<PAGE> 1
KEMPER U.S. MORTGAGE FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MARCH 31, 1996
Offering investors the opportunity for maximum current
return from a portfolio of U.S. Government Securities
"...We began to reduce the fund's duration in January believing that the bond
rally could not maintain momentum..."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
General
Economic Overview
5
Performance Update
7
Portfolio Statistics
8
Portfolio of
Investments
10
Financial Statements
12
Notes to Financial Statements
17
Financial Highlights
At A Glance
Kemper U.S. Mortgage Fund Total Returns for the six-month period ended March 31,
1996 (unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
<S> <C>
Class A 2.05%
Class B 1.77%
Class C 1.68%
Lipper U.S. Mortgage Fund Category Average* 2.47%
</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.
*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. Returns
and rankings are historical and do not reflect future performance.
- -------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
3/31/96 9/30/95
- -------------------------------------------------
<S> <C> <C>
KEMPER U.S. MORTGAGE FUND CLASS
A $7.02 $7.13
- -------------------------------------------------
KEMPER U.S. MORTGAGE FUND CLASS
B $7.02 $7.12
- -------------------------------------------------
KEMPER U.S. MORTGAGE FUND CLASS
C $7.01 $7.12
- -------------------------------------------------
</TABLE>
- --------------------------------------------------
KEMPER U.S. MORTGAGE
FUND RANKINGS*
- --------------------------------------------------
Compared to all other funds in the Lipper U.S. Mortgage Funds Category
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------
<S> <C> <C> <C>
CLASS A #12 OF 56 N/A N/A
FUNDS
- --------------------------------------------------
CLASS B #36 OF 56 #15 OF 22 #12 OF 12
FUNDS FUNDS FUNDS
- --------------------------------------------------
CLASS C #32 OF 56 N/A N/A
FUNDS
- --------------------------------------------------
</TABLE>
- --------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------
The following table shows per share dividend and yield information for the fund
as of March 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------
<S> <C> <C> <C>
SIX-MONTH INCOME: $0.2580 $0.2274 $0.2313
- --------------------------------------------------
MARCH DIVIDEND: $0.0430 $0.0376 $0.0378
- --------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 7.35% 6.43% 6.47%
- --------------------------------------------------
SEC YIELD+: 5.87% 5.26% 5.40%
- --------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on March 31, 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 March 31, 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.
Terms To Know
AVERAGE ANNUAL TOTAL RETURN Average annual total return is a fund's total return
expressed as an annualized average, adjusted for the maximum sales charge for
Class A shares or the applicable contingent deferred sales charge in effect at
the end of the period for Class B and C shares.
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.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, (ZKI) INC. 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 four 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 followed a spectacular 1995 with a strong first quarter
in 1996. In the three-month period ended March 31, 1996, the Standard & Poor's
500 Stock Index* gained 5.37 percent.
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 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 April, the U.S. economy entered its 61st 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 spent 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>
<S> <C> <C>
12/31/90 -0.06 -0.02
12/31/91 -0.3 0.04
12/31/92 0.12 -0.03
12/31/93 0.3 0.07
12/31/94 0.18 0.07
12/31/95 -0.08 -0.04
3/31/96 0.49 -0.01
</TABLE>
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 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 (3/31/96) 6 Months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.27 6.04 7.06 6.97
Prime rate(2) 8.25 8.75 9.00 6.45
Inflation rate(3) 2.84 2.81 3.05 2.36
The U.S. dollar(4) 4.53 -1.05 -11.46 2.70
Capital goods orders(5) 6.24 8.53 9.44 20.01
Industrial production(6) 1.32 1.92 3.89 5.17
Employment growth(7) 1.44 1.80 2.60 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 the quarter's significant gain.
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.
April 29, 1996
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[BEIMFORD PHOTO]
J. PATRICK BEIMFORD, JR. JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI)
IN 1976. HE IS EXECUTIVE VICE PRESIDENT AND CHIEF INVESTMENT OFFICER
FOR FIXED-INCOME INVESTMENTS. MR. BEIMFORD IS ALSO PORTFOLIO
CO-MANAGER FOR KEMPER U.S. MORTGAGE FUND. HE RECEIVED A BACHELOR OF
SCIENCE AND INDUSTRIAL MANAGEMENT DEGREE FROM PURDUE UNIVERSITY AND
RECEIVED AN M.B.A. FROM THE UNIVERSITY OF CHICAGO.
