<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[KEMPER LOGO]
Offering investors the opportunity for high
current income and preservation of capital
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND
"... Our strategy this year has been to add
more mortgage product to add yield to
the portfolio. We want to do this intelligently,
when mortgages are inexpensive. ..."
[kEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO STATISTICS
8
SHAREHOLDERS' MEETING
9
PORTFOLIO OF
INVESTMENTS
10
FINANCIAL STATEMENTS
12
NOTES TO
FINANCIAL STATEMENTS
16
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 2.93%
CLASS B 2.24%
CLASS C 2.42%
LIPPER SHORT INTERMEDIATE GOVERNMENT FUNDS CATEGORY AVERAGE* 3.13%
</TABLE>
Returns and rankings are historical and do not represent future performance.
returns, 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
3/31/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $7.78 $7.80
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.73 $7.77
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.75 $7.78
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER SHORT INTERMEDIATE GOVERNMENT FUNDS
CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #87 of 97 funds #93 of 97 funds #92 of 97 funds
- --------------------------------------------------------------------------------
5-YEAR #39 of 44 funds #43 of 44 funds N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MARCH 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS
INCOME: $ .2460 $ .2312 $ .2163
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $ .0410 $ .0354 $ .0358
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION
RATE: 6.32% 5.50% 5.54%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.71% 3.87% 4.11%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on March 31, 1998.
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, 1998 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 FUNDS' STYLE
FIXED STYLE BOX
- --------------------------------------------------------------------------------
MORNINGSTAR FIXED-INCOME STYLE BOX
- --------------------------------------------------------------------------------
Source: Morningstar, Inc., Chicago, IL 312-696-6000. (Morningstar Style Box is
based on a portfolio date as of March 31, 1998.) The Fixed-Income Style Box
place- ment 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.
BASIS POINT The movement of interest rates or yields expressed in hundredths of
a percent.
DURATION A measure of the interest rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer the duration, the
greater the interest rate risk.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVA'S PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS A BACHELOR OF ARTS AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS.
IT IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT
ORGANIZATIONS WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR
MUTUAL FUND INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND
CORPORATE CLIENTS, INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL
ACCOUNTS. IT IS ONE OF THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED
STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained lower inflation have
continued to produce a beneficial market environment for investors in the second
quarter of 1998. Despite heightened sensitivity to earnings estimates and
announcements, the market continued to support financial assets. We can expect
this favorable climate to continue--in spite of the sensitivity--at least over
the shorter term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash--$37.5 billion--into mutual funds in March. This record
flow surpassed the prior monthly record of $32.7 billion in net mutual fund
investing set in January 1996. Two years ago, many experts were concerned that
the bull market was close to being on its last legs. Quite remarkably today,
investors are still betting on equities. Nearly 75 percent of the new cash
flowing into mutual funds in March went into stock funds, according to the
Investment Company Institute, a trade organization that monitors the mutual
fund industry.
Unfortunately, high expectations often combine with high anxiety--today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
On Monday, April 27, expectations were tested by reports that the Federal
Reserve Board (Fed) was considering a hike in interest rates. The markets
reacted immediately to this news, driving stock prices downward. Ultimately, we
do not anticipate that an interest rate hike will materialize in the second
quarter; however, the Fed's monetary policy meeting shortly after the release of
this overview will provide more information.
Our positive outlook for this quarter is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing price
increases for goods and services or a downturn in the housing market, both of
which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 14 percent in the first
quarter of 1998 and returned more than 15 percent year-to-date as of April 30.
Bonds have also rewarded investors in terms of real return, which is total
return less the rate of inflation. The high yield and corporate debt
fixed-income markets also have performed well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 4 percent for the first quarter. Our general
expectation for the year is that growth will increase between 2.5 and 3 percent
over last year. In other words, the economy will remain strong, but will slow
down as the year progresses.
Consumer spending and corporate fixed investments have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profits have grown between 5 and 10 percent, which appears to
be acceptable in an environment of stable interest rates. U.S. employment growth
has ranged from 2 to 2.25 percent, continuing to exceed expectations. Consumer
confidence has continued to hit near all-time highs. The increase in output
prices, an indicator of inflation measured by the Consumer Price Index (CPI),
has remained at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $40
billion to $50 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
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 (4/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.64 5.88 6.71 6.74
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.38 2.08 2.43 2.9
THE U.S. DOLLAR(4) 3.92 9.65 6.55 8.51
CAPITAL GOODS ORDERS(5)* 10.89 11.72 8.17 6.82
INDUSTRIAL PRODUCTION(5)* 4.27 5.77 4.72 3.49
EMPLOYMENT GROWTH(6)* 2.59 2.36 2.27 1.78
</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 as 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 March 31, 1998.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
The crisis has yet to hurt most U.S. businesses and investors. Quite the
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S. markets
as investors generally avoid Asia. Europe has also been benefiting from the
crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen.
