<PAGE> 1
Kemper High Yield Fund
Semiannual Report to Shareholders
For the Period Ended
March 31, 1995
Offering investors the opportunity
for a high level of current income
from a diversified portfolio of
fixed income securities
[KEMPER LOGO]
<PAGE> 2
KEMPER FIXED INCOME FUNDS
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1994
Kemper Adjustable Rate U.S. Government Fund
Kemper Diversified Income Fund
Kemper U.S. Government Securities Fund
Kemper High Yield Fund
Kemper Income and Capital Preservation Fund
Kemper Portfolios comprised of the following three series:
Kemper Cash Reserves Fund
Kemper U.S. Mortgage Fund
Kemper Short-Intermediate Government Fund
-------------------------
Kemper Corporation, the parent of Kemper Financial Services, Inc. ("KFS,"
the investment manager for the Funds), has entered into an agreement in
principle with an investor group led by Zurich Insurance Company ("Zurich")
pursuant to which Kemper Corporation would be acquired by the investor group in
a merger transaction. As part of the transaction, Zurich or an affiliate would
purchase KFS.
A definitive agreement is expected in early May 1995, subject to the
completion of the investor group's due diligence. Consummation of the
transaction is subject to a number of contingencies, including approval by the
board and stockholders of Kemper Corporation and the Zurich board and regulatory
approvals. Because the transaction would constitute an assignment of the Funds'
investment management agreements with KFS and, where applicable, Rule 12b-1
agreements under the Investment Company Act of 1940, and therefore a termination
of such agreements, the transaction is subject also to approval of new
agreements by Kemper Fund boards and shareholders. If the contingencies are
timely met, the transaction is expected to close early in the fourth quarter of
1995.
After consummation of the transaction, it is anticipated that the KFS
management team and the Kemper Fund portfolio managers would remain in place and
that the Kemper Funds would be operated in the same manner as they are
currently.
Also, Paul F. Sloan has been named the portfolio manager of Kemper U.S.
Government Securities Fund and Kemper U.S. Mortgage Fund and portfolio
co-manager of Kemper Short-Intermediate Government Fund and Kemper Adjustable
Rate U.S. Government Fund replacing J. Patrick Beimford, Jr. Mr. Beimford
continues as Director of Fixed Income Investments at KFS. Prior to joining KFS,
Mr. Sloan was the director of institutional portfolio management at an
investment management company and prior thereto he was a vice president and
investment officer for a regional bank. He received a B.A. in English Literature
from the University of Detroit, Detroit, Michigan, and an M.B.A. in Finance and
Business Economics from Wayne State University, Detroit, Michigan.
In addition, Kemper Diversified Income Fund is now managed by a team of
portfolio managers who are specialists in the basic sectors in which it invests.
Messrs. Robert S. Cessine, Gordon K. Johns, Michael A. McNamara, Harry E. Resis,
Jr., Paul F. Sloan and Jonathan W. Trutter are the members of the team. Mr.
Cessine is senior vice president and director of investment grade corporate and
sovereign bond research at KFS. Prior to joining KFS in January 1993, he was a
senior corporate bond analyst and chairman of the bond selection committee at an
investment management company. He received a masters degree in Finance from the
University of Wisconsin, Madison, Wisconsin, a masters degree in Agricultural
Economics from the University of Maryland, Baltimore/College Park, Maryland, and
a B.S. in Economics from the University of Wisconsin, Madison, Wisconsin. Mr.
Cessine is a Chartered Financial Analyst. Mr. Johns joined Kemper in 1988 and
currently is executive vice president of KFS and managing director of Kemper
Investment Management Company Limited in London. Previously, he was head of
international fixed income fund management at an investment bank in London. He
received a B.A. in law from Balliol College in Oxford, United Kingdom. Mr.
McNamara joined KFS in February 1972 and is currently a senior vice president of
KFS. He received a B.S. in Business Administration from the University of
Missouri, St. Louis, Missouri, and an M.B.A. in Finance from Loyola University,
Chicago, Illinois. Mr. Resis joined KFS in June 1988 and is currently a senior
vice president of KFS. He received a B.A. in Finance from Michigan State
University, East Lansing, Michigan. Mr. Sloan's background is discussed above.
Mr. Trutter is a first vice president of KFS. Before joining KFS in April 1989,
he was a vice president in commercial banking. Mr. Trutter has an A.B. with dual
majors in East Asian Languages and International Relations from University of
Southern California, Los Angeles and an M.B.A. from Kellogg Graduate School of
Management at Northwestern University, Evanston, Illinois. He is also a
Certified Public Accountant.
Separately, effective February 1, 1995, KFS transferred all its duties and
responsibilities as principal underwriter, distributor and administrator of the
Funds to Kemper Distributors, Inc., a wholly-owned subsidiary of KFS. KFS
continues to provide investment management services. See "Investment Manager and
Underwriter" in the prospectus.
May 8, 1995
KFIF-1A 5/95
<PAGE> 3
DEAR SHAREHOLDER:
We are pleased to provide you with an overview and performance of your fund for
the six-month period ended March 31, 1995. In addition, following the overview
is a question and answer interview with your fund's Portfolio Managers.
--------------------------------------------
PERFORMANCE & DIVIDEND REVIEW
<TABLE>
<CAPTION>
----------------------------------------------------------
Total Return Performance+
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1995
(UNADJUSTED FOR ANY SALES CHARGE)
<S> <C>
Kemper High Yield Fund A 5.24%
Kemper High Yield Fund B 4.77%
Kemper High Yield Fund C 4.78%
Kemper High Yield Fund I* 5.30%
Lipper High Yield Funds
Category Average 3.09%
----------------------------------------------------------
Returns are historical and do not represent 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.
* Performance is since inception of December 29, 1994. I
shares are available only to Kemper affiliated employee
benefit plans and certain institutional clients.
</TABLE>
When comparing Kemper High Yield Fund A to all other High Yield funds in its
Lipper++ category for the following time periods ended March 31, 1995, this fund
ranked: 1-year, 13 of 99; 5-year, 13 of 60; 10-year, 1 of 32; 15-year, 1 of 21.
The following table shows dividend and yield information for Kemper High Yield
Fund as of March 31, 1995.
