<PAGE> 1
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED SEPTEMBER 30, 1997
Offering investors the opportunity for a high level of current income from a
diversified portfolio of fixed income securities
KEMPER HIGH YIELD FUND
"...Our primary investment strategy
for this fund has always been to carefully
select high yield bonds that are able
to withstand market stresses. ..."
[KEMPER FUND LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
8
Portfolio Statistics
9
Portfolio of Investments
16
Report of Independent Auditors
17
Financial Statements
19
Notes to Financial Statements
22
Financial Highlights
<TABLE>
<CAPTION>
At A GLANCE
- --------------------------------------------------------------------------------
Kemper High Yield Fund Total Return
<S> <C>
Class A 13.69%
Class B 12.72%
Class C 12.88%
Lipper High Current Yield
Funds Category Average 15.61%
</TABLE>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
Returns and rankings are historical and do not reflect 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH YIELD FUND
CLASS A $8.50 $8.23
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS B $8.49 $8.22
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS C $8.52 $8.24
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD
FUND RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER CURRENT HIGH YIELD FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #134 OF 171 FUNDS #159 OF 171 FUNDS #156 OF 171 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #21 OF 65 FUNDS N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #9 OF 45 FUNDS N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #1 OF 23 FUNDS N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF SEPTEMBER 30, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $0.7980 $0.7255 $0.7303
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $0.0665 $0.0603 $0.0607
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 9.39% 8.52% 8.55%
- --------------------------------------------------------------------------------
SEC YIELD+: 7.86% 7.34% 7.36%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on September 30, 1997.
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, 1997, shown as an annualized
percentage of the maximum offering price on that date. The SEC yield is
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR FIXED INCOME STYLE BOX / /
- --------------------------------------------------------------------------------
[MORNINGSTAR FIXED INCOME STYLE BOX] /X/
Source: Morningstar, Inc., Chicago, IL 312-696-6000. (Morningstar Style
Box is based on a portfolio date as of September 30, 1997.) The Fixed-Income
Style Box placement is based on a fund's average effective maturity or duration
and the average credit rating of the bond portfolio.
Please note that style boxes do not represent an exact assessment of
risk and do not represent future performance. Please consult the prospectus for
a description of investment policies.
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 is 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
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. The bonds present greater risk to
principal and income than higher quality bonds.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $86 BILLION IN ASSETS, INCLUDING $49 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
Once again, investors experienced extreme market volatility in the month of
October. Unlike the October corrections of 1987 and 1989, this year's market
drop occurred at a time when the United States economy is remarkably healthy and
resilient. As we have noted, the U.S. economy has been moving forward for
several years with an alternating fast/slow pace that has proven successful in
removing whatever excesses build from quarter to quarter. As a consequence,
interest rates and the rate of inflation are both low and stable. Moreover, the
federal budget deficit has been reduced to such an extent that discussion has
now turned to what the government should do with a projected surplus in 1998.
Fortunately, no part of our strong economic foundation was shaken by the
market correction. If anything, the correction provided a short-lived and
relatively painless lesson about the vulnerability of a highly valued market.
When markets are high, everything -- economic news, corporate earnings and
liquidity -- must go right. When markets are high - as our equity market has
been for most of this year - they are vulnerable to relatively minor
disappointments.
As you have read, of course, the direct source of the October correction
was Southeast Asia, where the world's highest growth economies had been
stumbling since the summer. These economies had become overextended, banks ran
into trouble with bad loans and the local governments failed to take prompt
action. The result was a domino effect of competitive devaluations of
currencies, crashing markets and political chaos.
But while Southeast Asia produced the event that led to the mini-panic in
the U.S. equity market - resulting in a 7 percent loss on October 27 -- the
world quickly looked to the U.S. for solutions. When the U.S. market quickly
rebounded, other markets became less volatile. Considering U.S. economic
fundamentals and the relatively small effect that Southeast Asian problems have
on U.S. companies as a whole, rational investors had to expect our market to
bounce back. In fact, if the U.S. equity market had not been so highly valued,
we would have expected the market's reaction to the Asian problems to be quite
muted. For instance, if the Dow Jones Industrial Average had been closer to
7000 than to 8000, we would have expected that the market would have dropped
only slightly.
But as we have said before, today's markets move very fast. We experienced
in one day the kind of correction that we used to experience over a six-month
period. At this writing, the U.S. equity market remains very volatile. We expect
that condition to continue, as volatility is a factor of higher valued markets.
