<PAGE> 1
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MARCH 31, 1996
Offering investors the opportunity for high current income and
preservation of capital
"...intermediate-term Treasuries added both additional income and duration
to the fund, which enhanced total return..."
<PAGE> 2
Table Of
Contents
2
Terms to Know
3
General Economic
Overview
5
Performance Update
7
Portfolio Statistics
8
Portfolio of
Investments
9
Financial Statements
11
Notes to
Financial Statements
15
Financial Highlights
At a Glance
Kemper Short-Intermediate Government Fund Total Returns for the six-month period
ended March 31, 1996 (unadjusted for any sales charge):
[BAR GRAPH]
<TABLE>
<S> <C>
Class A 2.42%
Class B 1.87%
Class C 2.05%
Lipper Short Government Funds Category Average* 2.36%
</TABLE>
4
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.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/96 9/30/95
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $8.01 $8.08
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.97 $8.05
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.99 $8.06
- --------------------------------------------------------------------------------
</TABLE>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND RANKINGS*
Compared to all other funds in the Lipper Short Government Funds Category
<TABLE>
<CAPTION>
1-YEAR 5-YEAR
- --------------------------------------------------------------------------------
<S> <C> <C>
CLASS A #55 OF 86 FUNDS N/A
- --------------------------------------------------------------------------------
CLASS B #78 OF 86 FUNDS #24 OF 24 FUNDS
- --------------------------------------------------------------------------------
CLASS C #71 OF 86 FUNDS N/A
- --------------------------------------------------------------------------------
</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: $0.2650 $0.2310 $0.2350
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $0.0425 $0.0368 $0.0375
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 6.37% 5.54% 5.63%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.37% 3.71% 3.87%
- --------------------------------------------------------------------------------
</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
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
[VANDENBERG PHOTO]
Richard Vandenberg joined Zurich Kemper Investments, Inc. (ZKI) in
March 1996 as portfolio co-manager of Kemper Short-Intermediate
Government Fund. Vandenberg has more than 22 years of fixed-income
portfolio management experience. He received both a bachelor's degree
and an M.B.A. from the University of Wisconsin.
[KEELEY PHOTO]
Michelle Keeley joined Zurich Kemper Investments, Inc. (ZKI) in 1990.
She is first vice president of ZKI and portfolio co-manager of Kemper
Short-Intermediate Government Fund. Keeley received a bachelor of arts
degree from Michigan State University and a masters of management from
Kellogg Graduate School of Management at Northwestern University.
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 MICHELLE KEELEY AS PORTFOLIO CO-MANAGER OF KEMPER
SHORT-INTERMEDIATE GOVERNMENT 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
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 FERENCE IN RATE DIRECTION?
A. Rates reversed direction as expectations for the pace of economic growth
changed. At the start of the fiscal year, in October 1995, investors were
optimistic about the government market. It was expected that the economy would
continue to grow slowly, inflation would remain low, and that perhaps 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 Patrick Buchanan's strong early showing in the
presidential 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 reported 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. This is 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 of March as demand for
government securities declined.
5
<PAGE> 6
Q. WHAT IMPACT DID THESE SHIFTS IN INTEREST RATES HAVE ON THE FUND'S
PERFORMANCE?
A. As the fiscal year began in October 1995, we anticipated that interest
rates would decline. To take advantage of the potential decline we positioned
the fund with a longer than average duration. 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. Our assumption on rates was correct
and as a result the portfolio's longer duration enabled the fund to outperform
its peers with shorter durations. Our outlook on rates, however, began to
change in January so we reduced the fund's duration believing that the bond
rally would not maintain its momentum. We reduced duration again in early
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, which hurt the fund's performance--even with its shortened duration.
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 investment in short-term
(one to 3 years to maturity) and intermediate-term Treasuries (3-10 year
maturities). As the market rallied from October 1995, through January 1996,
intermediate-term Treasuries represented between 50-55 percent of the fund's
portfolio. Comparatively, we kept our investment in short-term Treasuries
within 33-45 percent of the portfolio. The heavier weighting of
intermediate-term Treasuries added both additional income and duration to the
fund, which enhanced total return as the market rallied.
We positioned the fund more defensively in February as rates began to rise.
This was accomplished by favoring short-term Treasuries and cash equivalent
securities, which shortened the fund's duration. We increased short-term
Treasuries to 40 percent from 34 percent of the portfolio. This increase was
offset by reducing intermediate-term Treasuries to 42 percent from 53 percent of
the portfolio. By selling intermediate-term Treasuries at that point, we gained
the price appreciation that had resulted as rates fell during the previous four
months.