Other major developments abroad include the final selection of countries to
participate in Europe's single currency next year. Many European countries are
adopting more restrictive fiscal policy and reducing inflation in anticipation
of the momentous European Economic and Monetary Union (EMU). But after the EMU
is established in 1999, tensions may indeed mount as countries work to adapt to
the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the end of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
JOHN E. SILVIA
May 8, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[VANDENBERG PHOTO]
RICHARD VANDENBERG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1996 AND IS
A MANAGING DIRECTOR. HE IS THE PORTFOLIO MANAGER OF KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND. VANDENBERG HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE. HE RECEIVED BOTH A BACHELOR'S DEGREE AND M.B.A. FROM THE UNIVERSITY
OF WISCONSIN. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE
COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET
AND OTHER CONDITIONS.
A STABLE INTEREST RATE ENVIRONMENT PROVIDED FEW OPPORTUNITIES FOR THE KEMPER
SHORT-INTERMEDIATE GOVERNMENT FUND TO CAPTURE ADDITIONAL YIELD DURING THE
LATEST SEMIANNUAL PERIOD, BUT A GREATER ALLOCATION TO MORTGAGES HAS IMPROVED
THE FUND'S OUTLOOK. PORTFOLIO MANAGER DICK VANDENBERG DISCUSSES THE ECONOMIC
EVENTS OF THE PAST SIX MONTHS AND THEIR AFFECT ON THE FUND.
Q HOW DID ECONOMIC CONDITIONS AFFECT THE BOND MARKETS OVER THE SIX-MONTH
PERIOD FROM OCTOBER 1, 1997 THROUGH MARCH 31, 1998?
A The force most affecting the markets over the past six months was the
Asian financial crisis. The unfolding problems in Southeast Asia instigated a
major correction in the stock market on October 27, 1997 when the stock market
lost 7 percent of its value. The market recovered within a few weeks, so the
impact of the tumble was short-lived. The Asian crisis, however, continued,
tempering the outlook for economic growth going forward. Asia's perceived impact
on the U.S. economy caused Wall Street to lower its estimates of 1998 economic
activity by about 1 percent and enhanced the outlook for continued low inflation
for 1998.
In reality, both the Asian crisis and the market tumble were good for
fixed income securities, causing rates to fall somewhat. Problems in the stock
market usually have a positive effect on bonds because investors flee toward
investment of higher quality and safety. The thought is that if there is a
major meltdown in the stock market, the Federal Reserve System would provide
liquidity as the last resort. Also, in a financial crisis, the Fed will hold
rates steady or maybe even lower them. So during that period of time we had a
slight drop in interest rates and therefore the prices of fixed-income
securities rose.
Q HOW DID YOU POSITION KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND IN LIGHT OF
THE ASIAN CRISIS?
A When we began to suspect that the problems in Asia were going to develop
into a worldwide issue, we started to lengthen our durations, thinking that this
was going to be positive for bonds. We were preparing for a drop in interest
rates. By mid-December, interest rate levels reflected all the good news in the
bond market. It was widely accepted that there was an Asian crisis and that it
would hurt Gross Domestic Product (GDP) growth in 1998. But people began to
suspect that the economy was still going to grow, and it became more apparent
that the Federal Reserve Board (the Fed) wasn't going to move immediately to
lower interest rates.
When Federal Reserve policy is stable, the only way to add value to a
short-intermediate bond fund like this one is through sector allocations.
Differentiating yourself from a duration perspective won't add value unless the
Federal Reserve Bank is changing policy. Our strategy this year has been to add
more mortgage product to add yield to the portfolio. We want to do this
intelligently, when mortgages
are inexpensive.
5
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DID THE FUND PERFORM?
A The fund returned 2.93 percent for the six-month period ending March 31,
1998, compared with its Lipper peer group, which returned 3.13 percent. I
attribute the twenty basis points underperformance of the fund to its
underallocation in mortgages in most of the fourth quarter. We've made a lot of
progress to correct that. In fact, for the second half of the period, from
January 1 through March 31, the fund returned 1.32 percent versus its peers'
1.28 percent. For March alone, the fund returned 0.4 percent versus the peer
group's 0.28 percent.