[VANDENBERG PHOTO]
RICHARD VANDENBERG JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN
MARCH 1996, AS PORTFOLIO CO-MANAGER OF KEMPER U.S. MORTGAGE FUND.
VANDENBERG HAS MORE THAN 22 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE. HE RECEIVED BOTH A BACHELOR'S DEGREE AND M.B.A. FROM THE
UNIVERSITY OF WISCONSIN.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED
ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME,
BASED ON MARKET AND OTHER CONDITIONS.
DURING THE FIRST HALF OF THE FISCAL YEAR--OCTOBER 1995, THROUGH MARCH
1996--RICHARD VANDENBERG JOINED J. PATRICK BEIMFORD AS PORTFOLIO CO-MANAGER OF
KEMPER U.S. MORTGAGE FUND. BELOW THEY EXPLAIN THE POLITICAL AND ECONOMIC EVENTS
THAT FUELED A STRONG GOVERNMENT MARKET RALLY AND AN EVEN STRONGER TURNABOUT IN
INTEREST RATES DURING THE PERIOD.
Q. DURING THE SIX MONTH PERIOD, THE FEDERAL RESERVE BOARD REDUCED
SHORT-TERM INTEREST RATES TWICE, YET RATES ON GOVERNMENT BONDS FELL AND THEN
ROSE LATE IN THE PERIOD. WHAT CAUSED THIS DIFFERENCE IN RATE DIRECTION?
A. Rates reversed direction as expectations for the pace of economic
growth shifted. At the start of the fiscal year, in October 1995, investors in
the government market 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 government investments because they supported a slow-growth,
benign inflation environment.
Economic growth continued to falter in the fourth quarter of 1995 and the
market rallied as investors speculated that more interest rate reductions would
be forthcoming in the new year. The Federal Reserve Board did move in December
1995, and in January 1996, to lower interest rates. These moves 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 in 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 as 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.
The most dramatic rise in market rates during the period occurred in early
March, when the U.S. Labor Department announced an unanticipated and dramatic
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 through the end
5
<PAGE> 6
PERFORMANCE UPDATE
of March as demand for government securities declined.
Q. WHAT IMPACT DID THESE SHIFTS IN INTEREST RATES HAVE ON THE FUND'S
PERFORMANCE?
A. For the first three months of the fiscal year--October 1995,
through December 1995--the fund outperformed the average of its peers. This
outperformance was due to the fund's relatively long duration at the start of
the fiscal year. We anticipated that rates would fall so we 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 began to reduce the fund's duration in January believing that the bond
rally could not maintain its momentum. We reduced duration early in February,
and then positioned the fund for a more stable rate environment. Unfortunately
the employment release in March caused the market to trade down sharply.
Q. WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO ALTER
THE FUND'S DURATION?
A. Throughout the period we altered our level of mortgages versus
Treasuries to take advantage of the market rally and to manage the fund's
exposure to mortgage prepayment risk. The risk of prepayments is always more
prevalent when rates fall because borrowers are likely to refinance into lower
rate mortgages. As this happens, mortgages with higher interest rates are paid
off early and the proceeds are reinvested at lower market rates. Treasuries,
however, tend to perform much better when rates decline and offer better price
appreciation potential.
So, at the start of the fiscal year, we increased our long-term Treasury
holdings to 14 percent of the portfolio from 6 percent in September 1995. In
December, we increased Treasuries again to 20 percent of the fund. Our
allocation to Treasuries enabled us to capture the significant price gains that
occurred at the end of December, when the swift drop in rates occurred. Although
mortgages generally provide higher yields, Treasuries offered the potential for
a higher total return. Total return, remember, includes both income on the
investments and price change.
In January 1996, we began selling Treasuries to reduce the fund's
duration and to increase its investment in mortgages. We expected that rates
would not continue to decline so dramatically. With a more stable interest rate
environment, mortgages tend to outperform Treasuries. We also wanted to align
the fund's portfolio more closely to the defensive positioning favored by our
peers. Mortgages represented approximately 85 to 95 percent of the fund's
assets during the first three months of 1996.
Q. WHAT'S YOUR OUTLOOK FOR THE GOVERNMENT MORTGAGE MARKET AND KEMPER
U.S. MORTGAGE FUND IN PARTICULAR?
A. Although we don't expect to see returns of the magnitude we had in
1995, we believe that 1996 could be a good year for the government market and
the fund. Our outlook is for moderate growth with tame inflation. Although
rates have risen, we expect them to stabilize, which should be positive for
mortgages. Last year, Treasuries provided a great deal of price appreciation
due to the declining interest rate environment. This year we expect to keep
most of the portfolio invested in mortgages, which should generate a solid
level of income for shareholders.
