<PAGE> 1
Kemper Adjustable Rate
U.S. Government Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED AUGUST 31, 1995
Offering investors the opportunity for high current income consistent with low
volatility of principal
"This was a year when interest rates
rose and then fell--requiring continual
adjustment of the fund's investment mix..."
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
9
Terms to Know
10
Portfolio Statistics
11
Portfolio of
Investments
12
Report of
Independent Auditors
13
Financial Statements
15
Notes to
Financial Statements
19
Financial Highlights
At A Glance
Kemper Adjustable Rate U.S. Government Fund Total Returns for
the year ended August 31, 1995 (unadjusted for any sales charge):
<TABLE>
<S> <C>
CLASS A 5.52%
CLASS B 4.84%
CLASS C 4.89%
LIPPER
ADJUSTABLE
RATE MORTGAGE
FUNDS CATEGORY
AVERAGE** 1.34%
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
8/31/95 8/31/94
<S> <C> <C>
KEMPER ADJUSTABLE RATE U.S.
GOVERNMENT FUND CLASS A $8.30 $8.33
KEMPER ADJUSTABLE RATE U.S.
GOVERNMENT FUND CLASS B $8.31 $8.32
KEMPER ADJUSTABLE RATE U.S.
GOVERNMENT FUND CLASS C $8.32 $8.33
</TABLE>
Kemper Adjustable Rate U.S.
Government Fund Rankings
Compared to all other funds in the Lipper Adjustable Rate Mortgage Funds
category**
<TABLE>
<CAPTION>
1-YEAR 5-YEAR
<S> <C> <C>
CLASS A #33 OF 72 FUNDS #2 OF 5
CLASS B #45 OF 72 FUNDS N/A
CLASS C #44 OF 72 FUNDS N/A
</TABLE>
**Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the effect
of sales charges and, if they had, results may have been less favorable.
Returns and rankings are historical and do not reflect future performance.
DIVIDEND REVIEW
The following table shows per share dividend and yield
information for the fund as of August 31, 1995.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1 YEAR INCOME: $0.4735 $0.4005 $0.4043
AUGUST DIVIDEND: $0.0405 $0.0353 $0.0347
ANNUALIZED
DISTRIBUTION RATE*: 5.86% 5.10% 5.00%
SEC YIELD*: 5.25% 4.77% 4.97%
</TABLE>
*Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on August 31, 1995. Distribution
rate simply measures the level of dividends and is not a complete measure of
performance. The SEC yield is net investment income per share earned over the
month ended August 31, 1995 shown as an annualized percentage of the maximum
offering price on that date. The SEC yield is computed in accordance with a
standardized method prescribed by the Securities and Exchange Commission.
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months. Specifically,
your report now includes:
Terms you'd need to know related to your fund
A look at your fund's portfolio composition and how it has changed
The duration of the fund's underlying investments.
If you have any comments about the revised format or if you have suggestions
for additional changes, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[PHOTO]
Stephen B. Timbers is chief executive and chief investment officer of Kemper
Financial Services, Inc. (KFS). KFS and its affiliates manage approximately $60
billion in assets, including $42 billion in retail mutual funds. Timbers is a
graduate of Yale University and holds an M.B.A. from Harvard University.
Dear Shareholder,
Investors enjoyed generally positive performance in both the fixed income and
stock markets in the first several months of 1995. At this point in the year,
the returns of most leading securities markets are significantly higher than
they were at the same time in 1994.
This is an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be slowing down
at a comfortable pace.
Through a series of interest rate adjustments, the Federal Reserve
Board has played a critical role in controlling the pace of economic growth.
Its most recent adjustment was in July when the Fed acknowledged that economic
growth had slowed so much that a recession was a threat. In response, the
Federal Reserve eased short-term interest rates by a small but symbolic 25
basis points. This action was significant because, since February 1994, the Fed
had been raising interest rates to slow down what was considered high enough
growth to rekindle troublesome inflation.
After the interest rate cut, the government announced that the real
gross domestic product (GDP) -- the value of goods and services produced in the
United States -- grew at a 1.1% annual rate in the second quarter. This was a
revised number, representing more than twice the growth that was originally
reported, and it virtually assured that the economy was not in jeopardy of
recession. At the same time, economic growth at that level did not require an
immediate response, in the form of additional rate cuts, from the Fed.
The absence of inflation is also very encouraging. Although we are well
along in the economic cycle and at a point when prices often start hiking up,
price increases are modest. In fact, plunging energy prices during the summer
offset slight increases in food prices. Consumer prices through July 1995 rose
at an annual rate of 3.1% -- higher than last year but still not a concern, and
the GDP deflator is running at only about 2%.
We anticipate 2% to 3% real GDP growth for the next few quarters, with
the momentum likely to come from housing and foreign trade. Will the Federal
Reserve Board adjust interest rates again? Additional action by the Fed at
least once more in 1995 would not surprise us.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
showed some vulnerability when it took a tumble in July. The market recovered
after a brief period and has started to move up again. But such a sudden,
severe mini-correction served to remind investors that the current bull market
will inevitably come to an end someday and that some sectors may even be
overextended today.