<TABLE>
<CAPTION>
------------------------------------------------------------
A SHARES B SHARES C SHARES I SHARES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
March Dividend: $0.0635 $0.0582 $0.0585 $0.0654
Net Asset Value: $7.75 $7.74 $7.76 $7.75
Annualized Distribution
Rate+++: 9.83% 9.02% 9.05% 10.13%
SEC Yield+++: 9.70% 9.17% 9.18% 10.35%
------------------------------------------------------------
</TABLE>
---------------------------------------
GENERAL ECONOMIC OVERVIEW
Throughout 1994, rising interest rates dominated most economic discussion and
served to dampen the performance of both the fixed-income and stock markets.
However, rates have now stabilized and the markets rebounded in the first
quarter of 1995, suggesting a growing comfort with the health of the economy.
Specifically, we believe that the economy is now growing at a moderate pace that
can be sustained. Higher interest rates--and we expect rates to continue to
creep up as the year progresses--appear to be having the effect of keeping
inflation under control. At the same time, rates have not risen so high or so
quickly to suggest a disruption of economic growth.
As long as long-term fixed-income markets are assured of low inflation,
increases in short-term rates should not hurt the performance of the bond
market. In fact, with inflation running at 3 percent or below, real (adjusted
for inflation) rates of return are attractive. In April, for example, a
five-year Treasury note offered a 3.98 percent real rate of
return--significantly higher than the post-World War II average real rate of
return of 1.40 percent. This relationship is a strong positive for fixed-income
investors.
------------------------------------------------------------
MOST MARKETS REBOUNDED IN THE FIRST QUARTER
Data show the 1994 and first-quarter 1995 comparative total returns for the
domestic and international equity and U.S. and non-U.S. bond markets.
<TABLE>
<CAPTION>
------------------------------------------------------------
1994 1st Quarter 1995
---- ----------------
<S> <C>
(1) 1.31% 9.73%
(2) 8.06% 1.94%
(3)-3.37% 4.68%
(4) 5.99% 14.44%
------------------------------------------------------------
</TABLE>
(1) Standard & Poor's 500, an unmanaged index of common stocks that is generally
considered representative of the U.S. stock market.
(2) Morgan Stanley Capital International EAFE Index, an unmanaged index that is
generally considered a measure of international equities in 15 major world
markets excluding the U.S. and Canada.
(3) Salomon Brothers U.S. Treasury Bond Index, a composite index of treasuries
with various maturities (unmanaged).
(4) Salomon Brothers Non-U.S. Dollar World Government Bond Index, including the
performance of leading government bond markets excluding the U.S.
(unmanaged).
While there are continuing opportunities for investors, it is important to
recognize that the economic expansion is several months into its cycle.
Industries such as housing and steel, which led the economy out of the
recession, cannot be expected to repeat the strong double-digit growth they
enjoyed in 1994. Now that such cyclical industries have experienced most of
their outperformance, we believe that investors' sights will shift to the
industries that produce more consistent earnings, such as consumer nondurables,
technology and selected capital goods.
Picking the right sectors to invest in will be the key challenge for equity
investors during the next few quarters.
Leading international economies are lagging the U.S. economy. Japan and Germany,
whose economies typically follow U.S. growth, are not as robust as in past
cycles. This phenomenon makes international investing very complex currently.
Moreover, conditions in emerging market countries underline the importance of
careful research and experience in understanding how these markets work.
We are calm about what has been described as a dollar crisis. While it's true
that the dollar has depreciated against the Japanese yen and many European
currencies, we note that the dollar has appreciated in value against the
currency of Canada and Mexico, two of our largest trading partners.
1
<PAGE> 4
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 not been uncommon for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this a foregone conclusion as we move closer to 1996.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question-and-answer with your fund's
portfolio manager. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
Stephen B. Timbers
/s/ Stephen B. Timbers
Chief Investment and Executive Officer
April 10, 1995
Stephen Timbers is Chief Executive Officer and
is also Chief Investment Officer of Kemper
Financial Services, Inc. (KFS). KFS and its
[PHOTO] affiliates manage approximately $60 billion in
assets, including $42 billion in retail mutual
funds. Timbers is a graduate of Yale
University and holds a M.B.A. from Harvard
University.
+ Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of all dividends. 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.
++ Lipper Analytical Services, Inc. performance 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. Performance and rankings are historical and do not reflect future
performance.
+++ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on March 31, 1995. Distribution
rate simply measures the level of dividends and is not a complete measure of
performance. The SEC yield is net investment income per share earned over
the month ended March 31, 1995 shown as an annualized percentage of the
maximum offering price on that date.
2
<PAGE> 5
Q&A
AN INTERVIEW WITH PORTFOLIO MANAGERS
MIKE MCNAMARA
AND HARRY RESIS
[PHOTO]
Mike McNamara has been with Kemper Financial Services, Inc. since 1972 and is
now Senior Vice President and Co-Portfolio Manager of the 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]
Harry Resis joined Kemper Financial Services, Inc., in 1988 and is now
Co-Portfolio Manager of Kemper High Yield Fund. Mr. Resis received a B.A. in
Finance from Michigan State University.
Q: WHEN WE LAST SPOKE IN OCTOBER, THE BOND MARKET WAS IN THE MIDST OF A
DIFFICULT YEAR. HAS THE SCENARIO CHANGED IN THE PAST SIX MONTHS?
A: Yes, the environment for bonds has definitely improved. In 1994, rising
interest rates hurt bond prices by making the rate on outstanding bonds less
attractive. But since November of last year, interest rates have trended
lower. This has been good for bonds. If you look at Salomon Broad Investment
Grade Bond Index+, which is a broad measure of bond activity, you'll see that
the bond market fell 2.85% in 1994. For the first quarter the index has
returned 5.06%, more than recovering last year's losses.
Q: WHAT'S BEHIND THE DECLINE IN INTEREST RATES?
A: During the first quarter weaker economic data, including a small gain in
employment and lower commodity prices, suggested that the economic growth is
beginning to moderate from last year's heavy pace. This pleased the market
since it implied that inflation would not be problematic and that the Fed may
not have to raise interest rates again.
Q: HOW DID THE HIGH YIELD MARKET PERFORM COMPARED TO THE REST OF THE BOND
MARKET DURING THE PAST SIX MONTHS?
A: High yield bonds beat the broader fixed-income market according to Salomon
Brothers Indices. The Salomon Brothers High Yield Extended Index++ returned
5.91% compared to the Salomon Brothers Broad Investment Grade Index's return of
5.8%. High yield bonds benefited for three reasons: First, continued economic
strength was favorable for high yields because it enables corporate high yield
issuers to meet their debt obligations more easily. Second, the higher income
that high bonds offer compared to less risky investments, such as
Treasuries, added to return. Finally, we continued to see low levels of new
bond issuance in the high yield market. This lower supply supported the prices
of high yield bonds.
