KEMPER INCOME FUNDS
Kemper High Yield Fund
Kemper High Yield Fund II
Kemper High Yield Opportunity Fund
Kemper Income and Capital Preservation Fund
Kemper Short-Term U.S. Government Fund*
Kemper Strategic Income Fund**
Kemper U.S. Government Securities Fund
Kemper U.S. Mortgage Fund
SUPPLEMENT TO PROSPECTUS
DATED JANUARY 1, 2000
------------------------
CLASS I SHARES
------------------------
* On February 5, 1999, Kemper Short-Intermediate Government Fund was
reorganized into Kemper Adjustable Rate U.S. Government Fund. Kemper
Adjustable Rate U.S. Government Fund was then renamed Kemper Short-Term
U.S. Government Fund, and its objective and policies were changed
accordingly.
** Formerly Kemper Diversified Income Fund
The above funds currently offer four classes of shares to provide investors with
different purchasing options. These are Class A, Class B and Class C shares,
which are described in the funds' prospectus, and Class I shares, which are
described in the prospectus as supplemented hereby. When placing purchase
orders, investors must specify whether the order is for Class A, Class B, Class
C or Class I shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee-based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund; and (6) investment
companies managed by Scudder Kemper that invest primarily in other investment
companies.
<PAGE>
Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Funds, and, in the
case of category 4 above, selected dealers authorized by KDI. Share certificates
are not available for Class I shares.
The following information supplements the indicated sections of the prospectus.
PERFORMANCE
The following table shows how the funds Class I Shares' returns over different
periods average out. For context, the table has a broad-based market index
(which, unlike the fund, have no fees or expenses). All figures in this section
assume reinvestment of dividends and distributions. As always, past performance
is no guarantee of future results.
Average Annual Total Returns -- Class I shares
For periods ended Inception of
December 31, 1998 One Year Life of Class Class
- ----------------- -------- ------------- -----
Kemper High Yield Fund 1.59% 11.10% 12/29/94
Salomon Brothers Long-Term
High Yield Bond Index* 9.23% 15.74%** --
- --------------
* The Salomon Brothers Long-Term High Yield Bond Index is on a total return
basis and is comprised of high yield bonds with a par value of $50 million
or higher and a remaining maturity of ten years or longer rated BB+ or lower
by Standard & Poor's Corporation or Ba1 or lower by Moody's Investors
Service, Inc.
** For the period of 12/31/94 through 12/31/98.
For periods ended Inception of
December 31, 1998 One Year Life of Class Class
- ----------------- -------- ------------- -----
Kemper Income And Capital
Preservation Fund 8.16% 7.80% 7/3/95
Lehman Brothers Aggregate
Bond Index* 8.69% 8.09%** --
- --------------
* 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.
** For the period of 6/30/95 through 12/31/98.
2
<PAGE>
For periods ended Inception of
December 31, 1998 One Year Life of Class Class
- ----------------- -------- ------------- -----
Kemper U.S. Government 7.26% 7.39% 7/3/95
Securities Fund
Salomon Brothers 6.82% 7.85%** --
30-Year GNMA Index*
- --------------
* The Salomon Brothers 30-Year GNMA Index is unmanaged, is on a total-return
basis with all dividends reinvested and is comprised of GNMA 30-year pass
throughs of single family and graduated payment mortgages. In order for a
GNMA coupon to be included in the index, it must have at least $200 million
of outstanding coupon product.
** For the period of 6/30/95 through 12/31/98.
3
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder fees: Fees paid directly from your investment.
Maximum
Sales Maximum Maximum
Charge Deferred Sales
(Load) Sales Charge
Imposed on Charge (Load)
Purchases (Load) Imposed on
(as a % of (as a % of Reinvested
offering redemption Dividends/ Redemption Exchange
price) proceeds) Distributions Fee Fee
------ --------- ------------- --- ---
Kemper High
Yield Fund None None None None None
Kemper High
Yield Fund II None None None None None
Kemper High
Yield
Opportunity Fund None None None None None
Kemper Income
And Capital
Preservation
Fund None None None None None
Kemper
Short-Term U.S.
