<PAGE> 1
KEMPER
SHORT-INTERMEDIATE
GOVERNMENT FUND
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Offering investors the opportunity for high current income and preservation of
capital
" . . . A reversal of the direction of interest rates during the
period required active duration management . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At A Glance
2
Terms to Know
3
General
Economic Overview
5
Performance Update
9
Portfolio Statistics
10
Portfolio of
Investments
11
Report of Independent
Auditors
12
Financial Statements
14
Notes to Financial
Statements
18
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996 (UNADJUSTED FOR ANY SALES CHARGE)
[LINE GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
CLASS A 4.25%
CLASS B 3.28%
CLASS C 3.36%
LIPPER SHORT GOVERNMENT
FUNDS CATEGORY AVERAGE* 4.41%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/96 9/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $7.89 $8.08
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.85 $8.05
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.86 $8.06
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not represent future performance.
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.
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SHORT GOVERNMENT FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #51 OF #77 OF #75 OF
86 FUNDS 86 FUNDS 86 FUNDS
- --------------------------------------------------------------------------------
5-YEAR N/A #30 OF N/A
30 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUND AS OF SEPTEMBER 30, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR INCOME: $0.5250 $0.4591 $0.4658
- --------------------------------------------------------------------------------
SEPTEMBER
DIVIDEND: $0.0450 $0.0403 $0.0408
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION
RATE+: 6.84% 6.16% 6.23%
- --------------------------------------------------------------------------------
SEC YIELD+: 5.08% 4.45% 4.57%
- --------------------------------------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on September 30, 1996. Distribution
rate simply measures the level of dividends and is not a complete measure of
performance. The SEC yield is net investment income per share earned over the
month ended September 30, 1996 shown as an annualized percentage of the maximum
offering price on that date. The SEC yield is computed in accordance with a
standardized method prescribed by the Securities and Exchange Commission.
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 INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $76 BILLION IN ASSETS, INCLUDING $42 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we approach the close of 1996, it's remarkable how eventful the year has been
and yet, economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar today to what they
were in 1995. Long-term interest rates are approximately 6.52% compared to 6.29%
in November 1995. The economy is growing at a rate of approximately 2.2%.
Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 15% to 20%. While price movements were more
volatile in 1996 than in the past few years, the patient investor was amply
rewarded. The prime element sending the stock market higher was strong positive
cash flows. This liquidity in an environment of modestly increasing corporate
profits and relatively stable interest rates pushed stocks higher for most of
the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- - EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in recent
previous years but positive nonetheless.
- - INTEREST RATES. Rates should remain stable, and short-term interest
rates may even decline.
- - LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, continue to create strong demand for
securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- -------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- -------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (10/31/96) 6 Months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.53 6.74 6.04 7.74
Prime rate (2) 8.25 8.25 8.75 7.75
Inflation rate (3) 3 2.9 2.6 2.6
The U.S. dollar (4) 4.74 8.94 -1.05 -5.28
Capital goods orders (5)* 2.24 7.42 8.57 15.65
Industrial production (5) 3.5 2.56 1.92 6.77
Employment growth (6) 2.01 2.07 1.93 3.3
</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 the U.S. firms' foreign profits.
5 These influence corporate profits and equity performance.
6 An influence on family income and retail sales.
* Data as of September 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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.
November 15, 1996
*THE STANDARD & POOR'S 500 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
SENIOR VICE PRESIDENT OF ZKI AND 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 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
IN FINANCE 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.
PORTFOLIO CO-MANAGERS RICHARD VANDENBERG AND MICHELLE KEELEY DISCUSS THE
POSITIONING OF THE FUND DURING A YEAR CHARACTERIZED PRIMARILY BY RISING INTEREST
RATES, FEARS OF INFLATION AND STRONGER ECONOMIC GROWTH.
Q. HOW WOULD YOU CHARACTERIZE THE ECONOMIC ENVIRONMENT OVER THE LAST 12
MONTHS, AND HOW DID GOVERNMENT SECURITIES FARE?