Q. WHAT COULD THREATEN YOUR OUTLOOK?
A. There would need to be a major change in economic fundamentals to
change our outlook at this point. If interest rates begin to fall dramatically,
we'd need to adjust our strategy. We'd lengthen the fund's duration and
probably invest in Treasuries to enhance the fund's total return potential.
6
<PAGE> 7
- ---------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
ON 3/31/96 ON 9/30/95
<S> <C> <C>
MORTGAGE-BACKED
GNMA 84% 91%
- ---------------------------------------------------------------------------
OTHER 9 3
- ---------------------------------------------------------------------------
GOVERNMENT SECURITIES 7 6
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/96 ON 9/30/95
- ---------------------------------------------------------------------------
YEARS TO MATURITY
AS A PERCENTAGE OF THE PORTFOLIO
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
ON 3/31/96 ON 9/30/95
<S> <C> <C>
LESS THAN 5 YEARS 23% 2%
- ---------------------------------------------------------------------------
5-10 YEARS 30 24
- ---------------------------------------------------------------------------
10-20 YEARS 47 70
- ---------------------------------------------------------------------------
20 + YEARS -- 4
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/96 ON 9/30/95
- -------------------------------------------------------------------------
DURATION
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
ON 3/31/96 ON 9/30/95
<S> <C> <C>
DURATION 3.2 YEARS 5.2 YEARS
- -------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER U.S. MORTGAGE FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1996
(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 6.00% 2023-2026 $ 17,085 $ 15,798
MORTGAGE Certificates 6.50 2023-2026 558,264 529,478
ASSOCIATION--83.9% 7.00 2016-2026 711,343 653,018
(Cost: $2,637,047) 7.50 2007-2026 579,082 578,642
8.00 2015-2026 667,436 681,619
8.50 2016-2025 25,673 26,829
9.00 2008-2026 150,029 158,375
9.50 2009-2023 54,396 58,357
10.00 2016-2021 7,344 8,102
10.50 2019-2021 9,391 10,432
11.00 2019 441 494
-----------------------------------------------------------------------------
2,721,144
- --------------------------------------------------------------------------------------------------------------
U.S. TREASURY Notes 9.375 1996 318,000 318,546
SECURITIES--20.5% 8.75 1997 128,000 133,640
(Cost: $676,773) 8.875 1997 100,000 104,797
6.75 2000 3,850 3,944
Bonds 11.875 2003 12,288 16,345
12.75 2010 40,107 57,754
12.50 2014 19,160 28,914
-----------------------------------------------------------------------------
663,940
- --------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE Pass-through 8.00 2024 10,920 11,118
ASSOCIATION--9.0% Certificates 8.50 2026 164,000 169,843
(Cost: $291,757) 9.00 2016-2026 105,277 110,442
11.50 2018 749 835
-----------------------------------------------------------------------------
292,238
- --------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Pass-through 5.00 2021 14,600 13,094
MORTGAGE Certificates 8.00 2017 1,146 1,165
CORPORATION--.5% 8.50 2016 340 351
(Cost: $15,056)
-----------------------------------------------------------------------------
14,610
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--113.9%
(Cost: $3,620,633) 3,691,932
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE
AGREEMENTS(A)--2.4%
Yield-5.52% to 5.55%, Dated March 1996,
Due April 1996
Goldman Sachs & Co. $ 2,000 $ 2,000
(held at The Bank of New York)
Merrill Lynch Government Securities, Inc. 13,000 13,000
(held at Chemical Bank)
Nomura Securities International, Inc. 50,000 50,000
(held at The Bank of New York)
Lehman Government Securities Inc. 15,000 15,000
(held at Chemical Bank)
-----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost: $80,000) 80,000
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--116.3%
(Cost: $3,700,633) 3,771,932
-----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(16.3%) (529,766)
-----------------------------------------------------------------------------
NET ASSETS--100% $3,242,166
-----------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. All collateral is held at the Fund's subcustodian
banks, as indicated. The collateral is monitored daily by the Fund so that its
market value exceeds the carrying value of the repurchase agreement.
