<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD (SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1997
KEMPER
SHORT-INTERMEDIATE
GOVERNMENT FUND
OFFERING INVESTORS THE OPPORTUNITY FOR HIGH CURRENT INCOME AND PRESERVATION OF
CAPITAL
"... We extended duration because we believed that market
rates would trend lower and wanted to be positioned to
take advantage of the lower rate environment. Our outlook
was accurate and as yields fell, our lengthened duration
helped the fund's performance. ..."
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
10
REPORT OF INDEPENDENT AUDITORS
11
FINANCIAL STATEMENTS
13
NOTES TO FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
At A GLANCE
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 5.80%
CLASS B 5.11%
CLASS C 5.24%
LIPPERT SHORT GOVERNMENT FUNDS AVERAGE* 6.99%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not reflect future performance.
Returns and rankings 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $7.80 $7.89
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.77 $7.85
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.78 $7.86
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND LIPPER 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 #92 of 96 funds #96 of 96 funds #95 of 96 funds
- --------------------------------------------------------------------------------
5-YEAR #36 of 41 funds #40 of 41 funds N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF SEPTEMBER 30, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE-YEAR INCOME: $0.5320 $0.4689 $0.4795
- --------------------------------------------------------------------------------
SEPTEMBER
DIVIDEND: $0.0410 $0.0358 $0.0369
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 6.31% 5.53% 5.69%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.87% 4.23% 4.38%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown
as an annualized percentage of net asset value on September 30, 1997.
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, 1997, 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
YOUR FUND'S STYLE
Maturity
Short Intermediate Long
Quality
/X/ / / / / High
/ / / / / / Medium
/ / / / / / Low
- --------------------------------------------------------------------------------
MORNINGSTAR FIXED INCOME STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL 312-696-6000. (Morningstar Style Box is
based on a portfolio date as of September 30, 1997.) The Fixed-Income Style Box
placement is based on a fund's average effective maturity or duration and the
average credit rating of the bond portfolio.
Please note that style boxes do not represent an exact assessment of
risk and do not represent future performance. Please consult the prospectus for
a description of investment policies.
AVERAGE ANNUAL TOTAL RETURN 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 investment or portfolio. The longer the duration, 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. Total return assumes the
reinvestment of all dividends and 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
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 $86 BILLION IN ASSETS, INCLUDING $49 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high - as our equity market has
been for most of this year - they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction
was Southeast Asia, where the world's highest growth economies had been
stumbling since the summer. These economies had become overextended, banks ran
into trouble with bad loans and the local governments failed to take prompt
action. The result was a domino effect of competitive devaluations of
currencies, crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in
the U.S. equity market - resulting in a 7 percent loss on October 27 -- the
world quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to
7000 than to 8000, we would have expected that the market would have dropped
only slightly.
But as we have said before, today's markets move very fast. We experienced
in one day the kind of correction that we used to experience over a six-month
period. At this writing, the U.S. equity market remains very volatile. We expect
that condition to continue, as volatility is a factor of higher valued markets.
Despite what the last few years may have suggested, markets do not go in just
one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise.
Investors who got hurt in the October correction were those who had
borrowed the money they invested and were forced to sell at low prices.
Investors who were able to remain invested and did, lost only some of
their above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government
securities investors, for example, found the bond market to be a safe
haven as the bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic
growth, stable interest rates and controlled inflation. While we cannot rule
out the possibility of another market event that would add to the excitement of
equity investing, we would expect the U.S. market to again demonstrate its
resiliency.
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 (10/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.03 6.71 6.2 5.93
PRIME RATE(2) 8.5 8.5 8.25 8.75
INFLATION RATE(3)* 2.15 2.5 2.99 2.74
THE U.S. DOLLAR(4) 7.62 6.55 3.46 -1.57
CAPITAL GOODS ORDERS(5)* 14.97 8.17 7.71 5.13
INDUSTRIAL PRODUCTION(5)* 5.52 4.39 3.27 2.35
EMPLOYMENT GROWTH(6)* 2.23 2.27 2.1 2.19
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commerical 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 percent. 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 family income and retail sales.
