<PAGE> 1
Kemper High Yield Fund
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
OFFERING INVESTORS THE OPPORTUNITY FOR A HIGH LEVEL OF CURRENT INCOME FROM A
DIVERSIFIED PORTFOLIO OF FIXED INCOME SECURITIES
"...We were early -- which enabled us to invest in
certain issues at attractive prices -- to move into
bonds issued by companies in cyclical industries."
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
9
Terms to Know
9
Industry Sectors
10
Largest Holdings
11
Portfolio Statistics
13
Portfolio of
Investments
19
Report of
Independent Auditors
20
Financial Statements
22
Notes to
Financial Statements
26
Financial Highlights
At A Glance
Kemper High Yield Fund Total Returns for the year ended September 30, 1995
(unadjusted for any sales charge):
[Bar Graph]
<TABLE>
<S> <C>
Class A 14.10%
Class B 13.09%
Class C 13.13%
Lipper High Current Yield 11.76%
Funds Category Average **
</TABLE>
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.
**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.
[Line Graph]
- --------------------------------------------------------------------
NET ASSET VALUE
<TABLE>
<CAPTION>
As of As of
9/30/95 9/30/94
- --------------------------------------------------------------------
<S> <C> <C>
Kemper High Yield Fund
Class A $8.01 $7.74
Kemper High Yield Fund
Class B $8.00 $7.73
Kemper High Yield Fund
Class C $8.02 $7.75
- --------------------------------------------------------------------
</TABLE>
KEMPER HIGH YIELD FUND RANKINGS [Line Graph]
- --------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER HIGH CURRENT YIELD FUNDS
CATEGORY**
<TABLE>
<CAPTION>
Class A Class B Class C
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1-year #20 of #39 of #36 of
108 funds 108 funds 108 funds
5-year #10 of
61 funds N/A N/A
10-year #2 of
33 funds N/A N/A
15-year #1 of
23 funds N/A N/A
- ---------------------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW [Line Graph]
- --------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUND AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Class A Class B Class C
- -------------------------------------------------------------------
<S> <C> <C> <C>
1 Year Income: $0.7620 $0.6921 $0.6972
September
Dividend: $0.0635 $0.0579 $0.0583
Annualized
Distribution Rate+: 9.51% 8.69% 8.72%
SEC Yield+: 9.59% 9.02% 9.06%
- -------------------------------------------------------------------
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as an
annualized percentage of net asset value on September 30, 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 September 30, 1995 shown as an annualized percentage of the maximum
offering price on that date.
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 to 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 need to know related to your fund
- - A look at your fund's portfolio composition and its largest sectors and how
they have changed
- - The maturity and quality of your 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
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT
[PHOTO OF OFFICER OF KEMPER FINANCIAL SERVICES, INC. (KFS). KFS AND ITS
STEPHEN B. AFFILIATES MANAGE APPROXIMATELY $63 BILLION IN ASSETS, INCLUDING
TIMBERS] $44 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 10 months of 1995. At this point in the year, the
returns of most leading securities markets worldwide are significantly higher
than they were at the same time in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, the economy is in no jeopardy of recession.
Its health was confirmed with the news that the economy grew (as measured by
real gross domestic product [GDP]) at an annual rate of 4.2% in the third
quarter. This follows much lower growth in the first two quarters, as the
economy was adjusting to the Federal Reserve Board's series of interest rate
increases. The slowdown, in fact, was acknowledged by the Fed when it eased
short-term rates by a small but symbolic 25 basis points in July. Now we know
that the economy was rebounding from July through September.
The economy's continued growth without a corresponding increase in
inflation is very encouraging. Although we are well along in the economic cycle
and at a point when prices often start hiking up, inflationary pressures have
actually been reduced somewhat.
Will the Federal Reserve Board adjust interest rates again? As of this
date -- which precedes any resolution on the federal budget issue -- we doubt
that the Fed has motivation to either ease or (which would be even less likely)
raise interest rates. Our forecast calls for lower growth ranging between 2% to
3% for the next few quarters, with the momentum likely to come from exports and
nonresidential construction.
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 the summer. The market
recovered after a brief period and has gained ground since. 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 has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it 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.
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 (10/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.04 6.63 7.96 5.72
PRIME RATE(2) 8.75 9 8.15 6
INFLATION RATE(3)(*) 2.52 3.12 2.5 2.5
THE U.S. DOLLAR(4) -1.17 -10.11 -5.82 1.03
CAPITAL GOODS ORDERS(5)(*) 11.72 9.44 18.9 19.12
INDUSTRIAL PRODUCTION(6)(*) 2.6 3.6 5.65 3.62
EMPLOYMENT GROWTH(7) 1.91 2.12 3.03 2.34
</TABLE>
*Data as of September 30, 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.
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
November 6, 1995
4
<PAGE> 5
Performance Update
[Photo of Mike McNamara]
MIKE MCNAMARA HAS BEEN WITH KEMPER FINANCIAL SERVICES, INC. SINCE 1972 AND IS
NOW SENIOR VICE PRESIDENT OF KFS AND PORTFOLIO CO-MANAGER OF KEMPER HIGH YIELD
FUND. MR. MCNAMARA GRADUATED WITH A B.S. IN BUSINESS ADMINISTRATION FROM THE
UNIVERSITY OF MISSOURI AND WENT ON TO RECEIVE HIS M.B.A. FROM LOYOLA
UNIVERSITY.
[Photo of Harry Resis]
HARRY RESIS JOINED KEMPER FINANCIAL SERVICES, INC., IN 1988 AND IS NOW SENIOR
VICE PRESIDENT OF KFS AND PORTFOLIO CO-MANAGER OF KEMPER HIGH YIELD FUND. MR.
RESIS RECEIVED A B.A. IN FINANCE FROM MICHIGAN STATE UNIVERSITY.
FOLLOWING AN EXCELLENT YEAR FOR THE HIGH YIELD MARKET, PORTFOLIO CO-MANAGERS
MICHAEL MCNAMARA AND HARRY RESIS EXPLAIN HOW KEMPER HIGH YIELD FUND PERFORMANCE
WAS BOLSTERED BY AN INCREASED CONCENTRATION IN BB-RATED BONDS AND A CONTINUED
HEAVY EMPHASIS IN CYCLICAL BONDS.
Q. CLASS A SHARES OF KEMPER HIGH YIELD FUND RETURNED MORE THAN 14 PERCENT IN
THE FISCAL YEAR -- OCTOBER 1, 1994 THROUGH SEPTEMBER 30, 1995 -- THAT INCLUDED
THREE MONTHS OF 1994. YET LAST YEAR WAS ONE OF THE WORST YEARS IN THE HISTORY
OF THE BOND MARKET. HOW DID THE FUND PRODUCE SUCH A STRONG RETURN?
