<PAGE> 1
KEMPER DIVERSIFIED
INCOME FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED APRIL 30, 1996
OFFERING INVESTORS THE OPPORTUNITY FOR HIGH CURRENT
RETURN
". . . both the high yield and foreign currency
sectors performed well while other sectors
struggled during a volatile period . . ."
<PAGE> 2
Table of
Contents
2
At A Glance
2
Terms To Know
3
General Economic
Overview
5
Management Team
6
Performance Update
8
Portfolio Statistics
9
Portfolio of
Investments
16
Financial Statements
18
Notes to
Financial Statements
23
Financial Highlights
At a Glance
- -------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
Total Returns
- -------------------------------------------------------------------------------
FOR THE SIX-MONTHS ENDED APRIL 30, 1996 (UNADJUSTED FOR ANY SALES CHARGE):
[BAR GRAPH]
<TABLE>
<S> <C>
- ----------------------------------------------
Class A 4.12%
- ----------------------------------------------
Class B 3.62%
- ----------------------------------------------
Class C 3.68%
- ----------------------------------------------
Lipper General Bond
Funds Category
Average * 2.65%
- ----------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future results. Returns
and net asset value fluctuate. Shares are redeemable at current net asset value,
which may be more or less than original cost.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------
AS OF AS OF
4/30/96 10/31/95
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER DIVERSIFIED INCOME FUND
CLASS A $5.90 $5.98
- -------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
CLASS B $5.90 $5.98
- -------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME FUND
CLASS C $5.92 $6.00
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
KEMPER DIVERSIFIED INCOME
FUND RANKINGS*
- -------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER GENERAL BOND FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #16 OF #24 OF #23 OF
53 FUNDS 53 FUNDS 53 FUNDS
- -------------------------------------------------------------------------------
5-YEAR #1 OF
13 FUNDS N/A N/A
- -------------------------------------------------------------------------------
10-YEAR #2 OF
7 FUNDS N/A N/A
- -------------------------------------------------------------------------------
</TABLE>
*Lipper Analytical Services, Inc. returns 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.
- -------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- -------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF APRIL 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.3220 $0.2942 $0.2987
- -------------------------------------------------------------------------------
APRIL DIVIDEND: $0.0415 $0.0370 $0.0373
- -------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 8.44% 7.53% 7.56%
- -------------------------------------------------------------------------------
SEC YIELD+: 6.69% 6.06% 6.14%
- -------------------------------------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on April 30, 1996. 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, 1996 shown as an annualized percentage of the maximum
offering price on that date. The SEC yield is computed in accordance with a
standardized method prescribed by the Securities and Exchange Commission.
The fund may invest in lower-rated and non-rated securities which present
greater risk of loss to principal and interest than higher-rated securities. The
fund may also invest a significant portion of assets in foreign securities which
present special risks including fluctuating exchange rates, government
regulation and differences in liquidity that may affect your investment.
TERMS TO KNOW
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating time to maturity and coupon size. The
longer the duration, the greater the interest rate risk.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund's shares at the end of the period.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER
OF ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first five months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In June, the U.S. economy entered its 63rd month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
- ----------------------------------------------------------------------------
CONSUMERS AND JOB SECURITY
- ----------------------------------------------------------------------------
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds of
the new jobs created in the United States in 1994 and 1995 paid better than the
average job. The report found that the rate at which jobs were eliminated has
risen slightly despite strong economic growth of recent years - however, it
reported that the length of time most workers spend unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the recent
relationship between number of jobs created versus the number of jobs lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now
(4/30/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.51 5.93 6.63 7.18
Prime rate(2) 8.25 8.75 9.00 6.99
Inflation rate(3) 2.90 2.60 3.12 2.29
The U.S. dollar(4) 8.94 -1.57 -10.02 2.34
Capital goods orders(5) 7.94 10.38 17.84 19.99
Industrial production(6) 2.56 1.71 3.31 6.22
Employment growth(7) 1.47 -1.55 2.30 2.93
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
Such ebb and flow is to be expected in investing, especially at this point
in the cycle. Attempting to "prepare" for a correction is futile, we
believe. Those whose caution caused them to excuse themselves from the market
early this year, for example, would have forgone its significant gain year to
date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
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
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
June 5, 1996
4
<PAGE> 5
MANAGEMENT TEAM
KEMPER DIVERSIFIED INCOME FUND
PORTFOLIO MANAGEMENT TEAM
[BEIMFORD PHOTO]
J. PATRICK BEIMFORD, JR., JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1976
AND IS EXECUTIVE VICE PRESIDENT, CHIEF INVESTMENT OFFICER -- FIXED INCOME FOR
ZKI AND VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME
FUND. BEIMFORD RECEIVED A BACHELOR OF SCIENCE AND INDUSTRIAL MANAGEMENT DEGREE
FROM PURDUE UNIVERSITY AND EARNED AN M.B.A. FROM THE UNIVERSITY OF CHICAGO.
[CESSINE PHOTO]
ROBERT CESSINE IS A SENIOR VICE PRESIDENT OF ZKI AND VICE PRESIDENT AND
PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME FUND. HE JOINED THE COMPANY IN
1993. CESSINE RECEIVED BOTH HIS B.S. AND M.S. FROM THE UNIVERSITY OF WISCONSIN.
[JOHNS PHOTO]
GORDON JOHNS JOINED ZKI IN 1988 AND IS AN EXECUTIVE VICE PRESIDENT OF ZKI, THE
MANAGING DIRECTOR OF ZURICH INVESTMENT MANAGEMENT LIMITED, LONDON AND A VICE
PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME FUND. JOHNS
GRADUATED FROM BALLIOL COLLEGE, OXFORD, WITH A B.A. IN LAW.
