<PAGE> 1
KEMPER
SHORT-INTERMEDIATE
GOVERNMENT FUND
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED MARCH
31, 1997
OFFERING INVESTORS THE OPPORTUNITY FOR HIGH CURRENT INCOME AND
PRESERVATION OF CAPITAL
" . . . when the Fed raised interest
rates in March, we were already prepared
with our shortened duration . . ."
KEMPER LOGO
<PAGE> 2
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND TOTAL RETURNS
For the six-month period ended March 31, 1997 (unadjusted for any sales charge)
LOGO
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
3/31/97 9/30/96
- --------------------------------------------------
<S> <C> <C>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $7.77 $7.89
- --------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.74 $7.85
- --------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.75 $7.86
- --------------------------------------------------
</TABLE>
*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.
Returns and net asset value fluctuate. Shares are redeemable at current net
asset value, which may be more or less than original cost.
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 #77 OF #90 OF #91 OF
95 FUNDS 95 FUNDS 95 FUNDS
- ------------------------------------------------------
5-YEAR #30 OF #37 OF N/A
38 FUNDS 38 FUNDS
- ------------------------------------------------------
</TABLE>
DIVIDEND AND YIELD REVIEW
The following table shows per share dividend and yield information for the fund
as of March 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2700 $0.2391 $0.2448
- --------------------------------------------------
MARCH DIVIDEND: $0.0450 $0.0399 $0.0407
- --------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 6.95% 6.19% 6.30%
- --------------------------------------------------
SEC YIELD+: 4.80% 4.18% 4.31%
- --------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on March 31, 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 March 31, 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.
KEMPER FUNDS' STYLE
MORNINGSTAR FIXED-INCOME STYLE BOX
FIXED STYLE BOX
Maturity applies to taxable open-end funds:
for short less than four years; for
intermediate between four and 10 years; for
long greater than 10 years. The average credit
quality rating of a bond portfolio: funds that
have an average credit rating of AAA or AA are
high quality; A or BBB are medium quality;
below BB, low quality.
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.
CONTENTS
TERMS TO KNOW AT A GLANCE
3
Economic Overview
5
Performance Update
7
Portfolio Statistics
8
Portfolio of Investments
9
Financial Statements
11
Notes to
Financial Statements
14
Financial Highlights
<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 $79 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,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur once that date is reached. However, then we
shall enjoy the long-term positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Nevertheless, we look for the
Fed to raise rates in May. This action may be the last for a while because the
economy seems to be slowing down in the second quarter, after the rapid 5.6
percent growth in the first quarter of the year. An economic slowdown would
reduce the threat of inflation and reduce the need for further rate hikes by the
Fed.
In fact, a review of the standard measures of the economy shows little to
be concerned about. As has been the pattern for more than five years, a few
strong quarters followed by a few weak quarters have produced an overall 2
percent to 3 percent rate of growth in gross domestic product (GDP). Job
creation and the unemployment rate are consistent with a moderately expanding
economy. Corporate profits continue to grow at an expected 4 to 5 percent rate
in 1997. The Consumer Price Index continues to track at a 2.5 percent to 3.0
percent rate.
Just as we see a limited downside to today's rising interest rate
environment, so is there a limited upside in the near future. The effect of
higher rates will have to work itself through the economy. Higher rates have
significant implications for corporate profitability, debt issuance, credit
extension and international trade. Post-correction cash flows into the
financial markets will be a subject of great scrutiny. One of the factors
driving the stock market to its recent all-time high was the unprecedented high
level of investment through mutual funds, 401(k)s and qualified contribution
plans. It is realistic to expect that, on the margin, some of that cash will
find a home in short-term, liquid investments while the stock market sorts
itself out.