As we view the remainder of the year, companies cannot necessarily
count on the economy to provide above-average earnings support. Rather, stocks
that have proven themselves with a pattern of consistent earnings are likely to
attract investor support. Specifically, sectors that produce more consistent
earnings, such as health care, consumer nondurables, selected technology and
selected capital goods can be expected to do well. Picking the right sectors to
invest in will be the key challenge for equity investors during the next few
quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low in April, the value of the U.S. dollar is gaining
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it
3
<PAGE> 4
General Economic Overview
Economic Guideposts
Economic activity is a key influence on investment performance and
shareholder decision-making. Periods of recession or boom, inflation or
deflation, credit expansion or credit crunch have a significant impact on
mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
<TABLE>
<CAPTION>
NOW
09/30/95 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.2 7.06 7.74 5.33
Prime rate(2) 8.75 9 7.75 6
Inflation rate(3)* 2.9 2.86 2.9 2.84
The U.S. dollar (4) -1.17 -11.46 -5.28 4.03
Capital goods orders(5)* 7.08 15.06 21.72 16.98
Industrial production (6)* 2.6 5.6 6.18 3.87
Employment Growth(7) 1.91 2.6 3.03 2.34
</TABLE>
*Data as of July 31, 1995
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best
borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
Source: Economics Department, Kemper Financial Services, Inc.
reduces the cost of American imports and attracts foreign capital, a strong
dollar in relation to a local currency has the effect of devaluing a foreign
investment. The value of the dollar and the attractiveness of U.S. investments
to foreign investors will be key factors in the next few months.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding how
these markets work.
Political leadership also has some bearing on the progress of the
economy and the state of the financial markets. In the months preceding a
presidential election year, it has been common for incumbents to attempt to
stimulate growth. Given our Republican Congress and Democratic President,
however, we do not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild card,
but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio managers. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
Chief Investment and Executive Officer
October 11, 1995
4
<PAGE> 5
Performance Update
[PHOTO]
Paul Sloan joined Kemper Financial Services, Inc. (KFS) in April 1995 and is a
senior vice president of KFS and portfolio co-manager of Kemper Adjustable Rate
U.S. Government Fund. Sloan comes to Kemper from Woodbridge Capital Management,
the investment management subsidiary of Comerica, Inc., where he was the
director of institutional portfolio management. Sloan graduated from the
University of Detroit and earned his master's of business administration degree
from Wayne State University.
[PHOTO]
Elizabeth Byrnes joined Kemper Financial Services, Inc. in 1982 and is a first
vice president of KFS and portfolio co-manager of Kemper Adjustable Rule U.S.
Government Fund. Byrnes received her B.S. degree from Miami University and is a
certified public accountant.
Interest rate changes over the last 12 months significantly affected the appeal
of adjustable rate mortgages. Portfolio Co-Managers Paul Sloan and Elizabeth
Byrnes explain how they altered the types of adjustable rate mortgages (ARMs)
that the fund invested in during the year and the effect of these adjustments.
We are reporting on a fiscal--year from September 1, 1994, to August 31,
1995--when we saw both rising and falling interest rates. What kinds of
adjustments did you make to the portfolio as rates continued to rise and then
reversed direction?
The fund invests primarily in adjustable rate securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
Securities that are backed by adjustable rate mortgages (ARMs) are among the
fund's primary investments, and the fund also invests in other U.S. government
securities. This was a year when interest rates rose and then fell--requiring
continual adjustment of the fund's investment mix. We selected investment
opportunities, based on the changing interest rates, that enabled the fund to
outperform the average of its peers in eight out of 12 months. Let's review
some of the major adjustments we made and why.
From September through December 1994, interest rates rose and the
economy continued its rapid expansion. We reduced the fund's investments in
ARMs because we anticipated that ARM rates would not be able to keep pace with
the rapidly rising interest rates. ARMs can adjust or reset to market interest
rates on a monthly, quarterly, semiannual or annual basis. However, periodic
caps limit the amount that ARM rates can adjust to rising or falling interest
rates during a given period. When ARMs "cap out," which is what we expected to
happen, their durations extend because it takes more than one reset to adjust
to market interest rates. ( Duration is a measurement of a portfolio's
sensitivity to interest rates and the longer the fund's duration, the more
sensitive it is to interest rate changes.) Therefore, the capped out ARMs'
value to the fund would be diminished because they would no longer offer the
highest interest rates available. We offset this reduction in ARMs by
increasing the fund's investment in U.S. Treasuries, which had shorter
durations and were less sensitive to the rising interest rates.
ARMs represented a low of 75 percent of the fund's assets by November.
The remaining 25 percent of the portfolio was invested in short-term Treasuries
with maturities of less than two years. This investment mix reduced the fund's
average duration to shorter than one year. The fund benefited from this
shortened duration in December, when short-term rates rose and long-term rates
fell. For instance, Elizabeth Byrnes joined Kemper Financial Services, Inc. in
1982 and is a first vice president of KFS and portfolio co-manager of Kemper
Adjustable Rate U.S. Government Fund. Byrnes received her B.S. degree from
Miami University and is a certified public accountant.
