<PAGE> 1
KEMPER U.S. MORTGAGE FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED JULY 31, 1995
OFFERING INVESTORS THE OPPORTUNITY FOR MAXIMUM CURRENT RETURN FROM U.S.
GOVERNMENT SECURITIES
"...The fund outperformed
the average of its peers from
December through February
... as we anticipated an
economic slowdown and
acted earlier than others..."
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
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TABLE OF CONTNETS
<TABLE>
<S> <C>
General Economic Review 3
Performance Update 5
Terms to Know 8
Portfolio Statistics 9
Portfolio of Investments 10
Report from Independent Auditors 11
Financial Statements 12
Notes to Financial Statements 14
Financial Highlights 18
</TABLE>
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AT A GLANCE
Kemper U.S. Mortgage Fund Total Returns for the year ended July 31, 1995
(unadjusted for any sales charge):
<TABLE>
<S> <C>
CLASS A 9.48%
CLASS B 8.44%
CLASS C 8.85%
LIPPER U.S. MORTGAGE FUND AVERAGE** 8.48%
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
7/31/95 7/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER U.S. MORTGAGE FUND CLASS A $7.06 $6.96
- --------------------------------------------------------------------------------
KEMPER U.S. MORTGAGE FUND CLASS B $7.05 $6.96
- --------------------------------------------------------------------------------
KEMPER U.S. MORTGAGE FUND CLASS C $7.05 $6.95
- --------------------------------------------------------------------------------
</TABLE>
KEMPER U.S. MORTGAGE FUND LIPPER RANKINGS
Compared to all other funds in the Lipper U.S. Mortgage Funds category**
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #10 OF 60 FUNDS #29 OF 60 FUNDS #24 OF 60 FUNDS
- --------------------------------------------------------------------------------
5-YEAR N/A #14 OF 20 FUNDS N/A
- --------------------------------------------------------------------------------
10-YEAR N/A #11 OF 11 FUNDS N/A
- --------------------------------------------------------------------------------
</TABLE>
**Lipper Analytical Services, Inc. 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. Rankings are
historical and do not reflect future performance.
DIVIDEND REVIEW
The following table shows per share dividend and yield information for the fund
as of July 31, 1995
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR INCOME: $0.5248 $0.4686 $0.4719
- --------------------------------------------------------------------------------
JULY DIVIDEND: $0.0440 $0.0389 $0.0393
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE+: 7.48% 6.62% 6.69%
- --------------------------------------------------------------------------------
SEC YIELD+: 6.13% 5.28% 5.27%
- --------------------------------------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on July 31, 1995. 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 July 31, 1995, 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.
================================================================================
ABOUT YOUR REPORT
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months. Specifically,
your report now includes:
- - Terms you'd need to know related to your fund
- - A look at your fund's portfolio composition and how it has changed
- - The years to maturity and the duration of the fund's underlying
investments.
If you have any comments about the revised format or if you have
suggestions for additional changes, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
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GENERAL ECONOMIC REVIEW
[PHOTO OF STEPHEN B. TIMBERS IN UPPER RIGHT-HAND CORNER]
Stephen B. Timbers is both Chief Executive and Chief Investment Officer of
Kemper Financial Services, Inc. (KFS). KFS and its affiliates manage
approximately $60 billion in assets, including $42 billion in retail mutual
funds. Timbers is a graduate of Yale University and holds an M.B.A. from Harvard
University.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income and
stock markets in the first several months of 1995. At this point in the year,
the returns of most leading securities markets are significantly higher than
they were at the same time in 1994.
This is an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be slowing down at
a comfortable pace.
Through a series of interest rate adjustments, the Federal Reserve Board
has played a critical role in controlling the pace of economic growth. Its most
recent adjustment was in July when the Fed acknowledged that economic growth had
slowed so much that a recession was a threat. In response, the Federal Reserve
eased short-term interest rates by a small but symbolic 25 basis points. This
action was significant because, since February 1994, the Fed had been raising
interest rates to slow down what was considered high enough growth to rekindle
troublesome inflation.
After the interest rate cut, the government announced that the real gross
domestic product (GDP) -- the value of goods and services produced in the United
States -- grew at a 1.1% annual rate in the second quarter. This was a revised
number, representing more than twice the growth that was originally reported,
and it virtually assured that the economy was not in jeopardy of recession. At
the same time, economic growth at that level did not require an immediate
response, in the form of additional rate cuts, from the Fed.