In March, the portfolio's duration was trimmed again after the release of the
stronger-than-expected employment report. The data was evidence that the economy
was gathering momentum and that the Federal Reserve would refrain from lowering
interest rates in the near term.
Q. WHAT'S YOUR OUTLOOK FOR TREASURIES AND KEMPER SHORT-INTERMEDIATE
GOVERNMENT 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 the
market. We plan to manage the fund more defensively this year as we do not
anticipate any significant drops in interest rates.
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 would begin to fall dramatically,
we'd adjust our strategy by lengthening duration.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ON 3/31/96 ON 9/30/95
- ---------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS:
SHORT-TERM 47% 43%
- ---------------------------------------------------------------------------
INTERMEDIATE-TERM 37 51
- ---------------------------------------------------------------------------
CASH AND EQUIVALENTS 16 6
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
YEARS TO MATURITY
As a percentage of the portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ON 3/31/96 ON 9/30/95
- ---------------------------------------------------------------------------
<S> <C> <C>
LESS THAN 3 YEARS 63% 49%
- ---------------------------------------------------------------------------
3-13 YEARS 37 51
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
DURATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ON 3/31/96 ON 9/30/95
- ---------------------------------------------------------------------------
<S> <C> <C>
DURATION 2.1 YEARS 2.5 YEARS
- ---------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Portfolio of Investments at March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS RATE MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY
SECURITIES--98.1%
(Cost: $222,532)
Notes 9.375% 1996 $ 7,000 $ 7,012
7.50 1997 10,000 10,164
8.625 1997 15,000 15,579
8.75 1997 10,000 10,441
8.875 1997 15,000 15,719
7.25 1998 10,000 10,255
8.25 1998 15,000 15,769
9.00 1998 11,000 11,689
9.25 1998 13,000 13,957
7.75 1999 10,000 10,558
9.125 1999 25,000 27,215
6.75 1999 10,000 10,216
8.875 1999 10,000 10,767
8.50 2000 10,000 10,948
8.75 2000 15,000 16,519
6.875 2000 10,000 10,283
Bond 9.125 2009 11,000 12,818
-----------------------------------------------------------------------------
219,909
- ------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED
SECURITIES--.3%
Federal Home Loan
Mortgage Corp.
(Cost: $530) 11.25 2010 471 523
Government National
Mortgage Assoc.
(Cost: $168) 9.00-9.50 2016-2020 158 168
-----------------------------------------------------------------------------
691
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $223,230) 220,600
-----------------------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES--1.6% 3,648
-----------------------------------------------------------------------------
NET ASSETS--100% $224,248
-----------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $223,230,000 for federal income tax purposes
at March 31, 1996, the aggregate gross unrealized appreciation was $480,000, the
aggregate gross unrealized depreciation was $3,110,000 and the net unrealized
depreciation of investments was $2,630,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 9
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $223,230) $220,600
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 24
- -------------------------------------------------------------------------------------------------------
Interest 5,016
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 225,640
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft 339
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 628
- -------------------------------------------------------------------------------------------------------
Investments purchased 85
- -------------------------------------------------------------------------------------------------------
Management fee 104
- -------------------------------------------------------------------------------------------------------
Distribution services fee 121
- -------------------------------------------------------------------------------------------------------
Administrative services fee 45
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 64
- -------------------------------------------------------------------------------------------------------
Other 6
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,392
- -------------------------------------------------------------------------------------------------------
NET ASSETS $224,248
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $240,266
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (15,637)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (2,630)
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,249
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $224,248
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($32,407 / 4,047 shares outstanding) $8.01
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of
net asset value or 3.50% of offering price) $8.30
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($187,759 / 23,545 shares outstanding) $7.97
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price per share
($4,082 / 511 shares outstanding) $7.99
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE> 10
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
Investment income $ 8,911
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 646
- --------------------------------------------------------------------------------------------------------
Distribution services fee 758
- --------------------------------------------------------------------------------------------------------
Administrative services fee 284
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 403
- --------------------------------------------------------------------------------------------------------
Professional fees 20
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 34
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 11
- --------------------------------------------------------------------------------------------------------
Total expenses 2,156
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,755
- --------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 2,227
- --------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 520
- --------------------------------------------------------------------------------------------------------
Net realized gain 2,747
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (4,703)
- --------------------------------------------------------------------------------------------------------
Net loss on investments (1,956)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,799
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30, JULY 31,
1996 1995 1995
<S> <C> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 6,755 2,335 15,086
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) 2,747 (369) (5,182)
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (4,703) 281 3,921
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,799 2,247 13,825
- --------------------------------------------------------------------------------------------------------
Net equalization charges (157) (63) (249)
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income (6,829) (2,444) (14,897)
- --------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (13,184) (6,369) (19,071)
- --------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (15,371) (6,629) (20,392)
- --------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 239,619 246,248 266,640
- --------------------------------------------------------------------------------------------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $2,249, $2,480, AND $2,651, RESPECTIVELY) $224,248 239,619 246,248
- --------------------------------------------------------
</TABLE>
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUND Kemper Short-Intermediate Government 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 charges 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.
