LONG-TERM
INVESTING
IN A
SHORT-TERM
WORLD(SM)
January 1, 2000, as revised February 14, 2000
Prospectus
KEMPER INCOME FUNDS
Kemper High Yield Fund
Kemper High Yield Fund II
Kemper High Yield Opportunity Fund
Kemper Income And Capital Preservation Fund
Kemper Short-Term U.S. Government Fund
Kemper U.S. Government Securities Fund
Kemper Strategic Income Fund
Kemper U.S. Mortgage Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
[LOGO] KEMPER FUNDS
<PAGE>
<TABLE>
<CAPTION>
HOW THE INVESTING IN
FUNDS WORK THE FUNDS
<S> <C> <C>
2 Kemper High Yield 32 Kemper U.S. Government 68 Choosing A
Fund Securities Fund Share Class
8 Kemper High Yield 38 Kemper Strategic 74 How To Buy Shares
Fund II Income Fund
75 How To Exchange Or
14 Kemper High Yield 44 Kemper U.S. Sell Shares
Opportunity Fund Mortgage Fund
76 Policies You Should
20 Kemper Income And 50 Other Policies And Risks Know About
Capital Preservation
Fund 52 Financial Highlights 82 Understanding
Distributions And
26 Kemper Short-Term Taxes
U.S. Government Fund
</TABLE>
<PAGE>
How The Funds Work
These funds invest mainly in bonds and other types of debt securities.
Taken as a group, they represent a spectrum of approaches to investing for
income, from a conservative approach that emphasizes preservation of capital to
a more aggressive (and more risky) approach that focuses on higher income and
total return. Each fund has its own objective.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
<PAGE>
TICKER SYMBOLS CLASS: A) KHYAX B) KHYBX C) KHYCX
Kemper
High Yield Fund
FUND GOAL The fund seeks the highest level of current income obtainable
from a diversified portfolio of fixed income securities which the fund's
investment manager considers consistent with reasonable risk. As a secondary
objective, the fund will seek capital gain where consistent with its primary
objective.
2 - Kemper High Yield Fund
<PAGE>
The Fund's Main Strategy
The fund invests mainly in lower rated, higher yielding corporate bonds, often
called junk bonds. Generally, most are from U.S. issuers, but up to 25% of total
assets could be in bonds from foreign issuers.
In deciding which securities to buy and sell to achieve income and capital
appreciation, the portfolio managers analyze securities to determine which
appear to offer reasonable risk compared to their potential return. To do this,
they rely on extensive independent analysis, favoring the bonds of companies
whose credit is gaining strength or whom they believe are unlikely to default.
Based on their analysis of economic and market trends, the managers may favor
bonds from different segments of the economy at different times, while still
maintaining variety in terms of the types of bonds, companies and industries
represented. For example, the managers typically favor subordinated debt (which
has higher risks and may pay higher returns), but may emphasize senior debt if
they expect an economic slowdown.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in junk bonds, which are
those below the fourth credit grade (i.e., grade BB/Ba and below). Compared to
investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and higher risk of default on payments.
3 - Kemper High Yield Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several risk factors that could reduce the yield you get from the
fund, cause you to lose money or make the fund perform less well than other
investments.
For this fund, one of the main factors is the economy. Because the companies
that issue high yield bonds may be in uncertain financial health, the prices of
their bonds can be more vulnerable to bad economic news or even the expectation
of bad news, than investment-grade bonds. This may affect a company, an industry
or the high yield market as a whole. In some cases, bonds may decline in credit
quality or go into default. This risk is higher with foreign bonds.
Another factor is market interest rates. A rise in interest rates generally
means a fall in bond prices -- and, in turn, a fall in the value of your
investment. An increase in the portfolio's duration could make the fund more
sensitive to this risk.
Because the economy has a strong impact on corporate bond performance, the fund
will tend to perform less well than other types of bond funds when the economy
is weak. To the extent that the fund emphasizes bonds from any given industry,
it could be hurt if that industry does not do well.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o some bonds could be paid off earlier than expected, which could hurt the
fund's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING PARAGRAPHS:
- --------------------------------------------------------------------------------
Investors who seek high current income and can accept risk of loss of principal
may be interested in this fund.
- --------------------------------------------------------------------------------
4 - Kemper High Yield Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- -------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- -------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
-1.14 -12.98 46.84 17.08 20.29 -1.72 17.46 13.49 11.51 1.28
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 23.41%, Q1 1991 YTD return as of 9/30/1999: 0.27%
Worst quarter: -11.77%, Q3 1990
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since
Since Since 5/31/94 Since 1/26/78
12/31/97 12/31/93 Life of 12/31/88 Life of
1 Year 5 Years Class B/C 10 Years Class A
- --------------------------------------------------------------------------------
Class A -3.31% 7.17% -- 9.66% 11.23%
- --------------------------------------------------------------------------------
Class B -2.36 -- 8.16% -- --
- --------------------------------------------------------------------------------
Class C 0.45 -- 8.58 -- --
- --------------------------------------------------------------------------------
Index 9.23 11.54 14.00 12.33 N/A*
- --------------------------------------------------------------------------------
Index: Salomon Brothers Long-Term High Yield Bond Index, which measures the
total return of high yield bonds with a par value of $50 million or higher and a
remaining maturity of ten years or longer.
- --------------------------------------------------------------------------------
* The Index was not in existence on the Class A Shares' inception date.
The table includes the effect of maximum sales loads.
5 - Kemper High Yield Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.52% 0.52% 0.52%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.45 0.53 0.48
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.97 1.80 1.75
- --------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About-- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $545 $745 $962 $1,586
- --------------------------------------------------------------------------------
Class B shares 583 866 1,175 1,697
- --------------------------------------------------------------------------------
Class C shares 278 551 949 2,062
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $545 $745 $962 $1,586
- --------------------------------------------------------------------------------
Class B shares 183 566 975 1,697
- --------------------------------------------------------------------------------
Class C shares 178 551 949 2,062
- --------------------------------------------------------------------------------
6 - Kemper High Yield Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.52% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Harry E. Resis, Jr. Daniel J. Doyle
Lead Portfolio Manager o Began investment career
o Began investment career in 1984
in 1968 o Joined the advisor in
o Joined the advisor in 1986
1988 o Joined the fund team in
o Joined the fund team in 1999
1992
Michael A. McNamara
o Began investment career
in 1972
o Joined the advisor in
1972
o Joined the fund team in
1990
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING PARAGRAPHS:
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
7 - Kemper High Yield Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KHIAX B) KHIBX C) KHICX
Kemper
High Yield Fund II
FUND GOAL The fund seeks the highest level of current income obtainable from a
professionally managed, diversified portfolio of fixed income securities that
the fund's investment manager considers consistent with reasonable risk. As a
secondary objective, the fund will seek capital gain where consistent with its
primary objective.
8 - Kemper High Yield Fund II
<PAGE>
The Fund's Main Strategy
The fund invests mainly in lower rated, higher yielding corporate bonds, often
called junk bonds. Generally, most are from U.S. issuers, but up to 25% of total
assets could be in bonds from foreign issuers.
In deciding which securities to buy and sell to achieve income and capital
appreciation, the portfolio managers analyze securities to determine which
appear to offer reasonable risk compared to their potential return. To do this,
they rely on extensive independent analysis, favoring the bonds of companies
whose credit is gaining strength or whom they believe are unlikely to default.
Based on their analysis of economic and market trends, the managers may favor
bonds from different segments of the economy at different times, while still
maintaining variety in terms of the types of bonds, companies and industries
represented. For example, the managers typically favor subordinated debt (which
has higher risks and may pay higher returns), but may emphasize senior debt if
they expect an economic slowdown.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDUT QUALITY POLICIES
This fund normally invests at least 65% of its total assets in junk bonds, which
are those below the fourth credit grade (i.e., grade BB/Ba and below). Compared
to investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and higher risk of default on payments.
9 - Kemper High Yield Fund II
<PAGE>
The Main Risks Of Investing In The Fund
There are several risk factors that could reduce the yield you get from the
fund, cause you to lose money or make the fund perform less well than other
investments.
For this fund, one of the main factors is the economy. Because the companies
that issue high yield bonds may be in uncertain financial health, the prices of
their bonds can be more vulnerable to bad economic news or even the expectation
of bad news, than investment-grade bonds. This may affect a company, an industry
or the high yield market as a whole. In some cases, bonds may decline in credit
quality or go into default. This risk is higher with foreign bonds.
Another factor is market interest rates. A rise in interest rates generally
means a fall in bond prices -- and, in turn, a fall in the value of your
investment. An increase in the portfolio's duration could make the fund more
sensitive to this risk.
Because the economy has a strong impact on corporate bond performance, the fund
will tend to perform less well than other types of bond funds when the economy
is weak. To the extent that the fund emphasizes bonds from any given industry,
it could be hurt if that industry does not do well.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o some bonds could be paid off earlier than expected, which could hurt the
fund's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING PARAGRAPHS:
- --------------------------------------------------------------------------------
Investors who seek high current income and can accept risk of loss of principal
may be interested in this fund.
- --------------------------------------------------------------------------------
10 - Kemper High Yield Fund II
<PAGE>
Performance
Because this is a new fund, it did not have a full calendar year of performance
to report as of the date of this prospectus.
11 - Kemper High Yield Fund II
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.65% 0.65% 0.65%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 1.03 0.89 0.94
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.68 2.29 2.34
- --------------------------------------------------------------------------------
Expense Reimbursement 0.43 0.29 0.34
- --------------------------------------------------------------------------------
Net Annual Operating Expenses*** 1.25 2.00 2.00
- --------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About-- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
*** By contract, total operating expenses are capped at 1.25%, 2.00% and 2.00%
through 12/31/2000 for Class A, B and C shares, respectively.
