KEMPER INCOME FUNDS
Kemper High Yield Fund
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
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Supplement to Statement of Additional Information
Dated January 1, 1999, as revised February 8, 1999
The following text supplements the section entitled "Depository Receipts" in the
currently effective Statement of Additional Information:
Kemper High Yield Opportunity Fund may invest a portion of its assets in
Standard & Poor's Depository Receipts ("SPDRs"). SPDRs typically trade like a
share of common stock and provide investment results that generally correspond
to the price and yield performance of the component common stocks of the S&P 500
Index. There can be no assurance that this can be accomplished, as it may not be
possible for the Fund to replicate and maintain exactly the composition and
relative weightings of the S&P 500 Index securities. SPDRs are subject to the
risks of an investment in a broadly based portfolio of common stocks, including
the risk that the general level of stock prices may decline, thereby adversely
affecting the value of such investment. SPDRs are also subject to risks other
than those associated with an investment in a broadly-based portfolio of common
stocks in that the selection of the stocks included in the Fund may affect
trading in SPDRs, as compared with trading in a broadly based portfolio of
common stocks.
The following text replaces the applicable paragraph in the section entitled
"Collateralized Obligations" in the currently effective Statement of Additional
Information:
A Fund will currently invest in only those collateralized obligations that are
fully collateralized and that meet the quality standards otherwise applicable to
the Fund's investments. Fully collateralized means that the collateral will
generate cash flows sufficient to meet obligations to holders of the
collateralized obligations under even the most conservative prepayment and
interest rate projections. Thus, the collateralized obligations are structured
to anticipate a worst case prepayment condition and to minimize the reinvestment
rate risk for cash flows between coupon dates for the collateralized
obligations. A worst case prepayment condition generally assumes immediate
prepayment of all securities purchased at a premium and zero prepayment of all
securities purchased at a discount. Reinvestment rate risk may be minimized by
assuming very conservative reinvestment rates and by other means such as by
maintaining the flexibility to increase principal distributions in a low
interest rate environment. The effective credit quality of the collateralized
obligations in such instances is the credit quality of the issuer of the
collateral. The requirements as to collateralization are determined by the
issuer or sponsor of the collateralized obligation in order to satisfy rating
agencies, if rated. In addition to investing in a pool of mortgages,
Mortgage-Backed Securities or U.S. Government Securities, no Fund currently
intends to invest more than 20% of its total assets in collateralized
obligations that are collateralized by a pool of credit card or automobile
receivables or other types of assets. The receivables would include amounts
charged for goods and services, finance charges, late charges and other related
fees and charges. Collection of receivables may be affected by various social,
legal and economic factors affecting the use of credit and repayment patterns,
such as changes in consumer protection laws, the rate of inflation, unemployment
levels and relative interest rates. Currently, none of the Funds intends to
invest more than 10% of its total assets in inverse floaters.
The following text replaces the applicable paragraph in the section entitled
"Zero Coupon Government Securities" in the currently effective Statement of
Additional Information:
Zero Coupon Government Securities. Subject to its investment objective and
policies, a Fund may invest in zero coupon U.S. Government Securities. Zero
coupon bonds are purchased at a discount from the face amount. The buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. These securities may
include those created directly by the U.S. Treasury and those created as
collateralized obligations through various proprietary custodial, trust or other
relationships. The effect of owning instruments which do not make current
interest payments is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount accretion during the life of the
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest distributions at a rate as high as the
implicit yield on the zero coupon bond, but at the same time eliminates any
opportunity to reinvest earnings at higher rates. For this reason, zero coupon
bonds are subject to substantially greater price fluctuations during periods of
changing market interest rates than those of comparable securities that pay
interest currently, which fluctuation is greater as the period to maturity is
longer. Zero coupon bonds created as collateralized obligations are similar to
those created through the U.S. Treasury, but the former investments do not
provide absolute certainty of maturity or of cash flows after prior classes of
the collateralized obligations are retired. No Fund currently intends to invest
more than 20% of its net assets in zero coupon U.S. Government Securities during
the current year.
April 16, 1999