Q: KEMPER HIGH YIELD FUND HAD GOOD PERFORMANCE DURING THE PERIOD. THE FUND'S
CLASS A SHARES RETURNED 5.24%, COMPARED TO AN AVERAGE RETURN OF 3.09% FOR ITS
PEERS IN THE LIPPER HIGH CURRENT YIELD CATEGORY. WHAT DO YOU ATTRIBUTE THIS
TO?
A: One reason was our decision to improve the credit profile of the fund. In
recent months, we increased the fund's position in BB rated bonds, and
decreased its position in B rated issues. BB rated securities are higher
quality than B rated issues, but provide less income than B rated issues.
Because thy are higher quality, the price behavior of BB rated bonds tends to
be more closely related to Treasuries, which have performed well given the
favorable interest rate environment since November. For the six month period,
BB rated bonds outperformed B rated securities.
3
<PAGE> 6
"Given the bond market's gains so far this year, we believe that high yield
bond prices should remain near current levels until the economy is weak enough
to justify lower yields."
Q: YOU STATED EARLIER THAT MARKET CONSENSUS IS THAT THE ECONOMY IS SLOWING. DO
YOU SHARE THIS VIEW AND IF SO HOW DO YOU THINK THIS WILL AFFECT HIGH YIELD
BONDS?
A: As you know, the Fed has raised short-term interest rates 3.00% since
February of 1994 with the goal of stopping inflation before it becomes a
problem. We think that the Fed's actions will go a long way toward containing
inflation. This would be positive for all bonds, including high yield bonds,
since lower inflation helps preserve the value of fixed-income payments.
However, it also seems inevitable that the Fed's actions will slow economic
growth. Slower growth would be a less favorable environment for high yield
issuers than we've seen in recent years and would limit the upside for prices
of high yield bonds.
Q: HOW HAVE YOU BEEN POSITIONING THE PORTFOLIO GIVEN YOUR OUTLOOK FOR ECONOMIC
GROWTH TO MODERATE DURING 1995?
A: We've basically focussed on three strategies. First, we've increased the
portfolio's weighting in defensive media investments, which tend to perform
well in the later stages of economic growth. A second strategy involved
lowering the fund's sensitivity to market changes. We reduced the fund's
exposure to deferred-interest bonds, which by nature, tend to amplify movements
in the market; we increased holdings in cash-paying securities, which are less
sensitive to market movements. Finally we improved the credit profile of the
fund. For example, at the end of September 70% of the fund's bond holdings were
rated B, while 17% were rated BB. At the end of March 67% were rated B and 22%
BB.
Q: WHAT IS YOUR OUTLOOK FOR THE FUND AND THE HIGH YIELD MARKET FOR THE SECOND
HALF OF THE FUND'S FISCAL YEAR?
A: Given the bond market's gains so far this year, we believe that high yield
bond prices should remain near current levels until the economy is weak enough
to justify lower yields. In the meantime, high yield investors can continue to
benefit from the higher yields available in the marketplace. Our strategy will
continue to one of positioning the fund so that it is less sensitive to changes
in the market. We will also continue to seek buying opportunities among
higher-quality securities.
+ Salomon Brothers Broad Investment Grade Bond Index is a market capitalization
weighted index that covers an all-inclusive universe of institutionally traded
U.S. Treasury, agency, mortgage and corporate securities. Source is Salomon
Brothers Inc.
++ Salomon Brothers Extended High Yield Bond Index is on a total return basis
with all dividends reinvested and is comprised of cash pay, deferred interest,
bankrupt and for default securities. Source is Salomon Brothers Inc.
4
<PAGE> 7
PORTFOLIO OF INVESTMENTS March 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS-3.5%
(Cost: $119,780)
-------------------------------------------------------------
U.S. Treasury Notes, 8.875%, 1996 $117,900 $ 120,258
-------------------------------------------------------------
CORPORATE OBLIGATIONS
BROADCASTING, CABLESYSTEMS AND PUBLISHING-14.3%
-------------------------------------------------------------
Act III Broadcasting, Inc., 9.625%,
2003 4,575 4,346
-------------------------------------------------------------
Adelphia Communications Corporation,
12.50%, 2002 26,120 24,945
-------------------------------------------------------------
Affinity Group, Inc., 11.50%, 2003 19,050 18,288
-------------------------------------------------------------
(b)Bell Cablemedia PLC, 11.95%, 2004 34,490 20,866
-------------------------------------------------------------
Big Flower Press, Inc., 10.75%, 2003 28,175 27,189
-------------------------------------------------------------
CF Cable TV Inc., 11.625%, 2005 11,405 11,804
-------------------------------------------------------------
Cablevision Industries Corporation,
10.75%, 2002 30,520 32,046
-------------------------------------------------------------
Cablevision Systems Company
9.875%, 2013 15,245 14,559
9.875%, 2023 5,100 4,769
-------------------------------------------------------------
Century Communications Corporation
9.50%, 2000 4,520 4,452
11.875%, 2003 32,970 34,536
9.50%, 2005 25,590 24,566
-------------------------------------------------------------
Comcast Corporation
9.50%, 2008 41,180 38,812
10.625%, 2012 11,695 11,958
-------------------------------------------------------------
Continental Cablevision, Inc.,
9.50%, 2013 49,580 47,349
-------------------------------------------------------------
Katz Corporation, 12.75%, 2002 17,300 18,079
-------------------------------------------------------------
(b)Neodata Services, 12.00%, 2003 16,640 12,813
-------------------------------------------------------------
Rogers Cablesystems Limited
9.625%, 2002 11,580 11,348
10.00%, 2005 12,750 12,654
-------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
10.00%, 2003 19,005 18,625
-------------------------------------------------------------
Summit Communications Group, Inc.,
10.50%, 2005 19,300 20,072
-------------------------------------------------------------
Univision TV, 11.75%, 2001 10,175 10,735
-------------------------------------------------------------
Viacom International Inc.,
8.00%, 2006 52,105 47,155
-------------------------------------------------------------
Videotron Groupe, 10.625%, 2005 7,440 7,552
-------------------------------------------------------------
(b)Videotron Holdings PLC,
11.125%, 2004 11,800 6,991
-------------------------------------------------------------
Webcraft Technologies, Inc.,
9.375%, 2002 9,760 8,540
-------------------------------------------------------------
495,049
BUSINESS SERVICES-3.1%
-------------------------------------------------------------
Comdata Network, Inc.