Based on the figures above (including one year of capped expenses in each
period), this example is designed to help you compare the expenses of each share
class to those of other funds. The example assumes operating expenses remain the
same and that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions. This is only an example; actual expenses will be
different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $572 $916 $1,283 $2,313
- --------------------------------------------------------------------------------
Class B shares 603 988 1,399 2,310
- --------------------------------------------------------------------------------
Class C shares 303 698 1,220 2,650
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $572 $916 $1,283 $2,313
- --------------------------------------------------------------------------------
Class B shares 203 688 1,199 2,310
- --------------------------------------------------------------------------------
Class C shares 203 698 1,220 2,650
- --------------------------------------------------------------------------------
12 - Kemper High Yield Fund II
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.00%* of its average daily net assets.
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Harry E. Resis, Jr. Daniel J. Doyle
Lead Portfolio Manager o Began investment career
o Began investment career in 1984
in 1968 o Joined the advisor in
o Joined the advisor in 1986
1988 o Joined the fund team in
o Joined the fund team in 1998
1998
Michael A. McNamara
o Began investment career
in 1972
o Joined the advisor in
1972
o Joined the fund team in
1998
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING PARAGRAPHS:
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
13 - Kemper High Yield Fund II
<PAGE>
TICKER SYMBOLS CLASS: A) KYOAX B) KYOBX C) KYOCX
Kemper
High Yield
Opportunity Fund
FUND GOAL The fund seeks total return through high current income and
capital appreciation.
14 - Kemper High Yield Opportunity Fund
<PAGE>
The Fund's Main Strategy
The fund invests mainly in lower rated, higher yielding corporate bonds, often
called junk bonds. Generally, most are from U.S. issuers, but up to 25% of total
assets could be in bonds of foreign issuers. To enhance total return, the fund
may invest up to 20% of total assets in common stocks and other equities,
including preferred stocks, convertible securities and real estate investment
trusts (REITs).
In deciding which securities to buy and sell, the portfolio managers rely on
extensive independent analysis, favoring the bonds of companies whose credit is
gaining strength or whom they believe are unlikely to default. The managers also
seek to take advantage of special opportunities by investing in stocks of
high-yield issuers, including initial public offerings of stock (IPOs).
Based on their analysis of economic and market trends, the managers may favor
bonds from different segments of the economy at different times, while still
maintaining variety in terms of the companies and industries represented. For
example, the managers typically favor subordinated debt (which has higher risks
and may pay higher returns), but may emphasize senior debt if the managers
expect an economic slowdown.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests primarily in junk bonds, which are those below the
fourth credit grade (i.e., grade BB/Ba and below). Compared to investment-grade
bonds, junk bonds may pay higher yields and have higher volatility and higher
risk of default on payments.
15 - Kemper High Yield Opportunity Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several risk factors that could reduce the yield you get from the
fund, cause you to lose money or make the fund perform less well than other
investments.
For this fund, one of the main factors is the economy. Because the companies
that issue high yield bonds may be in uncertain financial health, the prices of
their bonds (and stocks) can be more vulnerable to bad economic news, or even
the expectation of bad news, than investment-grade bonds. This may affect a
company, an industry or the high yield market as a whole. In some cases, bonds
may decline in credit quality or go into default. This risk is higher with
foreign bonds.
Another factor is market interest rates. A rise in interest rates generally
means a fall in bond prices -- and, in turn, a fall in the value of your
investment. An increase in the portfolio's duration could make the fund more
sensitive to this risk.
Because the economy affects corporate bond performance, the fund will tend to
perform less well than other types of bond funds when the economy is weak. Also,
to the extent that the fund emphasizes bonds from any given industry, it could
be hurt if that industry does not do well.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o some bonds could be paid off earlier than expected, which could hurt the
fund's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING PARAGRAPHS:
- --------------------------------------------------------------------------------
Investors who seek high current income and can accept risk of loss of principal
may be interested in this fund.
- --------------------------------------------------------------------------------
16 - Kemper High Yield Opportunity Fund
<PAGE>
Performance
The bar chart shows the total returns for the fund's first complete calendar
year. The chart doesn't reflect sales loads; if it did, returns would be lower.
The table shows how the fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- -------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- -------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA
2.78
1998
Best quarter: 6.06%, Q1 1998 YTD return as of 9/30/1999: -1.14%
Worst quarter: -7.88%, Q3 1998
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since 12/31/97 Since 10/1/97
1 Year Life of Fund
- --------------------------------------------------------------------------------
Class A -1.85% 0.48%
- --------------------------------------------------------------------------------
Class B -0.93 1.19
- --------------------------------------------------------------------------------
Class C 1.89 3.46
- --------------------------------------------------------------------------------
Index 9.23 10.98
- --------------------------------------------------------------------------------
Index: Salomon Brothers Long-Term High Yield Bond Index, which measures the
total return of high yield bonds with a par value of $50 million or higher and a
remaining maturity of ten years or longer.
- --------------------------------------------------------------------------------
The table includes the effect of maximum sales loads.
17 - Kemper High Yield Opportunity Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as % 4.50% None None
of offering price)
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load) None 4.00% 1.00%
(as % of redemption proceeds)
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.65% 0.65% 0.65%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses* 1.19 1.29 1.27
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.84 2.69 2.67
- ------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $629 $1,003 $1,401 $2,511
- --------------------------------------------------------------------------------
Class B shares 672 1,135 1,625 2,629
- --------------------------------------------------------------------------------
Class C shares 370 829 1,415 3,003
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $629 $1,003 $1,401 $2,511
- --------------------------------------------------------------------------------
Class B shares 272 835 1,425 2,629
- --------------------------------------------------------------------------------
Class C shares 270 829 1,415 3,003
- ------------------------------------------------------------------------------
18 - Kemper High Yield Opportunity Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.65% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Harry E. Resis, Jr. Daniel J. Doyle
Lead Portfolio Manager o Began investment career
o Began investment career in 1984
in 1968 o Joined the advisor
o Joined the advisor in 1986
in 1988 o Joined the fund team
o Joined the fund team in 1997
in 1997
Michael A. McNamara
o Began investment career
in 1972
o Joined the advisor in
1972
o Joined the fund team
in 1997
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
19 - High Yield Opportunity Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KICAX B) KICBX C) KICCX
Kemper
Income And Capital
Preservation Fund
FUND GOAL The fund seeks as high a level of current income as is
consistent with reasonable risk, preservation of capital and ready marketability
of its portfolio by investing primarily in a diversified portfolio of
investment-grade debt securities.
20 - Kemper Income and Capital Preservation Fund
<PAGE>
The Fund's Main Strategy
The fund can buy many types of income-producing securities, among them corporate
bonds, U.S. government and agency bonds and mortgage- and asset-backed
securities. Generally, most are from U.S. issuers, but up to 25% of total assets
could be in bonds from foreign issuers.
In deciding which securities to buy and sell, the portfolio manager uses
independent analysis to look for bonds of companies whose fundamental business
prospects and cash flows are expected to improve. The manager also considers
valuation, preferring those bonds that appear attractively priced in comparison
to similar issues.
Based on the analysis of economic and market trends, the manager may favor bonds
from different segments of the economy at different times, while still
maintaining variety in terms of the companies and industries represented.
Although the manager may adjust the duration (a measure of sensitivity to
interest rate movements) of the fund's portfolio, he generally intends to keep
it between four and six years.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 80% of total assets in bonds of the top four
grades of credit quality. The fund could invest up to 20 percent of total assets
in junk bonds (i.e., grade BB/Ba and below). Compared to investment-grade bonds,
junk bonds may pay higher yields and have higher volatility and higher risk of
default on payments of interest or principal.
21 - Kemper Income and Capital Preservation Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could reduce the yield you get from the fund,
cause you to lose money or make the fund perform less well than other
investments.
As with most bond funds, the most important factor is market interest rates. A
rise in interest rates generally means a fall in bond prices -- and, in turn, a
fall in the value of your investment. Changes in interest rates will also affect
the fund's yield: when rates fall, fund yield tends to fall as well.
Because the economy affects corporate bond performance, the fund will tend to
perform less well than other types of bond funds when the economy is weak. Also,
to the extent that the fund emphasizes bonds from any given industry, it could
be hurt if that industry does not do well.
Other factors that could affect performance include:
o the manager could be wrong in the analysis of economic trends, issuers,
industries or other matters
o a bond could decline in credit quality or go into default; this risk is
greater with lower rated bonds
o some bonds could be paid off earlier than expected, which could hurt the
fund's performance
o currency fluctuations could cause foreign investments to lose value
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may appeal to investors who want exposure to the intermediate-term
corporate bond market through a diversified portfolio that emphasizes capital
preservation.
- --------------------------------------------------------------------------------
22 - Kemper Income and Capital Preservation Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
8.55 6.48 17.91 7.85 11.71 -3.38 21.35 2.02 8.62 7.90
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 7.41%, Q2 1995 YTD return as of 9/30/1999: -2.68%
Worst quarter: -3.20%, Q1 1994
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since
Since Since 5/31/94 Since 4/15/74
12/31/97 12/31/93 Life of 12/31/88 Life of
1 Year 5 Years Class B/C 10 Years Class A
- --------------------------------------------------------------------------------
Class A 3.08% 6.02% -- 8.20% 9.20%
- --------------------------------------------------------------------------------
Class B 3.99 -- 7.72% -- --
- --------------------------------------------------------------------------------
Class C 6.86 -- 7.64 -- --
- --------------------------------------------------------------------------------
Index 8.69 7.27 8.83 9.26 N/A*
- --------------------------------------------------------------------------------
Index: Lehman Brothers Aggregate Bond Index, an unmanaged index generally
representative of intermediate-term government bonds, investment-grade corporate
debt securities and mortgage-backed securities.
- --------------------------------------------------------------------------------
* The Index was not in existence on the Class A Shares' inception date.
The table includes the effect of maximum sales loads.
