<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1998
[MORNINGSTAR RATINGS LOGO]
OFFERING INVESTORS THE OPPORTUNITY FOR HIGH
CURRENT INCOME AND PRESERVATION OF CAPITAL
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
". . . Thus, the turmoil abroad was responsible for one of the most startling
turnarounds in investor psychology we've seen in domestic bond markets for quite
a while. . . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
10
REPORT OF INDEPENDENT AUDITORS
11
FINANCIAL STATEMENTS
13
NOTES TO FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 7.80%
CLASS B 6.71%
CLASS C 7.01%
LIPPER SHORT GOVERNMENT FUNDS CATAGORY AVERAGE* 8.25%
- --------------------------------------------------------------------------------
</TABLE>
Returns and rankings are historical and do not guarantee future results.
Investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth more or less than original cost.
* Lipper Analytical Services, Inc. returns and rankings are based upon
changes in net asset value with all dividends reinvested and do not include
the effect of sales charges and, if they had, results may have been less
favorable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS A $7.91 $7.80
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS B $7.87 $7.77
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND CLASS C $7.89 $7.78
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND RANKINGS AS OF 9/30/98
- --------------------------------------------------------------------------------
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 #75 of 101 funds N/A #88 of 101 funds
- --------------------------------------------------------------------------------
5-YEAR #40 of 49 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF SEPTEMBER 30, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $0.4770 $0.4048 $0.4182
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $0.0380 $0.0323 $0.0331
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE+: 5.76% 4.93% 5.03%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.48% 3.70% 3.94%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown
as an annualized percentage of net asset value on September 30, 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 September 30, 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. Yields and distribution rates are
historical and will fluctuate.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- --------------------------------------------------------------------------------
Source: Data provided by Morningstar, Inc., Chicago, IL 312-696-6000. The Income
Style Box placement is based on a fund's average effective maturity or duration
and the average credit rating of the bond portfolio.
Please note that style boxes do not represent an exact assessment of risk and do
not represent future performance. The fund's portfolio changes from day-to-day.
A longer-term view is represented by the fund's Morningstar category, which is
based on its actual investment style as measured by its underlying portfolio
holdings over the past three-years. Please consult the prospectus for a
description of investment policies.
DURATION A measure of the interest rate sensitivity of a fixed-income investment
or portfolio. The longer the duration, the greater the interest rate risk.
FLIGHT - TO - QUALITY BUYING An event that occurs when investors move assets
from foreign equity and foreign bond securities to U.S. Treasuries and other
high quality securities in times of global economic uncertainty.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and represents the aggregate percentage or dollar
value change over the period.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA 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.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND 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 $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited reduction in interest
rates by the Federal Reserve Board. In September, the Fed reduced the federal
funds rate a modest 1/4 of a percentage point, however, the cut disappointed
some investors who were expecting a more dramatic gesture. In October, the Fed
reduced the rate an additional 1/4 of a percentage point. This was an unexpected
cut that seemed to have a positive effect on Wall Street. Investors were also
pleasantly surprised by better-than-expected corporate earnings reports early in
the fourth quarter. (Other contributors to the good vibrations included Mark
McGwire, Sammy Sosa and John Glenn. While they don't have the market clout of
Alan Greenspan, they may have played a role in elevating the national mood.)
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year.
Other signs of strength this year have included better-than-expected regional
retail sales, as well as robust housing starts and home sales. The nation's
budget surplus for 1998 came in at $60 billion, with another budget surplus
expected for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2 and 3 percent for the second half of 1998 and is anticipated to
hover around 2 percent for the first half of 1999. The consumer price index
(CPI) remains at about 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
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>
OCTOBER 31, 1998 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 4.53 5.64 6.03 6.53
PRIME RATE(2) 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.43 1.38 2.22 3.00
THE U.S. DOLLAR(4)* 0.89 3.92 7.62 4.74
CAPITAL GOODS ORDERS(5)* 10.21 10.47 15.67 4.79
INDUSTRIAL PRODUCTION(5)* 2.45 2.57 2.60 3.18
EMPLOYMENT GROWTH(6)* 2.34 2.57 2.65 2.22
</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 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE
VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE VALUE OF U.S. FIRMS'
FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
* DATA AS OF SEPTEMBER 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. A threat of impeachment, new acts
of terrorism or any other hints of crisis could help drag our markets downward
again.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ John E. Silvia
JOHN E. SILVIA
November 9, 1998
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF NOVEMBER 9, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[VANDENBERG PHOTO]
RICHARD VANDENBERG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1996 AND IS
A MANAGING DIRECTOR. HE IS ALSO A PORTFOLIO MANAGER OF KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND. VANDENBERG HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT
EXPERIENCE. HE RECEIVED 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.
