-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WGFLwixDWX2pjPg3rs3rl9E+PwMlNNRI2zKX+CBgPDS/w1+Uw+EJCYYD/pA0SUEL 7LLnnyajlg5uPRHheH4WHA== 0000950137-99-001456.txt : 19990510 0000950137-99-001456.hdr.sgml : 19990510 ACCESSION NUMBER: 0000950137-99-001456 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEMPER ADJUSTABLE RATE U S GOVERNMENT FUND CENTRAL INDEX KEY: 0000814955 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363528556 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05195 FILM NUMBER: 99614396 BUSINESS ADDRESS: STREET 1: 222 S RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3125371569 MAIL ADDRESS: STREET 1: 222 SOUTH RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: KEMPER GOVERNMENT INCOME TRUST DATE OF NAME CHANGE: 19870811 N-30D 1 SEMIANNUAL REPORT DATED 2/28/99 1 SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED FEBRUARY 28, 1999 LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM) SEEKS HIGH CURRENT INCOME AND PRESERVATION OF CAPITAL. KEMPER SHORT-TERM U.S. GOVERNMENT FUND "... In short, the shareholders approved a structure that should help us maximize the fund's potential benefits. ..." [KEMPER FUNDS LOGO] 2 CONTENTS 3 ECONOMIC OVERVIEW 5 PERFORMANCE UPDATE 7 PORTFOLIO STATISTICS 8 SHAREHOLDERS' MEETING 9 PORTFOLIO OF INVESTMENTS 11 FINANCIAL STATEMENTS 13 NOTES TO FINANCIAL STATEMENTS 17 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- AT A GLANCE - -------------------------------------------------------------------------------- KEMPER SHORT-TERM U.S. GOVERNMENT FUND TOTAL RETURNS - -------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 1999 (UNADJUSTED FOR ANY SALES CHARGE) [BAR GRAPH] - -------------------------------------------------------------------------------- CLASS A 1.23 CLASS B 0.87 CLASS C 0.92 LIPPER SHORT-TERM GOVERNMENT FUND CATEGORY AVERAGE* 1.68 - --------------------------------------------------------------------------------
Returns and rankings are historical and do not guarantee future results. investment returns and principal values will fluctuate so that shares, when redeemed, may be worth more or less than original cost.
- -------------------------------------------------------------------------------- NET ASSET VALUE - -------------------------------------------------------------------------------- AS OF AS OF 2/28/99 8/31/98 - -------------------------------------------------------------------------------- KEMPER SHORT-TERM U.S. GOVERNMENT FUND CLASS A $8.11 $8.19 - -------------------------------------------------------------------------------- KEMPER SHORT-TERM U.S. GOVERNMENT FUND CLASS B $8.13 $8.21 - -------------------------------------------------------------------------------- KEMPER SHORT-TERM U.S. GOVERNMENT FUND CLASS C $8.14 $8.22 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEMPER SHORT-TERM U.S. GOVERNMENT FUND RANKINGS AS OF 2/28/99* - -------------------------------------------------------------------------------- COMPARED TO ALL OTHER FUNDS IN THE LIPPER SHORT-TERM GOVERNMENT FUNDS CATEGORY
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- 1-YEAR #26 of 28 funds #28 of 28 funds #28 of 30 funds - -------------------------------------------------------------------------------- 5-YEAR #20 of 21 funds N/A N/A - -------------------------------------------------------------------------------- 10-YEAR #2 of 3 funds N/A N/A - --------------------------------------------------------------------------------
* 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. - -------------------------------------------------------------------------------- DIVIDEND REVIEW - -------------------------------------------------------------------------------- THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND AS OF FEBRUARY 28, 1999.
CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- SIX-MONTHS INCOME: $.1800 $.1513 $.1554 - -------------------------------------------------------------------------------- FEBRUARY DIVIDEND: $.0300 $.0232 $.0250 - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE+: 4.44% 3.42% 3.69% - -------------------------------------------------------------------------------- SEC YIELD+: 4.30% 3.43% 3.66% - --------------------------------------------------------------------------------
+ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on February 28, 1999. 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 February 28, 1999, shown as an annualized percentage of the maximum offering price on that date. the SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Yields and distribution rates are historical and will fluctuate. - -------------------------------------------------------------------------------- TERMS TO KNOW - -------------------------------------------------------------------------------- ADJUSTABLE RATE MORTGAGES (ARMS) Mortgages whose interest rates adjust periodically based on changes to a corresponding index rate. To help 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 A measure of the interest rate sensitivity of a fixed-income investment or portfolio. The longer the duration, the greater a portfolio's sensitivity to changes in interest rates. YIELD A fund's yield is a measure of the net investment income per share earned over a specific one-month or 30-day period expressed as a percentage of the maximum offering price of the fund shares at the end of the period. 3 - -------------------------------------------------------------------------------- ECONOMIC OVERVIEW - -------------------------------------------------------------------------------- [SILVIA PHOTO] DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND MANAGERS. SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY. SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES. DEAR KEMPER FUNDS SHAREHOLDER: If you think the first quarter of 1999 has seemed rather anticlimactic compared to 1998, you're not alone. The year began with a quiet bang in the U.S. stock market, with the Dow Jones Industrial Average hitting an all-time high. While stock market volatility has continued, it seems to be phasing investors less and less. Even global events are being taken in stride. Europe's Economic and Monetary Union (EMU) was launched without much notice. And when Brazil's economy recently took a turn for the worse, Wall Street was only mildly concerned. Also contributing to today's laid-back attitude -- the impeachment trial of President Clinton has all but fizzled into obscurity without significantly affecting the U.S. economy or markets. Indeed, the