* Data as of September 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary 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 AND CHIEF INVESTMENT OFFICER
Zurich Kemper Investments, Inc.
November 13, 1997
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 NEARLY 25 YEARS OF
FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE RECEIVED BOTH A BACHELOR'S
DEGREE AND AN M.B.A. FROM THE UNIVERSITY OF WISCONSIN.
[BYRNES PHOTO]
ELIZABETH BYRNES JOINED ZKI IN 1982 AND IS A FIRST VICE PRESIDENT AND PORTFOLIO
CO-MANAGER OF KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND. BYRNES RECEIVED HER
BACHELOR'S DEGREE FROM MIAMI UNIVERSITY AND IS A CERTIFIED PUBLIC ACCOUNTANT.
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 ELIZABETH BYRNES DISCUSS
THE ECONOMIC EVENTS OF THE LAST 12 MONTHS AND THEIR IMPACT ON THE GOVERNMENT
BOND MARKET AND KEMPER SHORT-INTERMEDIATE BOND FUND.
Q DURING THE FUND'S FISCAL YEAR, THE FEDERAL RESERVE BOARD (THE FED) RAISED
SHORT-TERM INTEREST RATES. HOW DID THAT AND OTHER ECONOMIC EVENTS IMPACT THE
PERFORMANCE OF GOVERNMENT BONDS DURING THE PERIOD?
A The government bond market performed well during the 12-month period. The
Fed did raise interest rates but the impact of the tightening on the market was
brief and relatively minimal. Here's a look at that and other major events,
which shaped the market's performance.
At the start of the fiscal year political uncertainty began to creep
into the market about the potential outcome of the upcoming presidential
and congressional elections. Investors feared the Republican party
might lose control of Congress and reduce the likelihood of a balanced budget
agreement in 1997. Investment markets rallied in November, however, with news
that Republicans maintained control of Congress. Some market participants
intimated that the election outcome was evidence of the public's desire for a
true "checks and balances" government. The bullish environment began to change
in December, when Federal Reserve Board Chairman Alan Greenspan implied in
passing that financial assets might be overvalued. This shook the market and
caused yields to rise and securities prices to fall. Early in 1997, strong
economic reports surfaced and Greenspan reiterated his concern about the values
of securities and about the potential for a rise in wage inflation. In what was
considered to be a preemptive move at keeping inflation in check, the Fed
tightened short-term rates by 0.25 percent in late March. While economic growth
remained somewhat strong, even after the Fed tightening, inflation remained
uncharacteristically low. The government market along with the broader
fixed-income market began recouping losses experienced with the Fed's interest
rate increase as inflation fears continued to be unconfirmed. For the remainder
of the fiscal period, market yields fluctuated with the release of varying
economic data but remained relatively range-bound. Inflation never became
problematic and bonds performed positively.
Q AT WHAT POINT DID YOU BEGIN TO ANTICIPATE THAT A FED INTEREST RATE
INCREASE WAS LIKELY AND HOW DID YOU POSITION THE FUND FOR THAT POSSIBILITY?
A In January, as a result of economic data indicating a stronger economy, we
began preparing for an interest rate increase. We did this by shortening the
fund's duration. Duration is a measurement of a fund's sensitivity to interest
rates -- the shorter the duration, the less sensitive the fund is to interest
rate changes.
We shortened duration by reducing our holdings of intermediate-term U.S
Treasuries in favor of shorter-term securities and cash equivalents.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND AFTER MARCH?
A By April, the markets were in recovery from the Fed's tightening.
Inflation remained relatively benign despite continuing growth in the economy.
To take advantage of this environment, we began adding intermediate-term
Treasuries back into the portfolio and reducing the fund's level of cash, which
extended the fund's duration. We extended duration because we believed that
market rates would trend lower and wanted to be positioned to take advantage of
the lower rate environment. Our outlook was accurate and as yields fell, our
lengthened duration helped the fund's performance.