12.50%, 1999 23,000 24,610
13.25%, 2002 9,210 10,039
-------------------------------------------------------------
Computervision Corporation
10.875%, 1997 14,230 13,945
11.375%, 1999 5,940 5,450
convertible, 8.00%, 2009 2,450 1,623
-------------------------------------------------------------
Corporate Express Inc., 9.125%, 2004 18,760 17,728
-------------------------------------------------------------
Merisel, Inc., 12.50%, 2004 19,810 17,829
-------------------------------------------------------------
Outdoor Systems, 10.75%, 2003 18,685 17,097
-------------------------------------------------------------
108,321
CHEMICALS-4.9%
-------------------------------------------------------------
Agriculture, Mining and Chemicals,
Inc.,
10.75%, 2003 10,300 10,609
-------------------------------------------------------------
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
-------------------------------------------------------------
Arcadian Partners, L.P., 10.75%, 2005 $ 31,640 $ 31,007
-------------------------------------------------------------
Atlantis Group, Inc., 11.00%, 2003 16,265 15,940
-------------------------------------------------------------
G-I Holdings Inc., zero coupon, 1998 27,155 17,515
-------------------------------------------------------------
(b)Harris Chemical North America,
Inc.,
10.25%, 2001 13,000 11,326
-------------------------------------------------------------
Huntsman Corporation,
10.625%, 2001 5,985 6,209
-------------------------------------------------------------
Polymer Group Inc., 12.25%, 2002 12,500 11,875
-------------------------------------------------------------
Rexene Corporation, 11.75%, 2004 26,560 27,224
-------------------------------------------------------------
UCC Investors Holdings, Inc.
10.50%, 2002 26,960 27,230
11.00%, 2003 8,670 8,800
-------------------------------------------------------------
167,735
COMMUNICATIONS-5.4%
-------------------------------------------------------------
(b)Call-Net Enterprises Inc., 13.25%,
2004
13.25%, 2004 15,280 8,423
-------------------------------------------------------------
(b)Celcaribe S.A., 13.50%, 2004 14,400 11,988
-------------------------------------------------------------
(b)Cellular, Inc. 11.75%, 2003 9,475 6,680
-------------------------------------------------------------
(b)Echostar Communication Unit,
12.00%, 2004 66,500 31,421
-------------------------------------------------------------
Paging Network, Inc.
11.75%, 2002 24,840 26,082
(a)9.25%, 2002 17,000 17,000
8.875%, 2006 9,770 8,524
-------------------------------------------------------------
(b)PanAmSat, L.P., 11.375%, 2003 32,230 20,950
-------------------------------------------------------------
Rogers Cantel, 11.125%, 2002 32,307 33,115
-------------------------------------------------------------
Rogers Communications Inc.,
10.875%, 2004 5,680 5,708
-------------------------------------------------------------
USA Mobile Communications, Inc. II,
14.00%, 2004 16,290 17,430
-------------------------------------------------------------
187,321
CONSTRUCTION MATERIALS-4.8%
-------------------------------------------------------------
American Standard Inc.
10.875%, 1999 19,727 20,615
11.375%, 2004 12,490 13,552
(b)10.50%, 2005 13,940 9,479
9.25%, 2016 15,625 14,844
-------------------------------------------------------------
(b)Building Materials Corporation of
America, 11.75%, 2004 39,970 21,384
-------------------------------------------------------------
Nortek, Inc., 9.875%, 2004 17,845 16,328
-------------------------------------------------------------
Schuller International, 10.875%, 2004 7,400 7,798
-------------------------------------------------------------
Triangle Pacific Corp., 10.50%, 2003 33,725 33,556
-------------------------------------------------------------
Waxman Industries, Inc.
13.75%, 1999 14,713 12,800
(a)(b)
12.75%, 2004, with warrants
expiring
2004 27,080 12,557
12.25%, 1998 4,930 4,659
-------------------------------------------------------------
167,572
CONSUMER PRODUCTS AND SERVICES-6.7%
-------------------------------------------------------------
Allied Waste Industry, 12.00%, 2004 9,500 9,595
-------------------------------------------------------------
Bally's Park Place Funding, Inc.,
9.25%, 2004 40,500 35,842
-------------------------------------------------------------
Beatrice Foods, Inc., 12.00%, 2001 31,870 30,436
-------------------------------------------------------------
Cinemark USA, Inc., 12.00%, 2002 13,096 13,816
-------------------------------------------------------------
(b)Dr. Pepper Bottling Holdings,
Inc.,
11.625%, 2003 18,629 13,320
-------------------------------------------------------------
Empress River Casino, 10.75%, 2002 16,680 16,180
-------------------------------------------------------------
</TABLE>
5
<PAGE> 8
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ---------
<S> <C> <C>
-------------------------------------------------------------
Mid-American Waste Systems Inc.,
12.25%, 2003 $ 16,530 $ 16,778
-------------------------------------------------------------
P&C Food Markets, Inc., 11.50%, 2001 11,935 12,457
-------------------------------------------------------------
(a)Raci Acquisition Corporation,
9.50%, 2003 8,965 7,665
-------------------------------------------------------------
Santa Fe Hotel, Inc., 11.00%, 2000,
with warrants expiring 1996 11,700 11,322
-------------------------------------------------------------
Trump Taj Mahal, PIK, 11.35%, 1999 82,952 62,629
-------------------------------------------------------------
230,040
DRUGS AND HEALTH CARE-4.4%
-------------------------------------------------------------
Abbey Healthcare Group Incorporated,
9.50%, 2002 10,140 10,343
-------------------------------------------------------------
Amerisource Distribution Corp., PIK,
11.25%, 2005 16,598 17,926
-------------------------------------------------------------
Charter Medical Corporation,
11.25%, 2004 31,670 33,095
-------------------------------------------------------------
Dade International Inc.,
13.00%, 2005 11,600 11,861
-------------------------------------------------------------
National Medical Enterprises
9.625%, 2002 7,470 7,638
10.125%, 2005 26,160 26,847
-------------------------------------------------------------
Ornda Healthcorporation
12.25%, 2002 28,990 31,599
11.375%, 2004 11,960 12,678
-------------------------------------------------------------
151,987
ENERGY AND RELATED SERVICES-2.4%
-------------------------------------------------------------
Dual Drilling Company, 9.875%, 2004 4,990 4,092
-------------------------------------------------------------
Empire Gas Corporation, with warrants
expiring 2004, 7.00%, 2004 23,040 17,123
-------------------------------------------------------------
Global Marine Inc., 12.75%, 1999 3,990 4,319
-------------------------------------------------------------
Gulf Canada Resources Limited, 9.25%,
2004 12,135 11,528
-------------------------------------------------------------
HS Resources, 9.875%, 2003 2,000 1,910
-------------------------------------------------------------
Rowan Companies, Inc., 11.875%, 2001 1,540 1,602
-------------------------------------------------------------
TransTexas Gas Corporation, 10.50%,
2000 29,010 29,191
-------------------------------------------------------------
Trident NGL Inc., 10.25%, 2003 6,630 7,061
-------------------------------------------------------------
WRT Energy Corporation, 13.875%, 2002 7,540 7,427
-------------------------------------------------------------
84,253
FINANCIAL SERVICES, HOMEBUILDERS AND
REAL ESTATE-3.5%
-------------------------------------------------------------
Continental Homes Holding, 12.00%,
1999 21,255 19,927
-------------------------------------------------------------
The Forecast Group L.P., 11.375%,
2000 3,620 2,163
-------------------------------------------------------------
(a)Great America Holdings, 11.00%,
1998 11,575 11,618
-------------------------------------------------------------
Hovnanian Kent
11.25%, 2002 17,792 15,701
9.75%, 2005 7,116 5,533
-------------------------------------------------------------
J.M. Peters, 12.75%, 2002 6,890 5,857
-------------------------------------------------------------
Kaufman and Broad Home Corporation,
9.375%, 2003 7,648 6,768
-------------------------------------------------------------
NVR Inc., 11.00%, 2003 17,340 14,999
-------------------------------------------------------------
Oriole Homes Corp., 12.50%, 2003 8,625 7,590
-------------------------------------------------------------
The Presley Companies, 12.50%, 2001 21,550 18,102
-------------------------------------------------------------
Toll Corp.