U.S. economy looks good. The fundamentals by which we measure the state of the economy remain strong. We continue to see solid consumer spending growth, continued investment spending and low inflation. This suggests that there are no internal problems for continued U.S. economic growth. Additionally, we can expect the Federal Reserve Board to keep short-term interest rates steady. At both the February 3 and March 30 meetings, the Fed left interest rates unchanged. It is likely that this "hands-off" approach will continue at the Fed's May 18 meeting, particularly if U.S. inflation remains in check and there is a degree of slowdown in the U.S. economy. Caution is warranted here, though, if growth continues far above the Fed's view of noninflationary growth. In that case, the Fed could adopt a bias to tighten. The U.S. budget surplus for 1998 came in at $60 billion, with another budget surplus of between $95 billion and $105 billion expected for fiscal 1999. Growth in the nation's gross domestic product (GDP), which represents the total value of all goods and services produced within the U.S. economy, has remained steady. GDP, driven by consumer spending, is expected to grow at an annualized rate of approximately 3 to 3.5 percent in 1999. We also anticipate modest capital spending and inventory growth. The consumer price index (CPI) remains in the vicinity of 2 percent. However, energy prices, which were down 6 to 7 percent last year and helped keep the CPI down, are unlikely to remain so low this year. For 1999, inflation should register at 2 to 2.5 percent. Employment growth has slowed to 2 percent, but combined with real wage growth of between 2 percent and 2.5 percent, produces real income growth between 4 percent and 5 percent. In addition, gains in household net worth, which tends to fuel consumer spending, are on the rise. Banks appear to be only a little less willing to lend in 1999, so the threat of a general credit crunch is minimal. As a result of all these factors, consumer spending should continue to grow this year. On a less positive note, two factors need to be watched. First, corporate profits have slowed in 1999, growing at a rate of 1 percent to 3 percent on a year-over-year basis. As a result, we may see a slowdown in capital spending this year. Second, the current U.S. account deficit is rising, which suggests the U.S. economy is increasingly dependent on foreign capital inflows to finance its economic activity. This is acceptable as long as foreign money continues to flow in. But if foreign investors, particularly the Japanese, no longer wish to invest in the United States, we can expect pressure on interest rates and the dollar, as well as increased uncertainty and market volatility. Given the events of the last two years, investors may be comforted by the fact that the U.S. markets and economy have withstood the test of tumultuous times. While certain countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering from economic crises, others, including the Philippines, South Korea, Thailand and China, continue to recover and grow. As long as the Fed and the Group of Eight leading industrial nations (G8) are committed to avoiding recession on national and global levels respectively, investors have a good chance of experiencing a more stable economic environment. At home, there has been somewhat of a slowdown in manufacturing, as reduced U.S. exports reflect foreign economic turmoil. But the global impact of the Asian crisis still has not hit the U.S. as hard as some analysts expected. Indeed, Asian turmoil has not affected U.S. export 3 4 - -------------------------------------------------------------------------------- ECONOMIC OVERVIEW - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ECONOMIC GUIDEPOSTS - -------------------------------------------------------------------------------- ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE. THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
NOW( 3/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO ------------- ------------ ---------- ----------- Ten Year Treasury Rate 5.23 4.81 5.65 6.69 Prime Rate 7.75 8.49 8.50 8.30 Inflation* 1.79 1.43 1.38 2.76 The U.S. Dollar* -0.54 4.31 4.88 8.58 Capital goods orders* 2.35 11.44 8.10 5.52 Industrial production * 1.88 3.56 5.05 5.86 Employment growth* 2.21 2.50 2.57 2.52
(1) Falling interest rates in recent years have been a big plus for financial assets. (2) The interest rate that commercial lenders charge their best borrowers. (3) Inflation reduces an investor's real return. in the last five years, inflation has been as high as 6 percent. The low, moderate inflation of the last few years has meant high real returns. (4) Changes in the exchange value of the dollar impact u.s. exporters and the value of U.S. firms' foreign profits. (5) These influence corporate profits and equity performance. (6) An influence on family income and retail sales. *Data as of February 28, 1999. Source: Economics Department, Scudder Kemper Investments, Inc. volumes as much as it has lowered import prices and helped reduce global interest rates. Ultimately, Europe's recently inaugurated EMU is likely to bring more flexibility and growth potential for the region. European equities may be the beneficiaries of increased spending, as governments seek to ease fiscal and monetary policy, foster growth and reduce unemployment. It's going to be interesting to watch as the monetary union continues to evolve. One lesson for investors -- particularly those with international holdings -- is to diversify. With the democratization of the world, the globalization of trade and more free market economies at our fingertips, international markets are becoming more and more attractive. But if you subscribe to the concept of international investment, be cautious -- don't put all of your investment eggs in one basket (i.e. country or region). Other key elements to watch in 1999: the race for the next presidency and information technology preparedness for the year 2000. And remember, while it is nearly impossible to predict the next big crisis, preparedness through diversification and risk control are key. Thank you for choosing to invest with Kemper Funds. We appreciate the opportunity to serve your investment needs. Sincerely, /s/ JOHN E. SILVIA JOHN E. SILVIA The information contained in this piece has been taken from sources believed to be reliable, but the accuracy of the information is not guaranteed. The opinions and forecasts expressed are those of Dr. John Silvia as of April 5, 1999, and may not actually come to pass. This information is subject to change. No part of this material is intended as an investment recommendation. 