Based on the cost of investments of $3,700,633,000 for federal income tax
purposes at March 31, 1996, the aggregate gross unrealized appreciation was
$101,616,000, the aggregate gross unrealized depreciation was $30,317,000 and
the net unrealized appreciation of investments was $71,299,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $3,700,633) $ 3,771,932
- --------------------------------------------------------------------------------------------------------
Cash 47,951
- --------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 303
- --------------------------------------------------------------------------------------------------------
Investments sold 81,333
- --------------------------------------------------------------------------------------------------------
Interest 41,822
- --------------------------------------------------------------------------------------------------------
Other 94
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,943,435
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 1,922
- --------------------------------------------------------------------------------------------------------
Investments purchased 695,415
- --------------------------------------------------------------------------------------------------------
Management fee 1,436
- --------------------------------------------------------------------------------------------------------
Distribution services fee 822
- --------------------------------------------------------------------------------------------------------
Administrative services fee 530
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,144
- --------------------------------------------------------------------------------------------------------
Total liabilities 701,269
- --------------------------------------------------------------------------------------------------------
NET ASSETS $ 3,242,166
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------------------------------------
Paid-in capital $ 4,366,608
- --------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,243,850)
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 71,299
- --------------------------------------------------------------------------------------------------------
Undistributed net investment income 48,109
- --------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 3,242,166
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,000,713 / 284,867 shares outstanding) $7.02
- --------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net
asset value or 4.50% of offering price) $7.35
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,239,699 / 176,678 shares outstanding) $7.02
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($1,754 / 250 shares outstanding) $7.01
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31,
1996
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
<S> <C>
Interest income $130,041
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 8,658
- --------------------------------------------------------------------------------------------------------
Distribution services fee 5,145
- --------------------------------------------------------------------------------------------------------
Administrative services fee 3,965
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 4,320
- --------------------------------------------------------------------------------------------------------
Professional fees 48
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 322
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 31
- --------------------------------------------------------------------------------------------------------
Total expenses 22,489
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 107,552
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized loss on sales of investments (including options purchased) (10,050)
- --------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 12,103
- --------------------------------------------------------------------------------------------------------
Net realized gain 2,053
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (38,942)
- --------------------------------------------------------------------------------------------------------
Net loss on investments (36,889)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 70,663
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS TWO MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, JULY 31,
1996 1995 1995
- -----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income $107,552 38,035 273,459
- -----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 2,053 (4,479) (107,190)
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (38,942) 40,878 138,533
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 70,663 74,434 304,802
- -----------------------------------------------------------------------------------------------------------
Net equalization charges (3,293) (1,220) (12,882)
- -----------------------------------------------------------------------------------------------------------
Distribution from net investment income (116,722) (40,438) (267,996)
- -----------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (201,534) (68,053) (653,661)
- -----------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (250,886) (35,277) (629,737)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of period 3,493,052 3,528,329 4,158,066
- -----------------------------------------------------------------------------------------------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $48,109, $60,572 AND $64,192, RESPECTIVELY) $3,242,166 3,493,052 3,528,329
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
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 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 (none sold through March 31, 1996)
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.
In 1995, the Fund changed its fiscal year end for
financial reporting and federal income tax purposes
from July 31 to September 30.
- --------------------------------------------------------------------------------
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. 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 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
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 segregate cash or other liquid assets
equal to the value of the securities purchased. At
March 31, 1996 the Fund had $646,020,000 in
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
purchase commitments outstanding (20% 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 ending March 31, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at March 31, 1996, amounting to
approximately $1,228,716,000, is available to
offset future taxable gains. If not applied,
$355,103,000 of the loss carryover expires in 1996,
with the remainder expiring through the period
ended 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.
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.
- --------------------------------------------------------------------------------
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 .55% of the first $250 million of average daily
net assets declining to .40% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $8,658,000 for the six
months ended March 31, 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
March 31, 1996 $20,000 120,000 2,000
</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.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
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 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 the CDSC received in
connection with the redemption of Class B 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
March 31, 1996 $ 6,286,000 555,000 17,000
</TABLE>
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 of each class. 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 services.