23 - Kemper Income and Capital Preservation Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price) 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.54% 0.54% 0.54%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.56 0.67 0.56
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.10 1.96 1.85
- --------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $557 $784 $1,029 $1,730
- --------------------------------------------------------------------------------
Class B shares 599 915 1,257 1,857
- --------------------------------------------------------------------------------
Class C shares 288 582 1,001 2,169
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $557 $784 $1,029 $1,730
- --------------------------------------------------------------------------------
Class B shares 199 615 1,057 1,857
- --------------------------------------------------------------------------------
Class C shares 188 582 1,001 2,169
- ------------------------------------------------------------------------------
24 - Kemper Income and Preservation Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach to asset management. Scudder Kemper's team
is comprised of investment professionals, economists, research analysts, traders
and other investment specialists, located in offices across the United States
and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.54% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGER
Robert S. Cessine handles the fund's day-to-day management. He began his
investment career in 1982, joined the advisor in 1993 and joined the fund in
1994.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
25 - Kemper Income and Capital Preservation Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KSGAX B) KSGBX C) KSGCX
Kemper
Short-Term
U.S. Government Fund
FUND GOAL The fund seeks high current income and preservation of capital.
26 - Kemper Short Term U.S. Government Fund
<PAGE>
The Fund's Main Strategy
The fund invests mainly in U.S. government securities with an emphasis on
mortgage-backed securities. Other securities in which the fund may invest
include other mortgage-backed securities such as Ginnie Maes, U.S. Treasuries
and other securities issued by the U.S. government, its agencies or
instrumentalities. The fund may also invest in corporate bonds, including
asset-backed securities.
In deciding which types of government bonds to buy and sell, the portfolio
managers first consider the relative attractiveness of Treasuries compared to
other U.S. government and agency securities and determine allocations for each.
Their decisions are generally based on a number of factors, including interest
rate outlooks and changes in supply and demand within the bond market.
In choosing corporate bonds, the managers use independent analysis to look for
established companies with histories of dependable dividend payments and stable
or growing prices.
Although the managers may adjust the fund's dollar-weighted average maturity
(the effective maturity of the fund's portfolio), they generally intend to keep
it below three years.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in securities issued by
the U.S. Government, its agencies or instrumentalities.
The fund could invest up to 35% of total assets in non-U.S. government
investment-grade bonds, and 10% of total assets in junk bonds (i.e., grade BB/Ba
and below).
27 - Kemper Short-Term U.S. Government Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could reduce the yield you get from the fund,
cause you to lose money or make the fund perform less well than other
investments.
As with most bond funds, one of the most important factors is market interest
rates. A rise in interest rates generally means a fall in bond prices -- and, in
turn, a fall in the value of your investment. The fund's relatively short
maturity should reduce the effect of this risk, but won't eliminate it. Changes
in interest rates will also affect the fund's yield: when rates fall, fund yield
tends to fall as well.
Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of that agency or instrumentality, while other
securities have an additional line of credit with the U.S. Treasury. There is no
guarantee that the U.S. government will provide support to such agencies or
instrumentalities and such securities may involve risk of loss of principal and
interest. The full faith and credit guarantee of the U.S. government doesn't
protect the fund against market-driven declines in the prices or yields of these
securities, nor does it apply to shares of the fund itself.
Mortgage- and asset-backed securities carry additional risks and may be more
volatile than many other types of debt securities. Any unexpected behavior in
interest rates could hurt the performance of these securities. For example, a
large fall in interest rates could cause these securities to be paid off earlier
than expected, forcing the fund to reinvest the money at a lower rate. In
addition, if interest rates rise or stay high, these securities could be paid
off later than expected, forcing the fund to endure low yields. The result for
the fund could be an increase in the volatility of its share price and yield.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o a bond could decline in credit quality or go into default; this risk is
greater with junk and foreign bonds
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may make sense for investors seeking higher income than a money fund
and can accept some fluctuations in the value of their principal.
- --------------------------------------------------------------------------------
28 - Kemper Short-Term U.S. Government Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has two broad-based market indices (which, unlike the
fund, has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
11.64 7.19 13.46 6.06 4.91 -0.44 8.51 4.73 5.98 2.96
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 6.06%, Q4 1990 YTD return as of 9/30/1999: 1.49%
Worst quarter: -2.79%, Q1 1990
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since
Since Since 5/31/94 Since 9/1/87
12/31/97 12/31/93 Life of 12/31/88 Life of
1 Year 5 Years Class B/C 10 Years Class A
- --------------------------------------------------------------------------------
Class A -0.63% 3.57% -- 6.05% 5.92%
- --------------------------------------------------------------------------------
Class B -0.59 -- 3.71% -- --
- --------------------------------------------------------------------------------
Class C 2.28 -- 4.14 -- --
- --------------------------------------------------------------------------------
Index 1 5.28 5.29 5.45 5.66 5.80
- --------------------------------------------------------------------------------
Index 2 6.96 6.00 6.73 7.42 7.38
- ------------------------------------------------------------------------------
Index 1: Salomon Brothers 6-month T-Bill Index, an unmanaged index based on the
average monthly yield of a 6-month Treasury Bill.
Index 2: Lehman Brothers 1-3 Year Government Bond Index, includes U.S.
Government securities, U.S. Treasuries or agencies with maturities of 1 to 3
years.
The table includes the effects of maximum sales loads. Total returns for 1989
through 1994 would have been lower if operating expenses hadn't been maintained.
29 - Kemper Short-Term U.S. Government Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price) 2.75% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.54% 0.54% 0.54%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.78 0.86 0.72
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.32 2.15 2.01
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $406 $682 $979 $1,821
- --------------------------------------------------------------------------------
Class B shares 618 973 1,354 2,078
- --------------------------------------------------------------------------------
Class C shares 304 631 1,083 2,338
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $406 $682 $979 $1,821
- --------------------------------------------------------------------------------
Class B shares 218 673 1,154 2,078
- --------------------------------------------------------------------------------
Class C shares 204 631 1,083 2,338
- ------------------------------------------------------------------------------
30 - Kemper Short-Term U.S. Government Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.54% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Richard L. Vandenberg John E. Dugenske
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1973 o Joined the advisor in
o Joined the advisor in 1998
1996 o Joined the fund team in
o Joined the fund team in 1998
1996
Scott E. Dolan
o Began investment career
in 1989
o Joined the advisor in
1989
o Joined the fund team in
1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
31 - Kemper Short-Term U.S. Government Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KUSAX B) KUSBX C) KUSCX
Kemper
U.S. Government
Securities Fund
FUND GOAL The fund seeks high current income, liquidity and security of
principal.
32 - Kemper U.S. Government Securities Fund
<PAGE>
The Fund's Main Strategy
The fund invests principally in U.S. government securities of any maturity,
focusing on Ginnie Maes. The fund may invest in other mortgage-backed securities
and other U.S. government securities including U.S. Treasuries and other
securities issued by the U.S. government, its agencies or instrumentalities.
In deciding which types of securities to buy and sell, the portfolio managers
first consider the relative attractiveness of Treasuries compared to other U.S.
government and agency securities and determine allocations for each. Their
decisions are generally based on a number of factors, including interest rate
outlooks and changes in supply and demand within the bond market.
In choosing individual bonds, the managers review each bond's fundamentals,
compare the yields of shorter maturity bonds to those of longer maturity bonds
and use technical analysis to project prepayment rates and other factors that
could affect a bond's attractiveness.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests all of its assets in securities issued by the U.S.
government, its agencies or instrumentalities. These securities are generally
considered to be among the very highest quality securities.
33 - Kemper U.S. Government Securities Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could reduce the yield you get from the fund,
cause you to lose money or make the fund perform less well than other
investments.
As with most bond funds, one of the most important factors is market interest
rates. A rise in interest rates generally means a fall in bond prices -- and, in
turn, a fall in the value of your investment. An increase in the portfolio's
duration could make the fund more sensitive to this risk.
Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of that agency or instrumentality, while other
securities have an additional line of credit with the U.S. Treasury. There is no
guarantee that the U.S. government will provide support to such agencies or
instrumentalities and such securities may involve risk of loss of principal and
interest. The full faith and credit guarantee of the U.S. government doesn't
protect the fund against market-driven declines in the prices or yields of these
securities, nor does it apply to shares of the fund itself.
Mortgage-backed securities carry additional risks and may be more volatile than
many other types of debt securities. Any unexpected behavior in interest rates
could hurt the performance of these securities. For example, a large fall in
interest rates could cause these securities to be paid off earlier than
expected, forcing the fund to reinvest the money at a lower rate. In addition,
if interest rates rise or stay high, these securities could be paid off later
than expected, forcing the fund to endure low yields. The result for the fund
could be an increase in the volatility of its share price and yield.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may appeal to investors who want a fund that searches for attractive
yields generated by U.S. government securities.
- --------------------------------------------------------------------------------
34 - Kemper U.S. Government Securities Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
14.00 9.68 17.25 4.61 6.31 -3.06 18.37 2.83 9.03 7.03
1989 1990 1991 1992 1993 1994 1995 1997 1997 1998
Best quarter: 7.91%, Q2 1989 YTD return as of 9/30/1999: 0.31%
Worst quarter: -2.45%, Q1 1994
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since
Since Since 5/31/94 Since 10/1/79
12/31/97 12/31/93 Life of 12/31/88 Life of
1 Year 5 Years Class B/C 10 Years Class A
- --------------------------------------------------------------------------------
Class A 2.25% 5.64% -- 7.93% 8.88%
- --------------------------------------------------------------------------------
Class B 3.03 -- 6.53% -- --
- --------------------------------------------------------------------------------
Class C 6.02 -- 6.95 -- --
- --------------------------------------------------------------------------------
Index 6.82 7.34 8.61 9.29 N/A*
- --------------------------------------------------------------------------------
Index: Salomon Brothers 30-Year GNMA Index, an unmanaged index that measures the
total return of GNMA 30-year pass throughs of single family and graduated
payment mortgages.
- --------------------------------------------------------------------------------
* The Index was not in existence on the Class A Shares' inception date.
The table includes the effect of maximum sales loads.