The absence of inflation is also very encouraging. Although we are well
along in the economic cycle and at a point when prices often start hiking up,
price increases are modest. In fact, plunging energy prices during the summer
offset slight increases in food prices. Consumer prices through July 1995 rose
at an annual rate of 3.1% -- higher than last year but still not a concern, and
the GDP deflator is running at only about 2%.
We anticipate 2% to 3% real GDP growth for the next few quarters, with the
momentum likely to come from housing and foreign trade. Will the Federal Reserve
Board adjust interest rates again? Additional action by the Fed at least once
more in 1995 would not surprise us.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new highs
and showing considerable strength for most of the year, the stock market showed
some vulnerability when it took a tumble in July. The market recovered after a
brief period and has started to move up again. But such a sudden, severe
mini-correction served to remind investors that the current bull market will
inevitably come to an end someday and that some sectors may even be overextended
today.
As we view the remainder of the year, companies cannot necessarily count on
the economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest in
will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low in April, the value of the U.S. dollar is gaining
strength against most foreign currencies. While a
3
<PAGE> 4
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- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
NOW (7/31/95) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE (1) 6.28% 7.47% 7.24% 5.68%
- --------------------------------------------------------------------------------
PRIME RATE (2) 8.80 9.00 7.51 6.00
- --------------------------------------------------------------------------------
INFLATION RATE (3) 2.90 2.86 2.90 2.84
- --------------------------------------------------------------------------------
THE U.S. DOLLAR (4) (7.04) (5.54) (2.61) 7.61
- --------------------------------------------------------------------------------
CAPITAL GOODS ORDERS (5) 7.08 15.06 21.72 16.98
- --------------------------------------------------------------------------------
INDUSTRIAL PRODUCTION (6) 2.60 5.60 6.18 3.87
- --------------------------------------------------------------------------------
EMPLOYMENT GROWTH (7) 2.09 3.15 3.17 2.09
- --------------------------------------------------------------------------------
</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, Kemper Financial Services, Inc.
- --------------------------------------------------------------------------------
stronger dollar favors the U.S. economy because it reduces the cost of American
imports and attracts foreign capital, a strong dollar in relation to a local
currency has the effect of devaluing a foreign investment. The value of the
dollar and the attractiveness of U.S. investments to foreign investors will be
key factors in the next few months.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding how
these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate growth.
Given our Republican Congress and Democratic President, however, we do not
consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild card,
but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question-and-answer interview with
your fund's portfolio manager. Thank you for your continued support. We
appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ STEPHEN B. TIMBERS
- --------------------------------------
Stephen B. Timbers
Chief Investment and Executive Officer
September 11, 1995
4
<PAGE> 5
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PERFORMANCE UPDATE
[PHOTO OF PAUL SLOAN IN UPPER RIGHT-HAND CORNER]
Paul Sloan joined Kemper Financial Services, Inc. (KFS) in April 1995 and is
Senior Vice President of KFS and Portfolio Manager of Kemper U.S. Mortgage Fund.
Sloan comes to Kemper from Woodbridge Capital Management, the investment
management subsidiary of Comerica, Inc., where he was the director of
institutional portfolio management. Sloan graduated from the University of
Detroit and earned his master's of business administration degree from Wayne
State University.
KEMPER U.S. MORTGAGE FUND PORTFOLIO MANAGER PAUL SLOAN EXPLAINS HOW HE USED
TREASURY INVESTMENTS TO BOOST THE FUND'S PERFORMANCE DURING A YEAR THAT OPENED
AMIDST A TURBULENT BOND MARKET AND ENDED IN AN ENVIRONMENT OF DECLINING INTEREST
RATES AND LOW INFLATION.
Q We are reporting on a fiscal year -- from August 1, 1994, to July 31, 1995
- -- when we saw both rising and falling interest rates. What kinds of adjustments
were made to the portfolio as rates continued to rise and then reversed
direction?
A Essentially, we altered durations and the level of our investment in
mortgages as rates fluctuated and our economic outlook changed. Let's look at
what happened in detail. At the end of October 1994, 84 percent of the portfolio
was invested in mortgages and the portfolio had a relatively short duration of
3.4 years. This is considered a defensive position, which was appropriate
because the economy was expanding rapidly and interest rates were rising. The
shorter a fund's duration -- and remember that duration is a measurement of a
portfolio's sensitivity to interest rates -- the lower its sensitivity to
interest rate changes. Our short-duration stance helped reduce the decline in
prices that resulted as interest rates rose.