A. Well, 1995 has been a very good year. Strong corporate earnings and
declining interest rates combined to create a positive environment for
lower-rated and non-rated securities. When the economy is growing, credit
quality is less of a concern to investors in high yield corporate bonds. As you
know, below-investment grade securities, such as the fund invests in, provide
greater income potential precisely because they present greater risk of loss to
principal and interest. The last year was a good one for the fund because our
holdings generated significant income -- but exposed us to relatively few
credit concerns and no defaults.
Q. WHAT KINDS OF ADJUSTMENTS DID YOU MAKE DURING THE YEAR?
A. The changes we made tracked -- and at one point anticipated -- changes in
the momentum of the economy. When an economy is growing, we favor corporate
bonds in certain types of industries. On the other hand, we rotate the
portfolio into other industry sectors when we believe that the economy is
slowing. The challenge in this fiscal year was knowing when to rotate. When you
consider that the "typical" post-World War II economic expansion lasts three to
four years and the current expansion was already five years old in 1995, you
can appreciate the challenge.
We made one critical "call" at the start of the fiscal year when we positioned
the portfolio for a reacceleration of the economy. Many people had speculated
about the Federal Reserve Board's ability to use a series of interest rate
hikes to produce a "soft landing" for an economy that had been growing at
breakneck speed in late 1993 and continued strong growth throughout 1994. (A
soft landing is considered to be slow economic growth with benign inflation.)
For us the question was, "What will follow the soft landing?" Obviously, the two
possibilities were either
5
<PAGE> 6
Performance Update
recession because the rate hikes would have slowed the economy down too much or
slower growth, which was the Fed's intention.
Our assessment that economic growth would resume proved to be correct and
beneficial for the fund. We were early -- which enabled us to invest in certain
issues at attractive prices -- to move into bonds issued by companies in
cyclical industries. We can attribute the fund's performance for this fiscal
year largely to its investment in bonds in cyclical industries.
Cyclical industries are those that produce or support the production of
discretionary goods, such as new homes or automobiles. Companies within these
types of industries tend to flourish when the economy is expanding but are
normally the first to suffer when the economy contracts. By contrast, defensive
industries tend to be less sensitive to economic slowdowns because they support
nondiscretionary spending on items such as food or health and beauty products.
Q. WHAT CAN YOU TELL US ABOUT THE QUALITY OF THE FUND'S HOLDINGS?
A. Again, you can see how optimistic we were about the economy by reviewing
the credit quality of the fund's investments. For most of the year, the
portfolio was concentrated in B-rated bonds. B-rated bonds are lower in quality
than BB-rated bonds but offer higher yields to help compensate for the assumed
higher risk.
Our position was fairly aggressive when compared to the Salomon Brothers
Extended High Yield Market Index. At its highest point during the fiscal year,
December 1994, 72 percent of the fund was invested in B-rated bonds. This can
be compared to the index high of 47 percent in November 1994.
Q. THROUGHOUT THE YEAR, ECONOMISTS AND OTHER MARKET OBSERVERS CONTINUED TO
DEBATE EXACTLY HOW HEALTHY THE ECONOMY WAS -- WHAT WERE THE RISKS IN YOUR
STRATEGY?
A. Obviously, we have to continually monitor economic conditions. We don't
want to be exposed to the wrong part of the market when the economy turns.
But it's important to be able to tell the difference between a hiccup and the
beginning of a trend.
We opened and closed the fiscal year with two-thirds of the fund's portfolio
exposed to cyclical industries. But as the year progressed we did some
fine-tuning to move away from what we call "deep" cyclicals -- examples of
these would be steel and retailing companies -- toward "shallow" cyclicals such
as casinos, containers, broadcasting and energy companies. Shallow cyclicals
offer products and services that are generally affordable and tend to remain in
demand even during an economic downturn.
We also moved toward the higher quality BB-rated bonds. The closer the bond is
to an investment-grade security, the more it tends to perform in line with
interest rates. We heightened our investment in BB bonds starting in February,
as falling interest rates prompted a rally in the U.S. Treasury market.
But we saw no need to batten down the hatches as long as we believed that the
economy was still trying to deliver. A premature shift away from cyclical
industries or into a greater concentration of higher quality bonds would have
caused us to give up more yield. The B-rated bonds are what enable us to
produce a competitive yield for the fund.
Q. WE'VE BEEN DISCUSSING IN GENERALITIES. WERE THERE ANY SPECIFIC ISSUES THAT
ESPECIALLY CONTRIBUTED TO PERFORMANCE IN THE LAST YEAR?
A. One of the best performing issues was the Trump Taj Mahal. This Atlantic
City casino's first mortgage bond was trading at 66 1/4 on September 30, 1994.
Now it trades at 89 and throughout the year it has paid an 11.35 percent
coupon. The coupon is the stated rate of interest paid by the issuer of the
bond. Together, those factors provided an excellent return over the past twelve
months. This is a bond that we had bought in the secondary market in spite of
the doubts of many of our industry colleagues. Throughout the year, it has
represented about two percent of the portfolio's investments. Several other
outstanding performers were Computervision, K&F, Bally's Park Place,
Cablevision Systems and Maxxam.
Q. AND WHAT ABOUT ANY DISAPPOINTMENTS?
A. Burlington Motor Freights, a trucking company was a B3/CCC+ rated
underwritten deal that was offered in late 1993. We bought it at par (100) and
it currently trades at
6
<PAGE> 7
Performance Update
about 45. This is an example of a company whose ability to achieve its budgeted
performance was seriously damaged as the Federal Reserve Board raised
interest rates throughout 1994. The company did default on its November 1, 1995
coupon payment and is proceeding into a debt restructuring workout.
Q. WE KNOW THAT YOU'RE CONTINUALLY EVALUATING NEW ISSUES. HOW WOULD YOU
CHARACTERIZE THE CURRENT SUPPLY?
A. Frankly, we're seeing fewer attractive opportunities and that may be a
measure of where we are in the economic cycle. However, the overall new
issuance calendar remains quite heavy.
With few exceptions (the Trump Taj Mahal being one), our purchase efforts must
be directed toward the initial issue market. Our individual investments
typically range in size from $20 million to $50 million, and a size like that
is very difficult to build up in the secondary market once an issue has been
offered.
In anticipation of what was touted to be a "huge" new issue calendar in
September, we had become fairly liquid. And indeed, the calendar was large and
many of the coupons were high, but the values just weren't there. Many deals
were more speculative than we can be comfortable with right now. Certain
telecommunications deals that were offered, for example, may represent great
technological achievements but we're not convinced they're a good investment.
Our five most recent investments (CAI Wireless, Graphic Controls, IXC
Communications, Peoples' Choice TV and Van DeKamp) all have yields of 12
percent or better. As the year closed, though, we were carrying more cash
equivalents than we really wanted to. However, we are patient investors. So
until we see sufficient compelling investment opportunities we'll just have to
be content to carry some excess cash.