35 - Kemper U.S. Government Securities Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price) 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.42% 0.42% 0.42%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.45 0.60 0.50
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.87 1.77 1.67
- ------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $535 $715 $911 $1,474
- --------------------------------------------------------------------------------
Class B shares 580 857 1,159 1,627
- --------------------------------------------------------------------------------
Class C shares 270 526 907 1,976
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $535 $715 $911 $1,474
- --------------------------------------------------------------------------------
Class B shares 180 557 959 1,627
- --------------------------------------------------------------------------------
Class C shares 170 526 907 1,976
- --------------------------------------------------------------------------------
36 - Kemper U.S. Government Securities Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.42% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Richard L. Vandenberg John E. Dugenske
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1973 o Joined the advisor
o Joined the advisor in 1998
in 1996 o Joined the fund team
o Joined the fund team in 1998
in 1996
Scott E. Dolan
o Began investment career
in 1989
o Joined the advisor
in 1989
o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
37 - Kemper U.S. Government Securities Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KSTAX B) KSTBX C) KSTCX
Kemper
Strategic Income Fund
FUND GOAL The fund seeks a high current return.
38 - Kemper Strategic Income Fund
<PAGE>
The Fund's Main Strategy
The fund invests mainly in bonds issued by U.S. and foreign corporations and
governments. The fund may invest up to 50% of total assets in foreign bonds. The
fund may also invest in emerging markets securities.
In deciding which types of securities to buy and sell, the portfolio managers
evaluate each major type of security the fund invests in -- U.S. junk bonds,
investment-grade corporate bonds, emerging markets securities, foreign
government bonds and U.S. government and agency securities. The managers
typically consider a number of factors, including the relative attractiveness of
different types of securities, the potential impact of interest rate movements,
the outlook for various types of foreign bonds (including currency
considerations) and the relative yields and risks of bonds of various
maturities.
The managers may shift the proportions of the fund's holdings, favoring
different types of securities at different times, while still maintaining
variety in terms of the companies and industries represented.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
The credit quality of the fund's investments may vary; the fund may invest up to
100% of total assets in either investment-grade bonds or in junk bonds, which
are those below the fourth credit grade (i.e., grade BB/Ba and below). Compared
to investment-grade bonds, junk bonds may pay higher yields and have higher
volatility and higher risk of default on payments of interest or principal.
39 - Kemper Strategic Income Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could reduce the yield you get from the fund,
cause you to lose money, or make the fund perform less well than other
investments.
For this fund, the main risk factor will vary depending on the fund's weighting
of various types of securities. To the extent that it invests in junk bonds, one
of the main risk factors is the economy. Because the companies that issue high
yield bonds may be in uncertain financial health, the prices of their bonds can
be more vulnerable to bad economic news or even the expectation of bad news,
than investment-grade bonds. In some cases, bonds may decline in credit quality
or go into default. Also, negative corporate news may have a significant impact
on individual bond prices.
To the extent that the fund invests in higher quality bonds, a major factor is
market interest rates. A rise in interest rates generally means a fall in bond
prices -- and, in turn, a fall in the value of your investment. An increase in
the portfolio's duration could make the fund more sensitive to this risk.
Foreign securities tend to be more volatile than their U.S. counterparts, for
reasons ranging from political and economic uncertainties to a higher risk that
essential information may be incomplete or wrong. To the extent the fund
emphasizes emerging markets where these risks are greater, it takes on greater
risk.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers,
industries or other matters
o currency fluctuations could cause foreign investments to lose value
o some bonds could be paid off earlier than expected, which could hurt the
fund's performance
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Investors looking for a bond fund that emphasizes different types of bonds
depending on market and economic outlooks may want to invest in this fund.
- --------------------------------------------------------------------------------
40 - Kemper Strategic Income Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class A shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- ------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A Shares
- ------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
7.96 -12.60 51.69 17.80 20.88 -3.83 19.67 8.58 8.25 3.79
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 25.06%, Q1 1991 YTD return as of 9/30/1999: -2.18%
Worst quarter: -13.54%, Q3 1990
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since
Since Since 5/31/94 Since 6/23/77
12/31/97 12/31/93 Life of 12/31/88 Life of
1 Year 5 Years Class B/C 10 Years Class A
- --------------------------------------------------------------------------------
Class A -0.83% 6.05% -- 10.59% 10.11%
- --------------------------------------------------------------------------------
Class B -0.08 -- 6.88% -- --
- --------------------------------------------------------------------------------
Class C 2.76 -- 7.38 -- --
- --------------------------------------------------------------------------------
Index 9.47 7.30 8.97 9.33 9.53*
- --------------------------------------------------------------------------------
Index: Lehman Brothers Government/Corporate Bond Index, an unmanaged index
comprised of intermediate and long-term government and investment-grade
corporate debt securities.
- --------------------------------------------------------------------------------
* Index return for the life of Class A is as of 6/30/77.
The table includes the effect of maximum sales loads.
41 - Kemper Strategic Income Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price) 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceeds) None* 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.56% 0.56% 0.56%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses** 0.56 0.77 0.58
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.12 2.08 1.89
- --------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large Order
NAV Purchase Privilege (see "Policies You Should Know About -- Policies
about transactions") may be subject to a contingent deferred sales charge
of 1.00% if redeemed within one year of purchase and 0.50% if redeemed
during the second year following purchase.
** Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $559 $790 $1,039 $1,752
- --------------------------------------------------------------------------------
Class B shares 611 952 1,319 1,938
- --------------------------------------------------------------------------------
Class C shares 292 594 1,021 2,212
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $559 $790 $1,039 $1,752
- --------------------------------------------------------------------------------
Class B shares 211 652 1,119 1,938
- --------------------------------------------------------------------------------
Class C shares 192 594 1,021 2,212
- --------------------------------------------------------------------------------
42 - Kemper Strategic Income Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.56% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
J. Patrick Beimford M. Isabel Saltzman
Lead Portfolio Manager o Began investment career
o Began investment career in 1981
in 1976 o Joined the advisor
o Joined the advisor in 1990
in 1976 o Joined the fund team
o Joined the fund team in 1999
in 1996
Richard L. Vandenberg
Robert S. Cessine o Began investment career
o Began investment career in 1973
in 1982 o Joined the advisor
o Joined the advisor in 1996
in 1993 o Joined the fund team
o Joined the fund team in 1999
in 1994
Daniel J. Doyle
o Began investment career
in 1984
o Joined the advisor
in 1986
o Joined the fund team
in 1999
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
43 - Kemper Strategic Income Fund
<PAGE>
TICKER SYMBOLS CLASS: A) KUMAX B) KUMBX C) KUMCX
Kemper
U.S. Mortgage Fund
FUND GOAL The fund seeks to provide maximum current return from U.S.
government securities.
44 - Kemper U.S. Mortgage Fund
<PAGE>
The Fund's Main Strategy
The fund invests primarily in U.S. government securities, mainly mortgage-backed
securities issued by U.S. government agencies. These include securities issued
by Ginnie Mae, Fannie Mae and Freddie Mac. The fund can also invest in U.S.
Treasury securities.
In deciding which types of securities to buy and sell, the portfolio managers
first consider the relative attractiveness of mortgage-backed securities
compared to U.S. Treasuries and decide on allocations for each. Their decisions
are generally based on a number of factors, including changes in supply and
demand within the bond market.
In choosing individual bonds, the managers review each bond's fundamentals,
compare the yields of shorter maturity bonds to those of longer maturity bonds
and use technical analysis to project prepayment rates and other factors that
could affect a bond's attractiveness.
The managers may adjust the duration (a measure of sensitivity to interest rate
movements) of the fund's portfolio, depending on their outlook for interest
rates.
[ICON]--------------------------------------------------------------------------
CREDIT QUALITY POLICIES
This fund normally invests at least 65% of total assets in mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities.
These securities are generally considered to be among the very highest quality
securities.
45 - Kemper U.S. Mortgage Fund
<PAGE>
The Main Risks Of Investing In The Fund
There are several factors that could reduce the yield you get from the fund,
cause you to lose money or make the fund perform less well than other
investments.
As with most bond funds, one of the most important factors is market interest
rates. A rise in interest rates generally means a fall in bond prices -- and, in
turn, a fall in the value of your investment. An increase in the portfolio's
duration could make the fund more sensitive to this risk.
Some securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of that agency or instrumentality, while other
securities have an additional line of credit with the U.S. Treasury. There is no
guarantee that the U.S. government will provide support to such agencies or
instrumentalities and such securities may involve risk of loss of principal and
interest. The full faith and credit guarantee of the U.S. government doesn't
protect the fund against market-driven declines in the prices or yields of these
securities, nor does it apply to shares of the fund itself.
Mortgage-backed securities carry additional risks and may be more volatile than
many other types of debt securities. Any unexpected behavior in interest rates
could hurt the performance of these securities. For example, a large fall in
interest rates could cause these securities to be paid off earlier than
expected, forcing the fund to reinvest the money at a lower rate. Another
example: if interest rates rise or stay high, these securities could be paid off
later than expected, forcing the fund to endure low yields. The result for the
fund could be an increase in the volatility of its share price and yield.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends, issuers
or other matters
o at times, it could be hard to value some investments or to get an
attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This fund may appeal to investors who seek high current income but want to avoid
exposure to significant credit risk.
- --------------------------------------------------------------------------------
46 - Kemper U.S. Mortgage Fund
<PAGE>
Performance
The bar chart shows how the total returns for the fund's Class B shares have
varied from year to year, which may give some idea of risk. The chart doesn't
reflect sales loads; if it did, returns would be lower. The table shows how the
fund's returns over different periods average out.