A. The investment climate changed dramatically over the past 12 months. At the
start of the fiscal year, 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 Fed did move in December
1995 and January 1996, to lower interest rates.) The market was also hopeful
that the negotiations then underway in Washington, D.C., would lead to a
balanced budget agreement with a solid plan for reducing the federal budget
deficit. All of these events were positive for government investments because
they supported a slow-growth, benign inflation environment. As a result, market
interest rates (yields) of government securities fell and prices increased.
By February 1996, political and economic events caused investors to
re-evaluate this projected slow growth, low inflation path. As a result of this
uncertainty, market interest rates rose and prices of government securities
began to decline. Most of the adjustment in interest rates occurred in the first
quarter of 1996. Yields remained at higher levels throughout the rest of the
fiscal period.
Q. WHAT WERE THE EVENTS THAT CAUSED THE CHANGE IN INTEREST RATE DIRECTION?
A. Initially, the collapse of federal budget negotiations caused market yields
to rise. Additionally, columnist Patrick Buchanan's strong early showing in the
presidential primaries fueled concern as the market viewed many of his proposals
as potentially inflationary. Further, in his testimony before Congress, Fed
Chairman Alan Greenspan intimated that the pace of economic growth was gaining
momentum. This caused some investors to conclude that another reduction in
interest rates was not imminent. These events prompted investors to sell, and
interest rates rose.
However, the most dramatic rise in market rates during the period occurred
in early March, when the U.S. Labor Department reported an unanticipated and
dramatic increase in employment growth. Many bond investors saw this data as
evidence that the economy was gaining momentum, prompting a sell-off in the
market. Investors associate more rapid economic growth with higher inflation,
and as we know, inflation erodes the value of fixed-income investments. Fears of
inflation and a potential rate hike by the Fed impacted the market throughout
the rest of the period and rates never moved back to their lower 1995 levels.
5
<PAGE> 6
PERFORMANCE UPDATE
Q. WAS THE FUND'S PERFORMANCE IMPACTED BY THE RISING INTEREST RATES?
A. When interest rates rise, the prices of bonds fall. Therefore, the
government bond market and Kemper Short-Intermediate Government Fund were both
adversely impacted by the upward movement in interest rates that began in early
1996.
We react to changing interest rates by lengthening or shortening durations
of the securities in which we invest. A reversal of the direction of interest
rates during the period required active duration management.
During the first quarter of the fiscal year, we had expected interest
rates to decline and had 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
outlook on rates, however, began to change in January so we reduced the fund's
duration believing that yields would not continue their precipitous decline. We
reduced duration again in early February, and positioned the fund for a more
stable interest 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.
From that point forward we maintained a neutral to defensive duration
positioning for the fund. This means that we shortened the portfolio's duration
to a length similar to that of the market or shorter. This positioning helped
the fund as the market continued to be moved by fears of inflation and a
possible rate increase by the Fed.
Q. WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO ALTER THE FUND'S
DURATION?
A. At the start of the period, we altered the fund's duration by increasing
our investments in intermediate-term Treasuries (3-10 years to maturity) and
decreasing our investments in short-term Treasuries (one to 3 years to
maturity). As interest rates were falling, intermediate-term governments
represented between 50-55 percent of the fund's portfolio. Conversely, our
investment in short-term Treasuries was much lower -- between 33-45 percent of
the portfolio. On December 31, the fund's duration was relatively long at 2.7
years. 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 adding short-term Treasuries and cash equivalent
securities, and decreasing longer duration Treasuries, which shortened the
fund's duration to 2.3 years. We increased short-term Treasuries to 40 percent
from 34 percent of the portfolio and decreased intermediate-term securities to
42 percent.
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, dampening expectations that the Federal Reserve
would lower interest rates in the near term. We continued to trim duration by
replacing intermediate Treasuries with short-term Treasuries. By June 30, we had
cut the fund's duration to a defensive 1.7 years and increased short-term
Treasuries and cash equivalents to 82 percent of the fund's holdings.