THROUGHOUT THE FUND'S FISCAL YEAR, TURBULENT INTERNATIONAL MARKETS PROMPTED
INVESTORS WORLDWIDE TO FLEE TO THE RELATIVE SAFETY OF U.S. GOVERNMENT BONDS. THE
RESULTING DEMAND BOOSTED BOND PRICES AND HELPED THE FUND POST A 7.80 PERCENT
TOTAL RETURN FOR THE YEAR (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGE).
INVESTORS IN KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND WERE RECENTLY MAILED A
PROXY CONTAINING SEVERAL RECOMMENDATIONS BY THE FUND'S BOARD OF TRUSTEES. THESE
RECOMMENDATIONS INCLUDED MERGING THE FUND WITH KEMPER ADJUSTABLE RATE U.S.
GOVERNMENT FUND, ALTERING THE FUND'S INVESTMENT POLICIES TO ALLOW BROADER
INVESTMENT PARAMETERS, AND CHANGING THE FUND'S NAME TO KEMPER SHORT-TERM
GOVERNMENT FUND. WE ENCOURAGE YOU TO VOTE YOUR PROXY AS SOON AS POSSIBLE.
Q WHAT WERE THE MOST SIGNIFICANT FACTORS THAT AFFECTED THE INVESTMENT
ENVIRONMENT DURING THE FISCAL YEAR?
A Without a doubt, the most significant impact was felt as a result of
instability in foreign bond markets -- first from developments in Asia, then in
Latin America and Russia.
As you may recall, in October 1997 investor concern regarding potential
economic and currency problems in Asian countries reached a boiling point.
Investors began to realize that the outsized growth in recent years experienced
by these countries -- particularly Hong Kong, Thailand, Malaysia and
Indonesia -- was supported largely by intense speculation worldwide. This
support began to reverse itself in the summer of 1997. In October, the Hong Kong
stock market imploded and other countries devalued their currencies.
As the fiscal year progressed, the Asian crisis spread to other developing
economies. Latin American countries also started to experience problems, and
most recently, Russia effectively devalued the ruble.
Ironically, the problems abroad led to strong performance by government
bonds in the United States. Global investors opted for the safe haven of U.S.
Treasuries, and demand drove Treasury bond prices sharply higher. At the same
time, investors expected cheaper foreign goods to put a damper on domestic
inflation, and lower exports to impede U.S. economic growth.
Thus, the turmoil abroad was responsible for one of the most startling
turnarounds in investor psychology we've seen in domestic bond markets for quite
a while. In early 1998 the U.S. economy appeared to be growing quite rapidly,
which indicated steady or perhaps rising interest rates. The troubles in foreign
markets changed this perception and suggested an opportunity for lower interest
rates in the future, a positive development for bonds. As uncertainty over the
direction of global economies increased, so did demand for U.S. government
bonds. The result was a powerful rally in Treasuries.
The culmination of this uncertainty was a 0.25 percent interest rate cut
by the Federal Reserve on September 29, which was meant to appease markets and
show America's commitment to supporting economies worldwide. Financial markets,
however, were expecting more aggressive action and reacted negatively, which
caused a drop in bond prices at the end of the fund's fiscal year. Another rate
cut followed on October 16, however, and global financial markets rebounded
substantially.
<PAGE> 6
PERFORMANCE UPDATE
Q HOW DID THESE EVENTS AFFECT THE FUND?
A When we began to suspect that the problems in Asia were going to develop
into a worldwide issue, our expectation was that the uncertainty would be a
positive sign for "safe haven" investments like U.S. government bonds. So we
began to lengthen the fund's duration to help the fund benefit more fully from
an expected decline in rates.