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH ZKI SINCE 1972 AND IS SENIOR VICE PRESIDENT OF ZKI
AND VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME FUND.
MCNAMARA GRADUATED WITH A B.S. IN BUSINESS ADMINISTRATION FROM THE UNIVERSITY OF
MISSOURI AND EARNED AN M.B.A. FROM LOYOLA UNIVERSITY.
[RESIS PHOTO]
HARRY RESIS IS A SENIOR VICE PRESIDENT WITH ZKI. HE JOINED THE COMPANY IN 1988
AND IS A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME
FUND. RESIS RECEIVED A B.A. IN FINANCE FROM MICHIGAN STATE UNIVERSITY.
[TRUTTER PHOTO]
JONATHAN TRUTTER HAS BEEN WITH ZKI SINCE 1989. HE IS A FIRST VICE PRESIDENT OF
ZKI AND VICE PRESIDENT AND A PORTFOLIO CO-MANAGER OF KEMPER DIVERSIFIED INCOME
FUND. TRUTTER RECEIVED A BACHELOR'S DEGREE WITH DUAL MAJORS IN EAST ASIAN
LANGUAGES AND INTERNATIONAL RELATIONS FROM THE UNIVERSITY OF SOUTHERN
CALIFORNIA. HE EARNED A MASTER'S OF MANAGEMENT DEGREE FROM KELLOGG GRADUATE
SCHOOL OF BUSINESS AT NORTHWESTERN UNIVERSITY.
5
<PAGE> 6
PERFORMANCE UPDATE
THE PORTFOLIO MANAGEMENT TEAM OF KEMPER DIVERSIFIED INCOME FUND EXPLAINS ITS
BULLISHNESS ON THE ECONOMY AT THE START OF THE YEAR AND HOW A SHIFT IN INTEREST
RATES IMPACTED THE FUND'S PERFORMANCE AND ITS INVESTMENT STRATEGY.
Q DURING THE FIRST SIX MONTHS OF THE FISCAL YEAR -- NOVEMBER 1, 1995,
THROUGH APRIL 30, 1996 -- INTEREST RATES FELL DRAMATICALLY AND THEN BEGAN TO
RISE AGAIN. WHAT CAUSED THIS SHIFT IN INTEREST RATE DIRECTION?
A Rates reversed direction as expectations for the pace of economic growth
shifted. At the start of the fiscal year, in November 1995, bond investors were
optimistic about the market. It was expected that the economy would continue to
grow slowly, inflation would remain low, and that the Federal Reserve Board (the
Fed) would lower short-term interest rates. The market was also hopeful, at that
point, that the negotiations underway in Washington D.C. would soon lead to a
balanced budget agreement with a solid plan for reducing the federal budget
deficit. All of these events were positive for fixed-income investments because
they supported a slow-growth, benign inflation environment.
Economic growth continued to falter through 1995 and the market rallied
as investors speculated that more interest rate reductions would be
forthcoming. The Federal Reserve Board moved in December 1995, and in January
1996, to lower interest rates. These cuts fueled higher market prices.
In February 1996, political and economic events caused investors to
re-evaluate whether the economy could continue on its slow growth, low
inflation path. Federal budget negotiations stalled, and an impasse developed
which effectively eliminated the chances for a balanced budget during the first
quarter of 1996. Additionally, columnist and presidential candidate Patrick
Buchanan's strong early showing in the Republican primaries caused concern as
the market viewed many of his proposals to be potentially inflationary.
Finally, in his testimony before Congress, Fed Chairman Alan Greenspan
intimated that the pace of economic growth was improving. This caused some
investors to conclude that another reduction in interest rates was not
imminent. These events prompted investors to sell, and interest rates rose.
However, the most dramatic rise in market rates during the period
occurred in early March, when the U.S. Department of Labor announced an
unanticipated and significant increase in employment growth. Many bond
investors saw this data as evidence that the economy was gaining more momentum
than previously anticipated. The news caused a sell-off in the market because
more rapid economic growth is associated with higher inflation, which erodes
the value of fixed-income investments. Rates continued to rise in March and
then stabilized in April.
Q WHAT IMPACT DID THESE SHIFTS IN INTEREST RATES HAVE ON KEMPER DIVERSIFIED
INCOME FUND'S PERFORMANCE?
A In November and December 1995, the fund outperformed the average of its
peers. This outperformance was due to the fund's relatively long duration. We
anticipated that rates would fall so we had extended duration beyond the
average of our peers. Duration is a measurement of a fund's sensitivity to
interest rates. The longer the duration, the more sensitive it is to interest
rate changes. This means that as interest rates were falling, the portfolio's
longer duration enabled the fund to gain more than it could have with a shorter
duration.
We entered 1996 with a fairly long duration of 6.9 years. However,
mid-way through January we shortened duration as we did not believe that the
decline in interest rates could continue. We positioned the fund for a more
stable interest rate environment and by the end of February, duration was 6.2
years. Unfortunately, the employment release in early March caused the market
to trade down sharply and the fund's still longer than average duration hurt
returns. By the end of March we had pulled the fund's duration in to 4.1 years.
In April, rates began to stabilize so we increased duration slightly to about 5
years, which was market neutral -- or where most of our peers were situated. We
plan to maintain the fund's neutral duration until the direction of rates
becomes more clear.
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO REDUCE DURATION?
A We shortened duration primarily by reducing our exposure to the government
market and by favoring high yield and foreign currency bond investments.
6
<PAGE> 7
PERFORMANCE UPDATE
The most dramatic adjustment that we made was to reduce our holdings in
Treasuries to 11 percent on April 30, from 22 percent on October 31. As
interest rates fell, Treasuries offered a great deal of price appreciation
potential. Our heavy weighting in Treasuries in late 1995, enabled us to
capture significant price gains as interest rates dropped in December. However,
as rates began to rise, Treasuries became less appealing because they no longer
offered the upside for price appreciation. In January 1996, we began selling
Treasuries to reduce the fund's duration. We also reduced our mortgage holdings
at that point in favor of sectors with better potential. At the end of April,
mortgages represented 5 percent of the portfolio -- a 6 percent reduction from
the start of the fiscal year.