Comparatively, intermediate Treasuries represented only 18 percent of the
portfolio, down from a high of 55 percent in October 1995.
As market yields began to stabilize, we extended the fund's duration to a
more market neutral position. This stabilization in the market was the result of
tame inflation numbers and economic data that indicated somewhat slower growth.
- --------------------------------------------------------------------------------
Kemper Short Intermediate Government Fund Duration in Years
- --------------------------------------------------------------------------------
The fund's duration was adjusted throughout the period in response to economic
indicators and changes in the direction of interest rates. The graph below
charts these duration adjustments.
[LINE GRAPH]
DEC-95 2.7
FEB-96 2.3
APR-96 1.9
JUN-96 1.7
AUG-96 2
6
<PAGE> 7
PERFORMANCE UPDATE
Q. WAS THERE ANY UPSIDE TO THE INCREASE IN INTEREST RATES?
A. The fund's dividend increase in August was a direct result of the higher
interest rate environment. Dividend distributions are dependent on the fund's
earnings. Therefore, as interest rates rose, yields on the investments we
purchased were greater. This generated more income for the fund and a higher
dividend.
Q. DO YOU BELIEVE THAT ECONOMIC GROWTH WILL CONTINUE TO MODERATE?
A. We don't anticipate any significant increases in interest rates from
current levels. In fact, given this economic environment and the low level of
inflation, rates should remain somewhat stable in the near term. There would
need to be a major change in economic fundamentals to move rates drastically one
way or another. But at this point, we don't expect that to happen.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
Average Annual Total Returns*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1996 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS A 0.64% N/A 4.09% (SINCE 1/10/92)
- -----------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS B 0.35 4.40% 5.78 (SINCE 2/1/89)
- -----------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS C 3.36 N/A 4.66 (SINCE 5/31/94)
- -----------------------------------------------------------------------------------------------------
</TABLE>
[Line Graph]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Short-Intermediate Government Fund Class A
from 1/10/92 through 9/30/96
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/10/92 12/31/93 12/31/94 12/31/95 09/30/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER SHORT-INTERMEDIATE $10,000 $10,826 $10,723 $11,930 $12,090
GOVERNMENT FUND CLASS A(1)
- ------------------------------------------------------------------------------------------------------------------
MERRILL-LYNCH 1-5 GOVERNMENT/GNMA INDEX+ $10,000 $11,437 $11,333 $12,876 $13,189
- ------------------------------------------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ $10,000 $10,573 $10,856 $11,131 $11,443
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[Line Graph]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Short-Intermediate Government Fund Class B
from 2/1/89 through 9/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2/1/89 12/31/91 12/31/93 12/31/95 09/30/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER SHORT-INTERMEDIATE $10,000 $12,808 $14,115 $15,282 $15,384
GOVERNMENT FUND CLASS B(1)
- ------------------------------------------------------------------------------------------------------------------
MERRILL-LYNCH 1-5 GOVERNMENT/GNMA INDEX+ $10,000 $14,943 $15,547 $17,664 $18,092
- ------------------------------------------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ $10,000 $11,387 $12,040 $12,675 $13,031
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
[Line Graph]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper Short-Intermediate Government Fund Class C
From 5/31/94 through 9/30/96
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
05/31/94 12/31/94 12/31/95 09/30/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER SHORT-INTERMEDIATE $10,000 $10,000 $11,045 $11,124
GOVERNMENT FUND CLASS C(1)
- -------------------------------------------------------------------------------------------------------
MERRILL-LYNCH 1-5 GOVERNMENT/GNMA INDEX+ $10,000 $10,093 $11,466 $11,745
- -------------------------------------------------------------------------------------------------------
CONSUMER PRICE INDEX ++ $10,000 $10,149 $10,407 $10,698
- -------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance. Returns and net asset
value fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.