10.50%, 2002 3,990 3,870
9.50%, 2003 10,200 9,435
-------------------------------------------------------------
121,563
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
MANUFACTURING, METALS AND MINING-17.5%
-------------------------------------------------------------
Aftermarket Technology, 12.00%, 2004 $ 11,710 $ 12,178
-------------------------------------------------------------
Allison Engine, 10.00%, 2003 14,540 15,631
-------------------------------------------------------------
Amstar Corporation, 11.375%, 1997 40,574 40,777
-------------------------------------------------------------
BE Aerospace, 9.75%, 2003 11,418 11,075
-------------------------------------------------------------
Bluebird Body Company, 11.75%, 2002 23,745 23,982
-------------------------------------------------------------
(b)Eagle Industries, Inc., 10.50%,
2003 20,040 13,126
-------------------------------------------------------------
Earle M. Jorgenson Co., 10.75%, 2000 14,782 14,302
-------------------------------------------------------------
Essex Group Incorporated, 10.00%,
2003 13,835 13,282
-------------------------------------------------------------
Exide Corporation
10.75%, 2002 9,930 10,004
(b)12.25%, 2004 25,080 18,308
-------------------------------------------------------------
Fairchild Corporation
12.00%, 2001 31,200 26,988
13.00%, 2007 4,755 3,994
-------------------------------------------------------------
Fairchild Industries, 12.25%, 1999 22,080 21,914
-------------------------------------------------------------
Fairfield Manufacturing Company,
11.375%, 2001 12,900 12,126
-------------------------------------------------------------
Foamex L.P.
11.25%, 2002 10,770 10,555
11.875%, 2004 32,200 31,073
-------------------------------------------------------------
(b)Foamex-JPS Automotive L.P.,
13.50%, 2004, with warrants expiring
1999 16,620 9,141
-------------------------------------------------------------
GS Technologies, 12.00%, 2004 17,115 17,201
-------------------------------------------------------------
Great Dane Holding, 12.75%, 2001 31,938 32,257
-------------------------------------------------------------
Jordan Industries, 10.375%, 2003 9,700 8,924
-------------------------------------------------------------
JPS Automotive Products Corporation,
11.125%, 2001 16,920 16,412
-------------------------------------------------------------
K & F Industries, Inc.
13.75%, 2001 71,405 70,512
11.875%, 2003 6,530 6,563
-------------------------------------------------------------
(a)Lehman (K&F) Promissory Note,
6.125%, 1997 5,434 5,018
-------------------------------------------------------------
Lear Seating Corporation, 8.25%, 2002 1,750 1,597
-------------------------------------------------------------
Newflo Corporation, 13.25%, 2002 14,500 14,138
-------------------------------------------------------------
Pace Industries, Inc., 10.625%, 2002 8,720 8,022
-------------------------------------------------------------
Penda Industries Inc., 10.75%, 2004 9,540 8,467
-------------------------------------------------------------
RHI Holdings, 11.875%, 1999 11,665 11,286
-------------------------------------------------------------
SPX Corporation, 11.75%, 2002 8,950 9,330
-------------------------------------------------------------
Sequa Corporation
9.625%, 1999 3,695 3,640
8.75%, 2001 11,380 10,598
9.375%, 2003 4,220 3,861
-------------------------------------------------------------
Thermadyne Industries, Inc.
10.25%, 2002 16,456 15,839
10.75%, 2003 28,676 27,457
-------------------------------------------------------------
UCAR Global Enterprises Inc., 12.00%,
2005 9,730 10,229
-------------------------------------------------------------
Unisys Corporation
13.50%, 1997 12,740 13,918
10.625%, 1999 20,485 21,407
-------------------------------------------------------------
605,132
PAPER, FOREST PRODUCTS AND CONTAINERS-9.1%
-------------------------------------------------------------
Berry Plastics Corporation, 12.25%,
2004, with warrants expiring 2004 7,020 6,915
-------------------------------------------------------------
Container Corporation of America,
11.25%, 2004 15,880 16,555
-------------------------------------------------------------
</TABLE>
6
<PAGE> 9
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- ----------
<S> <C> <C>
-------------------------------------------------------------
Gaylord Container Corporation, with
warrants expiring 1996
11.50%, 2001 $ 13,880 $ 14,574
(b)12.75%, 2005 19,560 52,293
-------------------------------------------------------------
Maxxam Group, Inc.
(b)12.25%, 2003 9,425 5,561
11.25%, 2003 7,250 6,888
-------------------------------------------------------------
Owens-Illinois, Inc.