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
March 31, 1996 $ 3,965,000 4,067,000 178,000
</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 $2,485,000
for the six months ended March 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the six months ended March 31, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $30,000 to independent trustees.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $6,749,352
Proceeds from sales 7,072,586
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, SEPTEMBER 30, JULY 31,
1996 1995 1995
-------------------- ------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES SOLD
--------------------------------------------------------------------------------
Class A 2,126 $ 13,827 1,023 $ 7,000 6,918 $ 45,618
--------------------------------------------------------------------------------
Class B 2,829 19,705 925 6,312 8,293 55,591
--------------------------------------------------------------------------------
Class C 54 387 42 296 167 1,153
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
--------------------------------------------------------------------------------
Class A 5,835 41,838 1,950 13,752 12,059 82,686
--------------------------------------------------------------------------------
Class B 3,653 26,171 1,352 9,523 10,543 72,114
--------------------------------------------------------------------------------
Class C 4 27 1 7 3 19
--------------------------------------------------------------------------------
SHARES REDEEMED
--------------------------------------------------------------------------------
Class A (23,635) (167,399) (8,038) (55,910) (63,394) (427,279)
--------------------------------------------------------------------------------
Class B (19,301) (135,986) (7,037) (49,021) (72,004) (483,386)
--------------------------------------------------------------------------------
Class C (14) (104) (2) (12) (26) (177)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
--------------------------------------------------------------------------------
Class A 14,769 105,253 5,480 38,088 43,850 296,147
--------------------------------------------------------------------------------
Class B (14,787) (105,253) (5,492) (38,088) (43,908) (296,147)
--------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE
TRANSACTIONS $(201,534) $(68,053) $(653,661)
--------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
- --------------------------------------------------------------------------------
6
FINANCIAL
FUTURES CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect itself
against anticipated market conditions and, as such,
bears the risk that arises from owning these
contracts.
At the time the Fund enters into a futures
contract, it is required to segregate liquid assets
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 price
of the futures contract changes. At March 31, 1996
the market value of assets segregated by the Fund
was $302,903,000 for the following financial
futures contracts owned by the Fund (in thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 3/31/96
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------
U.S. Treasury Securities $284,450 Short June $2,545
---------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
--------------------------------------------------
CLASS A SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED JULY 31,
MARCH 31, SEPTEMBER 30, -------------------------
1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.13 7.06 6.96 7.56 7.78
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .08 .53 .51 .62
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.09) .08 .09 (.59) (.21)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .15 .16 .62 (.08) .41
- ----------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .26 .09 .52 .52 .63
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.02 7.13 7.06 6.96 7.56
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.05% 2.23 9.48 (1.21) 5.52
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses .96% .94 .89 .99 .97
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 6.63 6.87 7.77 7.00 8.22
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------
CLASS B SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED JULY 31,
MARCH 31, SEPTEMBER 30, -------------------------
1996 1995 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.12 7.05 6.96 7.56 7.77
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .07 .47 .45 .57
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.09) .08 .09 (.59) (.21)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .15 .56 (.14) .36
- ----------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .23 .08 .47 .46 .57
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.02 7.12 7.05 6.96 7.56
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.77% 2.09 8.44 (2.00) 4.85
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.84% 1.79 1.75 1.79 1.75
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 5.76 6.02 6.91 6.27 7.44
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
--------------------------------------------------
CLASS C SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED MAY 31, TO
MARCH 31, SEPTEMBER 30, JULY 31, JULY 31,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.12 7.05 6.95 6.99
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .07 .48 .07
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.09) .08 .09 (.04)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .12 .15 .57 .03
- ---------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .23 .08 .47 .07
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.01 7.12 7.05 6.95
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.68% 2.10 8.65 .47
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.71% 1.69 1.71 1.55
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 5.89 6.12 6.95 6.46
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED JULY 31,
MARCH 31, SEPTEMBER 30, -----------------------------------
1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $3,242,166 3,493,052 3,528,329 4,158,066 5,639,097
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 388% 249 573 963 551
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
18
<PAGE> 19
NOTES
19
<PAGE> 20
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR. JEROME L. DUFFY
President and Trustee Vice President Treasurer
DAVID W. BELIN JOHN E. NEAL ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
LEWIS A. BURNHAM JOHN E. PETERS
Trustee Vice President
DONALD L. DUNAWAY MICHELLE M. KEELEY
Trustee Vice President
ROBERT B. HOFFMAN FRANK J. RACHWALSKI, JR.
Trustee Vice President
DONALD R. JONES RICHARD L. VANDENBERG
Trustee Vice President
DOMINIQUE P. MORAX PHILIP J. COLLORA
Trustee Vice President
and Secretary
SHIRLEY D. PETERSON
Trustee CHARLES F. CUSTER
Vice President and
WILLIAM P. SOMMERS Assistant Secretary
Trustee
- --------------------------------------------------------------------------------
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
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 South 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
1014620
KUSMF - 3 (5/96) Printed in the U.S.A.