Q WHAT WAS THE BENEFIT OF ADDING HIGH YIELD AND FOREIGN CURRENCY BONDS AS
INTEREST RATES BACKED-UP?
A The benefit was that both the high yield and foreign currency sectors
performed well while other sectors struggled during a volatile period for the
broader bond market.
The reason? High yield bonds tend to be less negatively affected by a
stronger economy than other fixed-income securities. As we discussed, the rise
in interest rates was the outcome of stronger economic data. When the economy
grows, credit quality becomes less of a concern to investors in high yield
corporate bonds. A stronger economy assumes that more growth in corporate
earnings will occur. And solid earnings are essential for companies to continue
servicing their outstanding bond issues. Although we generally keep
approximately 25-30 percent of the fund invested in high yield bonds, we felt
that it made sense to increase this exposure as signs of growth surfaced. We
increased the weighting to 35 percent of investments on April 30. Our instinct
was correct and our high yield bond returns helped mitigate a portion of the
losses incurred by some of the fund's other sectors.
We were also optimistic about foreign currency bonds for two reasons.
First, foreign markets tend to follow a similar economic cycle as the U.S.
However, economic cycles abroad have historically tended to lag the U.S. As
such, we felt it was likely that foreign markets would begin to experience the
slow economic growth and declining interest rate environment that characterized
the U.S. in 1995. As witnessed by U.S. fixed-income returns in 1995, that type
of economy is positive for bond investments. The second reason was that in
December 1995, the fund began the use of limited hedging for the foreign
currency allocation. By hedging the foreign currencies back to the dollar, we
were able to reduce some of the currency risk involved with foreign non dollar
investments. By April 30, 72 percent of the foreign currency allocation was
hedged back to the dollar, which allowed the fund to participate in the
appreciation of the dollar against major European currencies.
Q WHAT CAN YOU TELL US ABOUT THE OTHER SECTORS IN WHICH THE FUND INVESTS?
A The two other sectors in which the fund invests are emerging markets and
high grade corporate bonds. At the end of the period, investments in these two
sectors accounted for about 11 percent of the portfolio. Emerging markets
performed particularly well during the period as the fundamental outlook for
these markets continued to improve. Although performance was strong, we kept
exposure to this sector between 5 and 8 percent of the portfolio because of the
historical volatility of this sector. The fund's high grade corporate sector
suffered as a result of its high correlation with the U.S. government market.
Q WERE THERE ANY DISAPPOINTMENTS DURING THE YEAR?
A Well, the shift in interest rates was really our primary disappointment.
As mentioned before, the duration of the fund was long as rates backed-up and
the fund's performance suffered. We believe, however, that the fund's now
shorter duration should help performance in the current interest rate
environment.
Q WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A Our outlook for the market is cautiously optimistic. We believe that
rates will stabilize in the range of 6.50 percent to 7.25 percent. Inflation
should not be problematic. All indicators suggest that it will remain at trend
growth -- between 2.5 percent and 3 percent. We plan to manage the funds
defensively until the direction of the economy becomes more clear.
7
<PAGE> 8
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- --------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD CORPORATES 35% 29%
- --------------------------------------------------------------------------
EMERGING MARKETS 5 5
- --------------------------------------------------------------------------
FOREIGN CURRENCY BONDS 24 21
- --------------------------------------------------------------------------
HIGH GRADE CORPORATES 6 4
- --------------------------------------------------------------------------
MORTGAGES 5 11
- --------------------------------------------------------------------------
TREASURY NOTES & BONDS 11 22
- --------------------------------------------------------------------------
CASH EQUIVALENTS 12 7
- --------------------------------------------------------------------------
OTHER 2 1
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
YEARS TO MATURITY
- --------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- --------------------------------------------------------------------------
<S> <C> <C>
CASH AND EQUIVALENTS 0% 7%
- --------------------------------------------------------------------------
1-10 YEARS 76 60
- --------------------------------------------------------------------------
10-20 YEARS 17 16
- --------------------------------------------------------------------------
20+ YEARS 7 17
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
AVERAGE MATURITY
- --------------------------------------------------------------------------
ON 4/30/96 ON 10/31/95
- --------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 7.6 YEARS 11.7 YEARS
- -------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS AT APRIL 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
GOVERNMENT OBLIGATIONS AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT - 29.5%
U.S. Treasury Notes
8.75%, 1997 $63,000 $ 65,481
8.875%, 1997 9,500 9,907
8.125%, 1998 21,000 21,735
6.375%, 2002 35,000 34,732
6.50%, 2005 26,000 25,650
U.S. Treasury Bonds
9.25%, 2016 18,340 22,590
8.75%, 2017 1,500 1,772
-----------------------------------------------------------------------------
Federal National Mortgage Association
6.50%, 2026 20,000 18,756
-----------------------------------------------------------------------------
Government National Mortgage Association
7.50%, 2024 6,619 6,546
7.00%, 2022 - 2026 14,217 13,684
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $223,051) 220,853
-----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
FOREIGN
GOVERNMENTS - 29.4%
(PRINCIPAL AMOUNT IN LOCAL
CURRENCY,
UNLESS OTHERWISE INDICATED)
(d) Republic of Argentina
(principal amount in U.S. dollars)
6.3125%, 2005 8,433 6,441
5.25%, 2023 12,450 6,793
6.5625%, 2023 4,600 3,183
Commonwealth of Australia
8.75%, 2001 7,800 6,221
9.50%, 2003 9,000 7,414
Federal Republic of Brazil
(principal amount in U.S. dollars)
(d) 6.8125%, 2006 4,300 3,271
8.00%, 2014 5,223 3,143
(d) 4.25%, 2024 7,350 3,870
(d) 6.8125%, 2024 5,800 3,926
French Treasury
8.50%, 2000 85,000 18,314
8.50%, 2002 167,000 36,759
6.75%, 2003 37,000 7,415
Government of Ireland
6.25%, 1999 3,400 5,263
6.25%, 2004 8,500 12,331
Government of the Netherlands
7.75%, 2000 14,400 9,220
8.25%, 2002 24,000 15,805
8.25%, 2007 16,200 10,803
Commonwealth of New Zealand
8.00%, 1998 4,200 2,827
6.50%, 2000 8,200 5,201
10.00%, 2002 13,800 9,991
(d) Republic of Poland, PDI
(principal amount in U.S. dollars)
3.75%, 2014 3,900 2,985
United Kingdom
7.25%, 1998 6,600 10,006
6.75%, 2004 8,750 12,166
8.00%, 2004 6,500 9,528
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
GOVERNMENT OBLIGATIONS AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Mexican States
(principal amount in U.S. dollars)
9.75%, 2001 $ 1,944 $ 1,928
(d) 6.3975%, 2019 3,225 2,582
6.25%, 2019 3,800 2,508
-----------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $217,342) 219,894
-----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------
AEROSPACE - 1.4%
Airlines Pass Thru Class D, 10.875%, 2019 760 794
Fairchild Corporation, 12.00%, 2001 1,975 1,960
Howmet Inc., 10.00%, 2003 1,560 1,642
K & F Industries, Inc.