Finally, there's another issue that affects supply and pricing considerations.
Life insurance companies, which have traditionally purchased investment grade
debt, have recently crossed over and are now among the purchasers of below
investment grade (primarily BB-rated bonds) debt. This additional demand for
BB-rated bonds has had the effect of widening the yield spread differential
between B-rate bonds and BB-rated bonds, making the higher quality bonds
relatively expensive.
Q. CAN YOU LOOK AHEAD TO TELL US WHAT YOU THINK THE NEXT YEAR WILL BRING?
A. We're optimistic but realistic. For many corporations, earnings should be
flat to down, and we expect greater risk in the marketplace.
The high yield market has been enjoying an unprecedented low -- and
unsustainable -- rate of defaults. Defaults tend to occur according to a
somewhat predictable schedule -- you don't expect a company to get into
financial trouble until at least a year or two after it's issued debt. If it
borrowed too much or overestimated its potential or underestimated its
competition, for example, that's when the issuer starts to have trouble making
its coupon payments. Defaults have been practically nonexistent in the last few
years because most of the credits have been relatively young. As issues age and
the economic expansion ages, we believe that the default rate will climb back
to its norm -- which has averaged three to four percent in the 1970 -- 1995
period.
The possibility for default is something we always consider when analyzing a
possible investment. But, of course, that's the risk we assume and why we earn
higher yields on the fund's investments. Reducing the default rate in a high
yield portfolio is one of the keys to good total return performance.
Q. WHAT COULD THREATEN YOUR OUTLOOK -- AND RESULT IN AN ADJUSTMENT OF YOUR
PORTFOLIO MANAGEMENT STRATEGY?
A. If the economy departs from what we believe to be its slow-growth,
low-inflation track, we'll have to reassess where we are. The obvious moves
we'd make would be to reduce our risk by moving out of B-rated bonds and into
the lower-yielding BB-rated bonds. Doing that would place preservation of
capital as a higher priority than maintaining the current shareholder
distribution rate. At this point, however, we don't anticipate making such
dramatic moves. All indicators suggest a continued slow-growth, low-inflation
environment, which should be positive for the fund.
7
<PAGE> 8
Performance Update
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1995 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
LIFE OF
1-YEAR 5-YEAR 10-YEAR CLASS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS A 9.03% 16.36% 11.48% 11.65% (SINCE 1/26/78)
KEMPER HIGH YIELD FUND CLASS B 10.10 N/A N/A 7.44 (SINCE 5/31/94)
KEMPER HIGH YIELD FUND CLASS C 13.13 N/A N/A 9.86 (SINCE 5/31/94)
- -------------------------------------------------------------------------------------
</TABLE>
Growth of an assumed $10,000 investment in Kemper High Yield Fund Class A from
1/1/80 through 9/30/95
[Line Graph]
<TABLE>
<CAPTION>
1/1/80 12/31/83 12/31/86 12/31/90 12/31/92 9/30/95
<S> <C> <C> <C> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS A(1)
SALOMON BROTHERS LONG-TERM HIGH YIELD BOND INDEX(+)
CONSUMER PRICE INDEX(++)
</TABLE>
Growth of an assumed $10,000 investment in Kemper High Yield Fund Class B from
5/31/94 through 9/30/95
[Line Graph]
<TABLE>
<CAPTION>
5/31/94 12/31/94 9/30/95
<S> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS B(1)
SALOMON BROTHERS LONG-TERM HIGH YIELD BOND INDEX(+)
CONSUMER PRICE INDEX(++)
</TABLE>
Growth of an assumed $10,000 investment in Kemper High Yield Fund Class C from
5/31/94 through 9/10/95
[Line Graph]
<TABLE>
<CAPTION>
5/31/94 12/31/94 9/30/95
<S> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS C(1)
SALOMON BROTHERS LONG-TERM HIGH YIELD BOND INDEX(+)
CONSUMER PRICE INDEX(++)
</TABLE>
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.
The Fund may invest in lower-rated and non-rated securities which present
greater risk of loss to principal and interest than high-rated securities.
* Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for A Shares adjustment for the maximum sales charge of 4.5% and for B Shares
adjustment for the applicable contingent deferred sales charge as follows:
1-year, 3%. Average annual total return reflects annualized change while total
return reflects aggregate change. During the periods noted, securities prices
fluctuated. For additional information, see the Prospectus and Statement of
Additional Information and the Financial Highlights at the end of this report.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for 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 Salomon Brothers Long-Term
High Yield Bond Index is 1/1/80. As a result, we are not able to illustrate the
Life of Class performance (since 1/26/78) for the Kemper High Yield Fund Class A
Shares. In comparing the performance of the fund to that of the Salomon Brothers
Long-Term High Yield Bond Index and the Consumer Price 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 indices.
+ The Salomon Brothers Long-Term High Yield Bond Index is on a total return
basis with all dividends reinvested and is comprised of high yield bonds with a
par value of $50 million or higher and a remaining maturity of ten years or
longer rated BB+ or lower by Standard & Poor's Corporation or BA1 or lower by
Moody's Investors Service, Inc. This index is unmanaged. Source is Salomon
Brothers Inc.
++ 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. Source is Towers Data Systems.
8
<PAGE> 9
Terms to Know
CYCLICAL ISSUES Cyclical issues are bonds within industries whose earnings
tend to rise quickly when the economy strengthens and fall quickly when the
economy weakens. Examples are housing, automobiles and paper companies. The
performance of noncyclical industries such as food, insurance and drugs are
normally not as directly affected by economic changes.
HIGH YIELD BONDS High yield bonds are issued by companies, often without long
track records of sales and earnings, or by those with questionable credit
strength and pay a higher yield to investors to help compensate for their
assumed greater risk of loss to principal and interest. High yield bonds carry
a credit rating of BB or lower from either Moody's or Standard & Poor's bond
rating services and are considered to be "below investment grade" by these
rating agencies. Such bonds may also be unrated.
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, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period.
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's shares at the end of the period.
Industry Sectors
KEMPER HIGH YIELD FUND SHIFTED TOWARD 'SHALLOW' CYCLICAL INDUSTRIES AS ECONOMIC
GROWTH SLOWED DURING THE YEAR
DATA SHOW THE PERCENTAGE OF THE PORTFOLIO THAT EACH OF THE TOP FIVE SECTORS
REPRESENTED ON SEPTEMBER 30, 1994, MARCH 31, 1995 AND SEPTEMBER 30, 1995.
