<PAGE> 1
KEMPER FIXED INCOME FUNDS
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 20, 1996
CLASS I SHARES
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND
KEMPER CASH RESERVES FUND
KEMPER DIVERSIFIED INCOME FUND
KEMPER U.S. GOVERNMENT SECURITIES FUND
KEMPER HIGH YIELD FUND
KEMPER INCOME AND CAPITAL PRESERVATION FUND
KEMPER U.S. MORTGAGE FUND
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Kemper Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund"), Kemper
Cash Reserves Fund (the "Cash Reserves Fund"), Kemper Diversified Income Fund
(the "Diversified Fund"), Kemper U.S. Government Securities Fund (the
"Government Fund"), Kemper High Yield Fund (the "High Yield Fund"), Kemper
Income and Capital Preservation Fund (the "Income and Capital Fund"), Kemper
U.S. Mortgage Fund (the "Mortgage Fund") and Kemper Short-Intermediate
Government Fund (the "Short-Intermediate Government Fund") (collectively, the
"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 prospectus, and Class I shares, which are described
in the prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Zurich Kemper Investments, Inc.
("ZKI") and its affiliates; and (b) the following investment advisory clients of
ZKI and its investment advisory affiliates (including Zurich Investment
Management, Inc.) that invest at least $1 million in a Fund: (1) unaffiliated
benefit plans, such as qualified retirement plans (other than individual
retirement accounts and self-directed retirement plans); (2) unaffiliated banks
and insurance companies purchasing for their own accounts; and (3) endowment
funds of unaffiliated non-profit organizations. Class I shares currently are
available for purchase only from Kemper Distributors, Inc., principal
underwriter for the Funds. 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, will be higher for
Class I shares than for Class A, Class B and Class C shares.
<PAGE> 2
The following information supplements the indicated sections of the prospectus.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS) CLASS I
<S> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price)...................................................... None
Maximum Sales Charge on Reinvested Dividends............................................... None
Redemption Fees............................................................................ None
Exchange Fee............................................................................... None
Deferred Sales Charge (as a percentage of redemption proceeds)............................. None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND INCOME SHORT-
OPERATING EXPENSES ADJUSTABLE CASH HIGH AND INTERMEDIATE
(as a percentage of average RATE RESERVES DIVERSIFIED GOVERNMENT YIELD CAPITAL MORTGAGE GOVERNMENT
net assets) FUND FUND FUND FUND FUND FUND FUND FUND
---------- -------- ----------- ---------- ----- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees............. .55% .40% .56% .41% .53% .53% .50% .55%
12b-1 Fees.................. None None None None None None None None
Other Expenses
(estimated)............... .15% .15% .71% .18% .08% .19% .15% .15%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses.... .70% .55% 1.27% .59% .61% .72% .65% .70%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE FUND YEAR YEARS YEARS YEARS
- ---------------------------------------- ------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on Adjustable Rate................ $ 7 $22 $39 $ 87
a $1,000 investment, assuming (1) 5% Cash Reserves.................. $ 6 $18 $31 $ 69
annual return and (2) redemption at the Diversified.................... $13 $40 $70 $ 153
end of each time period: Government..................... $ 6 $19 $33 $ 74
High Yield..................... $ 6 $20 $34 $ 76
Income and Capital............. $ 7 $23 $40 $ 89
Mortgage....................... $ 7 $21 $36 $ 81
Short-Intermediate
Government..................... $ 7 $22 $39 $ 87
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly.
"Other Expenses" for Class I shares have been estimated for the current fiscal
year for the following funds: Adjustable Rate, Cash Reserves, Mortgage and
Short-Intermediate.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of the Adjustable Rate
Fund, Cash Reserves Fund, Mortgage Fund and the Short-Intermediate Government
Fund since no Class I shares had been issued as of such Funds' fiscal year end.
DIVERSIFIED FUND
<TABLE>
<CAPTION>
NOVEMBER 22,
1995 TO
OCTOBER 31,
1996
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 5.98
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency .12
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .57
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .55
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED): 10.01%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses 1.27%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 7.48
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.92 8.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .64 .22
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (.17) .04
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .47 .26
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .65 .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.74 8.92
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED): 5.56% 3.02
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .59% .53
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 7.35 7.07
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
HIGH YIELD FUND
<TABLE>
<CAPTION>
DECEMBER 29,
YEAR ENDED 1994 TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.01 7.55
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .78 .66
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .23 .39
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.01 1.05
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .79 .59
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.23 8.01
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED): 13.32% 14.37
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .61% .61
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 9.72 10.70
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME AND CAPITAL FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 3 TO
OCTOBER 31, OCTOBER 31,
1996 1995
----------- -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.61 8.52
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .60 .19
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (.15) .12
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .45 .31
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .61 .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.45 8.61
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED): 5.45% 3.65
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses .72% .62
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 7.14 6.87
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Kemper Money Funds--Kemper Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of ZKI and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Kemper Money
Funds--Kemper Money Market Fund who have purchased shares because they are
participants in tax-exempt retirement plans of ZKI 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 under "Special Features--Exchange
Privilege--General."
December 20, 1996
KFIF-1I (12/96)
4