11.875%, 2003 50 54
13.75%, 2001 4,478 4,646
RHI Holdings, 11.875%, 1999 1,415 1,404
-----------------------------------------------------------------------------
10,500
- ----------------------------------------------------------------------------------------------------------------
BROADCASTING,
CABLESYSTEMS AND
PUBLISHING - 9.9%
Adelphia Communications Corporation, 12.50%, 2002 800 812
Affinity Group, Inc., 11.50%, 2003 1,480 1,510
American Radio System, 9.00%, 2006 2,350 2,268
(b)Australis Media Corporation, 14.00%, 2003 2,250 1,519
(b)Bell Cablemedia PLC, 11.95%, 2004 2,220 1,626
Big Flower Press, Inc., 10.75%, 2003 1,215 1,215
CF Cable TV Inc., 11.625%, 2005 2,550 2,767
Cablevision Systems Company
9.25%, 2005 1,500 1,463
9.875%, 2013 920 911
9.875%, 2023 370 363
Century Communications Corporation
9.50%, 2000 300 301
11.875%, 2003 1,320 1,406
9.50%, 2005 1,270 1,267
(b)Charter Communications, 14.00%, 2007 1,530 807
(b)Comcast UK Cable Partners Limited, 11.20%, 2007 6,300 3,752
Comcast Corporation
9.125%, 2006 3,180 3,138
9.50%, 2008 900 900
10.625%, 2012 400 432
Continental Cablevision, Inc., 9.50%, 2013 3,505 3,847
(b)Diamond Cable Communications PLC, 11.75%, 2005 650 394
(b)Echostar Communications, 12.875%, 2004 2,490 1,849
EZ Communications, 9.75%, 2005 2,700 2,619
Granite Broadcasting Corp.
9.375%, 2005 410 385
10.375%, 2005 1,180 1,180
(b)International Cabletel Incorporated
12.75%, 2005 2,690 1,762
11.50%, 2006 530 309
K-III Communications, 8.50%, 2006 1,600 1,512
Katz Corporation, 12.75%, 2002 1,235 1,371
Lenfest Communications, 8.375%, 2005 2,850 2,679
Neodata Services, 12.00%, 2003 1,500 1,519
News America Holdings, Inc., 9.25%, 2013 4,000 4,328
Newsquest Capital PLC, 11.00%, 2006 2,700 2,700
(b)People's Choice TV Unit, 13.15%, 2004 150 92
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rogers Cablesystems Limited
9.625%, 2002 $ 810 $ 815
10.00%, 2005 750 769
Sinclair Broadcasting Group, Inc., 10.00%, 2003 1,660 1,623
Sullivan Broadcasting, 10.25%, 2005 300 293
Tele-Communications Inc., 9.80%, 2012 1,100 1,181
(b)TeleWest PLC, 11.00%, 2007 6,015 3,699
Time Warner Entertainment, 8.875%, 2012 2,000 2,134
Time Warner Inc., 9.125%, 2013 2,000 2,084
Univision TV, 11.75%, 2001 670 710
Viacom International Inc., 8.00%, 2006 3,300 3,086
(b)Videotron Holdings PLC,
11.125%, 2004 1,100 812
11.00%, 2005 840 554
Young Broadcasting Inc.