For context, the table has a broad-based market index (which, unlike the fund,
has no fees or expenses). All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class B Shares
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
11.39 7.11 17.02 4.45 4.82 -4.13 16.94 1.76 8.01 5.89
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 6.73%, Q4 1991 YTD return as of 9/30/1999: -0.55%
Worst quarter: -3.03%, Q1 1992
- --------------------------------------------------------------------------------
Average Annual Total Returns (as of 12/31/1998)
- --------------------------------------------------------------------------------
Since Since Since
Since Since 5/31/94 1/10/92 Since 10/26/84
12/31/97 12/31/93 Life of Life of 12/31/88 Life of
1 Year 5 Years Class C Class A 10 Years Class B
- --------------------------------------------------------------------------------
Class A 2.25% 5.43% -- 5.53% -- --
- --------------------------------------------------------------------------------
Class B 2.89 5.31 -- -- 7.15 7.05
- --------------------------------------------------------------------------------
Class C 6.35 -- 6.90% -- -- --
- --------------------------------------------------------------------------------
Index 6.82 7.34 8.61 7.54* 9.29 N/A**
- --------------------------------------------------------------------------------
Index: Salomon Brothers 30-Year GNMA Index, an unmanaged index that measures the
total return of GNMA 30-year pass throughs of single family and graduated
payment mortgages.
- --------------------------------------------------------------------------------
* Index return for life of Class A is as of 2/1/92.
** The index was not in existence on the Class B Shares' inception date.
The table includes the effects of maximum sales loads.
47 - Kemper U.S. Mortgage Fund
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
- --------------------------------------------------------------------------------
Fee Table Class A Class B Class C
- --------------------------------------------------------------------------------
Shareholder Fees, paid directly from your investment
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) On Purchases (as %
of offering price) 4.50% None None
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (Load)
(as % of redemption proceeds) None 4.00% 1.00%
- --------------------------------------------------------------------------------
Annual Operating Expenses, deducted from fund assets
- --------------------------------------------------------------------------------
Management Fee 0.51% 0.51% 0.51%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None 0.75 0.75
- --------------------------------------------------------------------------------
Other Expenses* 0.53 0.88 0.53
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 1.04 2.14 1.79
- --------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors. "Other
Expenses" are restated to reflect changes in certain administrative and
blue sky fees.
Based on the figures above, this example is designed to help you compare the
expenses of each share class to those of other funds. The example assumes
operating expenses remain the same and that you invested $10,000, earned 5%
annual returns and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
- --------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
- --------------------------------------------------------------------------------
Class A shares $551 $766 $998 $1,664
- --------------------------------------------------------------------------------
Class B shares 617 970 1,349 1,932
- --------------------------------------------------------------------------------
Class C shares 282 563 970 2,105
- --------------------------------------------------------------------------------
Expenses, assuming you kept your shares
- --------------------------------------------------------------------------------
Class A shares $551 $766 $998 $1,664
- --------------------------------------------------------------------------------
Class B shares 217 670 1,149 1,932
- --------------------------------------------------------------------------------
Class C shares 182 563 970 2,105
- --------------------------------------------------------------------------------
48 - Kemper U.S. Mortgage Fund
<PAGE>
THE INVESTMENT ADVISOR
The fund's investment advisor is Scudder Kemper Investments, Inc., 345 Park
Avenue, New York, NY. Scudder Kemper has more than 80 years of experience
managing mutual funds and currently has more than $290 billion in assets under
management.
Scudder Kemper takes a team approach, bringing together professionals from many
investment disciplines. Supporting each team are Scudder Kemper's many
economists, research analysts, traders and other investment specialists, located
across the United States and around the world.
For serving as the fund's investment advisor, Scudder Kemper receives a
management fee. For the most recent fiscal year, the actual amount the fund paid
in management fees was 0.51% of its average daily net assets.
[ICON]--------------------------------------------------------------------------
FUND MANAGERS
Below are the people who handle the fund's day-to-day management:
Richard L. Vandenberg John E. Dugenske
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1973 o Joined the advisor
o Joined the advisor in 1998
in 1996 o Joined the fund team
o Joined the fund team in 1998
in 1996
Scott E. Dolan
o Began investment career
in 1989
o Joined the advisor
in 1989
o Joined the fund team
in 1998
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The fund is managed by a team of investment professionals who work together to
develop the fund's investment strategies.
- --------------------------------------------------------------------------------
49 - Kemper U.S. Mortgage Fund
<PAGE>
Other Policies And Risks
While the previous pages describe the main points of each fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could
change that fund's investment goal without seeking shareholder approval.
o These funds may trade more securities than some other bond funds. This
could raise transaction costs (and lower performance) and could mean higher
taxable distributions.
o As a temporary defensive measure, any of these funds could shift up to 100%
of assets into investments such as money market securities. This could
prevent losses, but would mean that the fund would not be pursuing its
goal.
o Scudder Kemper establishes a security's credit quality when it buys the
security, using independent ratings or, for unrated securities, its own
credit determination. When ratings don't agree, a fund may use the higher
rating. If a security's credit quality falls, the advisor will determine
whether selling it would be in the shareholders' best interests.
o Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal
investments. With derivatives, there is a risk that they could produce
disproportionate losses.
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
This prospectus doesn't tell you about every policy or risk of investing in a
fund. For more information, you may want to request a copy of the SAI (the back
cover has additional information on how to do this).
- --------------------------------------------------------------------------------
50 - Other Policies And Risks
<PAGE>
Year 2000 and euro readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, those funds permitted to
invest in foreign securities could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro, which is already underway. Scudder Kemper has
readiness programs designed to address these problems, and has researched the
readiness of suppliers and business partners as well as issuers of securities
the funds own. Still, there's some risk that one or both of these problems could
materially affect a fund's operations (such as its ability to calculate net
asset value and to handle purchases and redemptions), its investments or
securities markets in general.
51 - Other Policies And Risks
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by Ernst & Young LLP, whose report, along with each fund's financial statements,
is included in that fund's annual report (see "Shareholder reports" on the back
cover).
Kemper High Yield Fund
Class A
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $7.68 $8.50 $8.23 $8.01 $7.74
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .78 .76 .76 .76 .83
- --------------------------------------------------------------------------------
Net realized and unrealized (.46) (.81) .31 .23 .20
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .32 (.05) 1.07 .99 1.03
- --------------------------------------------------------------------------------
Less distributions from net .77 .77 .80 .77 .76
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $7.23 $7.68 $8.50 $8.23 $8.01
- --------------------------------------------------------------------------------
Total return (%) 4.11 (.95) 13.69 13.00 14.10
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) .96 .89 .88 .88 .90
- --------------------------------------------------------------------------------
Net investment income (%) 10.15 9.09 9.18 9.45 10.74
- --------------------------------------------------------------------------------
52 - Financial Highlights
<PAGE>
Class B
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $7.67 $8.49 $8.22 $8.00 $7.73
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .71 .68 .69 .69 .76
- --------------------------------------------------------------------------------
Net realized and unrealized (.45) (.80) .31 .23 .20
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .26 (.12) 1.00 .92 .96
- --------------------------------------------------------------------------------
Less distributions from net .71 .70 .73 .70 .69
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $7.22 $7.67 $8.49 $8.22 $8.00
- --------------------------------------------------------------------------------
Total return (%) 3.26 (1.82) 12.72 12.02 13.09
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) 1.78 1.76 1.76 1.77 1.77
- --------------------------------------------------------------------------------
Net investment income (%) 9.33 8.22 8.30 8.56 9.87
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $7.69 $8.52 $8.24 $8.02 $7.75
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .72 .69 .70 .69 .77
- --------------------------------------------------------------------------------
Net realized and unrealized (.46) (.82) .31 .23 .20
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .26 (.13) 1.01 .92 .97
- --------------------------------------------------------------------------------
Less distributions from net .71 .70 .73 .70 .70
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $7.24 $7.69 $8.52 $8.24 $8.02
- --------------------------------------------------------------------------------
Total return (%) 3.30 (1.89) 12.88 12.06 13.13
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) 1.73 1.71 1.71 1.71 1.71
- --------------------------------------------------------------------------------
Net investment income (%) 9.38 8.27 8.35 8.62 9.93
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net assets at end of year $4,281,395 4,784,262 4,939,302 4,096,939 3,527,954
(in thousands)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 67 92 91 102 99
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the years ended
September 30, 1999 and September 30, 1998.
53 - Financial Highlights
<PAGE>
Kemper High Yield Fund II
- --------------------------------------------------------------------------------
10 months ended September 30, 1999(a) Class A Class B Class C
- --------------------------------------------------------------------------------
Net asset value, beginning of period $9.50 $9.50 $9.50
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .72 .68 .68
- --------------------------------------------------------------------------------
Net realized and unrealized loss (.70) (.71) (.71)
- --------------------------------------------------------------------------------
Total from investment operations .02 (.03) (.03)
- --------------------------------------------------------------------------------
Less distributions from net investment income .76 .70 .70
- --------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.77 $8.77
- --------------------------------------------------------------------------------
Total return (not annualized) (%) .19 (.43) (.43)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) .39 1.00 1.00
- --------------------------------------------------------------------------------
Net investment income (%) 10.24 9.63 9.63
- --------------------------------------------------------------------------------
Other ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 1.59 2.19 2.25
- --------------------------------------------------------------------------------
Net investment income (%) 9.04 8.44 8.38
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Net assets at end of period $154,010
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 79
- --------------------------------------------------------------------------------
(a) Commencement of operations on November 30, 1998. Scudder Kemper
Investments, Inc. has agreed to temporarily waive its management fee and
absorb certain operating expenses of the fund. The other ratios to average
net assets are computed without this expense waiver or absorption.
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, 1999.
54 - Financial Highlights
<PAGE>
Kemper High Yield Opportunity Fund
Class A
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $8.89 $9.50
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .88 .70
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.54) (.60)
- --------------------------------------------------------------------------------
Total from investment operations .34 .10
- --------------------------------------------------------------------------------
Less dividends:
- --------------------------------------------------------------------------------
Distributions from net investment income .85 .67
- --------------------------------------------------------------------------------
Distributions from net realized gain .05 .04
- --------------------------------------------------------------------------------
Total dividends .90 .71
- --------------------------------------------------------------------------------
Net asset value, end of year $8.33 $8.89
- --------------------------------------------------------------------------------
Total return (%) 3.55 .59
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 1.53 1.27
- --------------------------------------------------------------------------------
Net investment income (%) 9.64 8.31
- --------------------------------------------------------------------------------
(a) Commencement of operations on October 1, 1997.
