KEMPER INCOME FUNDS
SUPPLEMENT TO PROSPECTUS
DATED JANUARY 1, 1999
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CLASS I SHARES
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Kemper Adjustable Rate U.S. Government Fund
Kemper Short-Intermediate Government Fund
Kemper Diversified Income Fund
Kemper U.S. Government Securities Fund
Kemper High Yield Fund
Kemper High Yield Opportunity Fund
Kemper Income and Capital Preservation Fund
Kemper U.S. Mortgage Fund
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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.
January 1, 1999
<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 primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. 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.
The following information supplements the indicated sections of the prospectus.
Past Performance
The charts and tables contained in the accompanying prospectus provide some
indication of the risks of investing in the funds by illustrating how the funds
have performed from year to year, and comparing this information to a broad
measure of market performance. Of course, past performance is not necessarily an
indication of future performance. Additional financial information for those
funds which currently have Class I shares outstanding is set forth below.
Average Annual Total Returns -- Class I shares
For periods ended
December 31, 1997 One Year Life of Class Inception of Class
----------------- -------- ------------- ------------------
Kemper U.S. Government 9.35% 7.42% 7/3/95
Securities Fund
Kemper High Yield Fund 11.91% 14.45% 10/1/97
Kemper Income and Capital 9.02% 7.66% 7/3/95
Preservation Fund
Expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the funds.
<PAGE>
Shareholder fees: Fees paid directly from your investment.
<TABLE>
<CAPTION>
Maximum Maximum Maximum Deferred
Sales Charge Sales Sales Charge
on Purchases Charge on (as a % of
(as a % of Reinvested Redemption Exchange redemption
offering price) Dividends Fee Fee proceeds)
--------------- --------- --- --- ---------
<S> <C> <C> <C> <C> <C>
Kemper None None None None None
Adjustable Rate
U.S. Government
Fund
Kemper None None None None None
Short-Intermediate
Government Fund
Kemper None None None None None
Diversified
Income Fund
Kemper U.S. None None None None None
Government
Securities Fund
Kemper High Yield None None None None None
Fund
Kemper High Yield None None None None None
Opportunity Fund
Kemper Income and None None None None None
Capital
Preservation Fund
Kemper U.S. None None None None None
Mortgage Fund
</TABLE>
Annual fund operating expenses: Expenses that are deducted from fund assets.
Total fund
Investment Rule Other operating
management fee 12b-1 fees expenses* expenses*
-------------- ---------- --------- ---------
Kemper Adjustable 0.55% None 0.29% 0.84%
Rate U.S.
Government Fund
Kemper 0.55% None 0.19% 0.74%
Short-Intermediate
Government Fund
Kemper Diversified 0.56% None 0.12% 0.68%
Income Fund
Kemper U.S. 0.41% None 0.16% 0.57%
Government
Securities Fund
Kemper High Yield 0.52% None 0.08% 0.60%
Fund
<PAGE>
Total fund
Investment Rule Other operating
management fee 12b-1 fees expenses* expenses*
-------------- ---------- --------- ---------
Kemper High Yield 0.65% None 0.36% 1.01%
Opportunity Fund
Kemper Income and 0.53% None 0.13% 0.66%
Capital
Preservation Fund
Kemper U.S. 0.51% None 0.13% 0.64%
Mortgage Fund
- -----------
* Estimated for Kemper Adjustable Rate U.S. Government Fund, Kemper
Short-Intermediate Government Fund, Kemper Diversified Income Fund, Kemper
High Yield Opportunity Fund and Kemper U.S. Mortgage Fund since no Class I
shares were issued as of the respective fiscal year ends.
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 Adjustable Rate U.S.
Government Fund $86 $268 $466 $1,037
Kemper Short-Intermediate
Government Fund $76 $237 $411 $918
Kemper Diversified Income Fund
$69 $218 $379 $847
Kemper U.S. Government
Securities Fund $58 $183 $318 $714
Kemper High Yield Fund
$61 $192 $335 $750
Kemper High Yield Opportunity
Fund $103 $322 $558 $1,236
Kemper Income and Capital
Preservation Fund $67 $211 $368 $822
Kemper U.S. Mortgage Fund $65 $205 $357 $798
<PAGE>
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of Kemper Adjustable
Rate U.S. Government Fund, Kemper Short-Intermediate Government Fund, Kemper
Diversified Income Fund, Kemper High Yield Opportunity Fund and Kemper U.S.
Mortgage Fund, since no Class I shares were issued as of the respective fiscal
year ends of the funds.
Kemper U.S. Government Securities Fund
July 3 to
Year ended October 31, October
31,
CLASS I 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $8.81 8.74 8.92 8.88
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .59 .66 .64 .22
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .07 .06 (.17) .04
- --------------------------------------------------------------------------------
Total from investment operations .66 .72 .47 .26
- --------------------------------------------------------------------------------
Less distribution from net investment .62 .65 .65 .22
income
- --------------------------------------------------------------------------------
Net asset value, end of period $8.85 8.81 8.74 8.92
- --------------------------------------------------------------------------------
Total return (not annualized) 7.75% 8.60 5.56 3.02
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses .57% .60 .59 .53
- --------------------------------------------------------------------------------
Net investment income 6.73% 7.52 7.35 7.07
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of year
(in thousands) $3,442,212 3,642,027 4,163,157 4,738,415 4,941,151
- -----------------------------------------------------------------------------------------
Portfolio turnover rate 150% 261 391 362 1,000
- -----------------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
Kemper High Yield Fund
December 29,
1994 to
Year ended September 30, September 30,
CLASS I 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning $8.50 8.23 8.01 7.55
of period
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .76 .78 .78 .66
- --------------------------------------------------------------------------------
Net realized and unrealized (.78) .31 .23 .39
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations (.02) 1.09 1.01 1.05
- --------------------------------------------------------------------------------
Less distribution from net .80 .82 .79 .59
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $7.68 8.50 8.23 8.01
- --------------------------------------------------------------------------------
Total return (not annualized) (.66)% 13.96 13.32 14.37
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses .60% .62 .61 .61
- --------------------------------------------------------------------------------
Net investment income 9.38% 9.44 9.72 10.70
- --------------------------------------------------------------------------------
Year ended September 30,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of year
(in thousands) $4,784,262 4,939,302 4,096,939 3,527,954 3,152,029
- --------------------------------------------------------------------------------
Portfolio turnover rate 92% 91 102 99 93
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges.
<PAGE>
Kemper Income and Capital Preservation Fund
July 3 to
Year ended October 31, October 31,
CLASS I 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning $8.53 8.45 8.61 8.52
of period
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .56 .59 .60 .19
- --------------------------------------------------------------------------------
Net realized and unrealized .15 .08 (.15) .12
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .71 .67 .45 .31
- --------------------------------------------------------------------------------
Less distribution from net .57 .59 .61 .22
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $8.67 8.53 8.45 8.61
- --------------------------------------------------------------------------------
Total return (not annualized) 8.62% 8.26 5.45 3.65
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
Expenses .66% .70 .72 .62
- --------------------------------------------------------------------------------
Net investment income 6.52% 7.02 7.14 6.87
- --------------------------------------------------------------------------------
Year ended October 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of year
(in thousands) $694,057 613,470 572,998 649,427 510,432
- --------------------------------------------------------------------------------
Portfolio turnover rate 121% 164 74 182 163
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges.
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.