11.75%, 2004 180 196
9.00%, 2006 3,010 2,784
-----------------------------------------------------------------------------
73,743
- ----------------------------------------------------------------------------------------------------------------
BUSINESS
SERVICES - .8%
Alvey Systems, 11.375%, 2003 650 676
Coinmach Corporation, 11.75%, 2005 2,110 2,163
Corporate Express Inc., 9.125%, 2004 940 947
Monarch Marking Systems, 12.50%, 2003 880 942
Outdoor Systems, 10.75%, 2003 1,170 1,193
-----------------------------------------------------------------------------
5,921
- ----------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.6%
Agriculture Mining and Chemicals, Inc., 10.75%, 2002 710 761
Arcadian Partners L.P., 10.75%, 2005 1,330 1,430
Atlantis Group Inc, 11.00%, 2003 1,328 1,222
G-I Holdings Inc., zero coupon, 1998 2,300 1,823
Pioneer Americas Acquisition Corp., 13.275%, 2005 1,020 1,102
Polymer Group Inc., 12.25%, 2002 1,220 1,336
Rexene Corporation, 11.75%, 2004 1,900 2,043
UCC Investors Holdings, Inc., 10.50%, 2002 2,500 2,575
-----------------------------------------------------------------------------
12,292
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS - 4.4%
(b)Arch Communications Group, 10.875%, 2008 $ 1,160 $ 653
CAI Wireless Systems, 12.25%, 2002 1,000 1,045
(b)Call-Net Enterprises Inc., 13.25%, 2004 850 631
(a)(b)Celcaribe, S.A., 13.50%, 2004 1,050 1,008
(b)Cellular, Inc., 11.75%, 2003 705 578
Commnet Cellular, 11.25%, 2005 370 394
(b)CS Wireless, 11.375%, 2006 2,080 1,087
(b)Intelcom Group, Inc., 13.50%, with warrants 2005 1,220 777
Intermedia Communications of Florida, Inc., 13.50%,
2005, with warrants expiring 2000 1,060 1,211
(b)MFS Communications Co., 8.875%, 2006 5,360 3,343
Mobilemedia Communications, 9.375%, 2007 2,700 2,585
Nextlink Communications, 12.50%, 2006 1,300 1,315
Paging Network,
11.75%, 2002 1,655 1,800
10.125%, 2007 2,290 2,362
(b)PanAmSat, L.P., 11.375%, 2003 2,680 2,291
Rogers Cantel, 11.125%, 2002 3,241 3,456
360 Communications, 7.50%, 2006 4,000 3,819
USA Mobile Communications, Inc. II, 14.00%, 2004 1,770 2,080
Vanguard Cellular Systems, 9.375%, 2006 2,870 2,852
-----------------------------------------------------------------------------
33,287
- ----------------------------------------------------------------------------------------------------------------
CONSTRUCTION
MATERIALS - 2.0%
American Standard Inc.
10.875%, 1999 870 931
11.375%, 2004 3,050 3,325
9.25%, 2016 200 200
(b)Building Materials Corporation of America,
11.75%, 2004 2,700 2,005
Nortek, Inc., 9.875%, 2004 1,400 1,327
Triangle Pacific Corp., 10.50%, 2003 1,800 1,863
Waxman Industries, Inc.,
11.125%, 2001 4,747 4,700
(a) 223,000 warrants expiring 2004 723
-----------------------------------------------------------------------------
15,074
- ----------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS
AND SERVICES - 1.9%
AMF Group, 10.875%, 2006 2,700 2,686
Cinemark USA, Inc., 12.00%, 2002 893 971
(b)Dr. Pepper Bottling Holdings, Inc., 11.625%, 2003 1,290 1,083
Premier Parks Inc., 12.00%, 2003 620 670
(b)Six Flags Theme Park, 12.25%, 2005 3,330 2,810
Van De Kamps, Inc., 12.00%, 2005 600 641
West Point Stevens Inc., 9.375%, 2005 5,310 5,190
-----------------------------------------------------------------------------
14,051
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DRUGS AND
HEALTH CARE - 1.5%
Dade International Inc. $ 880 $ 1,038
13.00%, 2005 1,000 1,025
11.125%, 2006 600 636
Herff Jones, Inc., 11.00%, 2005 1,220 1,330
Magellan Health Services, 11.25%, 2004
Ornda Healthcorporation 1,240 1,348
12.25%, 2002 900 1,006
11.375%, 2004
Tenet Healthcare 540 576
9.625%, 2002 2,500 2,550
8.625%, 2003 1,450 1,548
10.125%, 2005
---------------------------------------------------------------------------
11,057
- ------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES - 2.9%
Benton Oil & Gas, 11.625%, 2003 670 682
Chesapeake Energy Corporation, 10.50%, 2002 960 1,013
Clark USA Inc., 10.875%, 2005 2,700 2,808
Coda Energy, 10.50%, 2006 760 770
Empire Gas Corporation, 7.00%,
with warrants, 2004 1,000 886
Falcon Drilling, 8.875%, 2003 320 316
Ferrellgas Partners, L.P., 9.375%, 2006 1,040 1,035
Gulf Canada Resources Limited, 9.25%, 2004 770 768
Nuevo Energy Co., 9.50%, 2006 520 523
Oryx Energy Co., 8.00%, 2003 4,000 3,859
Parker and Parsley Petroleum, 8.25%, 2007 4,000 4,137
Plains Resources, 10.25%, 2006 530 535
Sante Fe Energy Resources, Inc., 11.00%, 2004 300 325
United Meridian Corp., 10.375%, 2005 2,700 2,798
Vintage Petroleum, 9.00%, 2005 970 926
---------------------------------------------------------------------------
21,381
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES,
HOME BUILDERS AND
REAL ESTATE - 1.9%
Bangkok Bank, 7.25%, 2005 4,000 3,850
Capital Pacific Holdings, 12.75%,
with warrants, 2002 550 524
Chelsea GCA Realty, 7.75%, 2001 2,340 2,281
Continental Homes Holding, 10.00%, 2006 1,050 1,037
Forecast Group L.P., 11.375%, 2000 800 528
Hovnanian Kent, 11.25%, 2002 1,184 1,077
Salomon Inc., 7.50%, 2003 3,250 3,200
Presley Companies, 12.50%, 2001 1,680 1,596
---------------------------------------------------------------------------
14,093
- ------------------------------------------------------------------------------------------------------------
LODGING AND
GAMING - 2.3%
Bally's Park Place Funding, Inc., 9.25%, 2004 5,160 5,276
Circus Circus Enterprises, 6.45%, 2006 4,000 3,713
Empress River Casino, 10.75%, 2002 1,070 1,113
La Quinta Motor Inns, 7.25%, 2004 2,000 1,913
Players International Inc., 10.875%, 2005 2,700 2,754
Station Casinos Inc., 10.125%, 2006 780 766
Trump Atlantic City, 11.25%, 2006 1,600 1,626
---------------------------------------------------------------------------
17,161
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING,
METAL AND
MINING - 3.8%
Aftermarket Technology, 12.00%, 2004 1,180 1,263
Avondale Mills, 10.25%, 2006 780 770
Bluebird Body Company, 11.75%, 2002 1,660 1,710
Crain Industries, Inc., 13.50%, 2005 700 730
Day International Group Inc., 11.125%, 2005 1,460 1,489
Essex Group Incorporated, 10.00%, 2003 950 955
</TABLE>
13
<PAGE> 14
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fairfield Manufacturing Company, 11.375%, 2001 $ 560 $ 571
Foamex L.P.