Class B
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $8.89 $9.50
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .80 .63
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.54) (.61)
- --------------------------------------------------------------------------------
Total from investment operations .26 .02
- --------------------------------------------------------------------------------
Less dividends:
- --------------------------------------------------------------------------------
Distributions from net investment income .77 .59
- --------------------------------------------------------------------------------
Distributions from net realized gain .05 .04
- --------------------------------------------------------------------------------
Total dividends .82 .63
- --------------------------------------------------------------------------------
Net asset value, end of year $8.33 $8.89
- --------------------------------------------------------------------------------
Total return (%) 2.73 (.18)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 2.40 2.03
- --------------------------------------------------------------------------------
Net investment income (%) 8.77 7.55
- --------------------------------------------------------------------------------
(a) Commencement of operations on October 1, 1997.
55 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $8.89 $9.50
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .80 .62
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.53) (.60)
- --------------------------------------------------------------------------------
Total from investment operations .27 .02
- --------------------------------------------------------------------------------
Less dividends:
- --------------------------------------------------------------------------------
Distributions from net investment income .77 .59
- --------------------------------------------------------------------------------
Distributions from net realized gain .05 .04
- --------------------------------------------------------------------------------
Total dividends .82 .63
- --------------------------------------------------------------------------------
Net asset value, end of year $8.34 $8.89
- --------------------------------------------------------------------------------
Total return (%) 2.39 (.18)
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 2.38 2.03
- --------------------------------------------------------------------------------
Net investment income (%) 8.78 7.55
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998(a)
- --------------------------------------------------------------------------------
Net assets at end of period (in thousands) $37,253 26,691
- --------------------------------------------------------------------------------
Portfolio turnover rate (annualized) (%) 98 169
- --------------------------------------------------------------------------------
(a) Commencement of operations on October 1, 1997.
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, 1999.
56 - Financial Highlights
<PAGE>
Kemper Income and Capital Preservation Fund
Class A
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.67 $8.54 $8.46 $8.62 $7.91
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .51 .53 .57 .58 .61
- --------------------------------------------------------------------------------
Net realized and unrealized (.63) .14 .08 (.15) .72
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations (.12) .67 .65 .43 1.33
- --------------------------------------------------------------------------------
Less dividends:
- --------------------------------------------------------------------------------
Distributions from net .49 .54 .57 .59 .62
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.06 $8.67 $8.54 $8.46 $8.62
- --------------------------------------------------------------------------------
Total return (%) (1.45) 8.13 8.00 5.17 17.47
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.08 1.01 .97 .96 .90
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.07 1.01 .97 .96 .90
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 6.05 6.17 6.75 6.90 7.31
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.64 $8.51 $8.43 $8.59 $7.90
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .43 .46 .49 .50 .51
- --------------------------------------------------------------------------------
Net realized and unrealized (.63) .14 .08 (.15) .72
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations (.20) .60 .57 .35 1.23
- --------------------------------------------------------------------------------
Less distribution from net .42 .47 .49 .51 .54
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.02 $8.64 $8.51 $8.43 $8.59
- --------------------------------------------------------------------------------
Total return (%) (2.37) 7.20 6.99 4.20 16.12
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.93 1.88 1.90 1.93 1.81
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.92 1.88 1.90 1.93 1.81
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 5.20 5.30 5.82 5.93 6.40
- --------------------------------------------------------------------------------
57 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.66 $8.53 $8.45 $8.61 $7.90
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .44 .46 .49 .50 .53
- --------------------------------------------------------------------------------
Net realized and unrealized (.62) .14 .08 (.15) .72
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations (.18) .60 .57 .35 1.25
- --------------------------------------------------------------------------------
Less distribution from net .43 .47 .49 .51 .54
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.05 $8.66 $8.53 $8.45 $8.61
- --------------------------------------------------------------------------------
Total return (%) (2.19) 7.20 7.03 4.23 16.45
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.82 1.86 1.86 1.90 1.78
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.82 1.86 1.86 1.90 1.78
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 5.30 5.32 5.86 5.96 6.43
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net assets at end of year $496,191 694,057 613,470 572,998 649,427
(in thousands)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 108 121 164 74 182
- --------------------------------------------------------------------------------
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
October 31, 1999.
58 - Financial Highlights
<PAGE>
Kemper Short-Term U.S. Government Fund
Class A
- --------------------------------------------------------------------------------
Years ended August 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.19 $8.31 $8.22 $8.30 $8.33
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .38 .41 .45 .46 .48
- --------------------------------------------------------------------------------
Net realized and unrealized (.22) (.11) .09 (.09) (.04)
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .16 .30 .54 .37 .44
- --------------------------------------------------------------------------------
Less distribution from net .36 .42 .45 .45 .47
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $7.99 $8.19 $8.31 $8.22 $8.30
- --------------------------------------------------------------------------------
Total return (%) 1.98 3.68 6.75 4.55 5.52
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) 1.24 1.36 1.25 1.15 1.10
- --------------------------------------------------------------------------------
Net investment income (%) 4.27 4.79 5.50 5.49 5.76
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Years ended August 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.21 $8.32 $8.23 $8.31 $8.32
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .31 .36 .39 .40 .43
- --------------------------------------------------------------------------------
Net realized and unrealized (.22) (.11) .09 (.09) (.04)
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .09 .25 .48 .31 .39
- --------------------------------------------------------------------------------
Less distribution from net .29 .36 .39 .39 .40
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.01 $8.21 $8.32 $8.23 $8.31
- --------------------------------------------------------------------------------
Total return (%) 1.10 3.06 5.96 3.79 4.84
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) 2.08 1.99 1.93 1.89 1.85
- --------------------------------------------------------------------------------
Net investment income (%) 3.43 4.16 4.82 4.75 5.01
- --------------------------------------------------------------------------------
59 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended August 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.22 $8.33 $8.24 $8.32 $8.33
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .32 .36 .39 .40 .43
- --------------------------------------------------------------------------------
Net realized and unrealized (.22) (.11) .09 (.09) (.04)
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .10 .25 .48 .31 .39
- --------------------------------------------------------------------------------
Less distribution from net .30 .36 .39 .39 .40
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.02 $8.22 $8.33 $8.24 $8.32
- --------------------------------------------------------------------------------
Total return (%) 1.24 3.10 5.98 3.82 4.89
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses (%) 1.94 1.95 1.88 1.89 1.79
- --------------------------------------------------------------------------------
Net investment income (%) 3.57 4.20 4.87 4.75 5.07
- ------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended August 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net assets at end of year $201,414 69,307 81,967 94,477 129,757
(in thousands)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 336 149 249 272 308
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share
data for the year ended August 31, 1999 is determined based on average shares
outstanding.
60 - Financial Highlights
<PAGE>
Kemper Strategic Income Fund
Class A
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $5.60 $5.96 $5.99 $5.98 $5.77
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .49 .44 .46 .46 .55
- --------------------------------------------------------------------------------
Net realized and unrealized gain (.35) (.35) .01 .12 .16
(loss) on investments and
foreign currency
- --------------------------------------------------------------------------------
Total from investment operations .14 .09 .47 .58 .71
- --------------------------------------------------------------------------------
Less distribution from net .48 .45 .50 .57 .50
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $5.26 $5.60 $5.96 $5.99 $5.98
- --------------------------------------------------------------------------------
Total return (%) 2.43 1.28 8.13 10.27 12.90
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.11 1.04 1.03 1.03 1.09
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.10 1.04 1.03 1.03 1.09
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 8.80 7.36 7.68 7.72 9.43
- ------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $5.59 $5.96 $5.99 $5.98 $5.77
period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .43 .38 .40 .41 .49
- --------------------------------------------------------------------------------
Net realized and unrealized (.34) (.36) .01 .12 .16
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .09 .02 .41 .53 .65
- --------------------------------------------------------------------------------
Less distribution from net .42 .39 .44 .52 .44
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $5.26 $5.59 $5.96 $5.99 $5.98
- --------------------------------------------------------------------------------
Total return (%) 1.57 .12 7.13 9.23 11.87
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses, before expense 2.06 2.01 1.98 1.96 2.04
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 2.05 2.01 1.98 1.96 2.04
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 7.85 6.39 6.73 6.79 8.48
- --------------------------------------------------------------------------------
61 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $5.62 $5.99 $6.01 $6.00 $5.79
period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .45 .39 .42 .41 .50
- --------------------------------------------------------------------------------
Net realized and unrealized (.34) (.36) .01 .12 .16
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .11 .03 .43 .53 .66
- --------------------------------------------------------------------------------
Less distribution from net .44 .40 .45 .52 .45
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $5.29 $5.62 $5.99 $6.01 $6.00
- --------------------------------------------------------------------------------
Total return (%) 1.78 .28 7.37 9.33 11.95
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses, before expense 1.87 1.84 1.85 1.86 1.86
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.85 1.84 1.85 1.86 1.86
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 8.05 6.56 6.86 6.89 8.68
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net assets at end of year $720,065 850,528 861,543 778,752 754,222
(in thousands)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 92 751 347 310 286
- --------------------------------------------------------------------------------
Note: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the years ended
October 31, 1998 and October 31, 1999.