4 5 - -------------------------------------------------------------------------------- PERFORMANCE UPDATE - -------------------------------------------------------------------------------- [VANDENBERG PHOTO] RICHARD VANDENBERG JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1996 AND IS A MANAGING DIRECTOR. HE IS ALSO LEAD PORTFOLIO MANAGER OF KEMPER SHORT-TERM U.S. GOVERNMENT FUND. VANDENBERG HAS 25 YEARS OF FIXED-INCOME PORTFOLIO MANAGEMENT EXPERIENCE. HE RECEIVED A BACHELOR'S DEGREE AND M.B.A. FROM THE UNIVERSITY OF WISCONSIN. [DUGENSKE PHOTO] JOHN DUGENSKE IS A VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS, JOINING THE FIRM IN 1998. HE IS ALSO A PORTFOLIO MANAGER FOR KEMPER SHORT-TERM U.S. GOVERNMENT FUND, HE EARNED HIS BACHELOR'S AND MASTER'S DEGREES IN MECHANICAL ENGINEERING AND HIS M.B.A. FROM THE UNIVERSITY OF ILLINOIS. [DOLAN PHOTO] SCOTT DOLAN JOINED SCUDDER KEMPER INVESTMENTS IN 1989 AND IS A VICE PRESIDENT. HE IS ALSO A PORTFOLIO MANAGER FOR KEMPER SHORT-TERM U.S. GOVERNMENT FUND. HE RECEIVED A BACHELOR'S DEGREE IN BUSINESS ADMINISTRATION MAJORING IN FINANCE FROM NORTHEASTERN UNIVERSITY AND AN MS DEGREE IN FINANCE FROM BOSTON COLLEGE. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGEMENT TEAM ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS. ON DECEMBER 17, 1998, SHAREHOLDERS OF KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND APPROVED A NEW INVESTMENT OBJECTIVE AND NEW POLICIES FOR THE FUND. ON JANUARY 15, 1999, SHAREHOLDERS OF KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND APPROVED A REORGANIZATION WHEREBY KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND AND KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND WERE EFFECTIVELY MERGED. THE RESULTING COMBINED FUND, KEMPER SHORT-TERM U.S. GOVERNMENT FUND, WILL PURSUE HIGH CURRENT INCOME AND PRESERVATION OF CAPITAL. THE REORGANIZATION OCCURRED ON FEBRUARY 5, 1999. WE EXPECT THE COMBINED FUND TO PROVIDE AN ATTRACTIVE TRADE-OFF BETWEEN RISK AND RETURN FOR CONSERVATIVE INVESTORS, AND THAT THE FUND WILL PURSUE ITS OBJECTIVE WITH POTENTIALLY LOWER EXPENSES BY VIRTUE OF ITS INCREASED ASSET SIZE. BELOW THE FUND'S MANAGERS DISCUSS THEIR STRATEGIES FOR MANAGING THE COMBINED FUND, AND THEIR OUTLOOK FOR THE COMING MONTHS. Q NORMALLY, WE'D START OUR QUESTION-AND-ANSWER SESSION WITH A WORD ABOUT THE FUND'S PERFORMANCE. BUT SINCE THE FUND WAS REORGANIZED NEAR THE END OF THE REPORTING PERIOD, IT'S A BIT PREMATURE TO TALK ABOUT RETURNS VERSUS ITS PEERS. INSTEAD, COULD YOU RECAP HOW AND WHY THE TWO FUNDS, WHICH THIS TEAM ALSO MANAGED, WERE REORGANIZED INTO KEMPER SHORT-TERM U.S. GOVERNMENT FUND? A Certainly. We'll start with the Short-Intermediate Government Fund. Despite a reasonably good record of investment performance, the fund was unable to garner sufficient assets to operate efficiently. This was largely due to the fact that shorter-term and longer-term securities have offered a better trade-off between risk and return than intermediate-term securities over the past few years. So there wasn't an overwhelming amount of investor interest in the fund. Also, because of its modest asset size, the fund's relatively small number of investors were required to shoulder the costs associated with maintaining a mutual fund, including management fees, the expense of producing shareholder reports, the cost of record-keeping and providing statements, etc. In the case of Kemper Adjustable Rate U.S. Government Fund, changes were needed because adjustable rate mortgages (ARMs) are not attractive investments at the present time. Currently, they are experiencing a "no-win" situation: no supply, no demand. As interest rates have declined over the last few years, ARM owners have tended to refinance their ARMs into fixed-rate mortgages to lock in an attractive low rate. Therefore, the pool of ARMs in which the fund could invest was shrinking. In addition, as assets came into the fund when its ARMs were paid ahead of schedule, there were very few attractively priced ARMs available in which to reinvest the proceeds. Therefore, the Boards of the funds recommended a two-step plan to help resolve these issues: 1) combine the funds to provide the "critical mass" of assets necessary to operate efficiently, and 2) adopt in 5 6 - -------------------------------------------------------------------------------- PERFORMANCE UPDATE - -------------------------------------------------------------------------------- the merged fund a wider range of investment options and an average maturity range of 1-3 years, which may enhance the fund's potential to perform well in volatile markets. The goal was to create a fund that will pursue high income with low volatility of principal, will have broader diversification and because of its increased size, have the opportunity to operate at a lower cost. Q HOW DO YOU PLAN TO RUN THE COMBINED FUND? A The fund will typically have a duration of about 1.5 years, which provides much of the yield of longer-maturity instruments, but with substantially less potential risk. We also plan to make the most of the fund's flexibility. We can look for opportunities with a variety of mortgage-backed securities, asset-backed securities and U.S. Treasuries. Wherever we believe the trade-off of risk and return is most attractive, we have the ability to invest and get the potentially best possible balance for our shareholders. For example, we had a slightly heavier bias towards mortgages than U.S. Treasuries earlier in the year, but mortgages have rallied to the point where we feel we've squeezed most of the value from them. So we're looking for attractive possibilities in the short end of the U.S. Treasury market. In addition, we believe the changes approved by the fund's shareholders will enable us to make the most of our management style. Q IN WHAT WAY? A Our approach at Scudder Kemper Investments is to monitor the economy and the markets carefully and take very measured risks, evaluating every security in terms of its risk/reward potential. This close attention to detail and our ability to eke out incremental value even in tight markets is where we believe we can add the most value. We have a lot of experience managing assets using this approach, and the fund's flexibility now gives us more ways to make our management style benefit investors. Another advantage is that, compared to the former ARM fund, the