In December, we became optimistic that economic growth was beginning to
wane and increased the fund's duration to 5.2 years. We purchased 30-year
Government National Mortgage Association (GNMA) mortgage-backed securities,
which are longer-duration assets that tend to outperform when interest rates
decline.
The fund outperformed the average of its peers from December through
February as a result of this strategy, in which we anticipated an economic
slowdown and acted earlier than others. It also positioned the fund to further
benefit from the bond rally that occurred as rates dropped from March through
May. During this rally, we maintained our longer-duration and sold mortgages to
buy Treasuries. Treasuries outperformed throughout the spring as the market
continued to rally, again enabling us to provide positive returns.
In June we began to move out of Treasuries and increased our mortgage
holdings by the beginning of July. The shift was prompted by the relative
under-performance of mortgages compared to Treasuries, and our expectation that
mortgages would begin to outperform if interest rates stabilized. At this time
the price of mortgages had dropped to a point where the risk and reward of
owning them versus Treasuries was extremely attractive.
Q The fund's fiscal year includes five months of 1994, one of the worst years
in the history of the bond market. Yet, the bond market
5
<PAGE> 6
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more than recovered in the first several months of 1995. What, if anything, did
you learn from these two periods?
A It's true that this has been a period of extremes. The rising rate scenario
of 1994 enabled us to raise the fund's dividend in September 1994. Yet falling
interest rates this year, combined with the Federal Reserve Board's rate cut in
July, forced us to announce a modest dividend cut in August.
More than anything, perhaps, the last 12 months have demonstrated the
importance of being flexible. For example, this spring's market rally convinced
us that we must be willing to shift funds out of mortgages and into Treasuries.
Previously, our instinct may have been to remain with the higher-yielding
mortgages, but in a rallying market Treasuries outperform mortgages. In fact, at
the height of the rally in May, our mortgage holdings were at their lowest
- -- representing 85 percent of the portfolio -- and Treasuries represented 13
percent. This shift to Treasuries contributed to the fund's superior May
performance. Treasuries' lower interest rates impaired our ability to earn a
higher rate of interest income but we are managing the fund with a focus on
overall total return.
Q As volatile as the last year has been, shareholders seek consistent fund
performance nonetheless. What can be done to improve consistency?
A In fact, our goal is to produce more consistent performance, and that's
something we're pursuing in several ways. In the last year we restructured the
fund's investments. Specifically, we have favored Treasuries and 30-year
mortgage-backed securities over 15-year mortgages and structured products such
as collateralized mortgage obligations. This streamlined portfolio has helped
SEVERAL MARKET FORCES INFLUENCED INVESTORS IN U.S. GOVERNMENT SECURITIES FROM
AUGUST 1994 THROUGH JULY 1995
A. ECONOMIC GROWTH HALTED...
Economic growth, as measured by quarterly changes in the U.S. economy's gross
domestic product (GDP), was robust throughout 1994 but fell dramatically by
mid-1995.
<TABLE>
<S> <C>
3Q94 4.0%
4Q94 5.1
1Q95 2.7
2Q95 1.1
</TABLE>
Source: The Wall Street Journal and Barrons
B. IN RESPONSE TO RISING SHORT-TERM INTEREST RATES...
The Federal Reserve Board continued its series of interest rate hikes until
early July 1995, when it announced a modest interest rate cut. This bar graph
tracks the Fed's changes to the federal funds rate (the interest rate that banks
charge each other for overnight loans), which is a measure of short-term
interest rates.
<TABLE>
<S> <C>
START OF FISCAL YEAR
8/18 4.75%
11/15 5.50
2/1 6.00
7/6/95 5.75
</TABLE>
Source: Investment Company Institute (ICI) Mutual Fund 1995 Fact Book and The
Wall Street Journal
C. BUT INFLATION POSED NO THREAT...
Despite worries that the strong growth in 1994 would result in increased price
inflation, the Consumer Price Index (CPI) was never a concern during the period.
This graph illustrates the quarterly percentage change in the rate of inflation
as measured by CPI.
<TABLE>
<S> <C>
3Q94 .8%
4Q94 .5
1Q95 .8
2Q95 .9
</TABLE>
Source: Towers Data System
6
<PAGE> 7
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us weather periods of market volatility with greater ease and flexibility.
Further, we have become more willing to make investment shifts as necessary
to attain maximum performance in a given economic environment. We are willing to
adjust any performance characteristic of the fund -- whether it is the
composition of coupons, the fund's duration or its asset allocation structure --
to help enhance our investors' total rate of return.
