29,332 29,910 - - ------------------------------------------------------------ 62,132 U.S. TREASURY SECURITIES-18.7% - - ------------------------------------------------------------ 9.375%, 1996 30,000 30,867 - - ------------------------------------------------------------ 8.50%, 2000 27,100 28,971 - - ------------------------------------------------------------ 8.00%, 2001 20,000 21,047 - - ------------------------------------------------------------ 10.375%, 2012 5,500 6,850 - - ------------------------------------------------------------ 7.625%, 2025 10,000 10,342 - - ------------------------------------------------------------ 98,077 TOTAL U.S. GOVERNMENT OBLIGATIONS-30.6% (Cost: $162,196) 160,209 - - ------------------------------------------------------------ FOREIGN GOVERNMENT OBLIGATIONS - - ------------------------------------------------------------ Province of Manitoba, 7.75%, 2016 5,000 5,025 - - ------------------------------------------------------------ Province of Nova Scotia, 8.25%, 2019 4,000 4,177 - - ------------------------------------------------------------ Republic of Finland, 7.875%, 2004 5,000 5,122 - - ------------------------------------------------------------ TOTAL FOREIGN GOVERNMENT OBLIGATIONS-2.7% (Cost: $14,765) 14,324 - - ------------------------------------------------------------ CORPORATE OBLIGATIONS COMMUNICATIONS, MEDIA AND ELECTRONICS-6.0% - - ------------------------------------------------------------ Continental Cablevision, Inc., 9.50%, 2013 3,685 3,657 - - ------------------------------------------------------------ News American Holdings, Inc., 8.5%, 2005 7,500 7,688 - - ------------------------------------------------------------ Rogers Cablesystems Limited, 10.00%, 2005 3,500 3,553 - - ------------------------------------------------------------ Tele-Communications, Inc. 9.80%, 2012 4,350 4,509 8.75%, 2023 3,100 2,844 - - ------------------------------------------------------------ Time Warner Entertainment Company, L.P., 8.375%, 2033 5,000 4,523 - - ------------------------------------------------------------ Viacom International Inc., 8.00%, 2006 5,000 4,613 - - ------------------------------------------------------------ 31,387 CONSUMER PRODUCTS, RETAILING AND SERVICES-9.4% - - ------------------------------------------------------------ Black & Decker, Corp., 7.50%, 2003 5,000 4,844 - - ------------------------------------------------------------ Federated Department Stores, 10.00%, 2001 5,000 5,300 - - ------------------------------------------------------------ Grand Metropolitan Investment Corp., 7.45%, 2035 5,000 5,005 - - ------------------------------------------------------------ The Hertz Corporation, 7.00%, 2003 5,000 4,752 - - ------------------------------------------------------------ Philip Morris Companies Inc., 7.25%, 2003 $ 4,000 $ 3,869 - - ------------------------------------------------------------ Philips Electronics N.V., 8.375%, 2006 7,000 7,304 - - ------------------------------------------------------------ RJR Nabisco, Inc., 8.75%, 2005 7,500 7,347 - - ------------------------------------------------------------ Singer N.V., 7.00%, 2003 5,000 4,427 - - ------------------------------------------------------------ Vons Co., 9.625%, 2002 6,000 6,270 - - ------------------------------------------------------------ 49,118 DRUGS AND HEALTH CARE-1.0% - - ------------------------------------------------------------ Columbia Healthcare, 8.36%, 2024 5,000 4,994 - - ------------------------------------------------------------ FINANCIAL SERVICES-24.0% - - ------------------------------------------------------------ Abbey National First Capital, 8.20%, 2004 5,000 5,165 - - ------------------------------------------------------------ ABN-Amro Holding N.V., 8.25%, 2009 7,000 7,104 - - ------------------------------------------------------------ Aegon N.V., 8.00%, 2006 5,000 5,069 - - ------------------------------------------------------------ African Development Bank, 9.30%, 2000 4,000 4,327 - - ------------------------------------------------------------ Ameritech Capital Funding Corporation, 7.50%, 2005 5,000 5,009 - - ------------------------------------------------------------ Aon Corporation, 6.70%, 2003 2,800 2,627 - - ------------------------------------------------------------ Associates Corporation, N.A., 8.25%, 1999 5,000 5,175 - - ------------------------------------------------------------ Capital One Bank 8.125%, 1998 3,500 3,559 8.125%, 2000 4,000 4,068 - - ------------------------------------------------------------ Crestar Financial Corporation, 8.75%, 2004 5,000 5,270 - - ------------------------------------------------------------ Dean Witter, Discover and Co. 6.875%, 2003 2,500 2,381 6.75%, 2013 2,500 2,127 - - ------------------------------------------------------------ First Fidelity Bancorporation, 9.625%, 1999 5,000 5,401 - - ------------------------------------------------------------ First USA Bank, 8.10%, 1997 7,500 7,610 - - ------------------------------------------------------------ Fleet Financial Group, Inc., 8.625%, 2007 5,000 5,234 - - ------------------------------------------------------------ General Electric Capital Corporation, 8.85%, 2005 4,150 4,511 - - ------------------------------------------------------------ Inter-American Development Bank, 7.125%, 2023 5,000 4,550 - - ------------------------------------------------------------ IBRD Japan, 14.90%, 1997 3,500 4,026 - - ------------------------------------------------------------ Kansallis Osake Pankki, 8.65%, 2050 5,000 5,036 - - ------------------------------------------------------------ Lehman Brothers Holdings, 8.375%, 1999 4,000 4,049 - - ------------------------------------------------------------ MBNA Corporation, 6.875%, 1999 5,000 4,873 - - ------------------------------------------------------------ NationsBank Corporation, 9.50%, 2004 3,150 3,489 - - ------------------------------------------------------------ Riggs National Corp., 8.50%, 2006 7,000 6,766 - - ------------------------------------------------------------ Standard Credit Card, 7.25%, 2008 5,000 4,835 - - ------------------------------------------------------------ Svenska Handelbanken, 8.35%, 2004 5,000 5,151 - - ------------------------------------------------------------ United States Leasing International, Inc., 8.75%, 2001 3,000 3,177 - - ------------------------------------------------------------ Wells Fargo and Company, 8.75%, 2002 5,000 5,266 - - ------------------------------------------------------------ 125,855
5 8 PORTFOLIO OF INVESTMENTS April 30, 1995 (Dollars in thousands)
Principal Amount Value --------- -------- MANUFACTURING AND CONSTRUCTION MATERIALS-5.8% - - ------------------------------------------------------------- American Home Products, 7.90%, 2005 $ 7,500 $ 7,667 - - ------------------------------------------------------------- American Standard Inc., 10.875%, 1999 3,000 3,173 - - ------------------------------------------------------------- CSR America, 6.875%, 2004 5,000 4,711 - - ------------------------------------------------------------- Grumman Corporation, 10.375%, 1999 5,000 5,108 - - ------------------------------------------------------------- Owens-Illinois, Inc., 11.00%, 2003 2,000 2,165 - - ------------------------------------------------------------- Westinghouse Electric Corporation 8.875%, 2001 5,500 5,695 8.625%, 2012 2,000 1,955 - - ------------------------------------------------------------- 30,474 OIL, GAS AND PETROLEUM SERVICES-3.0% - - ------------------------------------------------------------- Lyondell Petrochemical, 9.125%, 2002 5,000 5,281 - - ------------------------------------------------------------- Parker & Parsley Petroleum, 8.875%, 2005 5,000 5,065 - - ------------------------------------------------------------- USX Corporation, 9.625%, 2003 5,000 5,405 - - ------------------------------------------------------------- 15,751 PAPER AND FOREST PRODUCTS-1.7% - - ------------------------------------------------------------- Boise Cascade Company, 9.45%, 2009 5,000 5,370 - - ------------------------------------------------------------- James River Corporation, 9.25%, 2021 3,500 3,736 - - ------------------------------------------------------------- 9,106 TRANSPORTATION-7.1% - - ------------------------------------------------------------- Delta Airlines 9.32%, 2009 4,624 4,797 9.75%, 2021 3,000 3,101 - - ------------------------------------------------------------- Ford Motor Credit, 7.75%, 2005 5,000 5,004 - - ------------------------------------------------------------- General American Transportation Corp., 10.29%, 1999 5,000 5,482 - - ------------------------------------------------------------- General Motors Acceptance Corporation, 8.875%, 2010 5,000 5,450 - - ------------------------------------------------------------- Penske Truck Leasing, 8.25%, 1999 $ 5,000 $ 5,118 - - ------------------------------------------------------------- United Airlines 10.67%, 2004 3,500 3,819 11.21%, 2014 4,000 4,504 - - ------------------------------------------------------------- 37,275 UTILITIES-5.6% - - ------------------------------------------------------------- Chesapeake and Potomic Telephone Company of Virginia, 8.375%, 2029 5,000 5,427 - - ------------------------------------------------------------- Cincinnati Gas & Electric Company, 7.20%, 2003 5,000 4,442 - - ------------------------------------------------------------- Commonwealth Edison Company, 8.125%, 2007 5,000 4,863 - - ------------------------------------------------------------- Long Island Lighting Company, 7.125%, 2005 7,500 6,229 - - ------------------------------------------------------------- Niagra Mohawk Power Corporation, 8.00%, 2004 3,000 2,940 - - ------------------------------------------------------------- Texas Utilities Electric Company, 7.375%, 2025 6,000 5,369 - - ------------------------------------------------------------- 29,270 TOTAL CORPORATE OBLIGATIONS-63.6% (Cost: $335,687) 333,230 - - ------------------------------------------------------------- TOTAL INVESTMENTS-96.9% (Cost: $512,648) 507,763 - - ------------------------------------------------------------- OTHER ASSETS, LESS LIABILITIES-3.1% 16,319 - - ------------------------------------------------------------- NET ASSETS-100% $524,082 =============================================================