merged fund's benchmark will be much more clearly defined. Adjustable rate funds vary widely in terms of their ARM requirements and their ability to invest in other types of securities. Therefore, it was difficult in the past to compare our performance to our peer group and assess how well we were doing. It will be much easier to measure Kemper Short-Term U.S. Government Fund's performance versus its peers. And we'll be able to establish a far more accurate benchmark against which we can monitor the fund's results and adjust the portfolio to improve those results. For example, the fund's Lipper category should change from the ARM category to the Short-Term Government Fund category. These funds are far more similar to each other than ARM funds. In short, the shareholders approved a structure that should help us maximize the fund's potential benefits. We're confident that they will be very pleased with their decision to support the proposal to change the name of the fund, investment objectives and fund policies. Q WHAT'S YOUR OUTLOOK FOR THE SHORT-TERM GOVERNMENT MARKET? A Over the last six months, the government bond market has experienced a shift from a preoccupation with events overseas to closer attention to the economy at home. There has been a lot of price volatility associated with this change in focus, even at the usually docile short end of the market. We believe volatility will continue to trouble the market as investors wrestle with the tension between a weak global economy and a strong U.S. economy. Inflation, however, remains subdued and commodity prices for the most part remain historically low. So while bond prices and yields may continue to bounce around, we think they'll do so within a broad range and that no fundamental change in the interest rate environment is likely. Again, the fund's flexibility enhances our ability to use market turbulence to our advantage. If certain securities begin to look very rich or very cheap in light of investor overreaction, we now have greater opportunity to make such anomalies benefit our shareholders. 6 7 - -------------------------------------------------------------------------------- PORTFOLIO STATISTICS - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION*
- -------------------------------------------------------------------------------- ON 2/28/99 ON 8/31/98 - -------------------------------------------------------------------------------- FIXED RATE AGENCY SECURITIES 38% 11% - -------------------------------------------------------------------------------- GOVERNMENT BONDS: - -------------------------------------------------------------------------------- SHORT-TERM 29 1 - -------------------------------------------------------------------------------- INTERMEDIATE-TERM 14 5 - -------------------------------------------------------------------------------- CASH EQUIVALENTS 11 10 - -------------------------------------------------------------------------------- CORPORATES 8 3 - -------------------------------------------------------------------------------- GOVERNMENT AGENCIES ARMS -- 70 ================================================================================ 100% 100%
[PIE CHART] [PIE CHART] - Fixed rate agency securities ON 2/28/99 ON 8/31/98 Government bonds - Short-term - intermediate-term - Cash equivalents - Corporates - Government agencies ARMs - -------------------------------------------------------------------------------- AVERAGE MATURITY
- -------------------------------------------------------------------------------- ON 2/28/99 ON 8/31/98 - -------------------------------------------------------------------------------- AVERAGE MATURITY 3.4 years 2.9 years ================================================================================
*Portfolio composition and holdings are subject to change. 7 8 - -------------------------------------------------------------------------------- SHAREHOLDERS' MEETING - -------------------------------------------------------------------------------- SPECIAL SHAREHOLDERS' MEETING On December 17, 1998, a special shareholders' meeting was held and adjourned to January 15, 1999. Kemper Short-Term U.S. Government Fund shareholders were asked to vote on two separate issues: approval of the new Investment Management Agreement between the fund and Scudder Kemper Investments, Inc., and to modify or eliminate certain policies and to eliminate the shareholder approval requirements as to certain other matters. The following are the results. 1) Approval of the new Investment Management Underwriting of securities Agreement between the fund and Scudder Kemper Investments, Inc. This item was For Against Abstain approved. 3,632,503 315,320 533,973 For Against Abstain Investment in real estate 5,112,330 194,546 443,067 For Against Abstain 2) To modify or eliminate certain policies and to eliminate the shareholder approval 3,625,201 322,623 533,973 requirements as to certain other matters. These items were approved. Purchase of commodities New investment objectives and policies For Against Abstain For Against Abstain 3,623,966 323,857 533,973 3,631,835 315,989 533,973 Lending Investment policies For Against Abstain For Against Abstain 3,620,872 326,952 533,973 3,631,835 315,989 533,973 Margin purchases and short sales Diversification For Against Abstain For Against Abstain 3,616,131 331,692 533,973 3,632,503 315,320 533,973 Pledging of assets Borrowing For Against Abstain For Against Abstain 3,620,736 327,088 533,973 3,626,554 321,269 533,973 Purchases of securities Senior securities For Against Abstain For Against Abstain 3,630,495 317,329 533,973 3,632,503 315,320 533,973 Purchases of options and warrants Concentration For Against Abstain For Against Abstain 3,613,927 333,896 533,973 3,632,503 315,320 533,973 8 9 PORTFOLIO OF INVESTMENTS Kemper Short-term U.S. Government Fund Portfolio of Investments at February 28, 1999 (unaudited) (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------- INTEREST PRINCIPAL U.S. GOVERNMENT OBLIGATIONS TYPE RATE MATURITY AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- U.S. TREASURY SECURITIES - 42.9% (Cost: $108,120) Notes 4.625% 2000 $58,000 $ 57,465 5.375 2000 14,200 14,240 5.75 2002 18,000 18,276 6.625 2007 6,000 6,471 Bonds 8.75 2008 9,500 10,754 --------------------------------------------------------------------- 107,206 - ------------------------------------------------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 14.0% (Cost: $35,267) Adjustable rate mortgages(a) 6.625 2022 21 21 Pass-through certificates 