<TABLE>
<CAPTION>
Kemper High Kemper High Kemper High
Yield Fund as Yield Fund as Yield Fund as
of 9/30/95 of 3/31/95 as of 9/30/94
<S> <C> <C> <C>
Manufacturing, metals
and mining 9.6% 17.5% 23.9%
Retailing 8.4% 11.6% 15.3%
Broadcasting, cable
systems and publishing 17.8% 14.3% 12.6%
Communications 7.2% 5.4% 5.1%
Paper and forest
products and containers 7.9% 9.1% 5.4%
</TABLE>
9
<PAGE> 10
Largest Holdings
THE CHANGE IN THE FUND'S TOP FIVE ISSUES ILLUSTRATES THE MOVEMENT INTO 'SHALLOW'
CYCLICAL INVESTMENTS DURING THE YEAR
LISTINGS SHOW THE TOP FIVE CORPORATE ISSUES IN TERMS OF VALUE ON SEPTEMBER 30,
1994 AND SEPTEMBER 30, 1995.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
START OF FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------
1. K & F Industries Manufacturer of airliner brakes and wheels.
2. Gaylord Container Produces, converts and sells packaging products, corrugated containers
and sheets, containerboard, multiwall bags and grocery bags.
3. Owens-Illinois Manufactures packaging products including glass and plastic
containers, plastic closures, labels and multipack plastic carriers
for beverage containers.
4. Pathmark Stores A supermarket retailer based in the northeastern United States.
5. Southland Corp. An operator, franchiser and licensor of the convenience stores that carry
the 7-Eleven trademark.
- -------------------------------------------------------------------------------------------------------------
END OF FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------
1. K & F Industries Manufacturer of airliner brakes and wheels.
2. Owens-Illinois Manufactures packaging products including glass and plastic containers,
plastic closures, labels and multipack plastic carriers for beverage
containers.
3. Trump Taj Mahal Operates hotel and casino in Atlantic City, New Jersey.
4. American Standard Manufactures air conditioning systems, bathroom/kitchen fixtures/fittings
and brakes for commercial/utility vehicles.
5. Comcast Corp. Engaged in operating, developing and managing cable communication systems.
</TABLE>
10
<PAGE> 11
Portfolio Statistics
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
ON 9/30/95 ON 9/30/94
- ---------------------------------------------------------------
<S> <C> <C>
Bonds 90% 91%
Cash and equivalents 8% 6
Preferred and common stock 2 3
100% 100%
</TABLE>
/ / Bonds
/ / Cash and equivalents
/ / Preferred and common stocks
[Pie Chart] [Pie Chart]
YEARS TO MATURITY
AS A PERCENTAGE OF THE PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
ON 9/30/95 ON 9/30/94
- ---------------------------------------------------------------
<S> <C> <C>
Cash and equivalents 8% 6%
1-10 years 84% 78%
10-20 years 7% 16%
Over 20 years 1% --%
===============================================================
100% 100%
</TABLE>
/ / Cash and equivalents
/ / 1-10 years
/ / 10-20 years
/ / Over 20
ON 9/30/95 ON 9/30/94
11
<PAGE> 12
Portfolio Statistics
QUALITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------
ON 9/30/95 ON 9/30/94
- -------------------------------------------------------------
<S> <C> <C>
AAA-A 7% 5%
BB 25% 17%
B 59% 70%
Other 9% 8%
=============================================================
100% 100%
</TABLE>
/ / AAA-A
/ / BB
/ / B
/ / Other
[Pie Chart] [Pie Chart]
12
<PAGE> 13
Portfolio of Investments
KEMPER HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal amount Value
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury Notes, 6.00%, 1997 $ 220,000 $ 220,584
OBLIGATIONS -- 6.3%
(Cost: $220,613)
- --------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- --------------------------------------------------------------------------------------------------------
AEROSPACE -- 4.9% BE Aerospace, 9.75%, 2003 11,418 11,447
Fairchild Corporation, 12.00%, 2001 31,200 28,392
Fairchild Industries, 12.25%, 1999 22,430 23,327
K & F Industries, Inc.
13.75%, 2001 71,405 74,083
11.875%, 2003 6,530 6,807
(a) RHI Holdings, 11.875%, 1999 19,945 19,347
Sequa Corporation, 8.75%, 2001 11,380 10,498
-----------------------------------------------------------------------------
173,901
- --------------------------------------------------------------------------------------------------------
BROADCASTING,
CABLESYSTEMS AND
PUBLISHING -- 17.8%
Act III Broadcasting, Inc., 9.625%, 2003 4,575 4,621
Adelphia Communications Corporation,
12.50%, 2002 14,200 14,235
Affinity Group, Inc., 11.50%, 2003 21,400 21,453
(b) Australis Media Corporation,
14.00%, 2003 28,930 17,358
(b) Bell Cablemedia PLC
11.95%, 2004 27,010 18,097
11.875%, 2005 15,050 8,881
Big Flower Press, Inc., 10.75%, 2003 28,175 29,443
CAI Wireless Systems, 12.25%, 2002 15,150 15,794
CF Cable TV Inc., 11.625%, 2005 18,985 20,504
Cablevision Industries Corporation,
10.75%, 2002 30,520 33,267
Cablevision Systems Company
9.875%, 2013 9,885 10,330
9.875%, 2023 2,330 2,423
Century Communications Corporation
9.50%, 2000 8,320 8,403
11.875%, 2003 9,125 9,695
9.50%, 2005 24,920 24,920
Comcast Corporation
9.375%, 2005 1,850 1,873
9.50%, 2008 41,180 41,695
10.625%, 2012 11,695 12,748
Continental Cablevision, Inc.,
9.50%, 2013 46,580 48,210
(b) Echostar Communications, 12.875%,
with warrants, 2004 66,500 34,929
Granite Broadcasting, 10.375%, 2005 18,050 18,524
Katz Corporation, 12.75%, 2002 17,300 18,944
International Cabeltel Incorporated,
zero coupon, 2005 46,120 27,787
(b) Neodata Services, 12.00%, 2003 23,290 21,019
People's Choice TV Unit, zero
coupon, 2004 4,435 2,351
Rogers Cablesystems Limited
9.625%, 2002 9,290 9,569
10.00%, 2005 12,750 13,388
Sinclair Broadcast Group, Inc.,
10.00%, 2003 23,355 23,939
(b) Telewest PLC, 11.00%, 2007 18,960 11,210
Univision TV, 11.75%, 2001 10,175 10,989
Viacom International Inc.,
8.00%, 2006 47,185 46,536
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal amount Value
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Videotron Groupe, 10.625%, 2005 $ 7,440 $ 7,812
(b) Videotron Holdings PLC
11.125%, 2004 15,830 10,448
11.00%, 2005 17,220 9,902
Webcraft Technologies, Inc.,
9.375%, 2002 9,760 9,174
Young Broadcasting Inc.,
11.75%, 2004 6,375 7,092
-------------------------------------------------------------------------
627,563
- ----------------------------------------------------------------------------------------------------
BUSINESS SERVICES -- 3.3% Alliance Entertainment, 11.25%, 2005 10,780 10,780
Comdata Network, Inc.