Leadership in the stock market has been quite narrow and concentrated for
the past six months in large, multinational companies with familiar consumer
brand names. The recent rally after the announcement of a balanced budget
agreement suggests that once monetary policy is also more certain, leadership
may broaden to include small capitalization stocks.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with long-
term interest rates no lower than 6.75 percent and no
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 (4/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1)* 6.69 6.53 6.51 7.06
PRIME RATE(2)* 8.3 8.25 8.25 9
INFLATION RATE(3)* 2.79 2.99 2.83 3.05
THE U.S. DOLLAR(4) 9.32 3.46 8.51 -10.02
CAPITAL GOODS ORDERS(5)* 6.34 7.46 7.42 9.96
INDUSTRIAL PRODUCTION(5)* 5.62 3.27 2.57 3.73
EMPLOYMENT GROWTH(6) 2.23 2.2 2.07 2.79
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of March 31, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
higher than 7.25 percent. One positive effect of the stock market correction was
the widening of spreads available on high yield bonds. As a consequence, high
yield bonds today are more reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested. Financial
assets react much quicker today to events. Volatility has returned to the market
and with it heightened uncertainty. Now is the time to rely on your financial
representative for the expertise and the long-term investing discipline that he
or she can provide.
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, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
May 8, 1997
4
<PAGE> 5
PORTFOLIO CO-MANAGERS RICHARD VANDENBERG AND
ELIZABETH BYRNES EXPLAIN HOW THEY SHORTENED THE
FUND'S DURATION TO BETTER POSITION THE FUND AS
ECONOMIC GROWTH GAINED MOMENTUM AND INTEREST RATES
ROSE.
Q
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND BEGAN ITS FISCAL YEAR AMIDST
MODERATE ECONOMIC GROWTH AND FAIRLY STABLE INTEREST RATES. HOWEVER, THE FEDERAL
RESERVE BOARD (THE FED) INCREASED SHORT-TERM INTEREST RATES BY 0.25 PERCENT IN
MARCH. WHAT CAUSED THE FED TO ACT?
A
At the start of the fiscal year in October 1996, the market believed that
economic growth was moderating and inflation was under control. Relatively weak
Gross Domestic Product (GDP) figures were released that supported this
assumption. Uncertainty began to creep into the market in November, however,
with the 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. The markets rallied, however, with news that
Republicans maintained control of Congress. The election outcome, combined with
lower GDP figures, was positive for the bond market. Treasuries rallied and
prices increased while yields fell.
This bullish environment changed in December and the rally ended abruptly.
Investors became concerned after 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. A suggestion of
strong holiday retail sales coupled with higher-than-expected fourth quarter GDP
growth caused further concern near year-end.
After Greenspan's "irrational exuberance" comment, investors remained cautious
in early 1997 as strong economic reports surfaced. A stronger-than-expected
employment report indicated a rise in average hourly earnings and an increase in
hours worked. These indicators suggested solid GDP growth, which registered
higher-than-expected in the fourth quarter. This relatively strong GDP figure
indicated to the market that the Fed would likely raise interest rates to slow
the economy. In February, Greenspan stated again that financial assets may be
overvalued. Specifically, Greenspan referenced the current level of wage
inflation and suggested that recent productivity advances may not be able to
offset the current level of wage increases. The Federal Reserve Board did move
to increase short-term rates by 0.25 percent in March. This was considered a
preemptive move aimed at slowing growth in the economy to maintain a low rate of
inflation. Remember, excessive growth in the economy indicates the potential for
higher inflation.
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
PERFORMANCE UPDATE
LOGO
Richard Vandenberg joined Zurich Kemper Investments, Inc. (ZKI) in March 1996 as
portfolio co-manager of Kemper Short-Intermediate Government Fund. Vandenberg
has more than 22 years of fixed-income portfolio management experience. He
received both a bachelor's degree and an M.B.A. from the University of
Wisconsin.
LOGO
Elizabeth Brynes joined ZKI in 1982 and is a first vice president and portfolio
co-manager of Kemper Short-Intermediate Government Fund. Byrnes received her
B.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
5
on market and other conditions.
<PAGE> 6
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 maintained this shorter duration through the end of
the six-month period.
Q
WHAT ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO SHORTEN DURATION AND HOW
WAS THE FUND'S PERFORMANCE IMPACTED BY THOSE MOVES?
A
For the most part, we focused on reducing our holdings of intermediate-term
Treasuries in favor of shorter-term securities and cash equivalents. These
adjustments shortened the fund's duration and positioned the fund for the Fed's
tightening. The fund benefited as intermediate-Treasuries would have suffered
with higher interest rates.
Q
LOOKING BACK, IS THERE ANYTHING YOU WISH YOU WOULD HAVE DONE DIFFERENTLY
WITH THE FUND DURING THE PERIOD?