7.00 2015-2029 34,276 34,717 9.50 2016-2018 22 23 11.00 2018 243 264 9.00 2019 68 73 9.50 2020 8 9 --------------------------------------------------------------------- 35,107 - ------------------------------------------------------------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORPORATION - 13.7% (Cost: $34,451) Fixed rate collateralized 11.00 2014 6 6 mortgage obligations 5.962 2020 9,730 9,770 6.075 2021 18,636 18,723 6.00 2028 5,851 5,862 --------------------------------------------------------------------- 34,361 - ------------------------------------------------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 10.3% (Cost: $26,164) Fixed rate collateralized 8.50 2005 10,000 10,269 mortgage obligations 5.50 2008 12,463 12,221 6.00 2019 3,200 3,186 --------------------------------------------------------------------- 25,676 --------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS--80.9% (Cost: $204,002) 202,350 --------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- (b)CORPORATE OBLIGATIONS - 8.2% (Cost: $20,609) American Express Credit Account Master Trust 6.40 2005 4,920 5,017 Capital Auto Receivables Asset Trust 5.58 2002 9,000 8,993 Chase Manhattan Auto Owner Trust 5.80 2003 6,500 6,527 --------------------------------------------------------------------- 20,537 - ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS - 10.9% (Cost: $27,138) Yield--4.72% to 4.75% Due--March 1999 Federal Home Loan Bank 7,000 6,988 Federal Home Loan Mortgage Corp. 7,000 6,978 Federal National Mortgage Association 13,200 13,172 --------------------------------------------------------------------- 27,138 --------------------------------------------------------------------- TOTAL INVESTMENT PORTFOLIO--100% (Cost: $251,749) $250,025 ---------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. 9 10 PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- (a) Adjustable rate security. The interest rate on this security varies with its selected index at specified intervals and the rate shown above is the effective rate on February 28, 1999. The date shown represents the final maturity of the obligation. (b) The fund may invest up to 35% of total assets in fixed income securities other than U.S. Government Securities. Based on the cost of investments of $251,749,000 for federal income tax purposes at February 28, 1999, the gross unrealized appreciation was $11,000, the gross unrealized depreciation was $1,735,000 and the net unrealized depreciation on investments was $1,724,000. See accompanying Notes to Financial Statements. 10 11 FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1999 (UNAUDITED) (IN THOUSANDS) - ------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------ Investments, at value (Cost: $251,749) $250,025 - ------------------------------------------------------------------------ Cash 159 - ------------------------------------------------------------------------ Receivable for: Fund shares sold 2,098 - ------------------------------------------------------------------------ Investments sold 14,807 - ------------------------------------------------------------------------ Interest 2,117 - ------------------------------------------------------------------------ TOTAL ASSETS 269,206 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND NET ASSETS - ------------------------------------------------------------------------ Payable for: Fund shares redeemed 1,910 - ------------------------------------------------------------------------ Investments purchased 35,453 - ------------------------------------------------------------------------ Management fee 82 - ------------------------------------------------------------------------ Distribution services fee 39 - ------------------------------------------------------------------------ Administrative services fee 31 - ------------------------------------------------------------------------ Custodian and transfer agent fees and related expenses 129 - ------------------------------------------------------------------------ Trustees' fees and other 116 - ------------------------------------------------------------------------ Total liabilities 37,760 - ------------------------------------------------------------------------ NET ASSETS $231,446 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ ANALYSIS OF NET ASSETS - ------------------------------------------------------------------------ Paid-in capital $243,968 - ------------------------------------------------------------------------ Accumulated net realized loss on investments (10,655) - ------------------------------------------------------------------------ Net unrealized depreciation on investments (1,543) - ------------------------------------------------------------------------ Net investment loss (324) - ------------------------------------------------------------------------ NET ASSETS APPLICABLE TO SHARES OUTSTANDING $231,446 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ THE PRICING OF SHARES - ------------------------------------------------------------------------ CLASS A SHARES Net asset value and redemption price per share ($150,829 / 18,600 shares outstanding) $8.11 - ------------------------------------------------------------------------ Maximum offering price per share (net asset value, plus 2.89% of net asset value or 2.75% of offering price) $8.34 - ------------------------------------------------------------------------ CLASS B SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($71,952 / 8,845 shares outstanding) $8.13 - ------------------------------------------------------------------------ CLASS C SHARES Net asset value and redemption price (subject to contingent deferred sales charge) per share ($8,665 / 1,064 shares outstanding) $8.14 - ------------------------------------------------------------------------