Despite what the last few years may have suggested, markets do not go in just
one direction.
Our recent experience supported many of the basic tenets of investing:
- Invest for the long term and don't react to the short-term noise.
Investors who got hurt in the October correction were those who had
borrowed the money they invested and were forced to sell at low prices.
Investors who were able to remain invested and did, lost only some of
their above-average gain for the year.
- Diversification helps reduce overall portfolio risk. Government
securities investors, for example, found the bond market to be a safe
haven as the bond market rallied during the stock market correction.
- Investing abroad is complex and requires expert advice. Currency
valuations, in particular, can have a significant effect on investment
returns.
Our forecast for the next several months calls for moderate economic
growth, stable interest rates and controlled inflation. While we cannot rule
out the possibility of another market event that would add to the excitement of
equity investing, we would expect the U.S. market to again demonstrate its
resiliency.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (10/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.03 6.71 6.2 5.93
PRIME RATE(2) 8.5 8.5 8.25 8.75
INFLATION RATE(3)* 2.15 2.5 2.99 2.74
THE U.S. DOLLAR(4) 7.62 6.55 3.46 -1.57
CAPITAL GOODS ORDERS(5)* 14.97 8.17 7.71 5.13
INDUSTRIAL PRODUCTION(5)* 5.52 4.39 3.27 2.35
EMPLOYMENT GROWTH(6)* 2.23 2.27 2.1 2.19
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commerical lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of September 30, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT AND CHIEF INVESTMENT OFFICER
Zurich Kemper Investments, Inc.
November 13, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
THE HIGH YIELD MARKET EXPERIENCED RECORD LEVELS OF NEW SUPPLY DURING THE FUND'S
FISCAL YEAR OCTOBER 1, 1996, THROUGH SEPTEMBER 30, 1997. PORTFOLIO CO-MANAGERS
HARRY RESIS AND MICHAEL MCNAMARA EXPLAIN THE DYNAMICS OF THIS RAPIDLY EXPANDING
MARKET, ITS POTENTIAL IMPACT ON INVESTORS AND HOW THEY POSITIONED KEMPER HIGH
YIELD FUND IN RESPONSE.
[MCNAMARA PHOTO]
Michael McNamara has been with Zurich Kemper Investments, Inc. (ZKI) since 1972
and is senior vice president of ZKI and portfolio co-manager of Kemper High
Yield Fund. McNamara graduated with a bachelor's of science degree in business
administration from the University of Missouri and earned an M.B.A. from Loyola
University.
[RESIS PHOTO]
Harry Resis joined ZKI in 1988 and is senior vice president of ZKI and portfolio
co-manager of Kemper High Yield Fund. Resis holds a bachelor's degree in finance
from Michigan State University.
Q HOW DID KEMPER HIGH YIELD FUND PERFORM DURING THE FISCAL YEAR?
A We were pleased with Kemper High Yield Fund's performance. The fund's
Class A shares returned 13.69 percent (unadjusted for any sales charges) and
8.55 percent (adjusted for the maximum sales charge).
As of September 30, 1997, the fund received a five-star "highest" overall
ranking by Morningstar, Inc.* The fund also received a five-star rating in the
taxable bond category for the three-year and five-year periods and was ranked
against 1,309 and 713 funds respectively. Kemper High Yield Fund received four
stars for the 10-year period and was ranked against 301 funds. Ten percent of
the funds in a rating category receive five stars and the next 22.5 percent
receive four stars.
* Morningstar, Inc. proprietary ratings reflect risk-adjusted performance
through September 30, 1997. Morningstar ratings are calculated from the
funds' three-, five- and 10-year returns (with fee adjustments) in
excess of 90-day Treasury bill returns, and a risk factor that reflects
fund performance below 90-day Treasury bill returns.
Q WHAT WAS THE ENVIRONMENT LIKE FOR HIGH YIELD BONDS DURING THE FUND'S
FISCAL YEAR?
A It was another strong year for high yield bonds, but we began to see some
intermittent bouts of volatility enter the market. High yield supply grew
phenomenally, reaching record levels and was met with strong demand. Much of the
new supply, however, was lower quality issues (C-rated or lower). Since yield
spreads in the market remained very tight, investors looked to these lower
quality issues for higher rates of return.