Q WHAT IS YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET?
A When we talk about any government bond fund we have to talk about Fed
policy. In Federal Reserve Chairman Alan Greenspan's Humphrey-Hawkins testimony
February 4, 1998, he indicated that the Fed's outlook was fairly evenly
balanced. Although domestic growth was strong, he indicated that he felt the
Asian impact had not yet hit the domestic economy, and that when it did, he
expected domestic growth to moderate. He also noted that inflation was low and
he did not expect it to pick up in the near term.
The general feeling after his speech was that the Federal Reserve Bank was
probably going to be on hold for a while and it would probably watch the
economic numbers that are released this second quarter as carefully as the rest
of us will. The Fed will be monitoring economic activity for signs of the Asian
impact. Questions the Fed will try to answer include whether or not the Asian
impact would be strong enough to moderate growth if the economy starts to
overheat and whether the problems in Asia cause our own economy to falter. The
economic numbers will determine whether the Fed adjusts rates and in what
direction.
At the same time, we're coming into a seasonal pattern when interest rates
typically fall. This pattern is related to the Treasury calendar. Typically, the
U.S. Treasury is a large net borrower in the first quarter and then pays down
debt in the second quarter. Sometimes the swing is as much as $50 billion or
more. This time the swing in Treasury financing is friendly for the Treasury
market in terms of supply. We would expect rates to at least be stable and
possibly fall to the low end of the trading range, which would be around 5.6
percent to 5.75 percent in terms of long treasuries. We wouldn't expect long
treasury yields to rise above 6 per cent during the course of this quarter
either.
All in all, we think it's going to be a fairly friendly quarter. We don't
expect a lot of movement one way or another except for the bias toward slightly
lower rates because of the seasonal pay down pattern in the Treasury financing
calendar.
Q AND HOW WILL YOU POSITION KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND TO
TAKE ADVANTAGE OF THIS?
A If we thought rates were going to drop, we would lengthen durations to
lock in higher yields. If we thought the Fed was planning to raise rates, we
would shorten durations to protect the fund. But because we don't expect the Fed
to change policy, there is no benefit to making changes in the fund's duration.
The only position we're trying to achieve is to add mortgages when they
become cheap on the short end of the yield curve. We've been picking away at
it, adding shorter duration mortgages. We've been rather successful with
this, and today the fund is just over 50 percent allocated to mortgages, up
from the mid-30 to 40 percent area last fall.
We're working to boost our allocation in mortgages to bump up the yield
in the fund and we think with a stable trading range rate environment,
mortgages should do very well. We will continue to add well-structured,
stable mortgages. They enjoy the same default quality as Treasuries since they
are fully guaranteed by the federal government or an agency of the federal
government, but we get 75 to 100 basis points more in yield. The reason the
fund underperformed last fall was that it was significantly underallocated in
mortgages. So going forward, it is going to become more and more mortgage
oriented. It will continue to have a short duration like it always has, with a
stable NAV, but the yield should rise.