Q What's your outlook for the next few months?
A We are undaunted in our belief that the economy is growing, but at a pace
slow enough to allow for further interest rate cuts. In July we trimmed our
duration slightly -- to 5.42 years -- because of the magnitude of the interest
rate decline year-to-date. We believe rates will trend lower in the months
ahead, but not decline as dramatically as they did in the first six months of
1995.
Q What could threaten your outlook -- and result in an adjustment of your
portfolio management strategy?
A Our risks are fairly obvious. If the economy takes off like a rocket, for
example, our interest rate outlook will be wrong, and we'd have to readjust. But
we don't see that happening. We expect a slow-growth, low-inflation environment,
which is positive for government securities and should be good for investors in
the fund.
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended July 31, 1995 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
=====================================================================================
<S> <C> <C> <C> <C> <C>
KEMPER U.S. MORTGAGE FUND A 4.52% N/A N/A 3.79% (SINCE 1/10/92)
- -------------------------------------------------------------------------------------
KEMPER U.S. MORTGAGE FUND B 5.44 7.07% 7.41% 7.25 (SINCE 10/26/84)
- -------------------------------------------------------------------------------------
KEMPER U.S. MORTGAGE FUND C 8.65 N/A -- 7.78 (SINCE 5/31/94)
- -------------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends
and for A shares adjustment for the maximum sales charge 4.5% and for B
shares adjustment for the applicable contingent deferred sales charge as
follows: 1-year, 3%; 5-year, 1%; since inception, 0%. During the periods
noted, securities prices fluctuated. For additional information, see the
Prospectus and Statement of Additional Information and the Financial
Highlights at the end of this report.
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER U.S. MORTGAGE FUND CLASS A
FROM 1/10/92 TO 7/31/95
<TABLE>
<CAPTION>
1/10/92 12/31/92 12/31/93 12/31/94 7/31/95
====================================================================================
<S> <C> <C> <C> <C> <C>
KEMPER U.S. MORTGAGE FUND CLASS A(1) 10,000 9,938 10,673 10,274 11,415
- ------------------------------------------------------------------------------------
SALOMON BROTHERS GNMA INDEX + 10,000 10,579 11,407 11,243 12,583
- ------------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ 10,000 10,250 10,540 10,825 11,059
- ------------------------------------------------------------------------------------
</TABLE>
(1)Performance includes reinvestment of dividends and adjustment for the
applicable sales charge in effect at the end of the period. In comparing the
Kemper U.S. Mortgage Fund performance to Salomon Brothers 30-Year GMNA Index,
you should also note that the fund's performance reflects the maximum sales
charge, while no such charges are reflected in the performance of the index.
+ The Salomon Brothers 30-Year GNMA Index, an unmanaged index, is based on
total return with all dividends reinvested and is comprised of GNMA 30-year
pass throughs of single family and graduated payment mortgages. In order for
a GNMA coupon to be included in the index, it must have at least $200 million
of outstanding coupon product. Source is Salomon Brothers Inc.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. It is generally considered to be a measure of inflation. Source is
Towers Data Systems.
7
<PAGE> 8
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GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER U.S. MORTGAGE FUND CLASS B
FROM 10/26/84 TO 7/31/95
<TABLE>
<CAPTION>
10/28/84 12/31/87 12/31/90 12/31/93 7/31/95
=====================================================================================
<S> <C> <C> <C> <C> <C>
KEMPER U.S. MORTGAGE FUND CLASS B(1) 10,000 12,380 14,667 19,202 21,249
- -------------------------------------------------------------------------------------
SALOMON BROTHERS GNMA INDEX + 10,000 14,805 19,301 26,713 29,983
- -------------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ 10,000 10,494 11,975 13,476 14,482
- -------------------------------------------------------------------------------------
</TABLE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER U.S. MORTGAGE FUND CLASS C
FROM 5/31/94 TO 7/31/95
<TABLE>
<CAPTION>
5/31/94 12/31/94 7/31/95
================================================================================
<S> <C> <C> <C>
KEMPER U.S. MORTGAGE FUND CLASS C(1) 10,000 9,910 10,916
- --------------------------------------------------------------------------------
SALOMON BROTHERS GNMA INDEX + 10,000 10,091 11,208
- --------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ 10,000 10,149 10,339
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
TERMS TO KNOW
ASSET ALLOCATION - Asset allocation is the assignment of investments in a fund
to different asset classes such as U.S. Treasuries, mortgages or cash or cash
equivalents.
