KEMPER INCOME FUNDS
                         Kemper Diversified Income Fund
                             Kemper High Yield Fund
                       Kemper High Yield Opportunity Fund
                   Kemper Income and Capital Preservation Fund
                        SUPPLEMENT DATED JANUARY 1, 1999
                       TO PROSPECTUS DATED JANUARY 1, 1999

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A proxy statement dated October 23, 1998 (the "Proxy  Statement")  solicited the
approval of the  shareholders  of each of the funds  listed above (each a "Fund"
and, collectively,  the "Funds") on certain proposals, including the elimination
of the  shareholder  approval  requirement  to amend  investment  objectives and
certain investment  policies (the "Proposals").  However, at the Special Meeting
of Shareholders  held on December 17, 1998 (the "Special  Meeting"),  there were
insufficient  votes to approve the Proposals.  The Special Meeting was adjourned
to January 15, 1999. The currently  effective  Prospectus of the Funds describes
the investment  objectives  and  investment  policies as proposed to be changed.
Until such time as the requisite number of shares of the Funds has been voted in
favor of the Proposals, the Prospectus is revised to read as follows:

The last  sentence  of the first  paragraph  of the  "Investment  Objective  and
Principal  Strategies"  section for each Fund is replaced in its entirety by the
following sentences:

Each Fund has adopted  certain  fundamental  investment  restrictions  which are
presented in the Statement of Additional Information and that, together with the
investment  objective  and  policies  of a  Fund  (for  the  Kemper  High  Yield
Opportunity Fund, however,  only those policies  specifically  designated in the
Statement of Additional  Information as fundamental),  cannot be changed without
approval by holders of a majority of its outstanding  voting shares.  As defined
in the Investment Company Act of 1940 ("1940 Act"), this means the lesser of the
vote of (a) 67% of the shares of a Fund present at a meeting where more than 50%
of the  outstanding  shares are present in person or by proxy;  or (b) more than
50% of the  outstanding  shares of a Fund.  Policies  of the  Kemper  High Yield
Opportunity  Fund that are neither  designated as Fundamental  nor  incorporated
into any of the  fundamental  investment  restrictions  referred to above may be
changed by the Board of Trustees of the Fund without shareholder approval.

January 1, 1999