See accompanying Notes to Financial Statements. 11 12 FINANCIAL STATEMENTS STATEMENT OF OPERATIONS SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME - ---------------------------------------------------------------------------------------------------------- Interest income $ 2,374 - ---------------------------------------------------------------------------------------------------------- Expenses: Management fee 231 - ---------------------------------------------------------------------------------------------------------- Distribution services fee 63 - ---------------------------------------------------------------------------------------------------------- Administrative services fee 92 - ---------------------------------------------------------------------------------------------------------- Custodian and transfer agent fees and related expenses 153 - ---------------------------------------------------------------------------------------------------------- Professional fees 40 - ---------------------------------------------------------------------------------------------------------- Reports to shareholders 45 - ---------------------------------------------------------------------------------------------------------- Trustees' fees and other 20 - ---------------------------------------------------------------------------------------------------------- Total expenses 644 - ---------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,730 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS - ---------------------------------------------------------------------------------------------------------- Net realized loss on sales of investments (743) - ---------------------------------------------------------------------------------------------------------- Change in net unrealized depreciation on investments (1,382) - ---------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation on future transactions 181 - ---------------------------------------------------------------------------------------------------------- Change in net unrealized depreciation (1,301) - ---------------------------------------------------------------------------------------------------------- Net loss on investments (1,944) - ---------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (214) - ----------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
SIX MONTHS ENDED FEBRUARY 28, 1999 YEAR ENDED (UNAUDITED) AUGUST 31, 1998 - ---------------------------------------------------------------------------------------------------------- OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY - ---------------------------------------------------------------------------------------------------------- Net investment income $ 1,730 3,564 - ---------------------------------------------------------------------------------------------------------- Net realized loss (743) (218) - ---------------------------------------------------------------------------------------------------------- Change in net unrealized depreciation (1,201) (589) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (214) 2,757 - ---------------------------------------------------------------------------------------------------------- Distribution from net investment income (2,054) (3,759) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) from capital share transactions 164,407 (11,658) - ---------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 162,139 (12,660) - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------------------------- Beginning of period 69,307 81,967 - ---------------------------------------------------------------------------------------------------------- END OF PERIOD $231,446 69,307 - ----------------------------------------------------------------------------------------------------------
12 13 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1 DESCRIPTION OF THE FUND Kemper Short-Term U.S. Government Fund (the "fund") is an open-end management investment company organized as a business trust under the laws of Massachusetts. The fund was previously known as Kemper Adjustable Rate U.S. Government Fund until February 5, 1999, when it revised its investment policies and acquired the net assets of Kemper Short-Intermediate Government Fund in a tax-free exchange. The fund offers four classes of shares. Class A shares are sold to investors subject to an initial sales charge. Class B shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are sold without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C Shares do not convert into another class. Class I shares (none sold through February 28, 1999) are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and typically have lower ongoing expenses than other classes. Differences in class expenses will result in the payment of different per share income dividends by class. All shares of the fund have equal rights with respect to voting, dividends and assets, subject to class specific preferences. - -------------------------------------------------------------------------------- 2 SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at value. Portfolio debt securities with remaining maturities greater than sixty days are valued by pricing agents approved by the officers of the fund, whose quotations reflect broker/dealer- supplied valuations and electronic data processing techniques. If the pricing agents are unable to provide such quotations, the most recent bid quotation supplied by a bona fide market maker shall be used. Money market instruments purchased with an original maturity of sixty days or less are valued at amortized cost. Futures contracts are valued at the most recent settlement price. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board of Trustees. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are accounted for on the trade date. Interest income is recorded on the accrual basis and includes discount amortization on all fixed income securities and premium amortization on mortgage-backed securities. Realized gains and losses from investment transactions are reported on an identified cost basis. FUND SHARE VALUATION. Fund shares are sold and redeemed on a continuous basis at net asset value (plus an initial sales charge on most sales of Class A shares). Proceeds payable on redemption of Class B and Class C shares will be reduced by the amount of any applicable contingent deferred sales charge. On each day the New York Stock Exchange is open for trading, the net asset value per share is determined as of the close of the Exchange. The net asset value per share is determined separately for each class by dividing the fund's net assets attributable to that class by the number of shares of the class outstanding. FEDERAL INCOME TAXES. The fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its 13 14 NOTES TO FINANCIAL STATEMENTS shareholders. Accordingly, the fund paid no federal income taxes and no federal income tax provision was required. At August 31, 1998, the fund had a net tax basis loss carryforward of approximately $9,652,000, which may be applied against any realized net taxable gains of each succeeding year until fully utilized or it will expire during the period 1999 through 