5
<PAGE> 6
Performance Update
yields on two-year U.S. Treasuries rose in December from 7.45 percent to 7.70
percent, while at the same time yields on 30-year U.S. Treasuries declined from
8.02 percent to 7.88 percent. Since the fund generally invests in shorter-term
assets and those that reset regularly, it is the movement of short-term
interest rates that impacts the fund.
By the end of December, the economy showed signs of slowing and
mortgage yields began to fall as short-term interest rates stabilized and then
began to decline. As short-term interest rates fell, the ARMs' longer durations
made them more appealing to the fund. This was the flip side of what had
occurred earlier in the year.
Our response was to begin buying teaser rate and Government National
Mortgage Association (GNMA) ARMs and to sell the short-term, short-duration
Treasuries. The GNMA ARMs are securities with longer durations. Buying them was
consistent with our bullish outlook that the economy would continue its
slowdown and interest rates would continue to fall. Teaser rate ARMs also
perform well in such an environment because they carry below market or "teaser"
rates. The low rates are offered to attract borrowers to an adjustable rather
than a fixed-rate mortgage and remain in place until the ARM's first interest
rate reset date. At that time, the mortgage adjusts to a higher market rate.
When rates fall, teaser rate mortgages offer superior returns because they have
longer durations and are less susceptible to prepayments than other types of
ARMs that carry higher interest rates. By the end of February, ARMs were back
up to 98 percent of the fund's portfolio.
SEVERAL MARKET FORCES INFLUENCED INVESTORS
IN U.S. GOVERNMENT SECURITIES
FROM SEPTEMBER 1994 THROUGH AUGUST 1995
A. Economic growth halted
Economic growth, as measured by quarterly changes in the U.S. economy's gross
domestic product (GDP), was robust throughout 1994 but fell dramatically by
mid-1995.
<TABLE>
<S> <C>
3Q94 4
4Q94 5.1
1Q95 2.7
2Q95 1.1
</TABLE>
Source: Barrons and The Wall Street Journal
B. in response to rising short-term interest rates
The Federal Reserve Board continued its series of interest rate hikes until
early July 1995, when it announced a modest interest rate cut. This bar graph
tracks the Fed's changes to the federal funds rate (the interest rate that
banks charge each other for overnight loans), which is a measure of short-term
interest rates.
<TABLE>
<S> <C>
start of fiscal year 4.8
11/15 5.25
2/1 5.95
7/6/95 5.85
</TABLE>
Source: Investment Company Institute (ICI) Mutual Fund 1995 Fact Book and The
Wall Street Journal
C. but inflation posed no threat
Despite worries that the strong growth in 1994 would result
in increased price inflation, the Consumer Price Index (CPI) was never a
concern during the period. This graph illustrates the quarterly percentage
change in the CPI. The year over year percent change in the CPI is commonly
referred to as inflation.
<TABLE>
<S> <C>
3Q94 0.8
4Q94 0.5
1Q95 0.8
2Q95 0.9
</TABLE>
Source: Towers Data Systems
6
<PAGE> 7
In April and May the Fund outperformed the average of its peers as the
government bond market rallied. We expected that the rally would drive interest
rates even lower, so we began reducing the fund's investment in fully indexed
ARMs. When interest rates fall, the risk of prepayments is higher with fully
indexed ARMs because borrowers are likely to refinance into fixed-rate
mortgages or teaser rate ARMs to take advantage of the lower interest rates.
They also have shorter durations than GNMA and teaser rate ARMs and therefore
don't perform as well in a declining interest rate environment. As we moved
away from the fully indexed ARMs, we increased our investment in
intermediate-term U.S. Treasuries with maturities of one to five years, which
lengthened the fund's average duration. Taken together, these two steps enabled
the fund to outperform the average of its peers for three of the last four
months of the fiscal year.
Q.The fund's fiscal year includes four months of 1994, one of the worst years
in the history of the bond market. Yet, the bond market more than recovered
in the first several months of 1995. What, if anything, did you learn from
this period?
A.More than anything, perhaps, the last 12 months highlighted the
importance of staying fully invested in the market--an approach that enabled
us to weather rough market conditions and enhance fund performance. By staying
fully invested, shareholders more than recovered any ground lost in 1994. In
addition, the net asset value of the fund remained relatively stable and the
fund continued to pay relatively steady dividends.
Q.Dividends paid by the fund increased every month from September through
March. Why were they reduced in May, after the bond market recovered and the
fund was outperforming?
A.Since the start of the fiscal year, the monthly dividends increased
nearly 20 percent. It's true that the monthly dividend now is slightly lower
than its mid-year high. But remember that dividend distributions are dependent
on the fund's earnings. When we sold the fund's higher coupon ARMs, we reduced
the fund's income slightly. However, we were willing to trade that income
potential to avoid the risk of prepayments and the possibility of a lower
total return.
Q.Do you expect that interest rates will continue to fall? If so, what
effect will rates have on the fund's performance?