6
<PAGE> 7
10-year Treasury rate(1) 5.64 5.88 6.71 6.74
Prime rate(2) 8.5 8.5 8.5 8.25
Inflation rate(3)* 1.38 2.08 2.43 2.9
The U.S. dollar(4) 3.92 9.65 6.55 8.51
Capital goods orders(5)* 10.89 11.72 8.17 6.82
Industrial production(5)* 4.27 5.77 4.72 3.49
Employment growth(6)* 2.59 2.36 2.27 1.78
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS:
SHORT-TERM 35% 45%
- --------------------------------------------------------------------------
INTERMEDIATE-TERM -- 11
- --------------------------------------------------------------------------
MORTGAGE-BACKED 53 42
- --------------------------------------------------------------------------
CORPORATE BONDS 12 2
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/98 ON 9/30/97
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
LESS THAN 3 YEARS 52% 57%
- ----------------------------------------------------------------------
3-10 YEARS 48 43
- ----------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/98 ON 9/30/97
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------
AVERAGE MATURITY 3.5 years 3.5 years
- --------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
7
<PAGE> 9
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Short-Intermediate Government Fund shareholders were asked to
vote on five separate issues: election of the nine members to the Board of
Trustees, ratification of Ernst & Young LLP as independent auditors, approval of
new investment management agreement with Scudder Kemper Investments, Inc.,
approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure and approval of a new rule 12b-1 distribution plan
with Zurich Kemper Distributors, Inc. for Class B shares and Class C shares. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 372,832,981 8,048,482
Lewis A. Burnham 373,128,591 7,752,872
Donald L. Dunaway 373,043,751 7,837,712
Robert B. Hoffman 373,123,371 7,758,092
Donald R. Jones 373,062,367 7,819,097
Shirley D. Peterson 372,956,252 7,925,211
Daniel Pierce 373,059,408 7,822,055
William P. Sommers 373,106,072 7,775,392
Edmond D. Villani 373,000,661 7,880,803
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
368,655,365 3,181,901 9,044,198
</TABLE>
3) Approval of new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
12,154,656 197,519 407,665
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
10,525,497 344,124 622,991 2,357,675
</TABLE>
5) To approve a new rule 12b-1 distribution plan with Zurich Kemper
Distributors, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <S> <C> <C> <C>
Class B 7,570,917 216,787 431,668 1,743,459
Class C 471,137 0 5 0
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Portfolio of Investments at March 31, 1998 (unaudited)
(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
SECURITIES - 41.7%
(Cost: $70,302)
Notes 8.875% 2000 $14,000 $ 14,901
8.75 2000 37,000 39,538
8.50 2000 2,000 2,138
8.00 2001 8,000 8,529
7.50 2002 4,000 4,266
--------------------------------------------------------------------------------------
69,372
- -----------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 25.6%
(Cost: $42,448)
Agency notes 6.01 2000 5,000 5,028
Fixed rate collateralized
mortgage obligations 6.625 2001 8,876 8,962
Pass-through certificates 6.35 2018 10,000 10,044
6.50 2013-2028 9,050 9,005
7.50 2012 4,460 4,586
9.25 2018 4,600 4,941
--------------------------------------------------------------------------------------
42,566
- -----------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 13.8%
(Cost: $23,053)
Balloon rate mortgages 6.50 1999 9,641 9,689
Adjustable rate mortgages 7.665 2022 3,831 3,923
Pass-through certificates 7.00 2013 9,000 9,155
11.25 2010 219 240
--------------------------------------------------------------------------------------
23,007
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 13.6%
Pass-through certificates 7.00 2015-2028 12,672 12,772
9.00 2019-2022 9,107 9,793
9.50 2016-2020 42 45
--------------------------------------------------------------------------------------
(Cost: $22,605)
22,610
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 11.6%
(Cost: $19,233)
BellSouth Telecommunications,
Inc. 9.19 2003 934 1,011
California Infrastructure PG&E 6.15 2002 1,000 1,003
California Infrastructure SCE 6.17 2003 1,000 1,004
Chase Credit Cards Master 6.30 2003 5,000 5,036
Trust 6.57 2013 5,000 5,028
First Plus Home Loan Trust 8.375 2001 1,000 1,061
Rockwell International Corp. 6.90 2003 5,000 5,088
World Omni
--------------------------------------------------------------------------------------
19,231
--------------------------------------------------------------------------------------
TOTAL INVESTMENTS--106.3%
(Cost: $177,641) 176,786
--------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(6.3)% (10,578)
--------------------------------------------------------------------------------------
NET ASSETS--100% $166,208
--------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $177,641,000 for federal income tax purposes
at March 31, 1998, the gross unrealized appreciation was $229,000, the gross
unrealized depreciation was $1,084,000 and the net unrealized depreciation on
investments was $855,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $177,641) $176,786
- ------------------------------------------------------------------------
Cash 4,384
- ------------------------------------------------------------------------
Receivable for:
Investments sold 11,187
- ------------------------------------------------------------------------
Fund shares sold 730
- ------------------------------------------------------------------------
Interest 1,883
- ------------------------------------------------------------------------
TOTAL ASSETS 194,970
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 28,096
- ------------------------------------------------------------------------
Fund shares redeemed 402
- ------------------------------------------------------------------------
Management fee 76