* Average annual total return measures net investment income and capital gain or
loss from portfolio investments, assuming reinvestment of dividends and for
Class A shares adjustment for the maximum sales charge of 3.5%, for Class B
shares adjustment for the applicable contingent deferred sales charge (CDSC) as
follows: 1-year, 3%; 5-year, 1%; since inception, 0% and for C shares no
adjustment for sales charge. The maximum B share CDSC is 4%. For C shares
purchased on or after 4/1/96 there is a 1% CDSC on certain redemptions within
the first year of purchase. During the periods noted, securities prices
fluctuated. For additional information, see the Prospectus and Statement of
Additional Information and the Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
contingent deferred sales charge in effect at the end of the period. In
comparing Kemper Short-Intermediate Government Fund to the Merrill Lynch
Mortgage/GNMA Index, you should also note that the fund's performance reflects
the maximum sales charge, while no such charges are reflected in the performance
of the index.
+ The Merrill Lynch 1-5 Government/GNMA Index, an unmanaged index, is comprised
of the universe of 1-5 year Treasuries plus the Merrill Lynch GNMA Index. Source
is Bloomberg.
++ The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. It is generally considered to be a measure of inflation. Source is
Towers Data Systems.
8
<PAGE> 9
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 9/30/96 ON 9/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS
SHORT-TERM 73% 43%
- ----------------------------------------------------------------------------
INTERMEDIATE-TERM 25 51
- ----------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 6
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHARTS]
YEARS TO MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 9/30/96 ON 9/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
LESS THAN 3 75% 49%
- ----------------------------------------------------------------------------
3-10 25 51
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHARTS]
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 9/30/96 ON 9/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 2.3 YEARS 2.9 YEARS
- ----------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS RATE MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY 8.875% 1997 $ 16,000 $ 16,510
NOTES - 97.3% 7.25 1998 10,000 10,162
(Cost: $202,841) 8.125 1998 14,000 14,385
8.25 1998 20,000 20,719
8.875 1998 20,000 21,066
9.00 1998 20,000 20,903
9.25 1998 10,000 10,547
7.75 1999 12,000 12,480
8.875 1999 10,000 10,581
9.125 1999 22,000 23,506
8.50 2000 15,000 16,113
8.75 2000 20,000 21,584
-------------------------------------------------------------------------
198,556
- --------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED Federal Home Loan 11.25 2010 423 465
SECURITIES--.3% Mortgage Corp.
(Cost: $636)
Government National 9.00-9.50 2016-2020 152 162
Mortgage Assoc.
-------------------------------------------------------------------------
627
-------------------------------------------------------------------------
TOTAL INVESTMENTS--97.6%
(Cost: $203,477) 199,183
-------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.4% 4,838
-------------------------------------------------------------------------
NET ASSETS--100% $204,021
-------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $203,477,000 for federal income tax purposes
at September 30, 1996, the gross unrealized appreciation was $34,000, the gross
unrealized depreciation was $4,328,000 and the net unrealized depreciation on
investments was $4,294,000.
See accompanying Notes to Financial Statements.