During the remainder of the year, our strategy was to beef up the
portfolio's weighting in mortgage paper. Mortgages pay more income than
comparable-maturity Treasuries, but they can be more volatile. We looked for
issues that provided incrementally better value -- primarily those that offered
the same return with less potential risk than other comparable issues. We've
monitored the portfolio very closely and tried to buy mortgages intelligently
when opportunities presented themselves. During the market's recent volatility,
we've been able to pick up some good values that should help the fund perform
well going forward.
We intend to keep the fund modestly overweighted in mortgages for the time
being. If interest rates remain relatively stable as we expect, we should be
able to maintain a fairly stable share price, and still provide an attractive
yield.
Q WHAT'S YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET FROM HERE?
A Last year, investors focused on events outside the United States. We
expect their focus in the year ahead to turn closer to home. Japan appears as if
it is finally taking substantive action to alleviate credit problems and repair
the banking sector. Should their efforts be successful, much of the concern that
now clouds Southeast Asian markets would be lifted. The International Monetary
Fund (IMF) also looks as if it will receive the necessary funding to help other
emerging markets, most importantly Russia and Brazil. If overseas markets calm
down, that would relieve pressure on global interest rates and possibly allow
them to move lower, which would be positive for bonds.
In the U.S., the static from foreign markets has, to this point, muddied a
very favorable environment for government bonds. Inflation remains extremely low
and economic growth, while not robust, appears to be solid and sustainable. That
would lead us to expect a slow-growth, low-inflation environment that would be
beneficial for bonds. We fully expect some additional volatility in the markets
as a few big hedge funds unwind some overzealous currency positions. But,
overall, the investment climate for fixed-income investors is quite favorable.
6
<PAGE> 7
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES
CHARGE)
<TABLE>
<CAPTION>
1 YEAR 5 YEAR LIFE OF CLASS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS A 4.07% 4.18% 4.89% (since 1/10/92)
- ------------------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS B 3.71 3.86 5.81 (since 2/1/89)
- ------------------------------------------------------------------------------------------------------------
KEMPER SHORT-INTERMEDIATE GOV'T FUND CLASS C 7.01 n/a 5.33 (since 5/31/94)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
Kemper
Short-
Intermediate Merrill
Government Lynch Mortgage/ Consumer
Fund Class GNMA Price
A(1) Index(+) Index(++)
<S> <C> <C> <C>
1/10/92 9652 10000 10000
9564 9946 10102
9926 10321 10167
10290 10686 10247
10262 10883 10290
10548 11018 10413
10704 11197 10471
10845 11388 10522
10826 11437 10573
10726 11283 10674
10705 11241 10732
10755 11330 10834
12/31/94 10723 11333 10856
11050 11804 10979
11476 12298 11059
11597 12506 11109
11930 12878 11131
11878 12963 11291
11934 12958 11363
12090 13188 11443
12/31/96 12290 13468 11501
12320 13530 11603
12568 13897 11624
12790 14228 11690