12.50%, 1999 27,370 30,586
13.25%, 2002 9,210 10,822
Corporate Express Inc., 9.125%, 2004 18,760 18,526
Host Marriott Travel Plazas, Inc.,
9.50%, 2005 12,245 11,878
Monarch Marking, 12.50%, 2003 15,710 16,024
Outdoor Systems, 10.75%, 2003 18,685 17,891
-------------------------------------------------------------------------
116,507
- ----------------------------------------------------------------------------------------------------
CHEMICALS -- 5.5% Agriculture, Mining and Chemicals, Inc.,
10.75%, 2003 9,450 9,993
Arcadian Partners, L.P.,
10.75%, 2005 21,980 23,161
Atlantis Group, Inc., 11.00%, 2003 16,265 14,964
G-I Holdings Inc., zero coupon, 1998 36,345 26,350
Huntsman Corporation, 10.625%, 2001 9,585 10,256
Pioneer Americas Acquisition,
13.375%, 2005 15,380 15,649
Polymer Group Inc., 12.75%, 2002 18,540 19,096
Rexene Corporation, 11.75%, 2004 24,130 25,940
Terra Industries Inc., 10.50%, 2005 11,390 12,016
UCC Investors Holdings, Inc.
10.50%, 2002 28,620 29,407
11.00%, 2003 8,670 8,843
-------------------------------------------------------------------------
195,675
- ----------------------------------------------------------------------------------------------------
COMMUNICATIONS -- 7.2% (b) Call-Net Enterprises Inc.,
13.25%, 2004 15,280 9,913
(a)(b) Celcaribe S.A., 13.50%, 2004 14,400 12,672
(b) Cellular, Inc. 11.75%, 2003 9,475 7,296
Commnet Celluar, 11.25%, 2005 7,010 7,185
Communication and Power Industry, Inc.,
12.00%, 2005 7,975 8,055
(b) Intelcom Group, Inc., 13.50%, 2005 20,490 11,270
Intermedia Communications of Florida, Inc.,
13.50%, with warrants, 2005 16,300 17,359
IXC Communication Services,
12.50%, 2005 26,000 25,480
Paging Network, Inc.
11.75%, 2002 36,340 40,110
10.125%, 2007 8,410 8,762
(b) PanAmSat, L.P., 11.375%, 2003 36,740 28,703
Rogers Cantel, 11.125%, 2002 48,712 51,513
USA Mobile Communications, Inc. II,
14.00%, 2004 16,290 18,407
9.50%, 2004 8,170 7,557
-------------------------------------------------------------------------
254,282
- ----------------------------------------------------------------------------------------------------
CONSTRUCTION American Standard Inc.
MATERIALS -- 4.8% 10.875%, 1999 19,721 21,305
11.375%, 2004 21,150 23,265
9.25%, 2016 16,435 16,681
(b) Building Materials Corporation of America,
11.75%, 2004 41,650 26,031
Nortek, Inc., 9.875%, 2004 22,145 20,290
Triangle Pacific Corp.,
10.50%, 2003 26,565 27,628
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waxman Industries, Inc.
13.75%, 1999 $14,713 $ 12,359
(a)(b) 12.75%, with warrants, 2004 27,080 12,015
12.25%, 1998 11,310 10,971
--------------------------------------------------------------------------------------
170,545
- -----------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS Allied Waste Industry, 12.00%, 2004 10,440 11,171
AND SERVICES - 4.9% Beatrice Foods, Inc., 12.00%, 2001 31,870 22,309
Cinemark USA, Inc., 12.00%, 2002 13,096 14,275
(b) Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 18,629 14,531
Herff Jones, Inc., 11.00%, 2005 9,040 9,243
Mid-American Waste Systems Inc.,
12.25%, 2003 12,000 12,540
P&C Food Markets, Inc.,
11.50%, 2001 13,375 13,409
Premier Parks Inc., 12.00%, 2003 7,900 8,107
(b) Six Flags Theme Park, 12.25%, 2005 29,550 22,421
Van De Kamps, Inc., 12.00%, 2005 8,950 9,084
West Point Stevens Inc.,
9.375%, 2005 37,075 36,148
--------------------------------------------------------------------------------------
173,238
- -----------------------------------------------------------------------------------------------------------------
DRUGS AND Amerisource Dist., 11.25%, 2005 11,489 12,408
HEALTH CARE - 3.0% Charter Medical Corporation,
11.25%, 2004 28,260 30,238
Dade International Inc.,
13.00%, 2005 9,910 10,604
Graphic Controls, 12.00%, 2005 8,800 8,921
Ornda Healthcorporation,
11.375%, 2004 11,960 13,335
Tenet Healthcare,
9.625%, 2002 7,470 7,918
10.125%, 2005 20,060 21,264
--------------------------------------------------------------------------------------
104,688
- -----------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED Chesapeake Energy Corporation,
SERVICES - 3.0% 10.50%, 2002 14,030 14,030
Dual Drilling Company, 9.875%, 2004 3,610 3,357
Empire Gas Corporation, 7.00%,
with warrants, 2004 14,640 12,094
Gerrity Oil & Gas, 11.75%, 2004 5,320 4,815
Global Marine Inc., 12.75%, 1999 3,990 4,409
Gulf Canada Resources Limited,
9.25%, 2004 7,135 7,099
9.625%, 2005 5,000 5,075
HS Resources, 9.875%, 2003 5,811 5,651
Sante Fe Energy Resources, Inc.,
11.00%, 2004 9,420 10,126
TransTexas Gas Corporation,
11.50%, 2002 37,070 38,831
--------------------------------------------------------------------------------------
105,487
- -----------------------------------------------------------------------------------------------------------------
HOMEBUILDERS AND Continental Homes Holding,
REAL ESTATE - 1.9% 12.00%, 1999 16,425 17,164
The Forecast Group L.P.,
11.375%, 2000 3,620 2,172
Hovnanian Kent
11.25%, 2002 18,362 17,123
9.75%, 2005 6,546 5,548
J.M. Peters, 12.75%, 2002 6,890 6,270
The Presley Companies, 12.50%, 2001 24,025 19,700
--------------------------------------------------------------------------------------
67,977
- -----------------------------------------------------------------------------------------------------------------
HOTEL AND GAMING - 4.1% Bally's Park Place Funding, Inc.,
9.25%, 2004 28,220 27,444
Empress River Casino, 10.75%, 2002 16,680 16,597
Player's International, Inc.,
10.875%, 2005 9,510 9,058
Rio Hotel and Casino, Inc.,
10.625%, 2005 7,900 7,693
Santa Fe Hotel, Inc., 11.00%, 2000 13,365 9,890
Trump Taj Mahal, PIK, 11.35%, 1999 84,591 75,286
--------------------------------------------------------------------------------------
145,968
</TABLE>
15
<PAGE> 16
Portfolio of Investments
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING, METALS Aftermarket Technology,
AND MINING - 9.6% 12.00%, 2004 $11,140 $11,781
Bluebird Body Company,
11.75%, 2002 22,935 23,566
Crain Industries, Inc.,
13.50%, 2005 11,700 12,124
Day International Group,
Inc., 11.125%, 2005 13,890 14,098
Essex Group Incorporated,
10.00%, 2003 13,835 13,420
Fairfield Manufacturing Company,
11.375%, 2001 12,900 12,255
Foamex L.P.