A.We believe the economy is growing, but at a pace slow enough to allow
for stable to declining interest rates. In the near term, we don't anticipate
any major changes in our investment strategy. We will continue to invest in
longer duration ARMs and intermediate-term government securities, which should
do well in this environment.
Q.What could threaten your outlook -- and result in an adjustment of your
portfolio management strategy?
A.The risk is that our assumption of a slow-growth, low inflation economy
is wrong. If the economy takes off, our interest rate outlook will be
inaccurate and we'd have to readjust. In that case, we'd move out of
intermediate-term Treasuries and into ARMs that reset more frequently.
However, we don't expect that to happen. All indicators suggest a continued
slow-growth, low-inflation environment, which should be positive for the fund.
7
<PAGE> 8
Performance Update
Past performance is not predictive of future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of all dividends
and for Class A Shares adjustment for the maximum sales charge of 3.5% and for
Class B Shares adjustment for the applicable contingent deferred sales charge
of 3%. The maximum contingent deferred sales charge is 4%. There is no sales
charge for Class C Shares.
Please note the Kemper Adjustable Rate U.S. Government Fund was previously the
Kemper Enhanced Government Income Fund. The fund's investment objective and
policies were changed on 1/1/92. Prior to the changes, the fund's objective was
to seek high current return by investing primarily in U.S. Government
securities. Since the change, the fund's objective has been to seek high
current income consistent with low volatility of principal. The fund seeks its
new objective by investing primarily in adjustable rate U.S. Government
securities. The first chart represents the life of fund performance (since
9/1/87) and the following charts represent the fund's performance under its new
objective (since 1/1/92) for Class A shares.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for A Shares and the contingent deferred sales charge in
effect at the end of the period for B Shares. When reviewing the performance
chart, please note that the inception date for the Lehman Brothers Adjustable
Rate Index is 1/1/92. As a result, we are not able to illustrate the Life of
Class performance (since 9/1/87) for the Kemper Adjustable Rate U.S.Government
Fund Class A Shares. In comparing the fund's performance to the Lehman
Brothers Adjustable Rate Index, you should also note that the fund's
performance reflects the maximum sales charge, while no such charges are
reflected in the performance of the index.
** Salomon Brothers 6-month T-Bill Index is an unmanaged index based on
the average month yield of a 6-month Treasury Bill. Rates of Treasury
obligations are fixed at issuance, and payment of principal and interest is
backed by the U.S. Treasury. Market value will generally fluctuate inversely
with interest rates prior to maturity and will equal par at maturity. Due to
their short maturities, Treasury Bills experience very low market volatility.
+ The Lehman Brothers Adjustable Rate Index is a broad market
capitalization index of the agency Adjustable Rate Mortgage market. All
securities in the index have coupons that periodically adjust based on a spread
over a published index, and all are government agency guaranteed. Source is
Lehman Brothers.
++ The Consumer Price Index is a statistical measure of change, over
time, in the prices of goods and services in major expenditure groups for all
urban consumers.
Average Annual Total Returns*
For periods ended August 31, 1995 (adjusted for the applicable
sales charge)
<TABLE>
<CAPTION>
LIFE OF
1 YEAR 5 YEAR CLASS
<S> <C> <C> <C> <C>
KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT FUND A 1.85% 6.62% 6.39% (Since 9/1/87)
KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT FUND B 1.85% N/A 1.77% (Since 5/31/94)
KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT FUND C 4.89% N/A 4.28% (Since 5/31/94)
</TABLE>
Growth of an assumed $10,000 investment in Kemper Adjustable Rate U.S.
Government Fund Class A from 9/1/87 through 8/31/95
<TABLE>
<CAPTION>
KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT SALOMON BROTHERS COST OF
CLASS A 6 MONTH T-BILL LIVING INDEX
<S> <C> <C> <C>
12/31/89 $11,489 $11,988 $11,023
12/31/91 13,973 13,600 12,054
12/31/93 15,547 15,641 12,745
8/31/95 16,425 16,948 13,365
</TABLE>
Growth of an assumed $10,000 investment in Kemper Adjustable Rate U.S.
Government Fund Class A from 1/1/92 through 8/31/95
<TABLE>
<S> <C> <C> <C>
1/31/92 $10,000 $10,000 $10,000
12/31/92 10,236 10,502 10,290
12/31/93 10,739 11,130 10,573
12/31/94 10,692 11,131 10,856
8/31/95 11,346 12,074 11,088
</TABLE>
Growth of an assumed $10,000 investment in Kemper Adjustable Rate U.S.