Strong corporate earnings, a strong economy with benign levels of
inflation, and a lack of high yield defaults created a strong high yield market
and fueled demand for lower quality, high yield bonds, in particular. For the
most part, lower-quality issues outperformed B- and BB-rated high yield bonds
during the year. However, as economic and market events impacted the high yield
market, these lower-rated issues took much deeper plunges than the higher
quality bonds.
Q WHAT TYPE OF IMPACT DID THE FEDERAL RESERVE BOARD'S (THE FED'S) INTEREST
RATE INCREASE HAVE ON HIGH YIELD BONDS?
A The Federal Reserve Board's 0.25 percent interest rate increase in late
March added to weakness that had already creeped into the market as a result of
comments made by Federal Reserve Board Chairman Alan Greenspan. In February,
Greenspan, who doesn't often discuss the high yield market, expressed his
concern about the historically tight spreads in the market and whether or not
the strong performance of high yield bonds
The views expressed in this report reflect those of the portfolio managers only
through the end of the period of the report, as stated on the cover. The
managers' views are subject to change at any time, based on market and other
conditions.
5
<PAGE> 6
PERFORMANCE UPDATE
could be sustained. He also commented that investors were acting with
"irrational exuberance" and that the values of securities might be inflated.
These remarks upset the high yield market, and planted a seed of doubt
in many investors' minds. At about the same time, stronger than anticipated
economic growth statistics were released and Greenspan intimated that a
tightening of interest rates might be necessary to keep inflation at bay. In
March, the Fed did increase short-term rates, which in-turn initiated a sharp
sell-off in the securities markets and a widening of high yield spreads. The
high yield market was hit harder than it might have been if Greenspan had not
expressed his concern about the market's bull run. The high yield bonds that
experienced the greatest losses were the riskier issues -- those C-rated and
lower.
However, the impact of Greenspan's remarks and the subsequent rate
increase were short-lived and relatively minimal. The high yield market, along
with the other securities markets, were well into recovery as quickly as April.
Q WHAT WAS YOUR INVESTMENT STRATEGY DURING THE YEAR?
A We managed the fund defensively early in 1997 because we believed that the
economy was gaining momentum and that the Fed would most likely tighten interest
rates in response. We reduced the fund's level of BB-rated bonds. BB-rated bonds
are the highest quality securities that are still considered to be high yield,
or below investment grade bonds. Reducing our BB holdings made sense because the
closer a bond is to an investment-grade security, the more it tends to perform
in-line with interest rates. And, as interest rates rise, the value of
Treasuries and higher quality bonds tends to fall. We maintained a similar
composition for the remainder of the year.
In addition to altering the credit quality of the portfolio, we reduced
our position in deferred interest bonds. Deferred interest bonds are purchased
at a discount to their par value and do not start paying interest until later
in the life of the loan. These securities have a longer duration and tend to
perform poorly in a rising interest rate environment. Duration is a measurement
of a security's sensitivity to interest rates. The longer the duration, the
more sensitive it is to interest rate changes. The shorter duration that
resulted from the sale of these deferred interest bonds helped the fund's
performance as interest rates jumped in March.
Our primary investment strategy for this fund has always been to
carefully select high yield bonds that are able to withstand market stresses.
Our bond selection is based on extensive research that includes visiting
issuing companies and meeting with their senior management, walking through
factories, and talking to suppliers and customers.
Q WHAT OTHER TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND?
A We continued to move away from issues by companies that we considered to
be deeply cyclical. 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.
The fund is still heavily invested in cyclical holdings because of their
long-term earnings potential. However, over the 12-month period, we focused on
adding issues from companies that, although cyclical, have less cyclicality, or
have some degree of independence from changes in the overall U.S. economy.
Q WHAT'S YOUR OUTLOOK FOR THE HIGH YIELD MARKET?
A We're quite optimistic about the long-term outlook for the high yield
market. We anticipate a pick-up in defaults as some of the lower-quality new
issues begin to mature. However, we believe that the current economic
environment combined with the low rate of defaults are both positive indicators.
We will continue to focus on adding issues from stable, fundamentally strong
companies.