We also added mortgages to the fund's portfolio, building the fund's
exposure gradually from May through September. When yields trend lower,
mortgages tend to underperform Treasuries. However, mortgages gained during the
period and outperformed Treasuries intermittently. We took advantage of this
performance by building a relatively large allocation to mortgages. On
September 30, 1997, mortgages represented approximately 42 percent of the
fund's assets.
Q DID YOU ADD OTHER SECURITY CLASSES TO THE FUND?
A In addition to investing in mortgages, we added asset-backed securities
and corporate bonds. These three -- mortgages, asset-backeds and corporates --
add incremental yield and total return to the fund. All three trade at a spread
to Treasuries.
Q WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE GOVERNMENT BOND MARKET?
A We are optimistic about the prospects for the market and Kemper
Short-Intermediate Government Fund. The current economic environment -- benign
inflation and moderate growth -- is a particularly good one for bonds. We also
believe that within a global context, U.S. Government bonds and mortgage
securities are a cheap asset class. We will, of course, keep a close watch on
indicators of inflation and adjust the fund accordingly.
6
<PAGE> 7
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1997 (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 2.05% 3.70% 4.39% (since 1/10/92)
- ------------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS B 2.14 3.43 5.70 (since 2/1/89)
- ------------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS C 5.24 N/A 4.84 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class A shares from 1/10/92 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/10/92 12/31/93 12/31/95 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Short-Intermediate Government Fund Class A(1) 10000 10826 11930 12790
Merrill Lynch 1-5 Government/GNMA Index+ 10000 11437 12876 14228
Consumer Price Index++ 10000 10573 11131 11661
</TABLE>
[LINE GRAPHS]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class B shares from 2/01/89 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2/01/89 12/31/93 12/31/95 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Short-Intermediate Government Fund Class B(1) 10000 14115 15282 16169
Merrill Lynch 1-5 Government/GNMA Index+ 10000 15690 17664 19517
Consumer Price Index++ 10000 12040 12675 13278
</TABLE>
[LINE GRAPHS]
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Class C shares from 5/31/94 to 9/30/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 9/30/97
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Short-Intermediate Government Fund Class C(1) 10000 10000 11045 11706
Merrill Lynch 1-5 Government/GNMA Index+ 10000 10093 11466 12670
Consumer Price Index++ 10000 10149 10407 10902
</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 percent, for Class B shares adjustment for the applicable
contingent deferred sales charge (CDSC) as follows: 1-year, 3 percent;
5-year, 1 percent; since inception, 0 percent and for Class C shares no
adjustment for sales charge. The maximum CDSC for Class B shares is 4
percent. For Class C shares, there is a 1 percent 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
maximum sales charge for Class A shares and the contingent deferred
sales charge in effect at the end of the period for Class B shares. In
comparing Kemper Short-Intermediate Government Fund Class A shares 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 Market Weighted 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.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/97 ON 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS:
- --------------------------------------------------------------------------------
SHORT-TERM 45% 73%
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM 11 25
- --------------------------------------------------------------------------------
MORTGAGE-BACKED 42 --
- --------------------------------------------------------------------------------
CORPORATE BONDS 2 --
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/97 ON 9/30/97
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 9/30/97 ON 9/30/96
- --------------------------------------------------------------------------
<S> <C> <C>
LESS THAN 3 YEARS 57% 75%
- ----------------------------------------------------------------------
3-10 YEARS 43 25
- ----------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/97 ON 9/30/97
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
ON 9/30/97 ON 9/30/96
- ------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 3.5 years 2.3 years
- ------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS AT SEPETMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY Notes 8.875% 1998 $ 3,000 $ 3,101
SECURITIES - 63.7% 6.875 1999 5,000 5,095
(Cost: $110,054) 6.25 1999 10,000 10,072
8.75 2000 39,820 42,788
8.50 2000 22,000 23,299
7.125 2000 5,000 5,140
6.00 2000 3,000 3,010
6.625 2001 5,330 5,444
6.25 2001 6,000 6,056
6.25 2001 6,000 6,056
Bonds 6.625 2002 5,000 5,120
--------------------------------------------------------------------------------------
109,125
- -----------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Agency notes 6.01 2000 5,000 5,000
MORTGAGE ASSOCIATION - 17.3% Adjustable rate mortgages 6.446 2027 10,462 10,606
(Cost: $29,549) Fixed rate collateralized
mortgage obligations 6.625 2012 4,950 5,069
Pass-through certificates 7.50 2001 8,930 8,997
--------------------------------------------------------------------------------------