A
We began preparing for an interest rate increase in late December to early
January. If we would have shortened the duration sooner, the fund would have
benefited more as yields started to rise earlier in the month. Nevertheless,
when the Fed did raise interest rates in March, we were already prepared with a
shortened duration.
Q
WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE GOVERNMENT BOND MARKET
OVERALL?
A
Currently, we believe that the economy is fairly strong and we expect
growth to continue at a rate of 3-4 percent. We
expect that in order for the Fed to slow the economy to its 2 1/2 percent target
range, additional interest rate tightenings will be needed. We anticipate one to
two more tightenings of about 0.25 percent each. These adjustments should slow
growth and reduce the inflationary pressures we've been witnessing. If this
occurs, the government bond market should perform well.
Q
WHAT WOULD NEED TO HAPPEN TO ALTER YOUR OUTLOOK?
A
If the Fed is not successful in slowing the economy to its target range
with the anticipated rate increases, more tightening would be needed. However,
we don't anticipate that happening. We believe that with the Fed's preemptive
move, it will be successful in slowing the economy's growth.
6
PERFORMANCE UPDATE
<PAGE> 7
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
ON 3/31/97 ON 9/30/96
<S> <C> <C>
GOVERNMENTS:
SHORT-TERM 67% 73%
- ----------------------------------------------------------------------------
INTERMEDIATE-TERM 25 25
- ----------------------------------------------------------------------------
CASH AND EQUIVALENTS 8 2
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
LOGO
YEARS TO MATURITY
<TABLE>
<CAPTION>
ON 3/31/97 ON 9/30/96
<S> <C> <C>
LESS THAN 3 75% 75%
- ----------------------------------------------------------------------------
3-10 25 25
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
LOGO
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 3/31/97 ON 9/30/96
<S> <C> <C>
AVERAGE MATURITY 2.0 YEARS 2.3 YEARS
- ----------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
7
PORTFOLIO STATISTICS
<PAGE> 8
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Portfolio of Investments at March 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS RATE MATURITY AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
U.S. TREASURY 7.25% 1998 $10,000 $ 10,097
NOTES - 97.6% 8.125 1998 12,000 12,205
(Cost: $183,382) 8.25 1998 20,000 20,491
8.875 1998 20,000 20,759
9.00 1998 19,000 19,573
9.25 1998 12,000 12,459
7.75 1999 18,000 18,503
8.00 1999 10,000 10,320
8.50 2000 14,000 14,816
8.75 2000 36,000 38,250
------------------------------------------------------------------------
177,473
- ------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED Federal Home Loan 11.25 2010 282 311
SECURITIES - .2% Mortgage Corp.
(Cost: $463)
Government National 9.00-9.50 2016-2020 139 148
Mortgage Assoc.
------------------------------------------------------------------------
459
------------------------------------------------------------------------
TOTAL INVESTMENTS--97.8% 177,932
(Cost: $183,845)
------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.2% 3,966
------------------------------------------------------------------------
NET ASSETS--100% $181,898
------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $183,845,000 for federal income tax purposes
at March 31, 1997, the gross unrealized appreciation was $1,000, the gross
unrealized depreciation was $5,914,000 and the net unrealized depreciation of
investments was $5,913,000.
See accompanying Notes to Financial Statements.