- ------------------------------------------------------------------------
Distribution services fee 62
- ------------------------------------------------------------------------
Administrative services fee 32
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 69
- ------------------------------------------------------------------------
Trustees' fees 25
- ------------------------------------------------------------------------
Total liabilities 28,762
- ------------------------------------------------------------------------
NET ASSETS $166,208
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $188,888
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (22,856)
- ------------------------------------------------------------------------
Net unrealized depreciation on investments (855)
- ------------------------------------------------------------------------
Undistributed net investment income 1,031
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $166,208
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($68,588 / 8,821 shares outstanding) $7.78
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of
net asset value or 3.50% of offering price) $8.06
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($92,651 / 11,981 shares outstanding) $7.73
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($4,969 / 641 shares outstanding) $7.75
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
NET INVESTMENT INCOME
- ----------------------------------------------------------------------
Interest income $5,904
- ----------------------------------------------------------------------
Expenses:
Management fee 470
- ----------------------------------------------------------------------
Distribution services fee 419
- ----------------------------------------------------------------------
Administrative services fee 201
- ----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 317
- ----------------------------------------------------------------------
Professional fees 10
- ----------------------------------------------------------------------
Reports to shareholders 64
- ----------------------------------------------------------------------
Trustees' fees and other 13
- ----------------------------------------------------------------------
Total expenses 1,494
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 4,410
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------
Net realized gain on sales of investments 73
- ----------------------------------------------------------------------
Net realized loss from futures transactions (91)
- ----------------------------------------------------------------------
Net realized loss (18)
- ----------------------------------------------------------------------
Change in net unrealized depreciation on investments (181)
- ----------------------------------------------------------------------
Net loss on investments (199)
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,211
- ----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
MARCH 31, ENDED
1998 SEPTEMBER 30,
(UNAUDITED) 1997
- -------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 4,410 10,988
- -------------------------------------------------------------------------------------------------
Net realized loss (18) (5,257)
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (181) 3,620
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,211 9,351
- -------------------------------------------------------------------------------------------------
Net equalization charges (83) (370)
- -------------------------------------------------------------------------------------------------
Distribution from net investment income (4,904) (11,368)
- -------------------------------------------------------------------------------------------------
Net decrease from capital share transactions (4,416) (30,234)
- -------------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (5,192) (32,621)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------
Beginning of period 171,400 204,021
- -------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of
$1,031 and $1,608, respectively) $166,208 171,400
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper Short-Intermediate Government Fund is a
FUND 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, 1998) 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 INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. 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
March 31, 1998, the Fund had $18,323,000 in
purchase commitments outstanding (11% 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
12
<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 for the six
months ended March 31, 1998. The accumulated net
realized loss on sales of investments for federal
income tax purposes at March 31, 1998, amounting to
approximately $22,519,000, 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 INVESTMENT MANAGER COMBINATION. Effective December
AFFILIATES 31, 1997, Zurich Insurance Company, the parent of
Zurich Kemper Investments, Inc. (ZKI), acquired a
majority interest in Scudder, Stevens & Clark, Inc.
(Scudder), another major investment manager. As a
result of this transaction, the operations of ZKI
were combined with Scudder to form a new global
investment organization named Scudder Kemper
Investments, Inc. (Scudder Kemper). The transaction
resulted in the termination of the Fund's
investment management agreement with ZKI, however,
a new investment management agreement between the
Fund and Scudder Kemper was approved by the Fund's
Board of Trustees and by the Fund's shareholders.
The new management agreement, which was effective
December 31, 1997, is the same in all material
respects as the previous management agreement,
except that Scudder Kemper is the new investment
adviser to the Fund. In addition, the names of the
Fund's principal underwriter and shareholder
service agent were changed to Kemper Distributors,
Inc. (KDI) and Kemper Service Company (KSvC),
respectively.