2006. In addition, from November 1, 1997 through August 31, 1998 the fund incurred approximately $125,000 of net realized capital losses. As permitted by tax regulations, the fund intends to elect to defer these losses and treat them as arising in the fiscal year ended August 31, 1999. DIVIDENDS TO SHAREHOLDERS. The fund declares and pays dividends of net investment income monthly and any net realized capital gains annually, which are recorded on the ex-dividend date. Dividends are determined in accordance with income tax principles which may treat certain transactions differently than generally accepted accounting principles. - -------------------------------------------------------------------------------- 3 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management agreement with Scudder Kemper Investments, Inc. (Scudder Kemper), and pays a monthly investment management fee of 1/12 of the annual rate of .55% of the first $250 million of average daily net assets declining to .40% of average daily net assets in excess of $12.5 billion. The fund incurred a management fee of $231,000 for the six months ended February 28, 1999. UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT. The fund has an underwriting and distribution services agreement with Kemper Distributors, Inc. (KDI). Underwriting commissions retained by KDI in connection with the distribution of Class A shares for the six months ended February 28, 1999 are $4,000. 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 separate Rule 12b-1 plans for the Class B and Class C shares. Pursuant to the agreement, KDI enters into related selling group agreements with various firms at various rates for sales of Class B and Class C shares. In addition, KDI receives any contingent deferred sales charges (CDSC) from redemptions of Class B and Class C shares. Distribution fees and CDSC received by KDI for the six months ended February 28, 1999 are $110,000. 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 of each class. KDI in turn has various agreements with financial services firms that provide these services and pays these firms based on assets of fund accounts the firms service. Administrative services fees paid by the fund to KDI for the six months ended February 28, 1999 are $92,000. SHAREHOLDER SERVICES AGREEMENT. Pursuant to a services agreement with the fund's transfer agent, Kemper Service Company (KSvC) is the shareholder service agent of the fund. Under the agreement, KSvC received shareholder services fees of $113,000 for the six months ended February 28, 1999. 14 15 NOTES TO FINANCIAL STATEMENTS OFFICERS AND TRUSTEES. Certain officers or trustees of the fund are also officers or directors of Scudder Kemper. For the six months ended February 28, 1999, the fund made no direct payments to its officers and incurred trustees' fees of $9,000 to independent trustees. - -------------------------------------------------------------------------------- 4 INVESTMENT TRANSACTIONS For the six months ended February 28, 1999, investment transactions (excluding short-term instruments) are as follows (in thousands): Purchases $519,749 Proceeds from sales 356,946 - -------------------------------------------------------------------------------- 5 CAPITAL SHARE TRANSACTIONS The following table summarizes the activity in capital shares of the fund (in thousands):
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 1999 1998 --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------ SHARES SOLD Class A 4,355 $ 35,260 1,939 $ 15,939 ------------------------------------------------------------------------------ Class B 466 4,582 540 4,466 ------------------------------------------------------------------------------ Class C 313 2,548 172 1,427 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ SHARES ISSUED IN REINVESTMENT OF DIVIDENDS Class A 145 1,451 296 2,440 ------------------------------------------------------------------------------ Class B 30 242 32 261 ------------------------------------------------------------------------------ Class C 5 40 7 56 ------------------------------------------------------------------------------ SHARES REDEEMED Class A (5,321) (43,354) (3,734) (30,799) ------------------------------------------------------------------------------ Class B (494) (4,040) (516) (4,267) ------------------------------------------------------------------------------ Class C (257) (2,103) (143) (1,181) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ CONVERSION OF SHARES Class A 273 2,232 81 669 ------------------------------------------------------------------------------ Class B (273) (2,232) (81) (669) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (A) SHARES ISSUED IN ACQUISITION Class A 11,717 95,496 -- -- ------------------------------------------------------------------------------ Class B 8,251 67,407 -- -- ------------------------------------------------------------------------------ Class C 840 6,878 -- -- ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS $164,407 $(11,658) ------------------------------------------------------------------------------
(a) On February 5, 1999, the fund acquired the net assets of Kemper Short-Intermediate Government Fund, amounting to $169.8 million, and issued 20.8 million shares in a tax-free exchange. The aggregate net assets of the fund immediately after the exchange were $234.8 million. 15 16 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6 FINANCIAL FUTURES CONTRACTS The fund has entered into exchange traded financial futures contracts in order to take advantage of anticipated market conditions and, as such, bears the risk that arises from owning these contracts. At the time the fund enters into a futures contract, it is required to make a margin deposit with its custodian. Subsequently, payments are made on a daily basis between the fund and the broker as the market value of the futures contract fluctuates and are recorded for financial reporting purposes as unrealized gains or losses by the fund. At February 28, 1999, the market value of assets pledged by the fund to cover margin requirements for open futures positions was $248,000. The fund also had liquid assets in excess of the face amount of open futures positions at February 28, 1999:
UNREALIZED FACE EXPIRATION GAIN AT TYPE AMOUNT POSITION MONTH 2/28/99 -------------------------------------------------------------------- U.S. Treasury Note $7,982,000 Long March '99 $181,000
16 17 FINANCIAL Highlights