9.50%, 2000 1,450 1,428
11.25%, 2002 800 812
(b) Foamex - JPS Automotive L.P., 14.00%,
with warrants expiring, 2004 1,200 774
Great Dane Holding Company, 12.75%, 2001 1,385 1,309
GS Technologies,
12.00%, 2004 1,280 1,322
12.25%, 2005 1,220 1,264
IMO Industries Inc., 11.75%, 2006 650 655
JPS Automotive Products Corporation, 11.125%, 2001 530 541
Jordan Industries, 10.375%, 2003 1,440 1,318
Knoll Inc., 10.875%, 2006 820 845
Newflo Corporation, 13.25%, 2002 1,070 1,132
NS Group, Inc., 13.50%, 2003 885 810
Pace Industries, Inc., 10.625%, 2002 830 791
Penda Industries, Inc., 10.75%, 2004 670 593
Terra Industries Inc., 10.50%, 2005 650 691
Thermedyne Industries, Inc.
10.25%, 2002 1,637 1,674
10.75%, 2003 682 690
USX Corporation, 9.125%, 2013 4,000 4,330
----------------------------------------------------------------------------
28,467
- -------------------------------------------------------------------------------------------------------------
PAPER AND FOREST
PRODUCTS AND
CONTAINERS - 2.8%
Berry Plastics Corporation, 12.25%,
with warrants, 2004 505 553
Container Corporation of America, 11.25%, 2004 1,595 1,651
Crown Paper, 11.00%, 2005 1,460 1,354
Gaylord Container Corporation
12.75%, 2005 1,840 1,914
418,000 warrants expiring 1996 4,180
Maxxam Group, Inc.
11.25%, 2003 1,190 1,190
(b) 12.25%, 2003 150 113
Owens-Illinois, Inc.
11.00%, 2003 1,160 1,269
9.75%, 2004 1,490 1,512
9.95%, 2004 2,320 2,375
Repap New Brunswick Inc., 10.625%, 2005 1,550 1,457
Riverwood International
10.25%, 2006 870 872
10.875%, 2008 1,830 1,825
Sweetheart Cup Company Inc., 10.50%, 2003 950 964
-----------------------------------------------------------------------------
21,229
- --------------------------------------------------------------------------------------------------------------
RETAILING - 2.1%
Dominick's Finer Foods, 10.875%, 2005 2,700 2,835
Federated Department Stores, Inc., 10.00%, 2001 4,000 4,260
Finlay Fine Jewelry Corporation, 10.625%, 2003 780 764
P & C Food Markets, 11.50%, 2001 880 903
Pathmark Stores, Inc., 11.625%, 2002 2,640 2,666
Penn Traffic Company
10.375%, 2004 100 97
11.50%, 2006 530 547
Ralph's Grocery Company, 10.45%, 2004 700 686
Southland Corp., 5.00%, 2003 3,637 2,873
-----------------------------------------------------------------------------
15,631
- --------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
CORPORATE OBLIGATIONS NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY - .6%
Communication and Power Industry, Inc., 12.00%, 2005 $ 550 $ 583
Computervision Corporation, 11.375%, 1999 3,430 3,593
(b)Shared Technologies, 12.25%, 2006 800 592
-----------------------------------------------------------------------------
4,768
- --------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 1.1%
Delta Air Lines
9.875%, 2008 1,417 1,566
9.75%, 2021 3,500 3,995
OMI Corp., 10.25%, 2003 320 302
(b)Transtar Holdings, L.P., 13.375%, 2003 670 486
United Airlines, 9.56%, 2018 2,000 2,200
----------------------------------------------------------------------------
8,549
----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--41.0%
(Cost: $302,261) 307,204
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND
PREFERRED STOCKS - .4%
Cablevision Systems, PIK, preferred 10,142 shs. 988
(c)Echostar Communications 21,060 705
(c)Grand Union Company 62,037 388
(c)Thrifty Payless Inc. 25,650 112
(c)Walter Industries, Inc. 55,177 766
----------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost: $5,059) 2,959
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS - 1.1%
Yield--5.33-5.48%
Due--May 1996
(Cost: $8,485) $ 8,500 8,484
----------------------------------------------------------------------------
TOTAL INVESTMENTS--101.4%
(Cost: $756,198) 759,394
----------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS--(1.4%) (10,788)
----------------------------------------------------------------------------
NET ASSETS--100% $748,606
----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary course
of business; they were valued at cost on the dates of acquisition. These
securities are valued at fair value as determined in good faith by the Board of
Trustees of the Fund. There were no market quotations available for unrestricted
securities of the same class on the dates of acquisition or on April 30, 1996.
At April 30, 1996, the value of the Fund's restricted securities was $1,731,000,
which represented .23% of net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
DATE OF NUMBER OF UNIT
SECURITY DESCRIPTION ACQUISITION SHARES COST
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Celcaribe, 13.50%, 2004 May, 1995 $1,050,000 $80.13
- -------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June, 1994 223,000 shs. 2.00
- -------------------------------------------------------------------------------------------------
</TABLE>
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
(c) Non-income producing security.