DURATION - Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating time to maturity and coupon size. The
larger the duration number, the greater the interest rate risk.
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.
8
<PAGE> 9
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PORTFOLIO STATISTICS
THE FUND'S PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
ON 7/31/95 ON 7/31/94
================================================================================
<S> <C> <C>
MORTGAGE-BACKED GNMA 96% 64%
- --------------------------------------------------------------------------------
FNMA/FHLMC -- 33
- --------------------------------------------------------------------------------
LONG-TERM GOVERNMENT SECURITIES 4 --
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS
(PRIMARILY SHORT-TERM TREASURIES) -- 3
================================================================================
100% 100%
</TABLE>
YEARS TO MATURITY
As a percentage of the portfolio
<TABLE>
<CAPTION>
ON 7/31/95 ON 7/31/94
================================================================================
<S> <C> <C>
LESS THAN 3 YEARS 11% 18%
- --------------------------------------------------------------------------------
4-10 YEARS 1 0
- --------------------------------------------------------------------------------
10-20 YEARS 85 54
- --------------------------------------------------------------------------------
+20 YEARS 3 28
================================================================================
100% 100%
</TABLE>
DURATION
<TABLE>
<CAPTION>
ON 7/31/95 ON 7/31/94
================================================================================
<S> <C> <C>
DURATION 5.42 YEARS 3.65 YEARS
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
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PORTFOLIO OF INVESTMENTS
KEMPER U.S. MORTGAGE FUND
Portfolio of Investments at July 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Government National Pass-through
Mortgage Association -- 95.6% Certificates 6.50% 2023-2025 $522,677 $ 496,216
(Cost: $3,289,947) 7.00 2022-2025 939,378 916,546
7.50 2007-2025 914,371 913,964
8.00 2016-2025 628,586 641,142
8.50 2016-2025 229,865 237,760
9.00 2008-2023 74,328 77,998
9.50 2009-2023 62,902 66,774
10.00 2016-2021 8,778 9,554
10.50 2019-2021 11,204 12,289
11.00 2019 507 555
========================================================================
3,372,798
- -------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES -- 16.2% Notes 10.50 1995 86,000 86,148
(Cost: $585,949) 9.25-9.375 1996 223,000 228,127
6.125 1998 131,000 131,450
7.25 2004 21,000 22,106
Bonds 7.25 2022 100,000 104,000
========================================================================
571,831
- -------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Pass-through
MORTGAGE ASSOCIATION --.4% Certificates 8.00-11.50 2016-2024 15,385 15,728
(Cost: $15,105)
========================================================================
TOTAL U.S. GOVERNMENT OBLIGATIONS--112.2% 3,960,357
(Cost: $3,891,001)
========================================================================
- -------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 11.5% Collateralized by Federal Home Loan Mortgage Corporation, Federal National
(Cost: $404,000) Mortgage Association and Government National Mortgage Association securities
Yield 5.80%-5.93%, Dated July 1995, Due August 1995
Nikko Securities $304,000 $ 304,000
(held at The Bank of New York)
Nomura 100,000 100,000
(held at The Bank of New York)
========================================================================
404,000
- -------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS -- Yield-5.75% to 5.80%
1.9% Due-August and September 1995
(Cost: $65,739) Federal National Mortgage Association 36,000 35,746
Western Financial Services 30,000 30,000
========================================================================
65,746
========================================================================
TOTAL INVESTMENTS--125.6%
(COST: $4,360,740) 4,430,103
========================================================================
LIABILITIES, LESS CASH
AND OTHER ASSETS--(25.6%) (901,774)
========================================================================
NET ASSETS--100% $3,528,329
========================================================================
</TABLE>
See accompanying Notes to Financial Statements.
NOTES TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $4,360,740,000 for federal income tax
purposes at July 31, 1995, the aggregate gross unrealized appreciation was
$110,132,000, the aggregate gross unrealized depreciation was $40,769,000 and
the net unrealized appreciation of investments was $69,363,000.