6
<PAGE> 7
PERFORMANCE UPDATE
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED SEPTEMBER 30, 1997 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS A 8.55% 10.79% 11.06% 11.83% (since 1/26/78)
- -----------------------------------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND CLASS B 9.72 N/A N/A 10.80 (since 5/31/94)
- -----------------------------------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND CLASS A 12.88 N/A N/A 11.43 (since 5/31/94)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH ]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper U.S. Government Securities Fund Class A FROM 1/1/80 THROUGH 9/30/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/1/80 12/31/93 12/31/95 9/30/97
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper High Yield Fund Class A(1) 10,000 60,046 69,313 86,373
Salomon Brothers Long-Term High Yield Bond Index+ 10,000 60,336 76,089 91,455
Consumer Price Index++ 10,000 19,009 20,013 20,965
</TABLE>
[LINE GRAPH ]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper U.S. Government Securities Fund Class B FROM 5/31/94 THROUGH 9/30/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 9/30/97
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper High Yield Fund Class B(1) 10,000 10,005 11,640 14,080
Salomon Brothers Long-Term High Yield Bond Index+ 10,000 10,160 13,141 16,005
Consumer Price Index++ 10,000 10,149 10,407 10,902
</TABLE>
[LINE GRAPH ]
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in
Kemper U.S. Government Securities Fund Class C FROM 5/31/94 THROUGH 9/30/97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5/31/94 12/31/94 12/31/95 9/30/97
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper High Yield Fund Class C(1) 10,000 10,031 10,160 10,149
Salomon Brothers Long-Term High Yield Bond Index+ 10,000 11,677 13,141 10,407
Consumer Price Index++ 10,000 14,347 16,005 10,902
</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.
* Average annual total return measures net investment income and capital
gain or loss from portfolio investments, assuming reinvestment of dividends
and for Class A shares adjustment for the maximum sales charge of 3.5
percent, for Class B shares adjustment for the applicable contingent
deferred sales charge (CDSC) as follows: 1-year, 3 percent; 5-year,
1 percent; since inception, 0 percent and for Class C shares no adjustment
for sales charge. For Class B shares, the maximum CDSC is 4 percent. For C
shares, there is a 1 percent CDSC on certain redemptions within the first
year of purchase.
(1) Performance includes reinvestment of dividends and adjustment for the
maximum sales charge for Class A shares and the contingent deferred
sales charge in effect at the end of the period for Class B shares. When
reviewing the performance chart, please note that the inception date
for the Salomon Brothers Long-Term High Yield Bond Index is January 1,
1980. As a result, we are not able to illustrate the Life of Class
performance (since January 1, 1978) 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 Fund may invest in lower-rated and non-rated securities which present
greater risk of loss to principal and interest than high-rated securities.
+ 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.
7
<PAGE> 8
PORTFOLIO STATISTICS
<TABLE>
<CAPTION> [PIE CHART]
PORTFOLIO COMPOSITION* ON 9/30/97 ON 9/30/96
<S> <C> <C>
BONDS 93% 91%
- ------------------------------------------------------------------------------------
CASH AND EQUIVALENTS 3 6
- ------------------------------------------------------------------------------------
U.S. TREASURIES 2 1
- ------------------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 2 2
- ------------------------------------------------------------------------------------
100% 100%
</TABLE>
<TABLE>
<CAPTION>
[PIE CHART]
YEARS TO MATURITY ON 9/30/97 ON 9/30/96
<S> <C> <C>
CASH AND EQUIVALENTS 3% 6%
- ------------------------------------------------------------------------------------
1-10 87 84
- ------------------------------------------------------------------------------------
11-20 8 9
- ------------------------------------------------------------------------------------
OVER 20 2 1
- ------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 9/30/97 ON 9/30/96
<S> <C> <C>
AAA 2% 2%
- ------------------------------------------------------------------------------------
A -- 1
- ------------------------------------------------------------------------------------
BBB 2 --
- ------------------------------------------------------------------------------------
BB 15 21
- ------------------------------------------------------------------------------------
B 75 68
- ------------------------------------------------------------------------------------
OTHER 6 8
- ------------------------------------------------------------------------------------
100% 100%
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH YIELD FUND
Portfolio of Investments at September 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BOND--1.6% 6.625%, 2002 $ 76,500 $ 78,341
(Cost: $77,476)
-----------------------------------------------------------------------------
CORPORATE OBLIGATIONS Airlines Pass Through Trust, 10.875%, 2019 21,130 24,194
AEROSPACE--2.4% Fairchild Corp., 12.00%, 2001 33,715 34,052
Howmet Inc., 10.00%, 2003 4,510 4,893
K & F Industries, Inc.