NOTE TO PORTFOLIO OF INVESTMENTS Based on the cost of investments of $512,648,000 for federal income tax purposes at April 30, 1995, the aggregate gross unrealized appreciation was $6,921,000, the aggregate gross unrealized depreciation was $11,806,000 and the net unrealized depreciation of investments was $4,885,000. See accompanying Notes to Financial Statements. 6 9 STATEMENT OF ASSETS AND LIABILITIES April 30, 1995 (in thousands) ASSETS - - ------------------------------------------------------ Investments, at value (Cost: $512,648) $507,763 - - ------------------------------------------------------ Receivable for: Fund shares sold 592 - - ------------------------------------------------------ Investments sold 25,362 - - ------------------------------------------------------ Interest 9,811 - - ------------------------------------------------------ Total assets 543,528 - - ------------------------------------------------------ LIABILITIES AND NET ASSETS - - ------------------------------------------------------ Cash overdraft 3,693 - - ------------------------------------------------------ Payable for: Fund shares redeemed 686 - - ------------------------------------------------------ Investments purchased 14,502 - - ------------------------------------------------------ Management fee 238 - - ------------------------------------------------------ Administrative services fee 79 - - ------------------------------------------------------ Custodian and transfer agent fees and related expenses 184 - - ------------------------------------------------------ Other 64 - - ------------------------------------------------------ Total liabilities 19,446 - - ------------------------------------------------------ Net assets $524,082 ====================================================== ANALYSIS OF NET ASSETS - - ------------------------------------------------------ Excess of amounts received from issuance of shares over amounts paid on redemptions of shares on account of capital $543,991 - - ------------------------------------------------------ Accumulated net realized loss on sales of investments (27,725) - - ------------------------------------------------------ Unrealized depreciation of investments (4,885) - - ------------------------------------------------------ Undistributed net investment income 12,701 - - ------------------------------------------------------ Net assets applicable to shares outstanding $524,082 - - ------------------------------------------------------ THE PRICING OF SHARES - - ------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($494,478,862 / 60,561,056 shares outstanding) $8.16 - - ------------------------------------------------------ Maximum offering price per share (net asset value, plus 4.71% of net asset value or 4.50% of offering price) $8.54 ====================================================== CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($28,867,640 / 3,542,688 shares outstanding) $8.15 ====================================================== CLASS C SHARES Net asset value and redemption price per share ($736,034 / 90,279 shares outstanding) $8.15 ======================================================
See accompanying Notes to Financial Statements. STATEMENT OF OPERATIONS Six months ended April 30, 1995 (in thousands) INTEREST INCOME $ 22,072 - - ------------------------------------------------------ EXPENSES - - ------------------------------------------------------ Management fee 1,367 - - ------------------------------------------------------ Distribution services fee 78 - - ------------------------------------------------------ Administrative services fee 430 - - ------------------------------------------------------ Custodian and transfer agent fees and related expenses 399 - - ------------------------------------------------------ Professional fees 16 - - ------------------------------------------------------ Reports to shareholders 41 - - ------------------------------------------------------ Trustees' fees and other 8 - - ------------------------------------------------------ Total expenses 2,339 - - ------------------------------------------------------ Net investment income 19,733 - - ------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - - ------------------------------------------------------ Net realized loss on sales of investments (7,521) - - ------------------------------------------------------ Net realized loss from futures transactions (1,858) - - ------------------------------------------------------ Net realized loss (9,379) - - ------------------------------------------------------ Net change in balance of unrealized depreciation of investments 25,450 - - ------------------------------------------------------ Net gain on investments 16,071 - - ------------------------------------------------------ Net increase in net assets resulting from operations $ 35,804 ======================================================