Government Fund None None None None None
Kemper
Strategic
Income Fund None None None None None
Kemper U.S.
Government
Securities Fund None None None None None
Kemper U.S.
Mortgage Fund None None None None None
4
<PAGE>
Annual fund operating expenses: Expenses that are deducted from fund assets.
Total Annual
Fund
Management Distribution Other Operating
Fee (12b-1) Fees Expenses* Expenses*
--- ------------ --------- ---------
Kemper High
Yield Fund 0.52% None 0.10% 0.62%
Kemper High
Yield Fund II 0.65% None 0.40% 1.05%
Kemper High Yield
Opportunity Fund 0.65% None 0.61% 1.26%
Kemper Income And
Capital
Preservation Fund 0.54% None 0.17% 0.71%
Kemper Short-Term
U.S. Government Fund 0.54% None 0.26% 0.80%
Kemper Strategic
Income Fund 0.56% None 0.19% 0.75%
Kemper U.S.
Government
Securities Fund 0.42% None 0.17% 0.59%
Kemper U.S.
Mortgage Fund 0.51% None 0.18% 0.69%
- --------------
* Estimated for Kemper Short-Term U.S. Government Fund, Kemper Strategic
Income Fund, Kemper High Yield Opportunity Fund, Kemper High Yield Fund II
and Kemper U.S. Mortgage Fund since no Class I shares were issued as of the
respective fiscal year ends.
5
<PAGE>
Example
This example is to help you compare the cost of investing in a fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Kemper High Yield Fund $64 $199 $346 $774
Kemper High Yield Fund II $107 $334 $579 $1,283
Kemper High Yield
Opportunity Fund $128 $400 $692 $1,523
Kemper Income And Capital
Preservation Fund $73 $227 $395 $883
Kemper Short-Term
U.S. Government Fund $82 $255 $444 $990
Kemper Strategic
Income Fund $77 $240 $417 $930
Kemper U.S. Government
Securities Fund $60 $189 $329 $738
Kemper U.S.
Mortgage Fund $70 $221 $384 $859
6
<PAGE>
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of Kemper Short-Term
U.S. Government Fund, Kemper Strategic Income Fund, Kemper High Yield
Opportunity Fund, Kemper High Yield Fund II and Kemper U.S. Mortgage Fund, since
no Class I shares were issued as of the respective fiscal year ends of the
funds.
Kemper High Yield Fund
December
29, 1994 to
September
Year ended September 30, 30,
CLASS I 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Per share operating performance
Net asset value,
beginning of period $7.68 8.50 8.23 8.01 7.55
- ----------------------------------------------------------------------------
Income from investment
operations:
Net investment income .82 .76 .78 .78 .66
- ----------------------------------------------------------------------------
Net realized and
unrealized gain (loss) (.48) (.78) .31 .23 .39
- ----------------------------------------------------------------------------
Total from investment
operations .34 (.02) 1.09 1.01 1.05
- ----------------------------------------------------------------------------
Less distribution
from net investment income .80 .80 .82 .79 .59
- ----------------------------------------------------------------------------
Net asset value, end
of period $7.22 7.68 8.50 8.23 8.01
- ----------------------------------------------------------------------------
Total return
(not annualized) 4.36% (.66) 13.96 13.32 14.37
- ----------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses .62% .60 .62 .61 .61
- ----------------------------------------------------------------------------
Net investment income 10.49% 9.38 9.44 9.72 10.70
- ----------------------------------------------------------------------------
Year ended September 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end
of year (in
thousands) $4,281,395 4,784,262 4,939,302 4,096,939 3,527,954
- ----------------------------------------------------------------------------
Portfolio turnover
rate 67% 92 91 102 99
- ----------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the year ended
September 30, 1999 and September 30, 1998.