8
PORTFOLIO OF INVESTMENTS
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
(in thousands)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $183,845) $177,932
- ------------------------------------------------------------------------
Cash 331
- ------------------------------------------------------------------------
Receivable for:
Fund shares sold 457
- ------------------------------------------------------------------------
Investments sold 105
- ------------------------------------------------------------------------
Interest 3,450
- ------------------------------------------------------------------------
TOTAL ASSETS 182,275
- ------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Fund shares redeemed 73
- ------------------------------------------------------------------------
Management fee 84
- ------------------------------------------------------------------------
Distribution services fee 93
- ------------------------------------------------------------------------
Administrative services fee 36
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 71
- ------------------------------------------------------------------------
Trustees' fees and other 20
- ------------------------------------------------------------------------
Total liabilities 377
- ------------------------------------------------------------------------
NET ASSETS $181,898
- ------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $204,318
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (18,453)
- ------------------------------------------------------------------------
Net unrealized depreciation on investments (5,913)
- ------------------------------------------------------------------------
Undistributed net investment income 1,946
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $181,898
- ------------------------------------------------------------------------
</TABLE>
THE PRICING OF SHARES
<TABLE>
<S> <C>
CLASS A SHARES
Net asset value and redemption price per share
($35,111 / 4,516 shares outstanding) $7.77
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of net asset value or 3.50%
of offering price) $8.05
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share ($141,911 /
18,335 shares outstanding) $7.74
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($4,876 / 629 shares outstanding) $7.75
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
9
FINANCIAL STATEMENTS
<PAGE> 10
STATEMENT OF OPERATIONS
Six months ended March 31, 1997
(in thousands)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest income $ 7,655
- -----------------------------------------------------------------------
Expenses:
Management fee 534
- -----------------------------------------------------------------------
Distribution services fee 598
- -----------------------------------------------------------------------
Administrative services fee 234
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 371
- -----------------------------------------------------------------------
Professional fees 10
- -----------------------------------------------------------------------
Reports to shareholders 25
- -----------------------------------------------------------------------
Trustees' fees and other 13
- -----------------------------------------------------------------------
Total expenses 1,785
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 5,870
- -----------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized loss on sales of investments (948)
- -----------------------------------------------------------------------
Net realized gain from futures transactions 71
- -----------------------------------------------------------------------
Net realized loss (877)
- -----------------------------------------------------------------------
Change in net unrealized depreciation on investments (1,619)
- -----------------------------------------------------------------------
Net loss on investments (2,496)
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,374
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 5,870 13,300
- --------------------------------------------------------------------------------------------
Net realized gain (loss) (877) 814
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (1,619) (6,367)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,374 7,747
- --------------------------------------------------------------------------------------------
Net equalization charges (235) (350)
- --------------------------------------------------------------------------------------------
Distribution from net investment income (6,042) (13,083)
- --------------------------------------------------------------------------------------------
Net decrease from capital share transactions (19,220) (29,912)
- --------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (22,123) (35,598)
- --------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of period 204,021 239,619
- --------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment income of
$1,946 and $2,353, respectively) $181,898 204,021
- --------------------------------------------------------------------------------------------
</TABLE>
10
FINANCIAL STATEMENTS
<PAGE> 11
- --------------------------------------------------------------------------------
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 convert into
another class. Class I shares (none sold through
March 31, 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. Exchange traded 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.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended March 31, 1997. The accumulated net
realized loss on sales of investments for federal
income tax purposes at March 31, 1997, amounting to
approximately $18,120,000, 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.
11
NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
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 $534,000 for the six
months ended March 31, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY ZKDI BY ZKDI TO FIRMS
---------------- -------------------
<S> <C> <C>
Six months ended March 31, 1997 $5,000 36,000
</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>
DISTRIBUTION FEES
AND CDSC COMMISSIONS AND
RECEIVED BY DISTRIBUTION FEES
ZKDI PAID BY ZKDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Six months ended March 31, 1997 $781,000 215,000
</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 assets of Fund accounts that the firms service.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO ZKDI ZKDI TO FIRMS
---------------- -------------
<S> <C> <C>
Six months ended March 31, 1997 $234,000 235,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) (formerly
known as Kemper Service Company) is the shareholder
service agent of the Fund. Under the agreement,
ZKSvC received shareholder services fees of
$284,000 for the six months ended March 31, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
For the six months ended March 31, 1997, the Fund
made no direct payments to its officers and
incurred trustees' fees of $9,000 to independent
trustees.