11.00%, 2003 33,447 35,705
9.95%, 2004 14,015 13,700
9.75%, 2004 33,885 32,868
-------------------------------------------------------------
Riverwood International Corporation,
11.25%, 2002 9,170 9,674
-------------------------------------------------------------
SD Warren Company, 12.00%, 2004 20,380 21,501
-------------------------------------------------------------
Stone-Consolidated Corporation,
10.25%, 2000 19,370 19,660
-------------------------------------------------------------
Stone Container Corporation
9.875%, 2001 9,500 9,227
10.75%, 2002 53,090 54,948
-------------------------------------------------------------
Sweetheart Cup Company Inc., 10.50%,
2003 14,350 13,919
-------------------------------------------------------------
313,988
RETAILING-11.6%
-------------------------------------------------------------
Color Tile, Inc., 10.75%, 2001 32,480 26,146
-------------------------------------------------------------
(a)Dominick's Bank Loan, 12.25%, 2005 20,000 20,000
-------------------------------------------------------------
Federated Department Stores, Inc.,
convertible, 9.72%, 2004 7,970 7,970
-------------------------------------------------------------
Finlay Fine Jewelry Corporation,
10.625%, 2003 11,390 10,479
-------------------------------------------------------------
Flagstar Corporation
10.75%, 2001 12,860 12,378
10.875%, 2002 11,870 11,425
-------------------------------------------------------------
Food 4 Less Supermarket
10.45%, 2000 17,170 16,827
13.75%, 2001 17,800 19,046
-------------------------------------------------------------
(c)Grand Union Company, 12.25%, 2002 53,290 17,586
-------------------------------------------------------------
(b)International Semi-Tech
Microelectronics Inc., 11.50%, 2003 52,910 23,346
-------------------------------------------------------------
Orchard Supply Hardware Corporation,
9.375%, 2002 7,075 5,589
-------------------------------------------------------------
Pamida Holdings, 11.75%, 2003 33,730 32,043
-------------------------------------------------------------
Pathmark Stores, Inc.
12.625%, 2002 24,025 25,046
11.625%, 2002 14,325 14,522
9.625%, 2003 1,600 1,494
-------------------------------------------------------------
Penn Traffic Company
10.25%, 2002 3,000 3,022
8.625%, 2003 5,690 5,192
9.625%, 2005 16,726 15,430
-------------------------------------------------------------
Ralphs Grocery Company, 9.00%, 2003 26,850 26,179
-------------------------------------------------------------
Service Merchandise Company, Inc.,
9.00%, 2004 24,980 20,234
-------------------------------------------------------------
<CAPTION>
Principal
Amount
or Number
of Shares Value
--------- ----------
<S> <C> <C>
-------------------------------------------------------------
Southland Corporation, 5.00%, 2003 $ 71,198 $ 50,195
-------------------------------------------------------------
Specialty Retailers, Inc., 11.00%,
2003 13,390 12,453
-------------------------------------------------------------
Thrifty Payless Inc.
11.75%, 2003 9,420 9,867
12.25%, 2004 15,540 15,579
-------------------------------------------------------------
402,048
TRANSPORTATION-1.3%
-------------------------------------------------------------
Burlington Motor Holdings Inc.,
11.50%, 2003 20,750 18,364
-------------------------------------------------------------
OMI Corp., 10.25%, 2003 24,440 21,507
-------------------------------------------------------------
(b)Transtar Holdings, L.P., 13.375%,
2003 10,100 5,606
-------------------------------------------------------------
45,477
TOTAL CORPORATE OBLIGATIONS-89.0%
(Cost: $3,146,074) 3,080,486
-------------------------------------------------------------
COMMON AND PREFERRED STOCKS
-------------------------------------------------------------
(c)Computervision Corporation 3,860,436shs. 19,302
-------------------------------------------------------------
(c)Gillett Holdings, Inc. 371,016 7,606
-------------------------------------------------------------
J.M. Peters 54,431 54
-------------------------------------------------------------
K-III Communications, Inc., PIK 32,422 3,145
-------------------------------------------------------------
(a)(c)Peebles, Inc. 471,600 7,546
-------------------------------------------------------------
Petrolane Gas Service 343,784 5,243
-------------------------------------------------------------
(c)Specialty Equipment Companies,
Inc. 364,500 4,420
-------------------------------------------------------------
(c)Thrifty Payless Inc. 187,530 750
-------------------------------------------------------------
UGI Inc. 58,467 73
-------------------------------------------------------------
Walter Industries, Inc. 212,539 2,391
-------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS-1.5%
(Cost: $60,542) 50,530
-------------------------------------------------------------
MONEY MARKET INSTRUMENTS
Yield-6.02%-6.18%
Due-April and May 1995
-------------------------------------------------------------
Caterpillar Financial Services
Limited $ 4,000 3,978
-------------------------------------------------------------
CSX Corporation 10,000 9,980
-------------------------------------------------------------
Conagra, Inc. 48,700 48,513
-------------------------------------------------------------
Finova Capital Corporation 12,800 12,778
-------------------------------------------------------------
J.V. Receivables Corporation 5,000 4,955
-------------------------------------------------------------
Renaissance Energy Company 25,000 24,983
-------------------------------------------------------------
TOTAL MONEY MARKET INVESTMENTS-3.0%
(Cost: $105,188) 105,187
-------------------------------------------------------------
TOTAL INVESTMENTS-97.0%
(Cost: $3,431,584) 3,356,461
-------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES-3.0% 105,060
-------------------------------------------------------------
NET ASSETS-100% $3,461,521
-------------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolio of Investments.
7
<PAGE> 10
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. There were no market quotations available for
unrestricted securities of the same class on the dates of acquisition or on
March 31, 1995. At this date the value of the Portfolio's restricted
securities was $68,947,000, which represented 1.99% of net assets.
<TABLE>
<CAPTION>
Principal
Amount
Date of or Number Unit
Acquisition of Shares Cost
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dominick's Bank Loan, 12.25%, 2005 March 1995 $ 20,000,000 $ 100.00
-----------------------------------------------------------------------------------------------------------------------------
July 1990
Great America Holdings, 11.00%, 1998 to March 1992 11,575,000 86.38
-----------------------------------------------------------------------------------------------------------------------------
Lehman (K&F) Promissory Note, 6.125%, 1997 July 1994 5,434,362 90.75
-----------------------------------------------------------------------------------------------------------------------------
Paging Network, 9.25%, 2002 March 1995 17,000,000 99.63
-----------------------------------------------------------------------------------------------------------------------------
July 1989 and
Peebles, Inc., common stock February 1992 471,600shs. 25.92
-----------------------------------------------------------------------------------------------------------------------------
November 1993
Raci Acquisition Corporation, 9.50%, 2003 and June 1994 8,965,000 97.16
-----------------------------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June 1994 800,453 2.00
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(c) Non-income producing security. In the case of a bond, generally denotes the
issuer has defaulted on the payment of principal or interest or has filed
for bankruptcy.