11.25%, 2002 10,770 10,985
11.875%, 2004 23,110 22,879
(b) Foamex - JPS Automotive L.P.,
14.00%, with warrants, 2004 16,620 9,141
Great Dane Holding Company,
12.75%, 2001 36,738 35,452
GS Technologies,
12.00%, 2004 31,085 31,124
12.25%, 2005 7,900 8,018
Gulf States Steel, 13.50%,
with warrants, 2003 20,680 19,543
Jordan Industries, 10.375%, 2003 21,935 19,961
JPS Automotive Products Corporation,
11.125%, 2001 16,920 17,005
Newflo Corporation, 13.25%, 2002 14,500 14,862
NS Group, Inc., 13.50%, 2003 12,430 11,933
Pace Industries, Inc., 10.625%, 2002 3,720 3,460
Penda Industries Inc., 10.75%, 2004 9,540 8,157
Thermadyne Industries, Inc.
10.25%, 2002 12,856 12,792
10.75%, 2003 25,116 24,928
----------------------------------------------------------------------------
337,484
- -------------------------------------------------------------------------------------------------------
Berry Plastics Corporation, 12.25%,
PAPER, FOREST PRODUCTS with warrants, 2004 7,020 7,476
AND CONTAINERS - 7.9% Container Corporation, 11.25%, 2004 24,610 26,025
Crown Paper, 11.00%, 2005 16,000 15,760
Gaylord Container Corporation
11.50%, 2001 13,880 14,471
(b) 12.75%, 2005 25,260 24,881
warrants expiring 1996 1,806 15,350
Maxxam Group, Inc.
(b) 12.25%, 2003 11,890 8,204
11.25%, 2003 17,705 17,351
Owens-Illinois, Inc.
11.00%, 2003 22,157 24,345
9.95%, 2004 18,645 19,158
9.75%, 2004 32,335 33,143
Repap New Brunswick Inc.,
10.625%, 2005 20,150 20,351
SD Warren Company, 12.00%, 2004 12,190 13,470
Stone Container Corporation,
10.75%, 2002 23,090 24,129
Sweetheart Cup Company Inc.,
10.50%, 2003 14,350 14,207
----------------------------------------------------------------------------
278,321
- -------------------------------------------------------------------------------------------------------
Color Tile, Inc., 10.75%, 2001 20,480 8,499
RETAILING - 8.4% Dominick's, 10.875%, 2005 11,880 12,058
Finlay Fine Jewelry Corporation,
10.625%, 2003 11,390 11,048
Flagstar Corporation, 10.875%, 2002 7,340 6,881
Grand Union Company, 12.00%, 2004 15,290 14,697
(b) International Semi-Tech
Microelectronics Inc.,
11.50%, 2003 24,500 12,679
Pamida Holdings, 11.75%, 2003 33,730 28,670
Pathmark Stores, Inc.
12.625%, 2002 24,025 25,647
11.625%, 2002 16,015 16,936
</TABLE>
16
<PAGE> 17
Portfolio of Investments
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Penn Traffic Company
10.25%, 2002 $ 4,020 $ 3,844
8.625%, 2003 1,120 974
10.375%, 2004 11,080 10,498
Ralphs Grocery Company,
10.45%, 2004 31,370 30,821
13.75%, 2005 17,800 18,690
Southland Corporation, 5.00%, 2003 72,058 55,124
Specialty Retailers, Inc.,
11.00%, 2003 8,850 8,231
Thrifty Payless Inc., 11.75%, 2003 28,470 30,036
------------------------------------------------------------------------------------
295,333
- ---------------------------------------------------------------------------------------------------------------
TECHNOLOGY - 2.5% Computervision Corporation
10.875%, 1997 17,670 18,421
11.375%, 1999 16,207 16,734
Merisel, Inc., 12.50%, 2004 19,810 14,857
Unisys Corporation
13.50%, 1997 15,084 16,328
10.625%, 1999 20,485 21,612
------------------------------------------------------------------------------------
87,952
- ---------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 1.1% Burlington Motor Holdings Inc.,
11.50%, 2003 20,750 9,337
OMI Corp., 10.25%, 2003 24,440 21,752
(b) Transtar Holdings, L.P.,
13.375%, 2003 10,100 6,515
------------------------------------------------------------------------------------
37,604
------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--89.9%
(Cost: $3,153,484) 3,172,525
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
COMMON AND BCP/Essex Holding, PIK 337,187 shs. 8,598
PREFERRED STOCKS (c) Computervision Corporation 3,112,436 37,738
Gaylord Container Corporation 975,516 9,206
(c) Gillett Holdings, Inc. 371,016 7,699
(c) Grand Union Company 941,858 12,244
(c) J.M. Peters 54,531 68
(c) Specialty Equipment Companies, Inc. 250,400 3,067
(c) Thrifty Payless Inc. 187,530 797
UGI Inc. 58,467 73
Walter Industries, Inc. 211,888 2,702
------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--2.3%
(Cost: $91,340) 82,192
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.84%-5.89%
INSTRUMENTS Due--October-November, 1995
Conagra, Inc. $36,000 35,799
Countrywide Funding Corporation 9,000 8,971
Enserch Corporation 500 499
GTE Finance Corporation 8,000 7,969
------------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--1.5%
(Cost: $53,249) 53,238
------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100%
(Cost: $3,518,686) 3,528,539
------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS (585)
------------------------------------------------------------------------------------
NET ASSETS--100% $3,527,954
------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition. These
securities are valued at fair value as determined in good faith by the Board of
Trustees of the Fund. At this date the value of the Fund's restricted
securities was $16,787,857 which represented .48% of net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
DATE OF NUMBER UNIT
SECURITY DESCRIPTION ACQUISITION OF SHARES COST
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Celcaribe S.A., 13.50%, 2004 May 1994 $14,400,000 $80.13
RHI Holdings, 11.875%, 1999 July 1995 4,140,000 97.00
Waxman Industries, warrants June 1994 800,453 Shs. 2.00
</TABLE>
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(c) Non-income producing security.
"PIK" denotes that interest or dividends are paid in kind.
Based on the cost of investments of $3,518,686,000 for federal income tax
purposes at September 30, 1995, the aggregate gross unrealized appreciation was
$147,765,000, the aggregate gross unrealized depreciation was $137,912,000 and
the net unrealized appreciation of investments was $9,853,000.