10
<PAGE> 11
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Short-Intermediate Government
Fund, a series of Kemper Portfolios, as of September 30, 1996, and the related
statements of operations for the year then ended, and changes in net assets for
the year then ended, the two months ended September 30, 1995 and the year ended
July 31, 1995, and the financial highlights for each of the fiscal periods since
1992. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Kemper Short-Intermediate Government Fund at September 30, 1996, the results of
its operations, the changes in its net assets, and the financial highlights for
the periods referred to above, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $203,477) $199,183
- -------------------------------------------------------------------------------------------------------
Cash 885
- -------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 303
- -------------------------------------------------------------------------------------------------------
Investments sold 7
- -------------------------------------------------------------------------------------------------------
Interest 4,488
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 204,866
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Fund shares redeemed 501
- -------------------------------------------------------------------------------------------------------
Management fee 95
- -------------------------------------------------------------------------------------------------------
Distribution services fee 107
- -------------------------------------------------------------------------------------------------------
Administrative services fee 41
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 84
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 17
- -------------------------------------------------------------------------------------------------------
Total liabilities 845
- -------------------------------------------------------------------------------------------------------
NET ASSETS $204,021
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $223,538
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (17,576)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (4,294)
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,353
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $204,021
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($34,972 divided by 4,434 shares outstanding) $7.89
- -------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of net asset value or 3.50% of offering price) $8.18
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to contingent deferred sales charge) per
share ($165,833 divided by 21,117 shares outstanding) $7.85
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to contingent deferred sales charge) per
share ($3,216 divided by 409 shares outstanding) $7.86
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest income $17,433
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,230
- -------------------------------------------------------------------------------------------------------
Distribution services fee 1,428
- -------------------------------------------------------------------------------------------------------
Administrative services fee 541
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 807
- -------------------------------------------------------------------------------------------------------
Professional fees 49
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 55
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 23
- -------------------------------------------------------------------------------------------------------
Total expenses 4,133
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 13,300
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 391
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 423
- -------------------------------------------------------------------------------------------------------
Net realized gain 814
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (6,367)
- -------------------------------------------------------------------------------------------------------
Net loss on investments (5,553)
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,747
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR
TWO MONTHS ENDED
YEAR ENDED ENDED JULY
SEPTEMBER 30, SEPTEMBER 30, 31,
1996 1995 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------------
Net investment income $ 13,300 2,335 15,086
- -----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 814 (369) (5,182)
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (6,367) 281 3,921
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,747 2,247 13,825
- -----------------------------------------------------------------------------------------------------------
Net equalization charges (350) (63) (249)
- -----------------------------------------------------------------------------------------------------------
Distribution from net investment income (13,083) (2,444) (14,897)
- -----------------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (29,912) (6,369) (19,071)
- -----------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (35,598) (6,629) (20,392)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of period 239,619 246,248 266,640
- -----------------------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment income of
$2,353, $2,480, and $2,651, respectively) $ 204,021 239,619 246,248
- -----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
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 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
September 30, 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. All
shares of the Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
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 INVESTMENT VALUATION. Investments are stated at
POLICIES value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Exchange traded fixed income
options are valued at the last sale price unless
there is no sale price, in which event prices
provided by market makers are used.
Over-the-counter traded fixed income options are
valued based upon prices provided by market makers.
Financial futures and options thereon are valued at
the settlement price established each day by the
board of trade or exchange on which they are
traded. Other securities and assets are valued at
fair value as determined in good faith by the Board
of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes 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
14
<PAGE> 15
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 and therefore no
federal income tax provision is required. The
accumulated net realized loss on sales of
investments for federal income tax purposes at
September 30, 1996, amounting to approximately
$17,243,000, 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 MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES agreement with Zurich Kemper Investments, Inc.
(ZKI), 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 $1,230,000 for the
year ended September 30, 1996.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 9,000 70,000 1,000
</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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
shares and the CDSC received in connection with the
redemption of such shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION FEES