29,672
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL Adjustable rate mortgages 5.50 2027 5,000 4,978
MORTGAGE ASSOCIATION - 14.7% Pass-through certificates 7.00 2015 9,411 9,518
(Cost: $25,127) 8.00 2027 5,000 5,171
9.00 2019 83 89
9.50 2016-2027 5,050 5,456
--------------------------------------------------------------------------------------
25,212
- -----------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Balloon mortgages 6.50 1999 10,906 10,973
MORTGAGE CORPORATION - 9.3% Adjustable rate mortgages 7.831 2022 4,516 4,680
(Cost: $15,910) Pass-through certificates 11.25 2010 261 286
--------------------------------------------------------------------------------------
15,939
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 2.4% Associates Corp. N.A. 6.375 2000 1,000 1,005
(Cost: $4,141) BellSouth Telecommunications, 9.19 2003 1,000 1,086
Inc. 6.35 2000 1,000 1,003
Merrill Lynch & Co. 8.375 2001 1,000 1,065
Rockwell International Corp.
--------------------------------------------------------------------------------------
4,159
--------------------------------------------------------------------------------------
TOTAL INVESTMENTS--107.4%
(Cost: $184,781) 184,107
--------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(7.4%) (12,707)
--------------------------------------------------------------------------------------
NET ASSETS--100% $171,400
--------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $184,781,000 for federal income tax purposes
at September 30, 1997, the gross unrealized appreciation was $523,000, the gross
unrealized depreciation was $1,197,000 and the net unrealized depreciation on
investments was $674,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
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, 1997, the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the fiscal periods since 1993. 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, 1997, 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
fiscal periods since 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $184,781) $184,107
- ------------------------------------------------------------------------
Cash 998
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 557
- ------------------------------------------------------------------------
Investments sold 186
- ------------------------------------------------------------------------
Interest 1,859
- ------------------------------------------------------------------------
TOTAL ASSETS 187,707
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Fund shares redeemed 433
- ------------------------------------------------------------------------
Investments purchased 15,591
- ------------------------------------------------------------------------
Management fee 78
- ------------------------------------------------------------------------
Distribution services fee 79
- ------------------------------------------------------------------------
Administrative services fee 34
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 70
- ------------------------------------------------------------------------
Trustees' fees and other 22
- ------------------------------------------------------------------------
Total liabilities 16,307
- ------------------------------------------------------------------------
NET ASSETS $171,400
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $193,304
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (22,838)
- ------------------------------------------------------------------------
Net unrealized depreciation on investments (674)
- ------------------------------------------------------------------------
Undistributed net investment income 1,608
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $171,400
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($46,360 / 5,940 shares outstanding) $7.80
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of
net asset value or 3.50% of offering price) $8.08
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($119,537 / 15,390 shares outstanding) $7.77
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($5,503 / 707 shares outstanding) $7.78
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------
Interest income $14,391
- -------------------------------------------------------------------------------------------
Expenses:
Management fee 1,014
- -------------------------------------------------------------------------------------------
Distribution services fee 1,105
- -------------------------------------------------------------------------------------------
Administrative services fee 445
- -------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 726
- -------------------------------------------------------------------------------------------
Professional fees 37
- -------------------------------------------------------------------------------------------
Reports to shareholders 52
- -------------------------------------------------------------------------------------------
Trustees' fees and other 24
- -------------------------------------------------------------------------------------------
Total expenses 3,403
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,988
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------
Net realized loss on sales of investments (5,283)
- -------------------------------------------------------------------------------------------
Net realized gain from futures transactions 26