10
<PAGE> 11
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS KEMPER U.S. MORTGAGE FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Kemper U.S. Mortgage Fund, a
series of Kemper Portfolios, as of July 31, 1995, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
fiscal periods since 1991. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of July
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Kemper U.S. Mortgage Fund at July 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the fiscal
periods since 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 15, 1995
11
<PAGE> 12
================================================================================
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
Investments, excluding repurchase agreements, at value
(Cost: $3,956,740) $ 4,026,103
- --------------------------------------------------------------------------
Repurchase agreements, at value
(Cost: $404,000) 404,000
- --------------------------------------------------------------------------
Cash 187
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 796
- --------------------------------------------------------------------------
Investments sold 44,174
- --------------------------------------------------------------------------
Interest 34,553
- --------------------------------------------------------------------------
TOTAL ASSETS 4,509,813
==========================================================================
LIABILITIES AND NET ASSETS
Payable for:
Fund shares redeemed 4,327
- --------------------------------------------------------------------------
Investments purchased 973,435
- --------------------------------------------------------------------------
Management fee 1,500
- --------------------------------------------------------------------------
Distribution services fee 971
- --------------------------------------------------------------------------
Administrative services fee 704
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 456
- --------------------------------------------------------------------------
Other 91
- --------------------------------------------------------------------------
Total liabilities 981,484
- --------------------------------------------------------------------------
NET ASSETS $ 3,528,329
==========================================================================
ANALYSIS OF NET ASSETS
Paid in capital $ 4,636,195
- --------------------------------------------------------------------------
Accumulated undistributed net realized loss on investments (1,241,421)
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 69,363
- --------------------------------------------------------------------------
Undistributed net investment income 64,192
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 3,528,329
==========================================================================
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($2,014,490,264 / 285,355,135 shares outstanding) $7.06
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net
asset value or 4.50% of offering price) $7.39
==========================================================================
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,512,670,984 / 214,537,340 shares outstanding) $7.05
==========================================================================
CLASS C SHARES
Net asset value and redemption price per share
($1,168,237 / 165,731 shares outstanding) $7.05
==========================================================================
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
================================================================================
STATEMENT OF OPERATIONS
Year ended July 31, 1995
(in thousands)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
NET INVESTMENT INCOME
Interest income
$ 321,715
- --------------------------------------------------------------------------
Expenses:
Management fee 18,595
- --------------------------------------------------------------------------
Distribution services fee 13,274
- --------------------------------------------------------------------------
Administrative services fees 8,822
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 6,550
- --------------------------------------------------------------------------
Professional fees 90
- --------------------------------------------------------------------------
Reports to shareholders 704
- --------------------------------------------------------------------------
Trustees' fees and other 221
- --------------------------------------------------------------------------
Total expenses 48,256
- --------------------------------------------------------------------------
NET INVESTMENT INCOME 273,459
- --------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of investments (including
options purchased) (108,790)
- --------------------------------------------------------------------------
Net realized gain from futures transactions 1,600
- --------------------------------------------------------------------------
Net realized loss (107,190)
- --------------------------------------------------------------------------
Change in net unrealized depreciation on investments 138,533
- --------------------------------------------------------------------------
Net gain on investments 31,343
- --------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $304,802
- --------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL ACTIVITY
Net investment income $ 273,459 326,261
- -------------------------------------------------------------------------------
Net realized loss (107,190) (383,592)
- -------------------------------------------------------------------------------
Change in net unrealized depreciation 138,533 (23,587)
- -------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 304,802 (80,918)
- -------------------------------------------------------------------------------
Net equalization charges (12,882) (17,926)
- -------------------------------------------------------------------------------
Distribution from net investment income (267,996) (325,917)
- -------------------------------------------------------------------------------
Net decrease from capital share transactions (653,661) (1,056,270)
- -------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (629,737) (1,481,031)
- -------------------------------------------------------------------------------
NET ASSETS
Beginning of year 4,158,066 5,639,097
END OF YEAR (INCLUDING UNDISTRIBUTED NET
INVESTMENT INCOME OF $64,192 FOR 1995
AND $63,437 FOR 1994) $3,528,329 4,158,066
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
================================================================================
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper U.S. Mortgage Fund is a separate series of
Kemper Portfolios, an open-end management investment
company organized as a business trust under the laws
of Massachusetts. The Fund currently offers three
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 or a contingent deferred sales charge but are
subject to higher ongoing expenses than Class A
shares and do not convert into another class. The
Fund may offer, to a limited group of investors,
Class I shares (none sold through July 31, 1995)
which are not subject to initial or contingent
deferred sales charges and have lower ongoing
expenses than other classes. Each share represents an
identical interest in the investments of the Fund and
has the same rights.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES 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. Exchange traded fixed income 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 fixed income
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. Other securities and assets are valued at
fair value as determined in good faith by the Board
of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual
basis and includes premium and discount amortization
of money market instruments and mortgage-backed
securities; it also includes original issue and
market discount amortization on long-term fixed
income securities. Realized gains and losses from
investment transactions are reported on an identified
cost basis. Realized and unrealized gains and losses
on financial futures and options are included in net
realized and unrealized gain (loss) on investments,
as appropriate.