12993 14507 11697
13165 14735 11762
13331 14974 11820
9/30/98 13788 15509 11849
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
Kemper
Short- Merrill
Intermediate Lynch
Government Mortgage/ Consumer
Fund Class GNMA Price
B Index(+) Index(++)
<S> <C> <C> <C>
2/1/89 10000.00 10000.00 10000.00
10140.20 9994.00 10099.00
10405.20 10646.00 10248.00
10624.30 10772.00 10322.00
10760.50 11148.00 10413.00
10646.60 11182.00 10628.00
10959.40 11544.00 10727.00
11131.20 11793.00 10958.00
11526.00 12286.00 11049.00
11622.60 12578.00 11148.00
11784.90 12818.00 11230.00
12240.30 13386.00 11329.00
12/31/91 12807.40 13974.00 11387.00
12603.80 13899.00 11503.00
13308.30 14422.00 11577.00
13437.10 14931.00 11668.00
13484.60 14942.00 11718.00
13835.90 15398.00 11858.00
14073.50 15646.00 11924.00
14158.50 15885.00 11982.00
14114.90 15983.00 12040.00
13999.80 15766.00 12155.00
13928.80 15709.00 12221.00
13942.70 15833.00 12337.00
12/31/94 13845.20 15837.00 12362.00
14266.60 16495.00 12502.00
14749.80 17186.00 12593.00
14844.90 17474.00 12651.00
15281.00 17993.00 12675.00
15173.60 17975.00 12857.00
15267.20 18107.00 12940.00
15482.10 18430.00 13031.00
15617.60 18846.00 13097.00
15656.80 18907.00 13212.00
15898.70 19420.00 13237.00
16147.70 19682.00 13311.00
16370.40 20272.00 13320.00
16552.70 20591.00 13394.00
16700.10 20924.00 13460.00
9/30/98 17253.10 20673.00 13493.00
</TABLE>
[LINE GRAPH]
<TABLE>
<CAPTION>
Kemper
Short- Merrill
Intermediate Lynch
Government Mortgage/ Consumer
Fund Class GNMA Price
C(1) Index(+) Index(++)
<S> <C> <C> <C>
5/31/94 10000 10000 10000
10020 10011 10034
10045 10090 10129
10000 10093 10149
10279 10511 10264
10656 10952 10339
10762 11136 10386
11045 11466 10407
10982 11455 10556
11014 11539 10624
11124 11745 10698
12/31/96 11298 12010 10753
11314 12049 10847
11522 12378 10868
11706 12670 10929
12/31/97 11870 12918 10936
11989 12122 10997
12134 13334 11051
9/30/98 12527 13811 11078
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN
OR LOSS FROM PORTFOLIO INVESTMENTS OVER THE PERIODS SPECIFIED, ASSUMING
REINVESTMENT OF DIVIDENDS AND FOR CLASS A SHARES ADJUSTMENT FOR THE MAXIMUM
SALES CHARGE OF 3.5 PERCENT, FOR CLASS B SHARES ADJUSTMENT FOR THE
APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC) AS FOLLOWS: 1-YEAR, 3
PERCENT; 5-YEAR, 1 PERCENT; SINCE INCEPTION, 0 PERCENT AND FOR CLASS C
SHARES NO ADJUSTMENT FOR SALES CHARGE. THE MAXIMUM CDSC FOR CLASS B SHARES
IS 4 PERCENT. FOR CLASS C SHARES, THERE IS A 1 PERCENT CDSC ON CERTAIN
REDEMPTIONS WITHIN THE FIRST YEAR OF PURCHASE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. IN COMPARING
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND TO THE MERRILL LYNCH
MORTGAGE/GNMA INDEX, YOU SHOULD ALSO NOTE THAT THE FUND'S PERFORMANCE
REFLECTS THE MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN
THE PERFORMANCE OF THE INDEX.
+ THE MERRILL LYNCH MORTGAGE/GNMA INDEX, AN UNMANAGED INDEX, IS COMPRISED OF
THE UNIVERSE OF 1-5 YEAR TREASURIES PLUS THE MERRILL LYNCH GNMA INDEX.
SOURCE IS BLOOMBERG.
++ THE CONSUMER PRICE INDEX IS A STATISTICAL MEASURE OF CHANGE, OVER TIME, IN
THE PRICES OF GOODS AND SERVICES IN MAJOR EXPENDITURE GROUPS FOR ALL URBAN
CONSUMERS. IT IS GENERALLY CONSIDERED TO BE A MEASURE OF INFLATION. SOURCE
IS TOWERSDATA.
THE FUND'S SHARES ARE NEITHER INSURED ZNOR GUARANTEED BY THE U.S.