- -------------------------------------------------------------------------------------------
Net realized loss (5,257)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 3,620
- -------------------------------------------------------------------------------------------
Net loss on investments (1,637)
- -------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,351
- -------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 10,988 13,300
- -------------------------------------------------------------------------------------------
Net realized gain (loss) (5,257) 814
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation 3,620 (6,367)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,351 7,747
- -------------------------------------------------------------------------------------------
Net equalization charges (370) (350)
- -------------------------------------------------------------------------------------------
Distribution from net investment income (11,368) (13,083)
- -------------------------------------------------------------------------------------------
Net decrease from capital share transactions (30,234) (29,912)
- -------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (32,621) (35,598)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 204,021 239,619
- -------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment income of
$1,608 and $2,353, respectively) $171,400 204,021
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
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 a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not covert into another
class. Class I shares (none sold through September
30, 1997) 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.
- --------------------------------------------------------------------------------
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. Financial futures and options are
valued at the settlement price established each day
by the board of trade or exchange on which they are
traded. Over-the-counter traded fixed income
options are valued based upon prices provided by
market makers. Other securities and assets are
valued at fair value as determined in good faith by
the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes discount amortization on
all fixed income securities and premium
amortization on mortgage-backed securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
The Fund may purchase securities with delivery or
payment to occur at a later date. At the time the
Fund enters into a commitment to purchase a
security, the transaction is recorded and the value
of the security is reflected in the net asset
value. The value of the security may vary with
market fluctuations. No interest accrues to the
Fund until payment takes place. At the time the
Fund enters into this type of transaction it is
required to segregate cash or other liquid assets
equal to the value of the securities purchased. At
September 30, 1997, the Fund had $15,591,000 in
purchase commitments outstanding (9% of net assets)
with a corresponding amount of assets segregated.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
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, 1997, amounting to approximately
$22,500,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2006.
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), 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 $1,014,000 for the
year ended September 30, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI). Underwriting commissions paid in
connection with the distribution of Class A shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS ---------------
RETAINED BY ZKDI TO FIRMS
---------------- --------
<S> <C> <C>
Year ended September 30, 1997 $8,000 82,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS ---------------
RETAINED BY ZKDI TO FIRMS
---------------- --------
<S> <C> <C>
Year ended September 30, 1997 $1,435,000 377,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, the Fund pays ZKDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. ZKDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
assets of Fund accounts that the firms service.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY ZKDI
THE FUND TO ZKDI TO FIRMS
---------------- --------
<S> <C> <C>
Year ended September 30, 1997 $445,000 450,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $560,000 for the year ended September 30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the year ended September 30, 1997, the Fund
made no direct payments to its officers and
incurred trustees' fees of $18,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 TRANSACTIONS
INVESTMENT For the year ended September 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $288,944
Proceeds from sales 302,357
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 2,255 $ 18,889 1,028 $ 8,057
------------------------------------------------------------------------------
Class B 2,120 16,310 1,851 14,606
------------------------------------------------------------------------------
Class C 520 4,058 504 4,060
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 255 1,994 215 1,721
------------------------------------------------------------------------------
Class B 815 6,352 985 7,863
------------------------------------------------------------------------------
Class C 28 219 21 171
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (2,989) (23,165) (1,446) (11,497)
------------------------------------------------------------------------------
Class B (6,668) (52,945) (6,528) (51,573)