7
<PAGE>
Kemper Income And Capital Preservation Fund
July 3
to
October
Year ended October 31, 31,
CLASS I 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $8.67 8.53 8.45 8.61 8.52
- ----------------------------------------------------------------------------
Income from investment
operations:
Net investment income .53 .56 .59 .60 .19
- ----------------------------------------------------------------------------
Net realized and
unrealized gain (loss) (.63) .15 .08 (.15) .12
- ----------------------------------------------------------------------------
Total from investment
operations (.10) .71 .67 .45 .31
- ----------------------------------------------------------------------------
Less distribution from net
investment income .52 .57 .59 .61 .22
- ----------------------------------------------------------------------------
Net asset value, end of
period $8.05 8.67 8.53 8.45 8.61
- ----------------------------------------------------------------------------
Total return
(not annualized) (1.23)% 8.62 8.26 5.45 3.65
- ----------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses, before expense
reductions .71% .66 .70 .72 .62
- ----------------------------------------------------------------------------
Expenses, after expense
reductions .71% .66 .70 .72 .62
- ----------------------------------------------------------------------------
Net investment income 6.41% 6.52 7.02 7.14 6.87
- ----------------------------------------------------------------------------
Year ended October 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end
of year
(in thousands) $496,191 694,057 613,470 572,998 649,427
- ----------------------------------------------------------------------------
Portfolio turnover
rate 108% 121 164 74 182
- ----------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges.
8
<PAGE>
Kemper U.S. Government Securities Fund
July 3
to
October
Year ended October 31, 31,
CLASS I 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning
of period $8.85 8.81 8.74 8.92 8.88
- ----------------------------------------------------------------------------
Income from investment
operations:
Net investment income .55 .59 .66 .64 .22
- ----------------------------------------------------------------------------
Net realized and
unrealized gain (loss) (.40) .07 .06 (.17) .04
- ----------------------------------------------------------------------------
Total from investment
operations .15 .66 .72 .47 .26
- ----------------------------------------------------------------------------
Less distribution from net
investment income .62 .62 .65 .65 .22
- ----------------------------------------------------------------------------
Net asset value, end of
period $8.38 8.85 8.81 8.74 8.92
- ----------------------------------------------------------------------------
Total return (not annualized) 1.81% 7.75 8.60 5.56 3.02
- ----------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses, before expense
reductions .60% .57 .60 .59 .53
- ----------------------------------------------------------------------------
Expenses, after expense
reductions .59% .57 .60 .59 .53
- ----------------------------------------------------------------------------
Net investment income 6.47% 6.73 7.52 7.35 7.07
- ----------------------------------------------------------------------------
Year ended October 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of
year (in thousands) $2,982,945 3,442,212 3,642,027 4,163,157 4,738,415
- ----------------------------------------------------------------------------
Portfolio turnover
rate 177% 150 261 391 362
- ----------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share
data were determined based on average shares outstanding during the year ended
October 31, 1998.
9
<PAGE>
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds -- Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper and its affiliates and (ii) Class I shares of
any other "Kemper Mutual Fund" listed in the prospectus. Conversely,
shareholders of Zurich Money Funds -- Zurich Money Market Fund who have
purchased shares because they are participants in tax-exempt retirement plans of
Scudder Kemper and its affiliates may exchange their shares for Class I shares
of "Kemper Mutual Funds" to the extent that they are available through their
plan. Exchanges will be made at the relative net asset values of the shares.
Exchanges are subject to the limitations set forth in the prospectus.
As a result of the relatively lower expenses for Class I Shares, the level of
income dividends per share (as a percentage of net asset value) and, therefore,
the overall investment return, typically will be higher for Class I shares than
for Class A, Class B and Class C shares.
10
<PAGE>
<PAGE>
January 1, 2000