The Fund may purchase securities with delivery or
payment 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 designate
certain assets equal to the value of the securities
purchased. At July 31, 1995 the Fund had $973,435,000
in purchase commitments outstanding (28% of net
assets), with a corresponding amount of assets
designated.
14
<PAGE> 15
Notes to Financial Statements
================================================================================
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
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 AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions of
the Internal Revenue Code available to investment
companies and therefore no federal income tax
provision is required. The accumulated net realized
loss on sales of investments for federal income tax
purposes at July 31, 1995, amounting to approximately
$1,232,701,000, is available to offset future taxable
gains. If not applied, $362,036,000 of the loss
carryover expires by the period ended 1996, with the
remainder expiring through the period ended 2003.
Differences in dividends per share are due to
different class expenses. Dividends payable to its
shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with
income tax principles which may treat certain
transactions differently than generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from
sales and cost of redemptions of Fund shares is
credited or charged to undistributed net investment
income so that income per share available for
distribution is not affected by sales or redemptions
of shares.
REPURCHASE AGREEMENTS. Repurchase Agreements are
fully collateralized by U.S. Treasury or Government
agency securities. All collateral is held through the
Fund's custodian bank and is monitored daily by the
Fund so that its market value exceeds the carrying
value of the repurchase agreement.
- --------------------------------------------------------------------------------
3 TRANSACTIONS MANAGEMENT AGREEMENT. The Fund has a management
WITH AFFILIATES agreement with Kemper Financial Services, Inc. (KFS)
and pays a management fee at an annual rate of .55%
of the first $250 million of average daily net assets
declining gradually to .40% of average daily net
assets in excess of $12.5 billion. The Fund incurred
a management fee of $18,595,000 for the year ended
July 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The
Fund has an underwriting and distribution services
agreement with Kemper Distributors, Inc. (KDI). As
principal underwriter for the Fund, KDI retained
commissions of $18,000 for the year ended July 31,
1995 for sales of
15
<PAGE> 16
Notes to Financial Statements
================================================================================
Class A shares after allowing $160,000 as commissions
to firms, of which $25,000 was paid to firms
affiliated with KDI. For services under the
distribution services agreement, the Fund pays KDI a
fee of .75% of average daily net assets of the Class
B and Class C shares. Pursuant to the agreement, KDI
enters into related selling group agreements with
various firms that provide distribution services to
investors. KDI compensates these firms at various
rates for sales of Class B and Class C shares. During
the year ended July 31, 1995, the Fund incurred a
distribution services fee for Class B and Class C
shares of $13,274,000, and KDI paid $1,343,000 for
commissions and distribution fees to firms, including
$142,000 to firms affiliated with KDI. In addition,
KDI received $4,548,000 of contingent deferred sales
charges.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services to
shareholders, the Fund pays KDI a fee at an annual
rate of up to .25% of average daily net assets. KDI
in turn has various arrangements with financial
services firms that provide these services and pays
these firms based on assets of Fund accounts the
firms service. For the year ended July 31, 1995, the
Fund incurred an administrative services fee of
$8,822,000 and KDI paid $8,770,000 to firms,
including $1,113,000 that was paid to firms
affiliated with KDI.
CUSTODIAN AND TRANSFER AGENT AGREEMENTS. The Fund has
a custodian agreement and a transfer agent agreement
with Investors Fiduciary Trust Company (IFTC), which
was 50% owned by KFS until January 31, 1995, when KFS
completed the sale of IFTC to a third party. For the
year ended July 31, 1995, the Fund incurred custodian
and transfer agent fees of $4,404,000 (excluding
related expenses). Pursuant to a services agreement
with IFTC, Kemper Service Company (KSvC), an
affiliate of KFS, is the shareholder service agent of
the Fund. For the year ended July 31, 1995, IFTC
remitted shareholder service fees of $6,155,000 to
KSvC.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of KFS.