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper, 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 $470,000 for the six months ended
March 31, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions paid in connection with the
distribution of Class A shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Six months ended March 31, 1998 $3,000 59,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees, CDSC and commissions
related to Class B and Class C shares are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY KDI PAID BY KDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Six months ended March 31, 1998 $521,000 136,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO FIRMS
--------------- ------------
<S> <C> <C>
Six months ended March 31, 1998 $201,000 201,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $260,000 for the six months ended
March 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended March 31,
1998, the Fund made no direct payments to its
officers and incurred trustees' fees of $9,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended March 31, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $301,354
Proceeds from sales 308,567
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
SHARES SOLD
Class A 2,466 $ 18,977 2,255 $ 18,889
------------------------------------------------------------------------------
Class B 1,286 9,913 2,120 16,310
------------------------------------------------------------------------------
Class C 64 499 520 4,058
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 183 1,427 255 1,994
------------------------------------------------------------------------------
Class B 276 2,136 815 6,352
------------------------------------------------------------------------------
Class C 15 113 28 219
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (2,106) (16,311) (2,989) (23,165)
------------------------------------------------------------------------------
Class B (2,620) (20,041) (6,668) (52,945)
------------------------------------------------------------------------------
Class C (145) (1,129) (250) (1,946)
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 2,338 18,294 1,985 15,533
------------------------------------------------------------------------------
Class B (2,351) (18,294) (1,994) (15,533)
------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE TRANSACTIONS $ (4,416) $(30,234)
------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS A
-------------------------------------------------------
YEAR ENDED
SEPTEMBER TWO MONTHS YEAR ENDED
SIX MONTHS 30, ENDED JULY 31,
ENDED MARCH ----------- SEPTEMBER 30, -----------
31, 1998 1997 1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.80 7.89 8.08 8.09 8.11 8.63
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .51 .54 .09 .54 .48
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.01) (.07) (.20) (.01) (.03) (.44)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .22 .44 .34 .08 .51 .04
- -----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .53 .53 .09 .53 .45
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- -- .11
- -----------------------------------------------------------------------------------------------------------
Total dividends .24 .53 .53 .09 .53 .56
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.78 7.80 7.89 8.08 8.09 8.11
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.93% 5.80 4.25 1.00 6.58 .41
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 1.14% 1.19 1.15 1.05 1.06 1.06
- -----------------------------------------------------------------------------------------------------------
Net investment income 5.77% 6.61 6.65 6.56 6.65 5.85
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS B
-------------------------------------------------------
YEAR ENDED
SEPTEMBER TWO MONTHS YEAR ENDED
SIX MONTHS 30, ENDED JULY 31,
ENDED MARCH ----------- SEPTEMBER 30, -----------
31, 1998 1997 1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.77 7.85 8.05 8.06 8.08 8.61
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .46 .46 .08 .47 .40
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.01) (.07) (.20) (.01) (.03) (.44)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .17 .39 .26 .07 .44 (.04)
- -----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .47 .46 .08 .46 .38
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- -- .11
- -----------------------------------------------------------------------------------------------------------
Total dividends .21 .47 .46 .08 .46 .49
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.73 7.77 7.85 8.05 8.06 8.08
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.24% 5.11 3.28 .87 5.68 (.48)
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------------
Expenses 2.08% 2.02 1.97 1.91 1.87 1.93
- -----------------------------------------------------------------------------------------------------------
Net investment income 4.83% 5.78 5.83 5.70 5.84 4.95
- -----------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS C
-----------------------------------------------------------------------
YEAR MAY 31
SIX MONTHS YEAR ENDED TWO MONTHS ENDED TO
ENDED SEPTEMBER 30, ENDED JULY JULY
MARCH 31, ------------------ SEPTEMBER 30, 31, 31,
1998 1997 1996 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.78 7.86 8.06 8.06 8.08 8.09
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .20 .47 .47 .09 .47 .07
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.01) (.07) (.20) (.01) (.03) (.01)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .19 .40 .27 .08 .44 .06
- --------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .22 .48 .47 .08 .46 .07
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.75 7.78 7.86 8.06 8.06 8.08
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.42% 5.24 3.36 1.00 5.73 .77
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.83% 1.86 1.85 1.74 1.78 1.83
- --------------------------------------------------------------------------------------------------------------------
Net investment income 5.08% 5.94 5.95 5.87 5.93 5.54
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED TWO MONTHS
ENDED SEPTEMBER 30, ENDED YEAR ENDED JULY 31,
MARCH 31, ------------------ SEPTEMBER 30, ---------------------
1998 1997 1996 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $166,208 171,400 204,021 239,619 246,248 266,640
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 336% 164 180 173 597 916
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Data for
the period ended March 31, 1998 is unaudited.
17
<PAGE> 19
NOTES
18
<PAGE> 20
NOTES
19
<PAGE> 21
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK CASADY RICHARD L. VANDENBERG
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President, Vice President
Secretary and Treasurer
LEWIS A. BURNHAM JOHN R. HEBBLE
Trustee JERALD K. HARTMAN Assistant Treasurer
Vice President
DONALD L. DUNAWAY MAUREEN E. KANE
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
ROBERT B. HOFFMAN CAROLINE PEASON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
DONALD R. JONES ELIZABETH C. WERTH
Trustee ROBERT C. PECK, JR. Assistant Secretary
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
WILLIAM P. SOMMERS
Trustee
EDMOND D. VILLANI
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER 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 in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by
a Kemper Fixed Income prospectus.
KSIGF - 3 (5/98) 1047090