------------------------------------------------------------------------------
Class C (250) (1,946) (416) (3,320)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 1,985 15,533 728 5,828
------------------------------------------------------------------------------
Class B (1,994) (15,533) (731) (5,828)
------------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $(30,234) $(29,912)
------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect itself
from anticipated market conditions and, as such,
bears the risk that arises from entering into these
contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and its broker as the market value
of the futures contract fluctuates. At September
30, 1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $102,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures position open
at September 30, 1997:
<TABLE>
<CAPTION>
FACE EXPIRATION
TYPE AMOUNT MONTH LOSS
----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Note $3,542,000 December '97 $(3,000)
</TABLE>
16
<PAGE> 17
FINANCIAL Highlights
<TABLE>
<CAPTION>
-----------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED JULY
SEPTEMBER 30, SEPTEMBER 30, 31,
------------- ----------------------
1997 1996 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.89 8.08 8.09 8.11 8.63 8.65
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .51 .54 .09 .54 .48 .53
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.20) (.01) (.03) (.44) (.03)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .44 .34 .08 .51 .04 .50
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .53 .09 .53 .45 .52
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .11 --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends .53 .53 .09 .53 .56 .52
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.80 7.89 8.08 8.09 8.11 8.63
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.80% 4.25 1.00 6.58 .41 6.01
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.19% 1.15 1.05 1.06 1.06 1.04
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 6.61% 6.65 6.56 6.65 5.85 6.06
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
CLASS B
-----------------------------------------------------------------
YEAR ENDED TWO MONTHS
SEPTEMBER ENDED YEAR ENDED JULY
30, SEPTEMBER 30, 31,
------------ ----------------------
1997 1996 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.85 8.05 8.06 8.08 8.61 8.64
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .46 .08 .47 .40 .45
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.20) (.01) (.03) (.44) (.02)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .39 .26 .07 .44 (.04) .43
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .47 .46 .08 .46 .38 .46
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .11 --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends .47 .46 .08 .46 .49 .46
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.77 7.85 8.05 8.06 8.08 8.61
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.11% 3.28 .87 5.68 (.48) 5.13
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 2.02% 1.97 1.91 1.87 1.93 1.87
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 5.78% 5.83 5.70 5.84 4.95 5.23
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------
CLASS C
----------------------------------------------------------
YEAR MAY 31
YEAR ENDED TWO MONTHS ENDED TO
SEPTEMBER 30, ENDED JULY JULY
------------------ SEPTEMBER 30, 31, 31,
1997 1996 1995 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.86 8.06 8.06 8.08 8.09
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .47 .47 .09 .47 .07
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.07) (.20) (.01) (.03) (.01)
- -------------------------------------------------------------------------------------------------------
Total from investment operations .40 .27 .08 .44 .06
- -------------------------------------------------------------------------------------------------------
Less distribution from net investment income .48 .47 .08 .46 .07
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.78 7.86 8.06 8.06 8.08
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.24% 3.36 1.00 5.73 .77
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.86% 1.85 1.74 1.78 1.83
- -------------------------------------------------------------------------------------------------------
Net investment income 5.94% 5.95 5.87 5.93 5.54
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS
SEPTEMBER 30, ENDED YEAR ENDED JULY 31,
------------------ SEPTEMBER 30, -------------------------------
1997 1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $171,400 204,021 239,619 246,248 266,640 283,249
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 164% 180 173 597 916 339
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
18
<PAGE> 19
NOTES
19
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS CHARLES R. MANZONI, JR.
President and Trustee Vice President
DAVID W. BELIN JOHN E. NEAL
Trustee Vice President
LEWIS A. BURNHAM ROBERT C. PECK, JR.
Trustee Vice President
DONALD L. DUNAWAY FRANK J. RACHWALSKI, JR.
Trustee Vice President
ROBERT B. HOFFMAN RICHARD L. VANDENBERG
Trustee Vice President
DONALD R. JONES PHILIP J. COLLORA
Trustee Vice President and
Secretary
SHIRLEY D. PETERSON
Trustee JEROME L. DUFFY
Treasurer
WILLIAM P. SOMMERS
Trustee ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER
SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG, LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
KSIGF - 2 (11/97) 1039860