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
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
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 $15,310,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 through
2003.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
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 $646,000 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 $ 6,000 37,000 --
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges 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
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
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 $ 1,043,000 242,000 5,000
</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 $ 284,000 288,000 8,000
</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 $317,000
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 $11,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $284,135
Proceeds from sales 295,317
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS TWO MONTHS
ENDED ENDED YEAR 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 479 $ 3,816 401 $ 3,200 2,581 $ 20,257
-----------------------------------------------------------------------------------
Class B 1,058 8,453 353 2,801 4,895 37,726
-----------------------------------------------------------------------------------
Class C 365 2,962 25 200 460 3,661
-----------------------------------------------------------------------------------
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS
Class A 105 848 33 267 161 1,392
-----------------------------------------------------------------------------------
Class B 515 4,160 191 1,532 1,224 10,537
-----------------------------------------------------------------------------------
Class C 10 82 3 21 14 117
-----------------------------------------------------------------------------------
SHARES
REDEEMED
Class A (727) (5,867) (251) (2,007) (1,561) (12,311)
-----------------------------------------------------------------------------------
Class B (3,286) (26,319) (1,527) (12,161) (9,966) (78,456)
-----------------------------------------------------------------------------------
Class C (164) (1,319) (28) (222) (250) (1,994)
-----------------------------------------------------------------------------------
CONVERSION
OF SHARES
Class A 281 2,284 71 571 571 4,585
-----------------------------------------------------------------------------------
Class B (282) (2,284) (71) (571) (574) (4,585)
-----------------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $(13,184) $(6,369) $(19,071)
----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 $16,340,000 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 $16,210 Short June $167,000
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWO MONTHS ENDED YEAR ENDED JULY 31,
CLASS A SHARES MARCH 31, SEPTEMBER 30, ------------------------
- ---------------------------------------- 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.08 8.09 8.11 8.63 8.65
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .27 .09 .54 .48 .53
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.01) (.03) (.44) (.03)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .08 .51 .04 .50
- -----------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .27 .09 .53 .45 .52
- -----------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- .11 --
- -----------------------------------------------------------------------------------------------------------------------
Total dividends .27 .09 .53 .56 .52
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.01 8.08 8.09 8.11 8.63
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.42% 1.00 6.58 .41 6.01
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.12% 1.05 1.06 1.06 1.04
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 6.46 6.56 6.65 5.85 6.06
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.05 8.06 8.08 8.61 8.64
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .08 .47 .40 .45
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.01) (.03) (.44) (.02)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .15 .07 .44 (.04) .43
- -----------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .23 .08 .46 .38 .46
- -----------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- .11 --
- -----------------------------------------------------------------------------------------------------------------------
Total dividends .23 .08 .46 .49 .46
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.97 8.05 8.06 8.08 8.61
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.87% .87 5.68 (.48) 5.13
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.95% 1.91 1.87 1.93 1.87
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 5.63 5.70 5.84 4.95 5.23
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TWO MONTHS ENDED
CLASS C SHARES SIX MONTHS ENDED SEPTEMBER 30, YEAR ENDED MAY 31, TO
- ---------------------------------------- MARCH 31, 1996 1995 JULY 31, 1995 JULY 31, 1994
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.06 8.06 8.08 8.09
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .09 .47 .07
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.01) (.03) (.01)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .08 .44 .06
- ----------------------------------------------------------------------------------------------------------------------
Less distribution from net investment
income .24 .08 .46 .07
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.99 8.06 8.06 8.08
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.05% 1.00 5.73 .77
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.78% 1.74 1.78 1.83
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 5.80 5.87 5.93 5.54
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWO MONTHS ENDED YEAR ENDED JULY 31,
SUPPLEMENTAL DATA FOR ALL CLASSES MARCH 31, SEPTEMBER 30, -----------------------------
- -------------------------------------------- 1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $224,248 239,619 246,248 266,640 283,249
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 242% 173 597 916 339
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
15
<PAGE> 16
TRUSTEES AND OFFICERS
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
1-800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 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.
KSIGF - 3 (5/96) KEMPER LOGO
1014610
Printed in the U.S.A.