GOVERNMENT.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED 57% 42%
- ---------------------------------------------------------------------------
GOVERNMENTS:
SHORT-TERM 8 45
- ---------------------------------------------------------------------------
INTERMEDIATE-TERM 18 11
- ---------------------------------------------------------------------------
CORPORATE BONDS 9 2
- ---------------------------------------------------------------------------
CASH AND EQUIVALENTS 8 --
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/98 ON 9/30/97
YEARS TO MATURITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
LESS THAN 3 YEARS 28% 57%
- ---------------------------------------------------------------------------
3-10 YEARS 62 43
- ---------------------------------------------------------------------------
CASH AND EQUIVALENTS 10 --
- ---------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/98 ON 9/30/98
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- ---------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 4.1 years 3.5 years
- ---------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COUPON PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT NATIONAL Pass-through
MORTGAGE ASSOCIATION - 40.7% Certificates 6.50% 2013 $20,815 $ 21,352
(Cost: $71,132) 7.00 2015-2028 32,174 33,060
7.50 2028 9,282 9,621
9.00 2019-2022 7,383 7,877
9.50 2016-2020 33 35
------------------------------------------------------------------------------------
71,945
- ------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY Bonds 11.875 2003 17,800 23,785
SECURITIES - 25.6% Notes 6.25 2001 12,600 13,169
(Cost: $44,020) 7.50 2002 7,500 8,276
-----------------------------------------------------------------------------------
45,230
- ------------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL Agency notes 5.10 2000 10,000 10,067
MORTGAGE ASSOCIATION - 13.9% 6.50 2027-2028 252 255
(Cost: $24,620) Pass-through
Certificates 8.50 2005 10,000 10,437
9.25 2018 3,659 3,902
-------------------------------------------------------------------------------------
24,661
- ------------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN Pass-through
MORTGAGE CORPORATION - 2.6% Certificates 6.50 2027-2028 4,589 4,672
(Cost: $4,617) -------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--82.8%
(Cost: $144,389) 146,508
-------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 8.7% Chase Manhattan Auto Owner
(Cost: $15,209) Trust 5.80 2003 6,500 6,636
Contifinancial Corp. 5.687 2013 3,600 3,600
World Omni Automobile
Lease Securitization Trust 6.90 2003 4,991 5,109
-------------------------------------------------------------------------------------
15,345
- ------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS Yield--4.95% to 5.44%
Due--October 1998
Federal Home Loan Bank 6,400 6,400
Federal National Mortgage Association 6,500 6,493
-------------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--7.3%
(Cost: $12,892) 12,893
-------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.8%
(Cost: $172,490) 174,746
-------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.2% 2,124
-------------------------------------------------------------------------------------
NET ASSETS--100% $176,870
-------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $172,490,000 for federal income tax purposes
at September 30, 1998, the gross unrealized appreciation was $2,402,000, the
gross unrealized depreciation was $146,000 and the net unrealized appreciation
on investments was $2,256,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Short-Intermediate Government
Fund, a series of Kemper Portfolios, as of September 30, 1998, the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the fiscal periods since 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Short-Intermediate Government Fund at September 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
fiscal periods since 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1998
10
<PAGE> 11
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $172,490) $174,746
- ------------------------------------------------------------------------
Cash 3,675
- ------------------------------------------------------------------------
Receivable for:
Investments sold 5,322
- ------------------------------------------------------------------------
Fund shares sold 3,604
- ------------------------------------------------------------------------
Interest 2,029
- ------------------------------------------------------------------------
TOTAL ASSETS 189,376
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Dividends 189
- ------------------------------------------------------------------------
Investments purchased 8,741
- ------------------------------------------------------------------------
Fund shares redeemed 3,307
- ------------------------------------------------------------------------
Management fee 79
- ------------------------------------------------------------------------
Distribution services fee 51
- ------------------------------------------------------------------------
Administrative services fee 34
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 79
- ------------------------------------------------------------------------
Trustees' fees 26
- ------------------------------------------------------------------------
Total liabilities 12,506
- ------------------------------------------------------------------------
NET ASSETS $176,870
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $197,264
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (22,908)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 2,256
- ------------------------------------------------------------------------
Undistributed net investment income 258
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $176,870
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($91,774 / 11,601 shares outstanding) $7.91
- ------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of
net asset value or 3.50% of offering price) $8.20
- ------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($76,020 / 9,663 shares outstanding) $7.87
- ------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($9,076 / 1,150 shares outstanding) $7.89
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE> 12
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $11,403
- -----------------------------------------------------------------------
Expenses:
Management fee 920
- -----------------------------------------------------------------------
Distribution services fee 742
- -----------------------------------------------------------------------
Administrative services fee 396
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 661
- -----------------------------------------------------------------------
Professional fees 27
- -----------------------------------------------------------------------
Reports to shareholders 92
- -----------------------------------------------------------------------
Trustees' fees and other 23
- -----------------------------------------------------------------------
Total expenses 2,861
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 8,542
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized loss on sales of investments (468)
- -----------------------------------------------------------------------
Net realized gain from futures transactions 621