(d) Variable rate securities. Rates shown are effective rates on April 30, 1996.
The dates shown represent the final maturity of the obligations.
"PIK" denotes that interest or dividends are paid in kind.
Based on the cost of investments of $756,198,000, for federal income tax
purposes at April 30, 1996, the gross unrealized appreciation was $17,154,000,
the gross unrealized depreciation was $13,958,000 and the net unrealized
appreciation of investments was $3,196,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $756,198) $759,394
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 800
- -------------------------------------------------------------------------------------------------------
Investments sold 27,718
- -------------------------------------------------------------------------------------------------------
Interest 14,069
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 801,981
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft 2,734
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 185
- -------------------------------------------------------------------------------------------------------
Investments purchased 49,462
- -------------------------------------------------------------------------------------------------------
Management fee 347
- -------------------------------------------------------------------------------------------------------
Distribution services fee 158
- -------------------------------------------------------------------------------------------------------
Administrative services fee 144
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 300
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 45
- -------------------------------------------------------------------------------------------------------
Total liabilities 53,375
- -------------------------------------------------------------------------------------------------------
NET ASSETS $748,606
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $987,522
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on sales of investments and foreign currency transactions (248,274)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 6,163
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 3,195
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $748,606
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($493,338 / 83,617 shares outstanding) $5.90
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $6.18
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($251,443 / 42,619 shares outstanding) $5.90
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($3,808 / 643 shares outstanding) $5.92
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($17 / 3 shares outstanding) $5.90
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
STATEMENT OF OPERATIONS
Six months ended April 30, 1996
(IN THOUSANDS)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
Interest income $31,657
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 2,117
- --------------------------------------------------------------------------------------------------------
Distribution fee 962
- --------------------------------------------------------------------------------------------------------
Administrative services fee 816
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,092
- --------------------------------------------------------------------------------------------------------
Professional fees 33
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 60
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 16
- --------------------------------------------------------------------------------------------------------
Total expenses 5,096
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 26,561
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign
currency transactions (including options purchased) 4,565
- --------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 3,296
- --------------------------------------------------------------------------------------------------------
Net realized gain 7,861
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments
and assets and liabilities in foreign currencies (5,010)
- --------------------------------------------------------------------------------------------------------
Net gain on investments 2,851
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,412
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1996 1995
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
<S> <C> <C>
Net investment income $ 26,561 $ 67,431
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 7,861 (384)
- ----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (5,010) 20,625
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,412 87,672
- ----------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (39,423) (60,998)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 4,395 (10,466)
- ----------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,616) 16,208
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of period 754,222 738,014
- ----------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $3,195 and $16,057, respectively) $748,606 $754,222
- ----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
DESCRIPTION OF THE FUND Kemper Diversified Income Fund is an open-end
management investment company organized as a
business trust under the laws of Massachusetts. The
Fund offers four 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 sales charge but
are subject to higher ongoing expenses than Class A
shares and, for shares sold on or after April 1,
1996 a contingent deferred sales charge payable
upon certain redemptions within one year of
purchase. Class C shares do not convert into
another class. Class I shares are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. 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 domestic 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. Forward foreign currency contracts are
valued at the forward rates prevailing on the day
of valuation. Other securities and assets are
valued at fair value as determined in good faith by
the Board of Trustees.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rate of exchange is
determined in good faith by the Board of Trustees.
Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the
rate of exchange prevailing on the respective dates
of such transactions. The Fund includes that
portion of the results of operations resulting from
changes in foreign exchange rates
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
with net realized and unrealized gain or loss from
investments and foreign currency transactions, as
appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date and interest income is recorded on
the accrual basis. Interest income includes
discount amortization on all fixed income
securities and premium amortization on
mortgage-backed securities. Realized gains and
losses from investment transactions are reported on
an identified cost basis.
The Fund may purchase securities with delivery or
payments 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 segregate cash or other liquid assets
equal to the value of the securities purchased. At
April 30, 1996 the Fund had $18,809,000 in purchase
commitments outstanding (3% of net assets), with a
corresponding amount of assets segregated.
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 and Class C 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. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended April 30, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at April 30, 1996, amounting to
approximately $248,947,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 1996 through
2003.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3
TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.), and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $2,117,000 for the six
months ended April 30, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS ALLOWED BY KDI
COMMISSIONS -------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------- --------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $52,000 335,000 40,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares and CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION
FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC RECEIVED -------------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------- --------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $1,183,000 827,000 42,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. 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. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY -------------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
---------------- ------------- --------------
<S> <C> <C> <C>
Six months ended
April 30, 1996 $816,000 836,000 40,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $749,000
for the six months ended April 30, 1996.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended April 30, 1996, the
Fund made no payments to its officers and incurred
trustees' fees of $16,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended April 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (dollars in thousands):
Purchases $1,128,861
Proceeds from sales 1,157,486
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHARES SOLD
Class A 5,485 $ 32,811 15,745 $ 91,132
-----------------------------------------------------------------------------------
Class B 5,292 31,612 12,618 73,317
-----------------------------------------------------------------------------------
Class C 321 1,928 458 2,660
-----------------------------------------------------------------------------------
Class I 5 28 -- --
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2,739 16,303 4,342 25,151
-----------------------------------------------------------------------------------
Class B 1,349 8,031 2,146 12,431
-----------------------------------------------------------------------------------
Class C 23 135 21 124
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (9,371) (56,009) (23,466) (136,212)
-----------------------------------------------------------------------------------
Class B (4,894) (29,219) (13,450) (78,345)
-----------------------------------------------------------------------------------
Class C (203) (1,214) (125) (724)
-----------------------------------------------------------------------------------
Class I (2) (11) -- --
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 1,423 8,512 4,551 26,461
-----------------------------------------------------------------------------------
Class B (1,424) (8,512) (4,551) (26,461)
-----------------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $ 4,395 $ (10,466)
-----------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
NOTES FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect it from
anticipated market conditions and, as such, bears
the market risk that arises from owning these
contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract changes. At April 30, 1996,
the market value of assets segregated at the
custodian to cover margin requirements was
$3,700,000. The Fund also had liquid securities in
its portfolio sufficient to cover the following
short futures position open at April 30, 1996:
<TABLE>
<CAPTION>
EXPIRATION GAIN AT
TYPE FACE AMOUNT MONTH 4/30/96
--------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $41,224,000 June $456,000
</TABLE>
- --------------------------------------------------------------------------------
7 FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect it from a decline in the value
of particular foreign currencies against the U.S.