11.875%, 2003 11,431 12,088
10.375%, 2004 24,950 28,225
Valujet, Inc., 10.25%, 2001 14,000 13,020
-----------------------------------------------------------------------------
116,472
- --------------------------------------------------------------------------------------------------------------------
BROADCASTING, CABLESYSTEMS Affinity Group, Inc., 11.50%, 2003 23,411 25,108
AND PUBLISHING--16.1%
American Radio Systems, 9.00%, 2006 18,490 19,623
(b)Australis Holdings, 15.00%, 2002 49,213 39,863
(b)Bell Cablemedia, PLC
11.95%, 2004 29,960 27,788
11.875%, 2005 1,490 1,293
Big Flower Press, Inc., 8.875%, 2007 38,070 38,070
Busse Broadcasting, 11.625%, 2000 10,860 11,675
CCA Holdings, 13.00%, 1999 17,500 23,800
Cablevision Systems Corp.
9.25%, 2005 5,880 6,152
8.125%, 2009 12,480 12,636
9.875%, 2013 9,350 10,121
10.50%, 2016 24,755 28,252
Capstar Broadcasting
9.25%, 2007 8,430 8,599
(b) 12.75%, 2009 15,000 10,425
Century Communications Corp., 8.75%, 2007 7,335 7,326
(b)Charter Communications, 14.00%, 2007 30,410 22,960
Comcast Corp., 9.125%, 2006 34,485 37,028
(b)Comcast UK Cable Partners, Ltd., 11.20%,
2007 45,225 34,993
(b)Diamond Cable Communications, PLC
13.25%, 2004 11,560 10,129
11.75%, 2005 25,285 18,948
10.75%, 2007 14,420 9,409
EZ Communications, 9.75%, 2005 8,760 9,724
Frontiervision
11.00%, 2006 17,530 19,108
(b) 11.875%, 2007 12,450 8,497
Garden State Newspapers, 8.75%, 2009 10,500 10,526
Granite Broadcasting Corp., 10.375%, 2005 8,080 8,363
Innova S De, R.L., 12.875%, 2007 22,600 24,295
Intermedia Capital Partners, 11.25%, 2006 20,880 23,020
(b)International Cabletel, Inc., 12.75%,
2005 57,960 46,730
Multicanal Participacoes, 12.625%, 2004 13,330 15,130
NTL, 10.00%, 2007 4,070 4,243
Neodata Services, 12.00%, 2003 23,290 25,386
Newsquest Capital, PLC, 11.00%, 2006 22,990 25,634
Rogers Communications, 8.875%, 2007 13,305 13,372
Salem Communications Corp., 9.50%, 2007 12,490 12,677
Sinclair Broadcasting Group, Inc., 10.00%,
2003 26,040 27,082
Sullivan Broadcasting
10.25%, 2005 6,190 6,438
13.25%, 2006 12,850 16,898
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telewest Communications, PLC
9.625%, 2006 $ 22,005 $ 22,885
(b) 11.00%, 2007 41,443 31,082
(b)UIH Australia Pacific, Inc., 14.00%, 2006 24,550 17,615
(b)Videotron Holdings, PLC
11.125%, 2004 7,825 7,297
11.00%, 2005 14,600 12,684
-----------------------------------------------------------------------------
792,884
- --------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--2.6% Allied Waste Industries
10.25%, 2006 12,970 14,202
(b) 11.30%, 2007 26,805 18,110
Corporate Express, Inc., 9.125%, 2004 18,760 19,041
Intertek Finance, 10.25%, 2006 13,190 13,849
Outdoor Systems, Inc.
9.375%, 2006 21,560 22,651
8.875%, 2007 25,870 26,404
Universal Outdoor Holdings, Inc., 9.75%,
2006 14,570 15,553
-----------------------------------------------------------------------------
129,810
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS AND Agriculture, Mining and Chemicals, Inc.,
AGRICULTURE--3.9% 10.75%, 2003 15,080 16,362
Atlantis Group, Inc., 11.00%, 2003 25,355 25,989
Hines Horticulture, 11.75%, 2005 14,450 15,750
Huntsman Package, 9.125%, 2007 3,750 3,844
NL Industries, Inc.