7 10 STATEMENT OF CHANGES IN NET ASSETS (in thousands)
Six months ended Year ended April 30, October 31, 1995 1994 ---------- ----------- OPERATIONS - - -------------------------------------------------------- Net investment income $ 19,733 $ 39,819 - - -------------------------------------------------------- Net realized loss on investments (9,379) (18,072) - - -------------------------------------------------------- Net change in unrealized depreciation 25,450 (49,533) - - -------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 35,804 (27,786) - - -------------------------------------------------------- Net equalization charges (581) (125) - - -------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS - - -------------------------------------------------------- Distribution from net investment income (19,673) (37,976) - - -------------------------------------------------------- Distribution from net realized gain on investments -- (2,890) - - -------------------------------------------------------- Distribution in excess of net realized gain on investments -- (271) - - -------------------------------------------------------- Total dividends to shareholders (19,673) (41,137) - - -------------------------------------------------------- Net (decrease) increase from capital share transactions (1,900) 10,335 - - -------------------------------------------------------- Total increase (decrease) in net assets 13,650 (58,713) - - -------------------------------------------------------- NET ASSETS - - -------------------------------------------------------- Beginning of period 510,432 569,145 - - -------------------------------------------------------- End of period (including undistributed net investment income of $12,701 in 1995 and $13,222 in 1994) $524,082 510,432 ========================================================
NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF THE FUND Kemper Income and Capital Preservation Fund currently offers three classes of shares. Class A shares are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial or a contingent deferred sales charge but are subject to higher ongoing expenses than Class A shares and do not convert into another class. The Fund may offer, to a limited group of investors, Class I shares (none sold through April 30, 1995) which are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Each share represents an identical interest in the investments of the Fund and has the same rights. 2. SIGNIFICANT ACCOUNTING POLICIES INVESTMENT VALUATION Investments are stated at value. Fixed income securities are valued by using market quotations, or independent pricing services that use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Portfolio securities that are traded on a national securities exchange are valued at the last sale price on the exchange where primarily traded or, if there is no recent sale, at the last current bid quotation. Portfolio securities that are primarily traded on foreign securities exchanges are generally valued at the preceding closing values of such securities on their respective exchanges where primarily traded. Securities not so traded are valued at the last current bid quotation if market quotations are available. Exchange traded options are valued at the last sale price unless there is no sale price, in which event prices provided by market makers are used. Over-the-counter traded options are valued based upon prices provided by market makers. Financial futures and options thereon are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Other securities and assets are valued at fair value as determined in good faith by the Board of Trustees. 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 premium and discount amortization on money market instruments and mortgage-backed securities; it also includes original issue and market discount amortization on long-term fixed income securities. Realized gains and losses from investment transactions are reported on an identified cost basis. Realized and unrealized gains and 8 11 losses on financial futures and options are included in net realized and unrealized gain (loss) on investments, as appropriate. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to designate cash or liquid high-grade securities equal to the value of the securities purchased. At April 30, 1995, the Fund had no outstanding purchase commitments. FUND SHARE VALUATION Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B 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. FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS The Fund has complied with the special provisions of the Internal Revenue Code available to investment companies for the six months ended April 30, 1995. The accumulated net realized loss on sales of investments for Federal income tax purposes at April 30, 1995, amounting to approximately $27,451,000 is available to offset future taxable gains. If not applied, the loss carryover expires during the period 2002 through 2003. On May 17, 1995, the following per share dividends were declared, payable May 31, 1995 to shareholders of record on May 18, 1995.