For the year ended July 31, 1995, the Fund made no
payments to its officers and incurred trustees' fees
of $55,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended July 31, 1995, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $ 20,546,651
Proceeds from sales 21,577,354
16
<PAGE> 17
Notes to Financial Statements
================================================================================
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1995 1994
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 6,918 $ 45,618 5,222 $ 35,884
- -----------------------------------------------------------------------------------
Class B 8,293 55,591 32,281 233,525
- -----------------------------------------------------------------------------------
Class C 167 1,153 21 148
- -----------------------------------------------------------------------------------
SHARES ISSUES IN REINVESTMENT OF DIVIDENDS
Class A 12,059 82,686 9,802 71,165
- -----------------------------------------------------------------------------------
Class B 10,543 72,114 15,471 113,238
- -----------------------------------------------------------------------------------
Class C 3 19 -- --
- -----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (63,394) (427,279) (68,014) (484,338)
- -----------------------------------------------------------------------------------
Class B (72,004) (483,386) (143,028) (1,025,892)
- -----------------------------------------------------------------------------------
Class C (26) (177) -- --
- -----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 43,850 296,147 142,904 1,034,102
- -----------------------------------------------------------------------------------
Class B (43,908) (296,147) (143,035) (1,034,102)
- -----------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE
TRANSACTIONS $ (653,661) $(1,056,270)
- -----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL In order to take advantage of anticipated market
FUTURES CONTRACTS conditions, the Fund has entered into exchange traded
financial futures contracts as described below. The
Fund bears the market risk that arises from changes
in the value of these financial instruments.
At the time the Fund enters into a futures contract,
it is required to make a margin deposit with its
custodian of a specified amount of cash or eligible
securities. Subsequently, gain or loss is recognized
and payments are made on a daily basis between the
Fund and the broker as the market price of the
futures contract fluctuates. At July 31, 1995, the
market value of investments pledged by the Fund to
cover margin requirements for open futures positions
was $12,828,000. At July 31, 1995, the Fund had
outstanding financial futures contracts as follows
(in thousands):
<TABLE>
<CAPTION>
Face Expiration Loss at
Type amount Position month 7/31/95
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Securities $167,500 Long September $3,429
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
CLASS A SHARES
JANUARY 10,
YEAR ENDED JULY 31, 1992 TO
---------------------------------------- JULY 31,
1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.96 7.56 7.78 7.81
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .53 .51 .62 .38
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .09 (.59) (.21) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .62 (.08) .41 .35
- --------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .52 .52 .63 .38
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.06 6.96 7.56 7.78
- --------------------------------------------------------------------------------------------------------------
Total return 9.48% (1.21) 5.52 4.76
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .89% .99 .97 .94
- --------------------------------------------------------------------------------------------------------------
Net investment income 7.77 7.00 8.22 8.73
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
YEAR ENDED JULY 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 6.96 7.56 7.77 7.25 7.25
- -----------------------------------------------------------------------------------------------------------------
Increase from investment operations:
Net investment income .47 .45 .57 .65 .64
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .09 (.59) (.21) .49 .01
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .56 (.14) .36 1.14 .65
- -----------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .47 .46 .57 .62 .65
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 7.05 6.96 7.56 7.77 7.25
- -----------------------------------------------------------------------------------------------------------------
Total return 8.44% (2.00) 4.85 16.36 9.37
- -----------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
Expenses 1.75% 1.79 1.75 1.86 2.03
- -----------------------------------------------------------------------------------------------------------------
Net investment income 6.91 6.27 7.44 8.70 8.86
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
CLASS C SHARES
YEAR ENDED MAY 31, TO
JULY 31, 1995 JULY 31, 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.95 6.99
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .07
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .09 (.04)
- ------------------------------------------------------------------------------
Total from investment operations .57 .03
- ------------------------------------------------------------------------------
Less distribution from net investment income .47 .07
- ------------------------------------------------------------------------------
Net asset value, end of period $ 7.05 6.95
- ------------------------------------------------------------------------------
TOTAL RETURN 8.65% .47
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.71% 1.55
- ------------------------------------------------------------------------------
Net investment income 6.95 6.46
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL FUND DATA
Net assets at end of year (in thousands) $3,528,329 4,158,066 5,639,097 5,602,682 4,879,832
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 573% 963 551 376 498
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR ALL CLASSES: Ratios have been determined on an annualized basis. Total
return is not annualized and does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES AND OFFICERS
================================================================================
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
J. PATRICK BEIMFORD, JR.
Vice President
JOHN E. PETERS
Vice President
MICHELLE M. KEELEY
Vice President
FRANK J. RACHWALSKI, JR.
Vice President
PAUL F. SLOAN
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
================================================================================
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
- --------------------------------------------------------------------------------
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income prospectus.
KUSMF - 2 (9/95)
[KEMPER MUTUAL FUNDS LOGO]
1003670
Printed in the U.S.A.