- -----------------------------------------------------------------------
Net realized gain 153
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 2,930
- -----------------------------------------------------------------------
Net gain on investments 3,083
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,625
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 8,542 10,988
- -------------------------------------------------------------------------------------------
Net realized gain (loss) 153 (5,257)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 2,930 3,620
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,625 9,351
- -------------------------------------------------------------------------------------------
Net equalization charges -- (370)
- -------------------------------------------------------------------------------------------
Distribution from net investment income (9,358) (11,368)
- -------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 3,203 (30,234)
- -------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,470 (32,621)
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 171,400 204,021
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$258 and $1,608, respectively) $176,870 171,400
- -------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND Kemper Short-Intermediate Government Fund is a
separate series of Kemper Portfolios, an open-end
management investment company organized as a
business trust under the laws of Massachusetts. The
Fund offers four classes of shares. Class A shares
are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without an initial sales charge but
are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions within one year of
purchase. Class C shares do not covert into another
class. Class I shares (none sold through September
30, 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
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities with remaining
maturities greater than sixty days are valued by
pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. An exchange-traded options contract
on securities, futures and other financial
instruments is valued at its most recent sale price
on such exchange. If no sales occurred, the options
contract is valued at the calculated mean between
the most recent bid and asked quotations. If there
are no such bid and asked quotations, the options
contract is valued at the most recent bid quotation
in the case of a purchased options contract, or the
most recent asked quotation in the case of a
written options contract. An options contract on
securities and other financial instruments traded
over-the-counter is valued at the most recent bid
quotation in the case of a purchased options
contract and at the most recent asked quotation in
the case of a written options contract. Futures
contracts are valued at the most recent settlement
price. All other securities are valued at their
fair value as determined in good faith by the
Valuation Committee of 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 close of the Exchange. The net
asset value per share is
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1998, the Fund had a tax basis net
loss carryforward of approximately $22,570,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 2002
through 2005.
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. Prior to October 1, 1997,
the Fund used equalization accounting to keep a
continuing shareholder's per share interest in
undistributed net investment income unaffected by
shareholder activity. This was accomplished by
allocating a portion of the proceeds from sales and
the cost of redemptions of fund shares to
undistributed net investment income. As of October
1, 1997, the Fund discontinued using equalization.
This change has no effect on the Fund's net assets,
net asset value per share or distributions to
shareholders. Discontinuing the use of equalization
accounting will result in simpler financial
statements. The cumulative effect of the
discontinuance of equalization accounting was to
decrease undistributed net investment income and
increase paid-in capital previously reported
through September 30, 1997 by $757,000.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly management fee
of 1/12 of the 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 $920,000 for the year ended September 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the Fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination. The
Board of Trustees of the Fund will seek shareholder
approval of the new investment management agreement
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
through a proxy solicitation that is currently
scheduled to conclude in mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of Class A shares are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS ALLOWED
RETAINED BY KDI BY KDI TO FIRMS
--------------- ----------------------
<S> <C> <C>
Year ended September 30, 1998 $6,000 147,000
</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 separate 12b-1 plans for the
Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(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>
Year ended September 30, 1998 $939,000 296,000
</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
THE FUND TO ASF PAID BY
KDI KDI TO FIRMS
----------------- ---------------------
<S> <C> <C>
Year ended September 30, 1998 $396,000 399,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $515,000
for the year ended September 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended September 30,
1998, the Fund made no direct payments to its
officers and incurred trustees' fees of $17,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $581,727
Proceeds from sales 606,442
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 6,941 $ 53,680 2,255 $ 18,889
------------------------------------------------------------------------------
Class B 3,092 24,037 2,120 16,310
------------------------------------------------------------------------------
Class C 729 5,703 520 4,058
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 404 3,158 255 1,994
------------------------------------------------------------------------------
Class B 471 3,679 815 6,352
------------------------------------------------------------------------------
Class C 28 224 28 219
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (6,142) (47,960) (2,989) (23,165)
------------------------------------------------------------------------------
Class B (4,807) (36,865) (6,668) (52,945)
------------------------------------------------------------------------------
Class C (314) (2,453) (250) (1,946)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 4,458 34,807 1,985 15,533
------------------------------------------------------------------------------
Class B (4,483) (34,807) (1,994) (15,533)
------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ 3,203 $(30,234)
------------------------------------------------------------------------------
</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 September
30, 1998, the market value of assets pledged by the
Fund to cover margin requirements for open futures
positions was $167,000. The Fund also had liquid
securities in its portfolio in excess of the face
amount of the following long futures position open
at September 30, 1998.