Class A Class B Class C - - ----------------------------------------------------------------- Income $.0515 .0448 .0450 - - -----------------------------------------------------------------
The Fund declares and pays dividends on a monthly basis. Net realized capital gains, if any, will be distributed at least annually. Differences in dividends per share are due to different class expenses. Dividends payable to its shareholders are recorded by the Fund on the ex-dividend date. Distributions are determined in accordance with income tax principles which may treat certain transactions differently from generally accepted accounting principles. EQUALIZATION ACCOUNTING A portion of proceeds from sales and cost of redemptions of Fund shares is credited or charged to undistributed net investment income so that income per share available for distribution is not affected by sales or redemptions of shares. 3. TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT The Fund has a management agreement with Kemper Financial Services, Inc. (KFS) and pays a management fee at an annual rate of .55% of the first $250 million of average daily net assets declining gradually to .40% of average daily net assets in excess of $12.5 billion. The Fund incurred a management fee of $1,367,000 for the six months ended April 30, 1995. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT The Fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Before February 1, 1995, KFS was the Fund's principal underwriter and distributor. As principal underwriter for the Fund, KDI (as successor to KFS) retained commissions of $69,000 for the six months ended April 30, 1995 for sales of Class A shares after allowing $261,000 as commissions to firms, of which $45,000 was paid to firms affiliated with KDI. For distribution services, the Fund pays KDI a fee of .75% of average daily net assets of the Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms that provide distribution services to investors. KDI compensates these firms at various rates for sales of Class B and Class C shares. During the six months ended April 30, 1995, the Fund incurred a distribution services fee for Class B and Class C shares of $78,000, and KDI paid $257,000 for commissions and distribution fees to firms, including $45,000 to firms affiliated with KDI. In addition, KDI received $25,000 of contingent deferred sales charges. ADMINISTRATIVE SERVICES AGREEMENT The Fund has an administrative services agreement with KDI. Before February 1, 1995, KFS was the Fund's administrator. 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 agreements with financial services firms that provide these services and pays these firms based on assets of Fund accounts the firms service. For the six months ended April 30, 1995, the Fund incurred an administrative services fee of $430,000 and KDI (as successor to KFS) paid $440,000 to firms, including $54,000 that was paid to firms affiliated with KDI. 9 12 CUSTODIAN AND TRANSFER AGENT AGREEMENT The Fund has a custodian agreement and a transfer agent agreement with Investors Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31, 1995, when KFS completed the sale of IFTC to a third party. For the six months ended April 30, 1995, the Fund incurred custodian and transfer agent fees of $349,000 (excluding related expenses). Pursuant to a services agreement with IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder service agent of the Fund. For the six months ended April 30, 1995, IFTC remitted shareholder service fees of $341,000 to KSvC. OFFICERS AND TRUSTEES Certain officers or trustees of the Fund are also officers or directors of KFS. During the six months ended April 30, 1995, the Fund made no direct payments to its officers and incurred trustees' fees of $2,000 to independent trustees. 4. INVESTMENT TRANSACTIONS For the six months ended April 30, 1995, investment transactions (excluding short term instruments) are as follows (in thousands): Purchases $388,107 - - ------------------------------------------------------------ Proceeds from sales 392,134 - - ------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the Fund (in thousands):
Six months ended Year ended April 30, 1995 October 31, 1994 ------------------- ------------------ Shares Amount Shares Amount ------- --------- ------- -------- Shares sold: Class A 3,181 $ 24,425 11,289 $ 93,290 - - ------------------------------------------------------------------- Class B 2,795 22,160 4,160 33,723 - - ------------------------------------------------------------------- Class C 62 507 50 408 - - ------------------------------------------------------------------- Shares issued in reinvestment of dividends: Class A 1,525 12,134 3,192 26,688 - - ------------------------------------------------------------------- Class B 64 510 19 149 - - ------------------------------------------------------------------- Class C 2 14 1 5 - - ------------------------------------------------------------------- Shares redeemed: Class A (7,285) (56,218) (14,812) (121,231) - - ------------------------------------------------------------------- Class B (634) (5,230) (2,831) (22,697) - - ------------------------------------------------------------------- Class C (25) (202) -- -- - - ------------------------------------------------------------------- Conversion of shares: Class A 25 200 5 42 - - ------------------------------------------------------------------- Class B (25) (200) (5) (42) - - ------------------------------------------------------------------- Net (decrease) increase from capital share transactions $ (1,900) $ 10,335 ===================================================================