See accompanying Notes to Financial Statements.
18
<PAGE> 19
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER HIGH YIELD FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper High Yield Fund as of
September 30, 1995, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the fiscal periods since 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
September 30, 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 High Yield Fund at September 3 0, 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
November 14, 1995
19
<PAGE> 20
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------
Investments, at value
(Cost: $3,518,686) $3,528,539
Cash 292
Receivable for:
Fund shares sold 4,459
Investments sold 29,405
Interest and dividends 81,499
TOTAL ASSETS 3,644,194
- ----------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------------
Payable for:
Fund shares redeemed 2,719
Investments purchased 109,981
Management fee 1,558
Distribution services fee 630
Administrative services fee 585
Custodian and transfer agent fees and related expenses 658
Other 109
Total liabilities 116,240
NET ASSETS $3,527,954
- ----------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------------------
Paid-in capital $3,617,066
Accumulated net realized loss on investments (192,167)
Unrealized appreciation on investments 9,853
Undistributed net investment income 93,202
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,527,954
- ----------------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,492,774 + 311,362 shares outstanding) $8.01
================================================================
Maximum offering price per share
(net asset value, plus 4.71% of net
asset value or 4.50% of offering price) $8.39
================================================================
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($992,860 + 124,081 shares outstanding) $8.00
================================================================
CLASS C SHARES
Net asset value and redemption price per share
($16,661 + 2,077 shares outstanding) $8.02
================================================================
CLASS I SHARES
Net asset value and redemption price per share
($25,659 + 3,204 shares outstanding) $8.01
================================================================
</TABLE>
See accompanying Notes to Financial Statements.
20
<PAGE> 21
Financial Statements
STATEMENT OF OPERATIONS
Year ended September 30, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------
Interest income: $391,379
Expenses:
Management fee 17,917
Distribution services fee 7,412
Administrative services fee 6,745
Custodian and transfer agent fees and related expenses 6,165
Professional fees 86
Reports to shareholders 463
Trustees' fees and other 203
Total expenses 38,991
NET INVESTMENT INCOME 352,388
- ----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------
Net realized loss on sales of investments (61,865)
Change in net unrealized depreciation of investments 155,866
Net gain on investments 94,001
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $446,389
- ----------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------
Net investment income $ 352,388 230,687
Net realized loss (61,865) (40,933)
Change in net unrealized depreciation 155,866 (81,765)
Net increase in net assets
resulting from operations 446,389 107,989
Net equalization credits 2,331 5,646
Distribution from net investment income (319,210) (234,208)
Net increase from capital share transactions 246,415 1,315,078
TOTAL INCREASE IN NET ASSETS 375,925 1,194,505
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Beginning of year 3,152,029 1,957,524
END OF YEAR (INCLUDING UNDISTRIBUTED NET
INVESTMENT INCOME OF $93,202 IN 1995 AND $57,662 IN 1994) $ 3,527,954 3,152,029
==============================================================================================
</TABLE>
21
<PAGE> 22
Notes To Financial Statements
1 DESCRIPTION OF THE FUND Kemper High Yield Fund is an open-end
management investment company organized as a
business trust under the laws of Massachusetts.
The Fund offers four classes of shares. Class
Ashares 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.
Class I shares, which are sold to a limited group
of investors, 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 INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES 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. Portfolio securities that
are traded on a domestic securities exchange are
valued at the last sale price on the exchange
where primarily traded or, if there is no recent
sale, at the last current bid quotation.
Portfolio securities that are primarily traded on
foreign securities exchanges are generally valued
at the preceding closing values of such securities
on their respective exchanges where primarily
traded. Securities not so traded are valued at the
last current bid quotation if market quotations
are available. Exchange traded 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 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. Forward foreign currency
contracts are valued at the forward rates
prevailing on the day of valuation. 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). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis. Interest income includes
premium and discount amortization on money market
instruments; 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.
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). 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,
22
<PAGE> 23
Notes To Financial Statements
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
September 30, 1995, amounting to approximately
$192,130,000, is available to offset future
taxable gains. If not applied, the loss carryover
expires during the period 19 98 through 2004.
The Fund declares and pays dividends on a
monthly basis. Net realized capital gains, if any,
reduced by capital loss carryovers, will be
distributed at least annually. Dividends payable
to its shareholders are recorded by the Fund on
the ex-dividend date. Differences in dividends per
share are due to different class expenses.
Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently from 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 MANAGEMENT AGREEMENT. The Fund has a management
WITH AFFILIATES agreement with KFS, and pays a management fee at
an annual rate of .58% of the first $250 million
of average daily net assets declining gradually to
.42% of average daily net assets in excess of
$12.5 billion. The Fund incurred a management fee
of $17,917,000 for the year ended September 30,
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 $476,000 for the year
ended September 30, 1995 for sales of Class A
shares, after all owing $3,430,000 as commissions
to firms, of which $435,000 was paid to firms
affiliated with KDI. For distribution services,
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 firms at various rates for
sales of Class B and Class C shares. During the
year ended September 30, 1995, the Fund incurred a
distribution services fee for
23
<PAGE> 24
Notes To Financial Statements
Class B and Class C shares of $7,412,000 and
KDI paid $4,053,000 for commissions and
distribution fees to firms, including $582,000 to
firms affiliated with KDI. In addition, KDI
received $1,785,000 of contingent deferred sales
charges.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has
an administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
KDI in turn has various 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 September 30, 1995, the Fund incurred an
administrative services fee of $6,745,000 and KDI
paid $6,730,000 to firms, including $783,000 that
was paid to firms affiliated with KDI.
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. For the year ended
September 30, 1995, the transfer agent remitted
shareholder services fees to KSvC of $4,248,000.
OFFICERS AND TRUSTEES. Certain officers or
trustees of the Fund are also officers or
directors of KFS. During the year ended September
30, 1995, the Fund made no payments to its
officers and incurred trustees' fees of $43,000 to
independent trustees.