<TABLE>
<CAPTION>
FACE EXPIRATION
TYPE AMOUNT MONTH GAIN
----------------------------------------------------------------------------
<S> <C> <C> <C>
Eurodollar $15,359,000 December '99 $137,000
----------------------------------------------------------------------------
U.S. Treasury Note 4,671,000 December '98 187,000
----------------------------------------------------------------------------
U.S. Treasury Bond 2,589,000 December '98 40,000
----------------------------------------------------------------------------
TOTAL $364,000
----------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED TWO MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JULY 31,
------------------- SEPTEMBER 30, -----------
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 .42 .51 .54 .09 .54 .48
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .17 (.07) (.20) (.01) (.03) (.44)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .59 .44 .34 .08 .51 .04
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .48 .53 .53 .09 .53 .45
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- -- .11
- ---------------------------------------------------------------------------------------------------------
Total dividends .48 .53 .53 .09 .53 .56
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.91 7.80 7.89 8.08 8.09 8.11
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.80% 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 5.67% 6.61 6.65 6.56 6.65 5.85
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED TWO MONTHS YEAR ENDED
SEPTEMBER 30, ENDED JULY 31,
------------------- SEPTEMBER 30, -----------
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 .37 .46 .46 .08 .47 .40
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .13 (.07) (.20) (.01) (.03) (.44)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .50 .39 .26 .07 .44 (.04)
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .40 .47 .46 .08 .46 .38
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- -- .11
- ---------------------------------------------------------------------------------------------------------
Total dividends .40 .47 .46 .08 .46 .49
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.87 7.77 7.85 8.05 8.06 8.08
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.71% 5.11 3.28 .87 5.68 (.48)
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 2.11% 2.02 1.97 1.91 1.87 1.93
- ---------------------------------------------------------------------------------------------------------
Net investment income 4.70% 5.78 5.83 5.70 5.84 4.95
- ---------------------------------------------------------------------------------------------------------
</TABLE>
17
FINANCIAL Highlights
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
CLASS C
-----------------------------------------------------------------------
YEAR MAY 31
TWO MONTHS ENDED TO
YEAR ENDED SEPTEMBER 30, ENDED JULY JULY
------------------------------- 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 .37 .47 .47 .09 .47 .07
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .16 (.07) (.20) (.01) (.03) (.01)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .53 .40 .27 .08 .44 .06
- --------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .42 .48 .47 .08 .46 .07
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.89 7.78 7.86 8.06 8.06 8.08
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.01% 5.24 3.36 1.00 5.73 .77
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.84% 1.86 1.85 1.74 1.78 1.83
- --------------------------------------------------------------------------------------------------------------------
Net investment income 4.97% 5.94 5.95 5.87 5.93 5.54
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS
SEPTEMBER 30, ENDED YEAR ENDED JULY 31,
------------------------------- SEPTEMBER 30, -------------------
1998 1997 1996 1995 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $176,870 171,400 204,021 239,619 246,248 266,640
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 337% 164 180 173 597 916
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the year ended
September 30, 1998.
TAX INFORMATION
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
18
<PAGE> 19
19
NOTES
<PAGE> 20
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY LINDA J. WONDRACK
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
LEWIS A. BURNHAM CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY ELIZABETH C. WERTH
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN BRENDA LYONS
Trustee THOMAS W. LITTAUER Assistant Treasurer
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
SHIRLEY D. PETERSON
Trustee ROBERT C. PECK, JR.
Vice President
WILLIAM P. SOMMERS
Trustee KATHRYN L. QUIRK
Vice President
EDMOND D. VILLANI
Trustee RICHARD L. VANDENBERG
Vice President
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LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
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SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
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CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
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INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
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This report is not to be distributed unless preceded
or accompanied by a Kemper Fixed Income
prospectus.
KSIGF - 2 (11/98) 1059730
Printed in the U.S.A.
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Long-term investing in a short-term world(SM)