DISTRIBUTION FEES PAID BY KDI
AND CDSC -----------------------------
RECEIVED BY KDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 1,915,000 407,000 2,000
</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
agreements with financial services firms that
provide these services and pays these firms based
on assets of Fund accounts that the firms service.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY -----------------------------
THE FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 541,000 546,000 11,000
</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 $630,000
for the year ended September 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the year ended September 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $20,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended September 30, 1996, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $401,516
Proceeds from sales 430,626
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, JULY 31,
1996 1995 1995
------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Sold
-----------------------------------------------------------------------------------
Class A 1,028 $ 8,057 401 $ 3,200 2,581 $ 20,257
-----------------------------------------------------------------------------------
Class B 1,851 14,606 353 2,801 4,895 37,726
-----------------------------------------------------------------------------------
Class C 504 4,060 25 200 460 3,661
-----------------------------------------------------------------------------------
Shares issued in
reinvestment of
dividends
-----------------------------------------------------------------------------------
Class A 215 1,721 33 267 161 1,392
-----------------------------------------------------------------------------------
Class B 985 7,863 191 1,532 1,224 10,537
-----------------------------------------------------------------------------------
Class C 21 171 3 21 14 117
-----------------------------------------------------------------------------------
Shares Redeemed
-----------------------------------------------------------------------------------
Class A (1,446) (11,497) (251) (2,007) (1,561) (12,311)
-----------------------------------------------------------------------------------
Class B (6,528) (51,573) (1,527) (12,161) (9,966) (78,456)
-----------------------------------------------------------------------------------
Class C (416) (3,320) (28) (222) (250) (1,994)
-----------------------------------------------------------------------------------
Conversion of
shares
-----------------------------------------------------------------------------------
Class A 728 5,828 71 571 571 4,585
-----------------------------------------------------------------------------------
Class B (731) (5,828) (71) (571) (574) (4,585)
-----------------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $(29,912) $ (6,369) $(19,071)
-----------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
CLASS A SHARES
----------------------------------------------------------------------
JANUARY 10
YEAR ENDED TWO MONTHS ENDED YEAR ENDED JULY 31, TO
SEPTEMBER 30, SEPTEMBER 30, ---------------------- JULY 31,
1996 1995 1995 1994 1993 1992
<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 8.59
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .09 .54 .48 .53 .29
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.20) (.01) (.03) (.44) (.03) .11
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations .34 .08 .51 .04 .50 .40
- -------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .09 .53 .45 .52 .34
- -------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- .11 -- --
- -------------------------------------------------------------------------------------------------------------------
Total dividends .53 .09 .53 .56 .52 .34
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.89 8.08 8.09 8.11 8.63 8.65
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.25% 1.00 6.58 .41 6.01 4.87
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------
Expenses 1.15% 1.05 1.06 1.06 1.04 .95
- -------------------------------------------------------------------------------------------------------------------
Net investment income 6.65 6.56 6.65 5.85 6.06 7.48
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------
CLASS B SHARES
-------------------------------------------------------------------
YEAR ENDED TWO MONTHS ENDED YEAR ENDED JULY 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------
1996 1995 1995 1994 1993 1992
<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 8.27
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .08 .47 .40 .45 .58
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.20) (.01) (.03) (.44) (.02) .36
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations .26 .07 .44 (.04) .43 .94
- ----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .46 .08 .46 .38 .46 .57
- ----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- .11 -- --
- ----------------------------------------------------------------------------------------------------------------
Total dividends .46 .08 .46 .49 .46 .57
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.85 8.05 8.06 8.08 8.61 8.64
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.28% .87 5.68 (.48) 5.13 11.76
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.97% 1.91 1.87 1.93 1.87 1.89
- ----------------------------------------------------------------------------------------------------------------
Net investment income 5.83 5.70 5.84 4.95 5.23 6.84
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
CLASS C SHARES
----------------------------------------------------------------------
YEAR ENDED TWO MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED MAY 31 TO
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 .47 .09 .47 .07
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.20) (.01) (.03) (.01)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .27 .08 .44 .06
- --------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .47 .08 .46 .07
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.86 8.06 8.06 8.08
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 3.36% 1.00 5.73 .77
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.85% 1.74 1.78 1.83
- --------------------------------------------------------------------------------------------------------------------
Net investment income 5.95 5.87 5.93 5.54
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS ENDED YEAR ENDED JULY 31,
SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------
1996 1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $ 204,021 239,619 246,248 266,640 283,249 191,716
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 180% 173 597 916 339 120
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR. JEROME L. DUFFY
President and Trustee Vice President Treasurer
DAVID W. BELIN CHARLES R. MANZONI, JR. ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
LEWIS A. BURNHAM JOHN E. NEAL
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
WILLIAM P. SOMMERS
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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
[RECYCLE LOGO]
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This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
KSIGF - 2 (11/96) KEMPER MUTUAL FUNDS LOGO
1024080
Printed in the U.S.A.