"PIK" denotes that interest or dividends are paid in kind.
Based on the cost of investments of $3,431,584,000 for federal income tax
purposes at March 31, 1995, the aggregate gross unrealized appreciation was
$80,165,000 the aggregate gross unrealized depreciation was $155,288,000 and the
net unrealized depreciation of investments was $75,123,000.
See accompanying Notes to Financial Statements.
8
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
------------------------------------------------------
Investments, at value
(Cost: $3,431,584) $3,356,461
------------------------------------------------------
Cash 20,398
------------------------------------------------------
Receivable for:
Fund shares sold 9,759
------------------------------------------------------
Investments sold 72,009
------------------------------------------------------
Interest and dividends 82,142
------------------------------------------------------
Total assets 3,540,769
------------------------------------------------------
LIABILITIES AND NET ASSETS
------------------------------------------------------
Payable for:
Fund shares redeemed 1,518
------------------------------------------------------
Investments purchased 74,181
------------------------------------------------------
Management fee 1,531
------------------------------------------------------
Distribution services fee 649
------------------------------------------------------
Administrative services fee 589
------------------------------------------------------
Custodian and transfer agent
fees and related expenses 681
------------------------------------------------------
Other 99
------------------------------------------------------
Total liabilities 79,248
------------------------------------------------------
Net assets 3,461,521
------------------------------------------------------
ANALYSIS OF NET ASSETS
------------------------------------------------------
Excess of amounts received from
issuance of shares over amounts
paid on redemptions of shares
on account of capital $3,662,787
------------------------------------------------------
Accumulated net realized loss on
sales of investments (215,673)
------------------------------------------------------
Unrealized depreciation of investments (75,123)
------------------------------------------------------
Undistributed net investment income 89,530
------------------------------------------------------
Net assets applicable to shares
outstanding $3,461,521
------------------------------------------------------
THE PRICING OF SHARES
------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($2,420,728+312,377 shares outstanding) $7.75
------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net
asset value or 4.50% of offering price) $8.12
------------------------------------------------------
CLASS B SHARES
Net asset value, offering price and
redemption price (subject to contingent
deferred sales charge) per share
($1,021,925+131,957 shares outstanding) $7.74
------------------------------------------------------
CLASS C SHARES
Net asset value, offering price and
redemption price per share
($10,230+1,318 shares outstanding) $7.76
------------------------------------------------------
CLASS I SHARES
Net asset value, offering price and
redemption price per share
($8,639+1,115 shares outstanding) $7.75
------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENT OF OPERATIONS
Six months ended March 31, 1995
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
------------------------------------------------------
Interest $ 201,211
------------------------------------------------------
Dividends 173
------------------------------------------------------
Total investment income 201,384
------------------------------------------------------
EXPENSES
------------------------------------------------------
Management fee 8,531
------------------------------------------------------
Distribution services fee 3,531
------------------------------------------------------
Administrative services fee 3,115
------------------------------------------------------
Custodian and transfer agent
fees and related expenses 3,025
------------------------------------------------------
Professional fees 48
------------------------------------------------------
Reports to shareholders 192
------------------------------------------------------
Trustees' fees and other 108
------------------------------------------------------
Total expenses 18,550
------------------------------------------------------
Net investment income 182,834
------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
------------------------------------------------------
Net realized loss on sales of investments (85,402)
------------------------------------------------------
Net change in balance of unrealized
depreciation of investments 70,890
------------------------------------------------------
Net loss on investments (14,512)
------------------------------------------------------
Net increase in net assets resulting
from operations $ 168,322
------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
Six months
ended Year ended
March 31, September 30,
1995 1994
---------- ------------
<S> <C> <C>
OPERATIONS
--------------------------------------------------------
Net investment income $ 182,834 $ 230,687
--------------------------------------------------------
Net realized loss on
investments (85,402) (40,933)
--------------------------------------------------------
Net change in unrealized
depreciation 70,890 (81,765)
--------------------------------------------------------
Net increase in net assets
resulting from operations 168,322 107,989
--------------------------------------------------------
Net equalization credits 3,883 5,646
--------------------------------------------------------
Distribution from net
investment income (154,849) (234,208)
--------------------------------------------------------
Net increase from capital
share transactions 292,136 1,315,078
--------------------------------------------------------
Total increase in net assets 309,492 1,194,505
--------------------------------------------------------
NET ASSETS
--------------------------------------------------------
Beginning of period 3,152,029 1,957,524
--------------------------------------------------------
End of period (including
undistributed net investment
income of $89,530 in 1995 and
$57,662 in 1994) $3,461,521 $ 3,152,029
--------------------------------------------------------
</TABLE>
9
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE FUND
The Kemper High Yield Fund currently 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 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 ACCOUNTING POLICIES
INVESTMENT VALUATION
Investments are stated at value. Fixed income securities are valued by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. 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. Realized and unrealized gains and losses on
financial futures, options and forward foreign currency contracts are included
in net realized and unrealized gain (loss) on investments, as appropriate.
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, 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 for the six months ended March 31, 1995. The
accumulated net realized loss on sales of investments for federal income tax
purposes at March 31, 1995, amounting to approximately $215,668,000, is
available to offset future taxable gains. If not applied, the loss carryover
expires during the period 1998 through 2003.
On April 18, 1995, the following per share dividends were declared, payable
April 28, 1995 to shareholders of record on April 19, 1995.
<TABLE>
<CAPTION>
Class A Class B Class C Class I
<S> <C> <C> <C> <C>
------------------------------------------------------------------
Income $.0635 .0578 .0581 .0662
------------------------------------------------------------------
</TABLE>
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 payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with income tax principles which may
treat certain transactions differently 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.
10
<PAGE> 13
OTHER CONSIDERATIONS
The Fund invests a substantial portion of its assets in high yield bonds. These
bonds ordinarily are in the lower rating categories of recognized rating
agencies or are non-rated, and thus involve more risk than higher rated bonds.