11.75%, 2003 27,770 30,547
(b) 13.00%, 2005 21,370 21,023
Rexene Corp., 11.75%, 2004 31,845 36,383
Terra Industries, Inc., 10.50%, 2005 12,200 13,298
Texas Petrochemicals, 11.125%, 2006 15,560 16,960
UCC Investors Holdings, Inc., 10.50%, 2002 10,480 11,685
-----------------------------------------------------------------------------
191,841
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--12.3% Brooks Fiber Properties, Inc.
(b) 10.875%, 2006 22,690 18,322
(b) 11.875%, 2006 23,990 18,652
10.00%, 2007 8,450 9,506
(b)Call-Net Enterprises, Inc.
13.25%, 2004 7,240 6,507
9.27%, 2007 16,100 10,747
(b)Cellular, Inc., 11.75%, 2003 29,035 28,890
Comcast Cellular Holdings, Inc., 9.50%, 2007 20,350 21,317
(b)Comcel, 13.125%, with warrants, 2003 30,800 25,348
CommNet Cellular, 11.25%, 2005 10,935 12,534
(b)Dial Call Communications, 12.25%, 2004 19,420 18,206
Dobson Communication Corp., 11.75%, 2007 17,000 16,787
Econophone, Inc., 13.50%, 2007 19,865 21,852
Gabelli & Company, Inc., 9.75%, 2007 22,570 23,473
HighwayMaster Communications, Inc.,
13.75%, 2005 8,340 8,736
(b)ICG Holdings, 13.50%, 2005 40,755 32,808
(b)Intermedia Communications of Florida,
Inc.
12.50%, 2006 19,310 14,917
11.25%, 2007 27,170 18,815
MGC Communications, 13.00%, 2004 8,100 8,404
McLeod, Inc.
9.25%, 2007 13,435 14,308
(b) 10.50%, 2007 21,260 15,041
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metronet Communications, 12.00%, 2007 $ 8,280 $ 9,191
(b)Millicom International Cellular, S.A.,
13.50%, 2006 34,590 26,894
(b)Nextel Communications, 10.65%, 2007 16,750 10,343
Nextlink Communications, 12.50%, 2006 10,950 12,634
(b)PTC International Finance, B.V., 10.75%,
2007 18,370 12,032
(b)PanAmSat, L.P., 11.375%, 2003 31,615 31,220
Primus Telecommunications Group, 11.75%,
2004 13,050 13,898
Rogers Cantel
11.125%, 2002 4,712 4,882
8.80%, 2007 11,670 11,670
9.375%, 2008 3,130 3,341
9.75%, 2016 17,625 19,211
Telex Communication, 10.50%, 2007 5,165 5,281
USA Mobile Communications, Inc. II
9.50%, 2004 10,370 10,318
14.00%, 2004 12,010 13,631
Vanguard Cellular Systems, 9.375%, 2006 23,390 24,238
Western Wireless
10.50%, 2006 9,055 9,508
10.50%, 2007 18,300 19,215
Winstar Equipment, 12.50%, 2004 20,840 22,924
-----------------------------------------------------------------------------
605,601
- --------------------------------------------------------------------------------------------------------------------
CONSTRUCTION American Standard, Inc., 9.25%, 2016 17,615 18,408
MATERIALS--3.1%
(b)Building Materials Corp. of America,
11.75%, 2004 51,930 48,555
Falcon Building Products, Inc.
9.50%, 2007 6,410 6,618
(b) 10.50%, 2007 16,310 10,357
Nortek
9.875%, 2004 14,255 14,718
9.125%, 2007 19,880 20,079
Triangle Pacific Corp., 10.50%, 2003 26,565 28,225
Waxman Industries, Inc.