Government Fund Class B from 5/31/94 through 8/31/95
<TABLE>
<CAPTION>
KEMPER ADJUSTABLE RATE LEHMAN BROTHERS
U.S. GOVERNMENT ADJUSTABLE RATE CONSUMER
CLASS B MORTGAGE INDEX* PRICE INDEX**
<S> <C> <C> <C>
5/31/94 $10,000 $10,000 $10,000
12/31/94 9,958 10,107 10,149
8/31/95 10,220 10,963 10,366
</TABLE>
8
<PAGE> 9
Performance Update
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT FUND CLASS C FROM 5/31/94 THROUGH 8/31/95
[LINE CHART]
<TABLE>
<CAPTION>
KEMPER ADJUSTABLE RATE LEHMAN BROTHERS
U.S. GOVERNMENT ADJUSTABLE RATE CONSUMER
CLASS C MORTGAGE INDEX* PRICE INDEX**
1
<S> <C> <C> <C>
5/31/94 $10,000 $10,000 $10,000
12/31/94 9,973 10,107 10,149
8/31/95 10,538 10,963 10,366
</TABLE>
A FEW WORDS ABOUT YOUR FUND'S COMPETITIVE RANKING
There are many ways to rank mutual fund performance. This report
uses data from Lipper Analytical Services Inc. Lipper Analytical Services is an
independent ranking service that ranks the performance of funds with similar
investment objectives. All "peer group" comparisons in this report are based on
rankings of the funds listed in Lipper's adjustable rate fund category.
In other publications, such as The Wall Street Journal, Kemper
Adjustable Rate U.S. Government Fund is compared to a much broader grouping of
funds. The broader category includes funds that invest in a wider variety of
U.S. government securities in pursuit of their specific investment
objectives. The fund's place in competitive rankings published elsewhere will
depend on the criteria used to create the peer group.
Terms To Know
AVERAGE ANNUAL TOTAL RETURN Average annual total return is a fund's
total return expressed as an annualized average, adjusted for the maximum sales
charge for Class A Shares or the contingent deferred sales charge in effect at
the end of the period for Class B Shares.
ADJUSTABLE RATE MORTGAGES (ARMS) ARMs are mortgages whose interest rates adjust
periodically based on changes to a corresponding index rate. To protect
the borrower against dramatic rate increases in a short period of time, ARMs
are often originated with interest rate caps. An interest rate cap assures
the borrower that the rate will not adjust beyond a certain point within a
specific period.
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating time to maturity and coupon size. The
longer the duration, the greater the interest rate risk.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and it represents the aggregate percentage or
dollar value change over the period.
9
<PAGE> 10
Portfolio Statistics
PORTFOLIO COMPOSITION
Based on a percent of net assets and includes certain adjustments
<TABLE>
<CAPTION>
On 8/31/95 On 8/31/94
<S> <C> <C>
Government agencies ARMs 91% 88%
Adjustable rate securities (ARMs) -- 2
Fixed rate agency securities 1 2
Intermediate government bonds 8 --
Cash and equivalents -- 8
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
Duration
On 8/31/95 On 8/31/94
<S> <C> <C>
4.72 years 3.37 years
</TABLE>
10
<PAGE> 11
Portfolio of Investments
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND
August 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION> Coupon Principal
U.S. government obligations Type rate Maturity amount Value
================================================================================================================
<S> <C> <C> <C> <C> <C>
FEDERAL HOME LOAN Adjustable Rate
MORTGAGE CORPORATION -- Mortgages 7.31% 2019 $ 8,926 $ 9,221
51.8% 7.626 2020 3,729 3,831
(Cost: $66,782) 8.176-8.50 2022 10,218 10,517
6.16 2023 3,512 3,584
6.234 2024 9,070 9,294
6.125-7.00 2025 29,232 29,970
Fixed Rate Collateralized
Mortgage Obligations 11.25 2010 499 547
11.00 2014 230 253
--------------------------------------------------------------------------------
67,217
================================================================================================================
GOVERNMENT Adjustable Rate
NATIONAL MORTGAGE Mortgages 7.50 2024 9,505 9,745
ASSOCIATION -- 5.50-8.00 2025 22,526 22,773
25.5% Pass-through
(Cost: $32,656) Certificates 11.00 2018 523 572
--------------------------------------------------------------------------------
33,090
================================================================================================================
FEDERAL NATIONAL Adjustable Rate
MORTGAGE ASSOCIATION -- Mortgages 7.915 2021 2,727 2,805
15.3% 7.592-7.823 2023 11,752 12,040
(Cost: $19,749) 7.127 2025 4,847 4,974
--------------------------------------------------------------------------------
19,819
================================================================================================================
U.S. TREASURY Notes 9.25 1996 8,000 8,103
SECURITIES -- 8.25 1998 1,000 1,060
10.0% 9.125 1999 3,500 3,853
(Cost: $13,121)
--------------------------------------------------------------------------------
13,016
================================================================================================================
MONEY MARKET Yield-5.90% and 5.96%,
INSTRUMENTS -- Due-September 1995
7.2% Bridgestone/Firestone Inc. 4,400 4,400
(Cost: $9,396) ENSERCH Corporation 5,000 4,996
--------------------------------------------------------------------------------
9,396
--------------------------------------------------------------------------------
TOTAL INVESTMENTS--109.8%
(Cost: $141,704) 142,538
--------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(9.8)% (12,781)
--------------------------------------------------------------------------------
NET ASSETS--100% $129,757
--------------------------------------------------------------------------------
</TABLE>
Notes to Portfolio of Investments
Adjustable rate securities make up 90% of total investments at
August 31, 1995. The coupon rates vary with a selected index at specified
intervals and the rates shown are the effective rates on August 31, 1995. The
dates shown represent the final maturity of the obligations.