62 - Financial Highlights
<PAGE>
Kemper U.S. Government Securities Fund
Class A
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.86 $8.81 $8.74 $8.92 $8.35
year
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .53 .58 .64 .63 .66
- --------------------------------------------------------------------------------
Net realized and unrealized (.41) .07 .06 (.17) .56
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .12 .65 .70 .46 1.22
- --------------------------------------------------------------------------------
Less distribution from net .60 .60 .63 .64 .65
investment income
- --------------------------------------------------------------------------------
Net asset value, end of year $8.38 $8.86 $8.81 $8.74 $8.92
- --------------------------------------------------------------------------------
Total return (%) 1.44 7.64 8.41 5.36 15.24
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense .85 .80 .78 .77 .72
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense .84 .80 .78 .77 .72
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 6.22 6.50 7.34 7.17 7.68
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.85 $8.80 $8.73 $8.91 $8.34
period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .45 .49 .56 .54 .58
- --------------------------------------------------------------------------------
Net realized and unrealized (.40) .08 .06 (.17) .56
gain (loss)
- -------------------------------------------------------------------------------
Total from investment operations .05 .57 .62 .37 1.14
- --------------------------------------------------------------------------------
Less distribution from net .53 .52 .55 .55 .57
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $8.37 $8.85 $8.80 $8.73 $8.91
- --------------------------------------------------------------------------------
Total return (%) .54 6.67 7.40 4.36 14.18
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.76 1.71 1.73 1.73 1.69
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.75 1.71 1.73 1.73 1.69
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 5.31 5.59 6.39 6.21 6.71
- --------------------------------------------------------------------------------
63 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of $8.87 $8.82 $8.75 $8.93 $8.35
period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .46 .49 .56 .55 .60
- --------------------------------------------------------------------------------
Net realized and unrealized (.40) .08 .06 (.17) .56
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations .06 .57 .62 .38 1.16
- --------------------------------------------------------------------------------
Less distribution from net .53 .52 .55 .56 .58
investment income
- --------------------------------------------------------------------------------
Net asset value, end of period $8.40 $8.87 $8.82 $8.75 $8.93
- --------------------------------------------------------------------------------
Total return (%) .72 6.66 7.42 4.40 14.33
- --------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------
Expenses, before expense 1.66 1.67 1.68 1.70 1.64
reductions (%)
- --------------------------------------------------------------------------------
Expenses, after expense 1.66 1.67 1.68 1.70 1.64
reductions (%)
- --------------------------------------------------------------------------------
Net investment income (%) 5.40 5.63 6.44 6.24 6.76
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended October 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net assets at end of year $2,982,945 3,442,212 3,642,027 4,163,157 4,738,415
(in thousands)
- --------------------------------------------------------------------------------
Portfolio turnover rate 177 (a) 150 261 391 362
(%)
- --------------------------------------------------------------------------------
(a) The portfolio turnover rate including mortgage dollar roll transactions was
181% for the period ended October 31, 1999.
Note: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the years ended
October 31, 1998 and 1999.
64 - Financial Highlights
<PAGE>
Kemper U.S. Mortgage Fund
Class A
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995(a) 1995(b)
- --------------------------------------------------------------------------------
Net asset value, beginning $7.15 $7.01 $6.91 $7.13 $7.06 $6.96
of period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .42 .44 .52 .49 .08 .53
- --------------------------------------------------------------------------------
Net realized and unrealized (.38) .17 .10 (.19) .08 .09
gain (loss)
- --------------------------------------------------------------------------------
Total from investment .04 .61 .62 .30 .16 .62
operations
- --------------------------------------------------------------------------------
Less distribution from net .44 .47 .52 .52 .09 .52
investment income
- --------------------------------------------------------------------------------
Net asset value, end of $6.75 $7.15 $7.01 $6.91 $7.13 $7.06
period
- --------------------------------------------------------------------------------
Total return (%) .59 8.99 9.26 4.28 2.23 9.48
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 1.02 .97 .96 .97 .94 .89
- --------------------------------------------------------------------------------
Net investment income (%) 6.04 6.46 7.23 6.98 6.87 7.77
- --------------------------------------------------------------------------------
(a) Two months ended September 30, 1995.
(b) Year ended July 31, 1995.
Class B
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995(a) 1995(b)
- --------------------------------------------------------------------------------
Net asset value, beginning $7.14 $7.00 $6.91 $7.12 $7.05 $6.96
of period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .34 .40 .45 .44 .07 .47
- --------------------------------------------------------------------------------
Net realized and unrealized (.37) .14 .10 (.19) .08 .09
gain (loss)
- --------------------------------------------------------------------------------
Total from investment (.03) .54 .55 .25 .15 .56
operations
- --------------------------------------------------------------------------------
Less distribution from net .36 .40 .46 .46 .08 .47
investment income
- --------------------------------------------------------------------------------
Net asset value, end of $6.75 $7.14 $7.00 $6.91 $7.12 $7.05
period
- --------------------------------------------------------------------------------
Total return (%) (.47) 8.00 8.17 3.54 2.09 8.44
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 2.13 1.91 1.83 1.80 1.79 1.75
- --------------------------------------------------------------------------------
Net investment income (%) 4.93 5.52 6.36 6.15 6.02 6.91
- --------------------------------------------------------------------------------
(a) Two months ended September 30, 1995.
(b) Year ended July 31, 1995.
65 - Financial Highlights
<PAGE>
Class C
- --------------------------------------------------------------------------------
Years ended September 30, 1999 1998 1997 1996 1995(a) 1995(b)
- --------------------------------------------------------------------------------
Net asset value, beginning $7.15 $7.00 $6.90 $7.12 $7.05 $6.95
of period
- --------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------
Net investment income .37 .40 .46 .43 .07 .48
- --------------------------------------------------------------------------------
Net realized and (.39) .16 .10 (.19) .08 .09
unrealized gain (loss)
- --------------------------------------------------------------------------------
Total from investment (.02) .56 .56 .24 .15 .57
operations
- --------------------------------------------------------------------------------
Less distribution from net .38 .41 .46 .46 .08 .47
investment income
- --------------------------------------------------------------------------------
Net asset value, end of $6.75 $7.15 $7.00 $6.90 $7.12 $7.05
period
- --------------------------------------------------------------------------------
Total return (%) (.22) 8.30 8.45 3.47 2.10 8.65
- --------------------------------------------------------------------------------
Ratios to average net assets (annualized)
- --------------------------------------------------------------------------------
Expenses (%) 1.78 1.73 1.71 1.72 1.69 1.71
- --------------------------------------------------------------------------------
Net investment income (%) 5.28 5.70 6.48 6.23 6.12 6.95
- --------------------------------------------------------------------------------
Supplemental data for all classes
- --------------------------------------------------------------------------------
Years ended 1999 1998 1997 1996 1995(a) 1995(b)
September 30,
- --------------------------------------------------------------------------------
Net assets at $1,806,277 2,184,175 2,497,825 2,960,135 3,493,052 3,528,329
end of period
(in thousands)
- --------------------------------------------------------------------------------
Portfolio 151 172 235 391 249 573
turnover rate
(annualized) (%)
- --------------------------------------------------------------------------------
(a) Two months ended September 30, 1995.
(b) Year ended July 31, 1995.
Note: Total return does not reflect the effect of any sales charges. Per share
data was determined based on average shares outstanding during the years ended
September 30, 1998 and September 30, 1999.
66 - Financial Highlights
<PAGE>
[ICON]--------------------------------------------------------------------------
Investing In The Funds
The following pages tell you about many of the services, choices and
benefits of being a Kemper Funds shareholder. You'll also find information on
how to check the status of your account using the method that's most convenient
for you.
You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.
<PAGE>
Choosing A Share Class
In this prospectus, there are three share classes for each fund. Each class has
its own fees and expenses, offering you a choice of cost structures.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
- ------------------------------------ -----------------------------------------
Classes and features Points to help you compare
- ------------------------------------ -----------------------------------------
Class A
o Sales charges of up to 4.50%, o Some investors may be able to
charged when you buy shares reduce or eliminate their sales
charges; see next page
o In most cases, no charges when you
sell shares o Total annual expenses are lower
than those for Class B or Class C
o No distribution fee
- ------------------------------------ -----------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate falls
to zero after six years
o Deferred sales charge of up to
4.00%, charged when you sell shares o Shares automatically convert to
you bought within the last six years Class A after six years, which means
lower annual expenses going forward
o 0.75% distribution fee
- ------------------------------------ -----------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is
lower, but your shares never convert
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 0.75% distribution fee
- ------------------------------------ -----------------------------------------
68 - Choosing A Share Class
<PAGE>
Class A shares
Class A shares have a sales charge that varies with the amount you invest:
Kemper High Yield Fund, Kemper High Yield Fund II, Kemper High Yield Opportunity
Fund, Kemper Income And Capital Preservation Fund, Kemper U.S. Government
Securities Fund, Kemper Strategic Income Fund and Kemper U.S. Mortgage Fund
Sales charge Sales charge as
as a percent a percent of
of offering your net
Your investment price investment
- -------------------------------------------------------
Up to $100,000 4.50% 4.71%
- -------------------------------------------------------
$100,000-$249,999 3.50 3.63
- -------------------------------------------------------
$250,000-$499,999 2.60 2.67
- -------------------------------------------------------
$500,000-$999,999 2.00 2.04
- -------------------------------------------------------
$1 million or more 0 0
- -------------------------------------------------------
Kemper Short-Term U.S. Government Fund
Sales charge Sales charge as
as a percent a percent of
of offering your net
Your investment price investment
- -------------------------------------------------------
Up to $100,000 2.75% 2.83%
- -------------------------------------------------------
$100,000-$249,999 2.50 2.56
- -------------------------------------------------------
$250,000-$499,999 2.00 2.04
- -------------------------------------------------------
$500,000-$999,999 1.50 1.52
- -------------------------------------------------------
$1 million or more 0 0
- -------------------------------------------------------
The offering price includes the sales charge.