Dollar, the Fund has entered into forward contracts
to deliver foreign currency in exchange for U.S.
Dollars as described below. The Fund bears the
market risk that arises from changes in foreign
exchange rates, and accordingly, the unrealized
gain (loss) on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At April 30, 1996, the
Fund's outstanding forward foreign currency
contracts are as follows (in thousands):
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT SETTLEMENT UNREALIZED GAIN
TO BE DELIVERED IN U.S. DOLLARS DATE AT 4/30/96
<C> <S> <C> <C> <C>
----------------------------------------------------------------------------------
18,620 British Pounds $27,893 July 1996 $ 186
----------------------------------------------------------------------------------
61,400 Dutch Guilders 35,854 May 1996 2,087
----------------------------------------------------------------------------------
332,900 French Franc 64,543 July 1996 694
----------------------------------------------------------------------------------
Net unrealized gain $ 2,967
----------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
CLASS A APRIL 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.98 5.77 6.23 5.65 5.47
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .55 .52 .59 .63
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency .02 .16 (.45) .58 .14
- --------------------------------------------------------------------------------------------------------
Total from investment operations .24 .71 .07 1.17 .77
- --------------------------------------------------------------------------------------------------------
Less distribution from net investment income .32 .50 .53 .59 .59
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.90 5.98 5.77 6.23 5.65
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.12% 12.90 1.02 21.60 14.59
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.03% 1.09 1.12 1.10 1.19
- --------------------------------------------------------------------------------------------------------
Net investment income 7.28 9.43 8.81 9.74 11.02
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
SIX MONTHS ENDED YEAR ENDED TO
CLASS B APRIL 30, 1996 OCT. 31, 1995 OCT. 31, 1994
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.98 5.77 5.94
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .49 .19
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency .02 .16 (.17)
- ----------------------------------------------------------------------------------------------------
Total from investment operations .21 .65 .02
- ----------------------------------------------------------------------------------------------------
Less distribution from net investment income .29 .44 .19
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $5.90 5.98 5.77
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.62% 11.87 .35
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.96% 2.04 1.97
- ----------------------------------------------------------------------------------------------------
Net investment income 6.35 8.48 8.01
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
MAY 31, 1994 NOV. 22, 1995
SIX MONTHS ENDED YEAR ENDED TO TO
CLASS C APRIL 30, 1996 OCT. 31, 1995 OCT. 31, 1994 APRIL 30, 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------- --------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------- --------------
Net asset value, beginning of period $6.00 5.79 5.95 5.98
- --------------------------------------------------------------------------------------------------- --------------
Income from investment operations:
Net investment income .20 .50 .20 .19
- --------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (loss) on
investments and foreign currency .02 .16 (.17) .02
- --------------------------------------------------------------------------------------------------- --------------
Total from investment operations .22 .66 .03 .21
- --------------------------------------------------------------------------------------------------- --------------
Less distribution from net investment income .30 .45 .19 .29
- --------------------------------------------------------------------------------------------------- --------------
Net asset value, end of period $5.92 6.00 5.79 5.90
- --------------------------------------------------------------------------------------------------- --------------
TOTAL RETURN (NOT ANNUALIZED) 3.68% 11.95 .55 2.66
- --------------------------------------------------------------------------------------------------- --------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------- --------------
Expenses 1.85% 1.84 1.96 .76
- --------------------------------------------------------------------------------------------------- --------------
Net investment income 6.46 8.68 8.02 7.55
- --------------------------------------------------------------------------------------------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
SUPPLEMENTAL DATA FOR ALL CLASSES APRIL 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $748,606 754,222 738,014 328,512 244,620
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 307% 286 179 80 57
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL PHILIP J. COLLORA
President and Trustee Vice President Vice President
and Secretary
DAVID W. BELIN JOHN E. PETERS
Trustee Vice President JEROME L. DUFFY
Treasurer
LEWIS A. BURNHAM J. PATRICK BEIMFORD, JR.
Trustee Vice President ELIZABETH C. WERTH
Assistant Secretary
DONALD L. DUNAWAY ROBERT S. CESSINE
Trustee Vice President
ROBERT B. HOFFMAN GORDON K. JOHNS
Trustee Vice President
DONALD R. JONES MICHAEL A. MCNAMARA
Trustee Vice President
DOMINIQUE P. MORAX HARRY E. RESIS, JR.
Trustee Vice President
SHIRLEY D. PETERSON JONATHAN W. TRUTTER
Trustee Vice President
WILLIAM P. SOMMERS RICHARD L. VANDENBERG
Trustee Vice President
- --------------------------------------------------------------------------------
LEGAL COUNSEL
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT
KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER
KEMPER DISTRIBUTORS, INC.
120 S. LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
[KEMPER LOGO]
KDIF - 3 (6/96) 1016850
Printed in the U.S.A.