12
NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
- --------------------------------------------------------------------------------
4
INVESTMENT
TRANSACTIONS For the six months ended March 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $44,819
Proceeds from sales 63,503
- --------------------------------------------------------------------------------
5
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1997 1996
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,118 $ 8,639 1,028 $ 8,057
----------------------------------------------------------------------------
Class B 977 7,554 1,851 14,606
----------------------------------------------------------------------------
Class C 308 2,416 504 4,060
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 121 954 215 1,721
----------------------------------------------------------------------------
Class B 450 3,521 985 7,863
----------------------------------------------------------------------------
Class C 14 107 21 171
----------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,773) (13,793) (1,446) (11,497)
----------------------------------------------------------------------------
Class B (3,590) (27,819) (6,528) (51,573)
----------------------------------------------------------------------------
Class C (102) (799) (416) (3,320)
----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 616 4,853 728 5,828
----------------------------------------------------------------------------
Class B (619) (4,853) (731) (5,828)
----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $(19,220) $(29,912)
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 March 31,
1997, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $460,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures position open
at March 31, 1997:
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN AT
TYPE AMOUNT MONTH 3/31/97
---------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury securities $10,846,000 June '97 $103,000
---------------------------------------------------------------
</TABLE>
13
NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
<TABLE>
<CAPTION>
CLASS A SHARES
SIX MONTHS TWO MONTHS YEAR ENDED JULY
ENDED YEAR ENDED ENDED 31,
MARCH 31, SEPTEMBER 30, SEPTEMBER 30, ------------------
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 .26 .54 .09 .54 .48 .53
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (.11) (.20) (.01) (.03) (.44) (.03)
- --------------------------------------------------------------------------------------------------------
Total from investment operations .15 .34 .08 .51 .04 .50
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .27 .53 .09 .53 .45 .52
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .11 --
- --------------------------------------------------------------------------------------------------------
Total dividends .27 .53 .09 .53 .56 .52
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.77 7.89 8.08 8.09 8.11 8.63
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.91% 4.25 1.00 6.58 .41 6.01
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.18% 1.15 1.05 1.06 1.06 1.04
- --------------------------------------------------------------------------------------------------------
Net investment income 6.70% 6.65 6.56 6.65 5.85 6.06
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES
SIX MONTHS TWO MONTHS YEAR ENDED JULY
ENDED YEAR ENDED ENDED 31,
MARCH 31, SEPTEMBER 30, SEPTEMBER 30, ------------------
1997 1996 1995 1995 1994 1993
<S> <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 .24 .46 .08 .47 .40 .45
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (.11) (.20) (.01) (.03) (.44) (.02)
- --------------------------------------------------------------------------------------------------------
Total from investment operations .13 .26 .07 .44 (.04) .43
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment
income .24 .46 .08 .46 .38 .46
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .11 --
- --------------------------------------------------------------------------------------------------------
Total dividends .24 .46 .08 .46 .49 .46
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.74 7.85 8.05 8.06 8.08 8.61
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.65% 3.28 .87 5.68 (.48) 5.13
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.97% 1.97 1.91 1.87 1.93 1.87
- --------------------------------------------------------------------------------------------------------
Net investment income 5.91% 5.83 5.70 5.84 4.95 5.23
- --------------------------------------------------------------------------------------------------------
</TABLE>
14
FINANCIAL HIGHLIGHTS
<PAGE> 15
<TABLE>
<CAPTION>
CLASS C SHARES
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED MAY 31 TO
1997 1996 1995 JULY 31, 1995 JULY 31, 1994
<S> <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 .24 .47 .09 .47 .07
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.11) (.20) (.01) (.03) (.01)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .27 .08 .44 .06
- ---------------------------------------------------------------------------------------------------------------------
Less distribution from net investment
income .24 .47 .08 .46 .07
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.75 7.86 8.06 8.06 8.08
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.72% 3.36 1.00 5.73 .77
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.83% 1.85 1.74 1.78 1.83
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 6.05% 5.95 5.87 5.93 5.54
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA FOR ALL CLASSES
SIX MONTHS TWO MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED JULY 31,
MARCH 31, SEPTEMBER 30, SEPTEMBER 30, ---------------------------
1997 1996 1995 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $181,898 204,021 239,619 246,248 266,640 283,249
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 50% 180 173 597 916 339
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
15
FINANCIAL HIGHLIGHTS
<PAGE> 16
TRUSTEES
OFFICERS
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DOMINIQUE P. MORAX
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
J. PATRICK BEIMFORD, JR.
Vice President
CHARLES R. MANZONI, JR.
Vice President
JOHN E. NEAL
Vice President
FRANK J. RACHWALSKI, JR.
Vice President
RICHARD L. VANDENBERG
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT
ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT
INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER
ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
K
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
KSIGF - 3 (5/97) 1031860
Printed in the U.S.A. KEMPER LOGO
TRUSTEES AND OFFICERS