69 - Choosing A Share Class
<PAGE>
You may be able to lower your Class A sales charges if:
o you plan to invest at least $100,000 over the next 24 months ("letter of
intent")
o the amount of Kemper shares you already own (including shares in certain
other Kemper funds) plus the amount you're investing now is at least
$100,000 ("cumulative discount")
o you are investing a total of $100,000 or more in several Kemper funds at
once ("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
70 - Choosing A Share Class
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a fee
to an investment advisor or other firm for portfolio management services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper can answer
your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
- --------------------------------------------------------------------------------
71 - Choosing A Share Class
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% is deducted
from fund assets each year. This means the annual expenses for Class B shares
are somewhat higher (and their performance correspondingly lower) compared to
Class A shares, which don't have a 12b-1 fee. After six years, Class B shares
automatically convert to Class A, which has the effect of lowering the annual
expenses from the seventh year on.
Class B shares have a contingent deferred sales charge (CDSC). This charge
declines over the years you own shares, and disappears completely after six
years of ownership. But for any shares you sell within those six years, you may
be charged as follows:
Year after you bought shares CDSC on shares you sell
- -----------------------------------------------------------
First year 4.00%
- -----------------------------------------------------------
Second or third year 3.00
- -----------------------------------------------------------
Fourth or fifth year 2.00
- -----------------------------------------------------------
Sixth year 1.00
- -----------------------------------------------------------
Seven year and later None (automatic conversion
to Class A)
- -----------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class B shares can make sense for long-term investors who would prefer to see
all of their investment go to work right away, and can accept somewhat higher
annual expenses in exchange.
- --------------------------------------------------------------------------------
72 - Choosing A Share Class
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and have a
12b-1 plan under which a distribution fee of 0.75% is deducted from fund assets
each year. Because of this fee, the annual expenses for Class C shares are
similar to those of Class B shares, but higher than those for Class A shares
(and the performance of Class C shares is correspondingly lower than that of
Class A).
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a contingent deferred sales charge (CDSC), but only on
shares you sell within one year of buying them:
Year after you bought shares CDSC on shares you sell
- -------------------------------------------------------
First year 1.00%
- -------------------------------------------------------
Second year and later None
- -------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper can answer your questions and
help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses (due to 12b-1 fees) mean that over the years you could end up paying
more than the equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
- --------------------------------------------------------------------------------
73 - Choosing A Share Class
<PAGE>
How To Buy Shares
Once you've chosen a share class, use these instructions to make investments.
Make out any checks to "Kemper Funds."
- ------------------------------------ ----------------------------------------
First investment Additional investments
- ------------------------------------ ----------------------------------------
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------ ----------------------------------------
Through a financial representative
o Contact your representative using o Contact your representative using
the method that's most convenient the method that's most convenient
for you for you
- ------------------------------------ ----------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check and a Kemper
investment slip to us at the
o Send it to us at the appropriate appropriate address below
address, along with an investment
check o If you don't have an investment slip,
simply include a letter with your
name, account number, the full name of
the fund and the share class and your
investment instructions
- ------------------------------------ ----------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------ ----------------------------------------
By phone
- -- o Call (800) 621-1048 for instructions
- ------------------------------------ ----------------------------------------
With an automatic investment plan
- -- o To set up regular investments,
call (800) 621-1048
- ------------------------------------ ----------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------ ----------------------------------------
Regular mail: Kemper Funds, PO Box 219415, Kansas City, MO 64121-9415
Express, registered, or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
74 - How To Buy Shares
<PAGE>
How To Exchange Or Sell Shares
Use these instructions to exchange or sell shares in your account.
- ------------------------------------ ----------------------------------------
Exchanging into another fund Selling shares
- ------------------------------------ ----------------------------------------
$1,000 or more to open a new account Some transactions, including most
for over $50,000, can only be
$100 or more for exchanges between ordered in writing with a signature
existing accounts guarantee; if you're in doubt, see
page 78
- ------------------------------------ ----------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by
method that's most convenient for the method that's most convenient
you for you
- ------------------------------------ ----------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
- ------------------------------------ ----------------------------------------
By mail, express mail or fax
(see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number o the fund, class and account
you're exchanging out of number from which you want to sell shares
o the dollar amount or number of o the dollar amount or number of
shares you want to exchange shares you want to sell
o the name and class of the fund you o your name(s), signature(s) and
want to exchange into address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on o a daytime telephone number
your account
o a daytime telephone number
- ------------------------------------ ----------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments Kemper
fund account, call from a Kemper fund account, call
(800) 621-1048 (800) 621-1048
- ------------------------------------ ----------------------------------------
On the Internet
o Follow the instructions at o Follow the instructions at
www.kemper.com www.kemper.com
- ------------------------------------ ----------------------------------------
75 - How To Exchange Or Sell Shares
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Kemper funds generally and on accounts held directly at Kemper. You can also use
it to make exchanges and sell shares.
76 - Policies You Should Know About
<PAGE>
EXPRESS-Transfer lets you set up a link between a Kemper account and a bank
account. Once this link is in place, you can move money between the two with a
phone call. You'll need to make sure your bank has Automated Clearing House
(ACH) services. Transactions take two to three days to be completed, and there
is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the account
application; to add it to an existing account, call (800) 621-1048.
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.
When you call us to sell shares, we may record the call, ask you for certain
information or take other steps designed to prevent fraudulent orders. It's
important to understand that, with respect to certain pre-authorized
transactions, as long as we take reasonable steps to ensure that an order
appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The funds can only send or
accept wires of $1,000 or more.
Exchanges among Kemper funds are an option for most shareholders. Exchanges are
a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www. kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
- --------------------------------------------------------------------------------
77 - Policies You Should Know About
<PAGE>
When you want to sell more than $50,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
When you sell shares that have a contingent deferred sales charge (CDSC), we
calculate the CDSC as a percentage of what you paid for the shares or what you
are selling them for -- whichever results in the lowest charge to you. In
processing orders to sell shares, we turn to the shares with the lowest CDSC
first. Exchanges from one Kemper fund into another don't affect CDSCs: for each
investment you make, the date you first bought Kemper shares is the date we use
to calculate a CDSC on that particular investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns of
excess contributions from retirement plans
o for Class A shares purchased through the Large Order NAV Purchase
Privilege, redemption of shares whose dealer of record at the time of the
investment notifies Kemper Distributors that the dealer waives the
applicable commission
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
- --------------------------------------------------------------------------------
78 - Policies You Should Know About
<PAGE>
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper can answer your questions and help you determine if you are eligible.
If you sell shares in a Kemper fund and then decide to invest with Kemper again
within six months, you can take advantage of the "reinstatement feature." With
this feature, you can put your money back into the same class of a Kemper fund
at its current NAV and for purposes of sales charges it will be treated as if it
had never left Kemper. You'll be reimbursed (in the form of fund shares) for any
CDSC you paid when you sold. Future CDSC calculations will be based on your
original investment date, rather than your reinstatement date. There is also an
option that lets investors who sold Class B shares buy Class A shares with no
sales charge, although they won't be reimbursed for any CDSC they paid. You can
only use the reinstatement feature once for any given group of shares. To take
advantage of this feature, contact Kemper or your financial representative.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.
79 - Policies You Should Know About
<PAGE>
How the funds calculate share price
For each fund in this prospectus, the price at which you buy shares is as
follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing A Share Class")
Class B and Class C shares -- net asset value per share, or NAV
To calculate NAV, each share class of each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
- --------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each fund and share class in this prospectus, the price at which you sell
shares is also the NAV, although for Class B and Class C investors a contingent
deferred sales charge may be taken out of the proceeds (see "Choosing A Share
Class").
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by a fund's Board. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
80 - Policies You Should Know About
<PAGE>
Other rights we reserve
For each fund in this prospectus, you should be aware that we may do any of the
following:
o withhold 31% of your distributions as federal income tax if we have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below $1,000
for the entire quarter; this policy doesn't apply to most retirement
accounts or if you have an automatic investment plan
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash
o change, add or withdraw various services, fees and account policies (for
example, we may change or terminate the exchange privilege at any time)
81 - Policies You Should Know About
<PAGE>
Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds have regular schedules for paying out any earnings to shareholders:
o Income: declared and paid monthly
o Long-term capital gains: December, or otherwise as needed
The funds may make additional distributions for tax purposes if necessary.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV), all sent to you by
check, have one type reinvested and the other sent to you by check or have them
invested in a different fund. Tell us your preference on your application. If
you don't indicate a preference, your dividends and distributions will all be
reinvested without sales charges. For retirement plans, reinvestment is the only
option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). Your sales of shares may
result in a capital gain or loss for you; whether long-term or short-term
depends on how long you owned the shares. For tax purposes, an exchange is the
same as a sale.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.
- --------------------------------------------------------------------------------
82 - Understanding Distributions and Taxes
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- -------------------------------------------------------
o short-term capital gains from selling fund shares
- -------------------------------------------------------
o income dividends you receive from a fund
- -------------------------------------------------------
o short-term capital gains distributions received from a
fund
Generally taxed at capital gains rates
- -------------------------------------------------------
o long-term capital gains from selling fund shares
- -------------------------------------------------------
o long-term capital gains distributions received from a
fund
- -------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your fund pays.
Your fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends- received deduction for a portion
of income dividends they receive.
83 - Understanding Distributions and Taxes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we may mail one copy per
household. For more copies, call (800) 621-1048.
Statement of Additional Information (SAI) -- This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Kemper or the SEC (see below). Materials you
get from Kemper are free; those from the SEC involve a copying fee. If you like,
you can look over these materials in person at the SEC's Public Reference Room
in Washington, DC.
SEC
450 Fifth Street, N.W.
Washington, DC 20549-6009
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
222 South Riverside Plaza Chicago, IL 60606-5808 www.kemper.com Tel (800)
621-1048
SEC File Numbers
Kemper High Yield Fund 811-2786
Kemper High Yield Fund II 811-08983
Kemper High Yield Opportunity Fund 811-2786
Kemper Income And Capital Preservation Fund 811-2305
Kemper Short-Term U.S. Government Fund 811-5195
Kemper U.S. Government Securities Fund 811-2719
Kemper Strategic Income Fund 811-2743
Kemper U.S. Mortgage Fund 811-3440
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
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