Based on the cost of investments of $141,704,000 for federal income tax purposes
at August 31, 1995 the aggregate gross unrealized appreciation was $979,000,
the aggregate gross unrealized depreciation was $145,000 and the net unrealized
appreciation of securities was $834,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Adjustable Rate U.S.
Government Fund as of August 31, 1995, the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal periods since 1991. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
August 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Kemper Adjustable Rate U.S. Government Fund at August 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the fiscal periods since 1991, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 13, 1995
12
<PAGE> 13
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $141,704) $ 142,538
- ------------------------------------------------------------
Cash 93
- ------------------------------------------------------------
Receivable for:
Fund shares sold 60
- ------------------------------------------------------------
Investments sold 1,358
- ------------------------------------------------------------
Interest 1,260
- ------------------------------------------------------------
TOTAL ASSETS 145,309
============================================================
LIABILITIES AND NET ASSETS
Payable for:
Dividends 206
- ------------------------------------------------------------
Fund shares redeemed 122
- ------------------------------------------------------------
Investments purchased 15,050
- ------------------------------------------------------------
Management fee 60
- ------------------------------------------------------------
Administrative services fee 23
- ------------------------------------------------------------
Custodian and transfer agent fees and related
expenses 50
- ------------------------------------------------------------
Other 41
- ------------------------------------------------------------
Total liabilities 15,552
- ------------------------------------------------------------
NET ASSETS $129,757
============================================================
ANALYSIS OF NET ASSETS
Paid-in capital $139,617
- ------------------------------------------------------------
Accumulated net realized loss on sales of
investments (11,598)
- ------------------------------------------------------------
Net unrealized appreciation of investments 834
- ------------------------------------------------------------
Undistributed net investment income 904
- ------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $129,757
============================================================
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($123,808 / 14,911 shares outstanding) $8.30
- ------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 3.63% of
net asset value or 3.50% of offering price) $8.60
============================================================
CLASS B SHARES
Net asset value and redemption price (subject to
contingent deferred sales charge) per share
($4,836 / 582 shares outstanding) $8.31
- ------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
per share ($1,113 / 133.7 shares outstanding) $8.32
============================================================
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
Financial Statements
STATEMENT OF OPERATIONS
Year ended August 31, 1995
(in thousands)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest income $ 11,056
- ------------------------------------------------------------------
Expenses:
Management fee 887
- ------------------------------------------------------------------
Administrative services fee 312
- ------------------------------------------------------------------
Distribution services fee 43
- ------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 451
- ------------------------------------------------------------------
Reports to shareholders 65
- ------------------------------------------------------------------
Professional fees 35
- ------------------------------------------------------------------
Trustees' fees and other 18
- ------------------------------------------------------------------
Total expenses 1,811
- ------------------------------------------------------------------
NET INVESTMENT INCOME 9,245
==================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of investments
(including options purchased) (2,981)
- ------------------------------------------------------------------
Net realized loss from futures transactions (320)
- ------------------------------------------------------------------
Net realized loss (3,301)
- ------------------------------------------------------------------
Change in net unrealized depreciation on investments 2,153
- ------------------------------------------------------------------
Net loss on investments (1,148)
- ------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,097
==================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995 1994
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 9,245 8,947
- ------------------------------------------------------------------------
Net realized loss (3,301) (4,926)
- ------------------------------------------------------------------------
Change in net unrealized depreciation 2,153 (2,831)
- ------------------------------------------------------------------------
Net increase in net assets
resulting from operations 8,097 1,190
- ------------------------------------------------------------------------
Net equalization (charges) credits (591) 36
- ------------------------------------------------------------------------
Distribution from net investment income (9,118) (10,570)
- ------------------------------------------------------------------------
Net decrease from capital share transactions (71,446) (535)
- ------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (73,058) (9,879)
========================================================================
NET ASSETS
Beginning of year 202,815 212,694
END OF YEAR (INCLUDING UNDISTRIBUTED NET
INVESTMENT INCOME OF $904 FOR 1995 AND
$1,363 FOR 1994) $129,757 202,815
========================================================================
</TABLE>
14
<PAGE> 15
Notes to Financial Statements
1 DESCRIPTION OF THE FUND
Kemper Adjustable Rate U.S. Government Fund is an open-end management investment
company organized as a business trust under the laws of Massachusetts. The Fund
currently offers three classes of shares. Class A shares are sold to investors
subject to an initial sales charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing expenses than Class A shares and
a contingent deferred sales charge payable upon certain redemptions. Class B
shares automatically convert to Class A shares six years after issuance. Class
C shares are sold without an initial or a contingent deferred sales charge but
are subject to higher ongoing expenses than Class A shares and do not convert
into another class. The Fund may offer, to a limited group of investors, Class
I shares (none sold through August 31, 1995) which are not subject to initial
or contingent deferred sales charges and have lower ongoing expenses than other
classes. Each share represents an identical interest in the investments of the
Fund and has the same rights.