4 INVESTMENT For the year ended September 30, 1995
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
Purchases $3,661,512
Proceeds from sales 3,405,523
24
<PAGE> 25
Financial Highlights
5 CAPITAL SHARE The following table summarizes the activity in capital
TRANSACTIONS shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
------------------------------ --------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
SHARES SOLD
- ------------------------------------------------------------------------------
Class A 117,635 $ 876,873 147,459 $1,153,155
Class B 65,256 502,035 32,193 253,599
Class C 3,063 23,849 439 3,436
Class I 3,956 30,746 -- --
- ------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
- ------------------------------------------------------------------------------
Class A 18,031 140,351 14,647 118,885
Class B 7,152 55,638 2,192 17,136
Class C 90 706 4 32
Class I 135 1,070 -- --
- ------------------------------------------------------------------------------
SHARES REDEEMED
- ------------------------------------------------------------------------------
Class A (127,013) (959,427) (145,495) (1,149,616)
Class B (52,707) (407,589) (35,331) (277,549)
Class C (1,398) (10,899) (121) (938)
Class I (887) (6,938) -- --
- ------------------------------------------------------------------------------
CONVERSION OF SHARES
- ------------------------------------------------------------------------------
Class A 12,509 98,552 3,307 26,015
Class B (12,516) (98,552) (3,308) (26,015)
- ------------------------------------------------------------------------------
SHARES ISSUED IN ACQUISITION(a):
- ------------------------------------------------------------------------------
Class A -- -- 29,369 233,738
Class B -- -- 121,150 963,200
NET INCREASE
FROM CAPITAL SHARE
TRANSACTIONS $ 246,415 $1,315,078
==============================================================================
</TABLE>
(a) On May 27, 1994, the Fund acquired the assets of Kemper Investment
Portfolios--High Yield Portfolio in a tax-free exchange.
25
<PAGE> 26
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $7.74 8.12 7.86 7.30 6.22
Income from investment operations:
Net investment income .83 .73 .81 .85 .92
Net realized and unrealized gain (loss) .20 (.35) .23 .54 1.15
Total from investment operations 1.03 .38 1.04 1.39 2.07
Less distribution from net investment income .76 .76 .78 .83 .99
Net asset value, end of year 8.01 7.74 8.12 7.86 7.30
=======================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 14.10% 4.64 13.92 19.96 36.82
=======================================================================================================================
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Expenses .90% .86 .80 .82 .85
Net investment income 10.74 9.22 10.22 11.00 14.02
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS I
------------------------------------------------------------------------------
YEAR MAY 31, 1994 YEAR MAY 31, 1994 DECEMBER 29,
ENDED TO ENDED TO 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.73 7.96 7.75 7.96 7.55
Income from investment operations:
Net investment income .76 .23 .77 .25 .66
Net realized and unrealized gain (loss) .20 (.23) .20 (.23) .39
Total from investment operations .96 -- .97 .02 1.05
Less distribution from net
investment income .69 .23 .70 .23 .59
Net asset value, end of period 8.00 7.73 8.02 7.75 8.01
=====================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 13.09% -- 13.13 .27 14.37
=====================================================================================================================
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.77% 1.80 1.71 1.74 .61
Net investment income 9.87 8.70 9.93 8.75 10.70
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year
(in thousands) $3,527,954 3,152,029 1,957,524 1,953,509 1,673,161
Portfolio turnover rate 99% 93 101 69 31
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
26
<PAGE> 27
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETINGS
On September 19, 1995 a special shareholders' meeting was held. Kemper High
Yield Fund shareholders were asked to vote on four separate issues: election of
nine Trustees to the Board of Trustees, ratification of Ernst & Young LLP as
independent auditors, approval of a new investment management agreement with
Kemper Financial Services, Inc., or its successor on the same terms as the
current agreement, and for Class B and Class C shareholders only, approval of a
new 12b-1 distribution plan with Kemper Distributors, Inc. or its successor on
the same terms as the current plan. We are pleased to report that all nominees
were elected and all other items were approved. Following are the results for
each issue (which include I Share votes):
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 273,363,264 6,951,814
Lewis A. Burnham 273,699,642 6,615,436
Donald L. Dunaway 273,503,422 6,811,656
Robert B. Hoffman 273,615,548 6,699,530
Donald R. Jones 273,643,579 6,671,499
David B. Mathis 273,223,107 7,091,971
Shirley D. Peterson 273,195,075 7,120,003
William P. Sommers 273,531,453 6,783,625
Stephen B. Timbers 273,755,705 6,559,373
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
266,123,008 3,460,807 10,731,263
</TABLE>
3) Approval of new investment management agreement
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
260,189,422 6,005,500 14,120,155
</TABLE>
4) Approval of new 12b-1 distribution plan
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
Class B
Shares 68,735,249 2,463,794 4,757,412
Class C
Shares 869,271 18,634 79,751
</TABLE>
<PAGE> 28
KEMPER HIGH YIELD FUND CLASS I SHARE PERFORMANCE
TOTAL RETURN* (FOR PERIOD ENDED SEPTEMBER 30, 1995)
Life of Class
Kemper High Yield Fund Class I Shares 15.15% (since 12/29/94)
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.
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN
KEMPER HIGH YIELD FUND CLASS I SHARES FROM 1/1/95 THROUGH 9/30/95
<TABLE>
<CAPTION>
1/1/95 03/31/95 06/30/95 09/30/95
------ -------- -------- --------
<S> <C> <C> <C> <C>
Kemper High Yield Fund Class I Shares* 10,000 10,517 11,034 11,423
Salomon Brothers Long-Term High Yield
Bond Index** 10,000 10,807 11,759 12,227
Consumer Price Index*** 10,000 10,147 10,187 10,234
</TABLE>
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. Total return
reflects aggregate change. The performance in the graph above also includes
reinvestment of dividends. During the periods noted, securities prices
fluctuated. For additional information, see the Prospectus and Statement of
Additional Information and the Financial Highlights in the annual report.
** The Salomon Brothers Long-Term High Yield Bond Index is on a total return
basis with all dividends reinvested and is comprised of high yield bonds with a
par value of $50 million or higher and a remaining maturity of ten years or
longer rated BB+ or lower by Standard & Poor's Corporation or BA1 or lower by
Moody's Investors Service, Inc. This index is unmanaged. Source is Salomon
Brothers Inc. *** 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. Source is Towers Data Systems.
DIVIDEND AND YIELD REVIEW (INFORMATION AS OF SEPTEMBER 30,1995)
<TABLE>
<CAPTION>
Kemper High Yield Fund Class I Shares
<S> <C>
10 Months Income: $0.6567
September Dividend: $0.0654
Annualized Distribution Rate+: 9.80%
SEC Yield+: 10.24%
</TABLE>
+Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on September 30, 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 September 30, 1995 shown as an annualized percentage of
the maximum offering price on that date.
This information supplements the annual report for Kemper High Yield Fund for
the year ended September 30, 1995 and must be preceded or accompanied by such
annual report, the prospectus for Kemper High Yield Fund and the supplement to
the prospectus related to Class I Shares.
Investment Manager:
Kemper Financial Services, Inc.
Principal Underwriter:
Kemper Distributors, Inc. 1005570
<PAGE> 29
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
MICHAEL A. MCNAMARA
Vice President
HARRY E. RESIS, JR.
Vice President
JOHN E. PETERS
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
<TABLE>
<S> <C>
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
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 South LaSalle Street
Chicago, IL 60603
</TABLE>
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Funds prospectus.
KHYF - 2 (11/95)
[KEMPER MUTUAL FUNDS LOGO]
1005570
Printed in the U.S.A.