10 13 FINANCIAL HIGHLIGHTS
Class A -------------------------------------------------- Six months ended April 30, Year ended October 31, 1995 1994 1993 1992 1991 --------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $7.91 8.97 8.34 8.22 7.70 - - ---------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .31 .61 .63 .67 .74 - - ---------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .25 (1.03) .62 .11 .53 - - ---------------------------------------------------------------------------------------------------------------------- Total from investment operations .56 (.42) 1.25 .78 1.27 - - ---------------------------------------------------------------------------------------------------------------------- Less dividends: Distribution from net investment income .31 .59 .62 .66 .75 - - ---------------------------------------------------------------------------------------------------------------------- Distribution from net realized gain on investments -- .04 -- -- -- - - ---------------------------------------------------------------------------------------------------------------------- Distribution in excess of net realized gain on investments -- .01 -- -- -- - - ---------------------------------------------------------------------------------------------------------------------- Total dividends .31 .64 .62 .66 .75 - - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.16 7.91 8.97 8.34 8.22 ====================================================================================================================== TOTAL RETURN (%): 7.23 (4.86) 15.48 9.83 17.26 ====================================================================================================================== RATIOS TO AVERAGE NET ASSETS (%): Expenses .88 .94 .82 .82 .82 - - ---------------------------------------------------------------------------------------------------------------------- Net investment income 7.76 7.34 7.26 8.01 9.21 ======================================================================================================================
Class B Class C ------------------------ ------------------------ Six months May 31, Six months May 31, ended 1994, to ended 1994, to April 30, October 31, April 30, October 31, 1995 1994 1995 1994 ---------- ----------- ---------- ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $7.90 8.16 7.90 8.16 - - ------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .27 .23 .27 .23 - - ------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments .25 (.26) .25 (.26) - - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations .52 (.03) .52 (.03) - - ------------------------------------------------------------------------------------------------------------------------- Less distribution from net investment income .27 .23 .27 .23 - - ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $8.15 7.90 8.15 7.90 ========================================================================================================================= TOTAL RETURN (%): 6.73 (.45) 6.75 (.44) ========================================================================================================================= RATIOS TO AVERAGE NET ASSETS (%): Expenses 1.78 1.92 1.74 1.89 - - ------------------------------------------------------------------------------------------------------------------------- Net investment income 6.86 6.72 6.90 6.75 =========================================================================================================================
Six months ended April 30, Year ended October 31, 1995 1994 1993 1992 1991 --------- ------- ------- ------- ------- SUPPLEMENTAL DATA FOR ALL CLASSES: Net assets at end of period (in thousands) $524,082 510,432 569,145 482,009 432,490 - - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%) 147 163 190 178 115 ======================================================================================================================
NOTE: Ratios have been determined on an annualized basis. Total return is not annualized and does not reflect the effect of any sales charges. 11 14 (LOGO) KEMPER FINANCIAL SERVICES, INC. 120 South LaSalle Street Chicago, IL 60603 KEMPER INCOME AND CAPITAL PRESERVATION FUND Trustees Officers STEPHEN B. TIMBERS JOHN E. PETERS President and Trustee Vice President DAVID W. BELIN J. PATRICK BEIMFORD, JR. Trustee Vice President LEWIS A. BURNHAM ROBERT S. CESSINE Trustee Vice President DONALD L. DUNAWAY PHILIP J. COLLORA Trustee Vice President and ROBERT B. HOFFMAN Secretary Trustee CHARLES F. CUSTER Vice President and DONALD R. JONES Assistant Secretary Trustee JEROME L. DUFFY DAVID B. MATHIS Treasurer Trustee ELIZABETH C. WERTH SHIRLEY D. PETERSON Assistant Secretary Trustee WILLIAM P. SOMMERS Trustee - - -------------------------------------------------------- Legal Counsel Custodian and Transfer Agent VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY & KAMMHOLZ TRUST COMPANY 222 North LaSalle Street 127 West 10th Street Chicago, IL 60601 Kansas City, MO 64105 Shareholder Service Agent KEMPER SERVICE COMPANY P.O. Box 419557 Kansas City, MO 64141 800-621-1048 Investment Manager KEMPER FINANCIAL SERVICES INC. Principal Underwriter KEMPER DISTRIBUTORS, INC. 120 South LaSalle Street Chicago, IL 60603 (LOGO) PRINTED ON RECYCLED PAPER. This report is not to be distributed unless preceded or accompanied by a Kemper Fixed Income Funds prospectus. 239740 KICPF-3 (6/95) Printed in the U.S.A. -----END PRIVACY-ENHANCED MESSAGE-----