2 SIGNIFICANT
ACCOUNTING POLICIES
INVESTMENT VALUATION. Investments are stated at value. Fixed income
securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Exchange traded fixed income options are valued at the
last sale price unless there is no sale price, in which event prices provided
by market makers are used. Over-the-counter traded fixed income options are
valued based upon prices provided by market makers. Financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Other securities and
assets are valued at fair value as determined in good faith by the Board of
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis and includes
premium and discount amortization on money market instruments and
mortgage-backed securities; it also includes original issue and market discount
amortization on long-term fixed income securities. Realized gains and losses
from investment transactions are reported on an identified cost basis. Realized
and unrealized gains and losses on financial futures and options are included
in net realized and unrealized gain (loss) on investments, as appropriate.
The Fund may purchase securities with delivery or payment to occur at a
later date. At the time the Fund enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is
reflected in the net asset value. The value of the security may vary with
market fluctuations. No interest accrues to the Fund until payment takes place.
At the time the Fund enters into this type of transaction it is required to
designate cash or other liquid assets equal to the value of the securities
purchased. At August 31, 1995 the Fund had $15,034,000 in purchase commitments
outstanding (12% of net assets), with a corresponding amount of assets
designated.
15
<PAGE> 16
Notes to Financial Statements
FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis
at net asset value (plus an initial sales charge on most sales of Class A
shares). Proceeds payable on redemption of Class B shares will be reduced by
the amount of any applicable contingent deferred sales charge. On each day the
New York Stock Exchange is open for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is determined separately for each class
by dividing the Fund's net assets attributable to that class by the number of
shares of the class outstanding.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS. The Fund has
complied with the special provisions of the Internal Revenue Code available to
investment companies and therefore no federal income tax provision is required.
The accumulated net realized loss on sales of investments for federal income
tax purposes at August 31, 1995, amounting to approximately $11,586,000, is
available to offset future taxable gains. If not applied, the loss carryover
expires during the period 1997 through 2004.
Differences in dividends per share are due to different class expenses.
Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with income tax principles
which may treat certain transactions differently than generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds from sales and cost of
redemptions of Fund shares is credited or charged to undistributed net
investment income so that income per share available for distribution is not
affected by sales or redemptions of shares.
3 TRANSACTIONS
WITH AFFILIATES
MANAGEMENT AGREEMENT. The Fund has a management agreement with Kemper
Financial Services, Inc. (KFS) and pays a management fee at an annual rate of
.55% of the first $250 million of average daily net assets declining gradually
to .40% of average daily net assets in excess of $12.5 billion. The Fund
incurred a management fee of $887,000 for the year ended August 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The Fund has an
underwriting and distribution services agreement with Kemper Distributors,
Inc.(KDI). As principal underwriter for the Fund, KDI retained commissions of
$22,000 for the year ended August 31, 1995, for sales of Class A shares, after
allowing $161,000 as commissions to retail firms, of which $40,000 was paid to
firms affiliated with KDI. For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of average daily net assets of the
Class B and Class C shares. Pursuant to the agreement, KDI enters into related
selling group agreements with various firms that provide distribution services
to investors. KDI compensates these
16
<PAGE> 17
Notes to Financial Statements
firms at various rates for sales of Class B and Class C shares. During the year
ended August 31, 1995, the Fund incurred a distribution services fee for Class
B and Class C shares of $43,000 and KDI paid $127,000 for commissions and
distribution fees to firms, including $45,000 to firms affiliated with KDI. In
addition, KDI received $30,000 of contingent deferred sales charges.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an administrative services
agreement with KDI. For providing information and administrative services to
shareholders, the Fund pays KDI a fee at an annual rate of up to .25% of
average daily net assets. KDI in turn has various arrangements with financial
services firms that provide these services and pays these firms based on assets
of Fund accounts the firms service. For the year ended August 31, 1995, the
Fund incurred an administrative services fee of $312,000 and KDI paid $320,000
to firms, including $76,000 that was paid to firms affiliated with KDI.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the
Fund's custodian and transfer agent, Kemper Service Company (KSvC) is the
shareholder service agent of the Fund. For the year ended August 31, 1995, the
custodian remitted shareholder service fees of $396,000 to KSvC.
OFFICERS AND TRUSTEES. Certain officers or trustees of the Fund are
also officers or directors of KFS. For the year ended August 31, 1995, the Fund
made no payments to its officers and incurred trustees' fees of $14,000 to
independent trustees.