Kemper Financial Services, Inc. (KFS), the Fund's investment manager, may serve
as a member of various bondholders' committees. These committees represent the
interests of bondholders in restructuring negotiations and court proceedings. As
a result of participation on such committees, KFS may receive material,
non-public information with respect to bonds the Fund owns. Accordingly, the
Fund may be temporarily precluded from effecting transactions in such bonds due
to various restraints imposed by federal and state securities laws involving the
possession of material, non-public information.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management 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 $8,531,000 for the six months
ended March 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
The Fund has an underwriting and distribution services agreement with Kemper
Distributors, Inc. (KDI). Before February 1, 1995, KFS was the Fund's principal
underwriter and distributor. As principal underwriter for the Fund, KDI (as
successor to KFS) retained commissions of $1,075,000 for the six months ended
March 31, 1995 for sales of Class A shares, after allowing $678,000 as
commissions to firms, of which $119,000 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 six months ended March 31,
1995, the Fund incurred a distribution services fee for Class B and Class C
shares of $3,531,000 and KDI paid $1,717,000 for commissions and distribution
fees to firms, including $247,000 to firms affiliated with KDI. In addition, KDI
received $903,000 of contingent deferred sales charges.
ADMINISTRATIVE SERVICES AGREEMENT
The Fund has an administrative services agreement with KDI. Before February 1,
1995, KFS was the Fund's administrator. 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 agreements with financial services firms
that provide these services and pays these firms based on assets of Fund
accounts the firms service. For the six months ended March 31, 1995, the Fund
incurred an administrative services fee of $3,115,000 and KDI (as successor to
KFS) paid $3,115,000 to firms, including $379,000 that was paid to firms
affiliated with KDI.
CUSTODIAN AND TRANSFER AGENT AGREEMENT
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31,
1995, when KFS completed the sale of IFTC to a third party. For the six months
ended March 31, 1995, the Fund incurred custodian and transfer agent fees of
$2,189,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the six months ended March 31, 1995, IFTC
remitted shareholder service fees of $2,096,000 to KSvC.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the six months ended March 31, 1995, the Fund made no payments to its
officers and incurred trustees' fees of $15,000 to independent trustees.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1995 investment transactions (excluding short
term instruments) are as follows (in thousands):
Purchases $1,564,362
--------------------------------------------------------------------------------
Proceeds from sales $1,424,934
--------------------------------------------------------------------------------
11
<PAGE> 14
5. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
Six months ended Year ended
March 31, September 30,
1995 1994
-------------------- -----------------------
Shares Amount Shares Amount
------- --------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold:
Class A 79,089 $ 583,781 147,459 $ 1,153,155
-----------------------------------------------------------------
Class B 41,254 312,886 32,193 253,599
-----------------------------------------------------------------
Class C 1,167 8,889 439 3,436
-----------------------------------------------------------------
Class I 1,311 9,901 -- --
-----------------------------------------------------------------
Shares issued
in reinvestment
of dividends:
Class A 8,828 67,312 14,647 118,885
-----------------------------------------------------------------
Class B 3,534 26,933 2,192 17,136
-----------------------------------------------------------------
Class C 29 219 4 32
-----------------------------------------------------------------
Class I 28 212 -- --
-----------------------------------------------------------------
Shares redeemed:
Class A (69,759) (519,209) (145,495) (1,149,616)
-----------------------------------------------------------------
Class B (25,697) (195,564) (35,331) (277,549)
-----------------------------------------------------------------
Class C (201) (1,528) (121) (938)
-----------------------------------------------------------------
Class I (224) (1,696) -- --
-----------------------------------------------------------------
Conversion of
shares:
Class A 4,028 30,847 3,307 26,015
-----------------------------------------------------------------
Class B (4,030) (30,847) (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 $ 292,136 $ 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.
12
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------
Six months
ended
March 31, Year ended September 30,
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period $7.74 8.12 7.86 7.30 6.22
------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .44 .73 .81 .85 .92
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.05) (.35) .23 .54 1.15
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .39 .38 1.04 1.39 2.07
------------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment
income .38 .76 .78 .83 .99
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.75 7.74 8.12 7.86 7.30
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 5.24 4.64 13.92 19.96 36.82
------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .91 .86 .80 .82 .85
------------------------------------------------------------------------------------------------------------------------------
Net investment income 10.83 9.22 10.22 11.00 14.02
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------ ------------------------------ CLASS I
Six months May 31, 1994 Six months May 31, 1994 -----------------
ended to ended to December 29, 1994
March 31, September 30, March 31, September 30, to
1995 1994 1995 1994 March 31, 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 .41 .23 .41 .25 .26
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.05) (.23) (.05) (.23) .14
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .36 -- .36 .02 .40
------------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment
income .35 .23 .35 .23 .20
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period $7.74 7.73 7.76 7.75 7.75
------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 4.77 -- 4.78 .27 5.30
------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.77 1.80 1.72 1.74 .58
------------------------------------------------------------------------------------------------------------------------------
Net investment income 9.97 8.70 10.02 8.75 11.07
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six months
ended Year ended September 30,
March 31,
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA FOR ALL CLASSES:
Net assets at end of period
(in thousands) $3,461,521 3,152,029 1,957,524 1,953,509 1,673,161
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 94 93 101 69 31
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges.
13
<PAGE> 16
(LOGO)
KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
KEMPER HIGH YIELD FUND
Trustees Officers
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
DAVID W. BELIN MICHAEL A. MCNAMARA
Trustee Vice President
LEWIS A. BURNHAM HARRY E. RESIS, JR.
Trustee Vice President
DONALD L. DUNAWAY JOHN E. PETERS
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President and
Secretary
DONALD R. JONES
Trustee CHARLES F. CUSTER
Vice President and
DAVID B. MATHIS Assistant Secretary
Trustee
JEROME L. DUFFY
WILLIAM P. SOMMERS Treasurer
Trustee
ELIZABETH C. WERTH
Assistant Secretary
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Legal Counsel Custodian and Transfer Agent
VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY
& KAMMHOLZ TRUST COMPANY
222 North LaSalle Street 127 West 10th Street
Chicago, IL 60601 Kansas City, MO 64105
Shareholder Service Agent
KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
800-621-1048
Investment Manager
KEMPER FINANCIAL SERVICES, INC.
Principal Underwriter
KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
(LOGO)
Printed on recycled paper.
This report is not to be distributed unless preceded
or accompanied by a Kemper Fixed Income Funds prospectus.
KHYF-3 (5/95) 238470
Printed in the U.S.