---------------------------------------- CLASS A ---------------------------------------- SIX MONTHS ENDED YEAR ENDED AUGUST 31, FEBRUARY 28, ------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------- Net asset value, beginning of period $8.19 8.31 8.22 8.30 8.33 - -------------------------------------------------------------------------------------- Income from investment operations: Net investment income .14 .41 .45 .46 .48 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) (.04) (.11) .09 (.09) (.04) - -------------------------------------------------------------------------------------- Total from investment operations .10 .30 .54 .37 .44 - -------------------------------------------------------------------------------------- Less distribution from net investment income .18 .42 .45 .45 .47 - -------------------------------------------------------------------------------------- Net asset value, end of period $8.11 8.19 8.31 8.22 8.30 - -------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) 1.23% 3.68 6.75 4.55 5.52 - -------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - -------------------------------------------------------------------------------------- Expenses 1.35% 1.36 1.25 1.15 1.10 - -------------------------------------------------------------------------------------- Net investment income 4.03% 4.79 5.50 5.49 5.76 - --------------------------------------------------------------------------------------
---------------------------------------- CLASS B ---------------------------------------- SIX MONTHS ENDED YEAR ENDED AUGUST 31, FEBRUARY 28, ------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - -------------------------------------------------------------------------------------- Net asset value, beginning of period $8.21 8.32 8.23 8.31 8.32 - -------------------------------------------------------------------------------------- Income from investment operations: Net investment income .11 .36 .39 .40 .43 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) (.04) (.11) .09 (.09) (.04) - -------------------------------------------------------------------------------------- Total from investment operations .07 .25 .48 .31 .39 - -------------------------------------------------------------------------------------- Less distribution from net investment income .15 .36 .39 .39 .40 - -------------------------------------------------------------------------------------- Net asset value, end of period $8.13 8.21 8.32 8.23 8.31 - -------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) .87% 3.06 5.96 3.79 4.84 - -------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - -------------------------------------------------------------------------------------- Expenses 2.08% 1.99 1.93 1.89 1.85 - -------------------------------------------------------------------------------------- Net investment income 3.30% 4.16 4.82 4.75 5.01 - --------------------------------------------------------------------------------------
17 18 FINANCIAL HIGHLIGHTS
-------------------------------------------- CLASS C -------------------------------------------- SIX MONTHS ENDED YEAR ENDED AUGUST 31, FEBRUARY 28, ------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE - --------------------------------------------------------------------------------------- Net asset value, beginning of period $8.22 8.33 8.24 8.32 8.33 - --------------------------------------------------------------------------------------- Income from investment operations: Net investment income .12 .36 .39 .40 .43 - --------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) (.04) (.11) .09 (.09) (.04) - --------------------------------------------------------------------------------------- Total from investment operations .08 .25 .48 .31 .39 - --------------------------------------------------------------------------------------- Less distribution from net investment income .16 .36 .39 .39 .40 - --------------------------------------------------------------------------------------- Net asset value, end of period $8.14 8.22 8.33 8.24 8.32 - --------------------------------------------------------------------------------------- TOTAL RETURN (NOT ANNUALIZED) .92% 3.10 5.98 3.82 4.89 - --------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) - --------------------------------------------------------------------------------------- Expenses 1.99% 1.95 1.88 1.89 1.79 - --------------------------------------------------------------------------------------- Net investment income 3.39% 4.20 4.87 4.75 5.07 - --------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL DATA FOR ALL CLASSES - ------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED AUGUST 31, FEBRUARY 28, -------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------ Net assets at end of period (in thousands) $231,446 69,307 81,967 94,477 129,757 - ------------------------------------------------------------------------------------------------ Portfolio turnover rate (annualized) 517% 149 249 272 308 - ------------------------------------------------------------------------------------------------
Total return does not reflect the effect of any sales charges. Data for the period ended February 28, 1999 is unaudited. Per share data for the six months ended February 28, 1999 is determined based on average shares outstanding. 18 19 NOTES 19 20 TRUSTEES AND OFFICERS TRUSTEES OFFICERS DANIEL PIERCE MARK S. CASADY RICHARD L. VANDENBURG Chairman and Trustee President Vice President LEWIS A. BURNHAM PHILIP J. COLLORA LINDA J. WONDRACK Trustee Vice President and Vice President Secretary DONALD L. DUNAWAY MAUREEN E. KANE Trustee JOHN R. HEBBLE Assistant Secretary Treasurer ROBERT B. HOFFMAN CAROLINE PEARSON Trustee ANN M. MCCREARY Assistant Secretary Vice President DONALD R. JONES ELIZABETH C. WERTH Trustee ROBERT C. PECK, JR. Assistant Secretary Vice President THOMAS W. LITTAUER BRENDA LYONS Trustee and KATHRYN L. QUIRK Assistant Treasurer Vice President Vice President SHIRLEY D. PETERSON Trustee WILLIAM P. SOMMERS Trustee - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY TRANSFER AGENT 801 Pennsylvania Avenue Kansas City, MO 64105 - -------------------------------------------------------------------------------- PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC. 222 South Riverside Plaza Chicago, IL 60606-5808 www.kemper.com [KEMPER FUNDS LOGO] Printed on recycled paper in the U.S.A. This report is not to be distributed unless preceded or accompanied by a Kemper Income Fund prospectus. KSTGF - 3 (4/19/99) 1071080 -----END PRIVACY-ENHANCED MESSAGE-----