4 INVESTMENT
TRANSACTIONS
For the year ended August 31, 1995, investment transactions (excluding
short-term instruments) are as follows (in thousands):
Purchases $526,942
Proceeds from sales 595,890
17
<PAGE> 18
Notes to Financial Statements
5 CAPITAL SHARE
TRANSACTIONS
The following table summarizes the activity in capital shares of the
Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995 1994
SHARES AMOUNT SHARES AMOUNT
------- --------- --------- ----------
<S> <C> <C> <C> <C>
SHARES SOLD
- --------------------------------------------------------------------------------------
Class A 4,898 $ 39,971 13,585 $114,850
- --------------------------------------------------------------------------------------
Class B 605 4,993 492 4,113
- --------------------------------------------------------------------------------------
Class C 169 1,399 116 973
- --------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT
OF DIVIDENDS
- --------------------------------------------------------------------------------------
Class A 737 6,072 892 7,682
- --------------------------------------------------------------------------------------
Class B 24 195 1 14
- --------------------------------------------------------------------------------------
Class C 6 49 -- --
- --------------------------------------------------------------------------------------
SHARES REDEEMED
- --------------------------------------------------------------------------------------
Class A (14,546) (119,011) (15,198) (127,781)
- --------------------------------------------------------------------------------------
Class B (478) (3,932) (31) (261)
- --------------------------------------------------------------------------------------
Class C (142) (1,182) (15) (125)
- --------------------------------------------------------------------------------------
CONVERSION OF SHARES
- --------------------------------------------------------------------------------------
Class A 31 262 -- --
- --------------------------------------------------------------------------------------
Class B (31) (262) -- --
- --------------------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $ (71,446) $ (535)
======================================================================================
</TABLE>
6 FINANCIAL FUTURES
CONTRACTS
In order to take advantage of anticipated market conditions, the Fund has
entered into exchange traded financial futures contracts as described below.
The Fund bears the market risk that arises from changes in the value of these
financial instruments.
At the time the Fund enters into a futures contract, it is required to
make a margin deposit with its custodian of a specified amount of cash or
eligible securities. Subsequently, gain or loss is recognized and payments are
made on a daily basis between the Fund and the broker as the market price of the
futures contract fluctuates. At August 31, 1995, the market value of
investments pledged by the Fund to cover margin requirements for open futures
positions was $219,000. At August 31, 1995, the Fund had outstanding financial
futures contracts as follows:
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN AT
TYPE AMOUNT POSITION MONTH 8/31/95
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Securities $7,500,000 Long December $5,000
</TABLE>
18
<PAGE> 19
Financial Highlights
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
JULY 1,
1991 TO YEAR ENDED
YEAR ENDED AUGUST 31, AUGUST 31, JUNE 30,
1995 1994 1993 1992 1991 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.33 8.68 8.63 8.37 8.21 8.21
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .34 .47 .63 .13 .79
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.04) (.29) .02 .22 .17 .02
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .44 .05 .49 .85 .30 .81
- ------------------------------------------------------------------------------------------------------------------
Less distribution
from net investment income .47 .40 .44 .59 .14 .81
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.30 8.33 8.68 8.63 8.37 8.21
==================================================================================================================
TOTAL RETURN 5.52% .59 5.87 10.56 3.62 10.33
==================================================================================================================
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% .93 .21 .28 1.09 1.07
- ------------------------------------------------------------------------------------------------------------------
Net investment income 5.76 3.96 5.44 7.02 9.45 9.62
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Class C
--------------------------- ---------------------------
Year May 31, Year May 31,
ended 1994 to ended 1994 to
August 31, August 31, August 31, August 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.32 8.37 8.33 8.37
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .43 .07 .43 .08
- -----------------------------------------------------------------------------------------------
Net realized and unrealized loss (.04) (.04) (.04) (.04)
- -----------------------------------------------------------------------------------------------
Total from investment operations .39 .03 .39 .04
- -----------------------------------------------------------------------------------------------
Less distribution
from net investment income .40 .08 .40 .08
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $8.31 8.32 8.32 8.33
===============================================================================================
Total return 4.84% .34 4.89 .47
===============================================================================================
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85% 1.96 1.79 1.88
- -----------------------------------------------------------------------------------------------
Net investment income 5.01 3.36 5.07 3.52
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FUND DATA
July 1,
1991 to Year ended
Year ended August 31, August 31, June 30,
1995 1994 1993 1992 1991 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period
(in thousands) $129,757 202,815 212,694 174,967 76,749 75,012
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 308% 533 138 309 228 259
============================================================================================================
</TABLE>
NOTES: KFS agreed to waive its management fee and absorb certain operating
expenses during a portion of the fiscal year ended August 31, 1992.
Thereafter, these expenses were gradually reinstated from December 31, 1992
through January 31, 1994. Without this agreement, the ratios of expenses and net
investment income to average net assets for Class A shares would have been .99%
and 3.90% for the year ended August 31, 1994, .95% and 4.70% for the year ended
August 31, 1993, and .90% and 6.40% for the year ended August 31, 1992.
Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges.
19
<PAGE> 20
Trustees and Officers
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
J. PATRICK BEIMFORD, JR.
Vice President
ELIZABETH A. BYRNES
Vice President
JOHN E. PETERS
Vice President
PAUL F. SLOAN
Vice President
PHILIP J. COLLORA
Vice President
and Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
1-800-621-1048
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 S. LaSalle Street
Chicago, IL 60603
[LOGO] Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Fund prospectus. [KEMPER MUTUAL FUNDS LOGO]
KARGF - 2 (10/95) 1004930
Printed in the U.S.A.