(b) 12.75%, 2004 6,510 5,729
800,453 warrants expiring 2004 2,001
-----------------------------------------------------------------------------
154,690
- --------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND AFC Enterprises, Inc., 10.25%, 2007 14,530 15,220
SERVICES--10.3%
AMF Group
10.875%, 2006 47,547 52,747
(b) 12.25%, 2006 23,990 18,142
Avondale Mills, 10.25%, 2006 23,400 25,389
Bally Total Fitness Holdings, 9.875%, 1997 11,350 11,407
Cinemark USA, Inc., 9.625%, 2008 14,750 15,193
Coinmach Corp., 11.75%, 2005 36,420 40,426
Commemorative Brands, 11.00%, 2007 15,800 16,313
(b)Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 22,209 22,320
Doskocil Manufacturing Co., 10.125%, 2007 12,830 13,151
Dyersburg Corp., 9.75%, 2007 7,190 7,406
HMH Properties
9.50%, 2005 22,790 23,986
8.875%, 2007 10,230 10,435
Hedstrom Corp., 10.00%, 2007 5,900 6,018
Herff Jones, Inc., 11.00%, 2005 15,640 17,048
Hollywood Entertainment Corp., 10.625%, 2004 14,490 14,834
Hollywood Theaters, Inc., 10.625%, 2007 6,280 6,673
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kinder-Care Learning Centers, 9.50%, 2009 $ 41,550 $ 40,615
NBTY, Inc., 8.625%, 2007 4,150 4,119
Nine West Group, 9.00%, 2007 9,950 10,025
Premier Parks, Inc., 12.00%, 2003 8,900 9,901
Regal Cinemas, 8.50%, 2007 5,000 5,013
(b)Six Flags Theme Park, 12.25%, 2005 54,395 56,979
Van De Kamps, Inc., 12.00%, 2005 13,945 15,549
West Point Stevens, Inc.
8.75%, 2005 10,000 10,400
9.375%, 2005 34,045 35,747
Windy Hill Pet Food Company, Inc., 9.75%,
2007 4,020 4,161
-----------------------------------------------------------------------------
509,217
- --------------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE--4.2% Dade International Inc., 11.125%, 2006 27,400 30,688
Genesis Eldercare, 9.00%, 2007 21,505 21,424
Graham-Field Health, 9.75%, 2007 8,340 8,715
Integrated Health Services, Inc.
9.50%, 2007 14,400 14,814
9.25%, 2008 17,300 17,560
Magellan Health Services, 11.25%, 2004 25,020 27,741
Packard Bioscience, 9.375%, 2007 14,880 15,178
Regency Health, 9.875%, 2002 4,140 4,575
Tenet Healthcare
8.00%, 2005 9,920 10,118
10.125%, 2005 37,405 40,865
8.625%, 2007 9,810 10,129
Vencor, 8.625%, 2007 6,680 6,776
-----------------------------------------------------------------------------
208,583
- --------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED Belco Oil & Gas, 8.875%, 2007 10,800 10,881
SERVICES--6.9%
Bellweather Exploration Co., 10.875%, 2007 14,410 15,581
Benton Oil & Gas Co., 11.625%, 2003 19,835 21,843
Coda Energy, 10.50%, 2006 23,610 25,145
Dailey Petro Service, 9.75%, 2007 11,620 12,085
Ferrellgas Partners, L.P., 9.375%, 2006 16,760 17,430
Flores & Rucks, Inc., 9.75%, 2006 9,000 9,574
Forcenergy Gas Exploration
9.50%, 2006 23,260 24,423
8.50%, 2007 24,015 23,865
Forman Petroleum Corp., 13.50%, 2004 8,450 8,492
National Energy Corp., 10.75%, 2006 11,620 12,056
Pacalta Resources, Ltd., 10.75%, 2004 21,495 22,570
Parker Drilling Corp., 9.75%, 2006 18,310 19,592
Plains Resources, 10.25%, 2006 15,590 16,837
Rutherford-Moran Oil Corp., 10.75%, 2004 9,120 9,439
Stone Energy Corp., 8.75%, 2007 10,000 9,925
United Meridian Corp., 10.375%, 2005 25,495 27,758
Vintage Petroleum
9.00%, 2005 28,420 29,308
8.625%, 2009 4,020 4,075
Wiser Oil Co., 9.50%, 2007 20,780 20,157
-----------------------------------------------------------------------------
341,036
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES, Continental Homes Holding, 10.00%, 2006 $ 15,620 $ 16,635
HOME BUILDERS AND DVI, Inc., 9.875%, 2004 8,570 8,870
REAL ESTATE--3.4% Del Webb Corp., 9.75%, 2008 14,850 15,147
Forecast Group, L.P., 11.375%, 2000 10,895 10,459
Fortress Group, 13.75%, 2003 14,080 15,734
Hovnanian Enterprises, 11.25%, 2002 27,557 29,073
Kaufman & Broad Home Corp., 9.625%, 2006 13,760 14,310
J.M. Peters Co., 12.75%, 2002 2,415 2,487
Presley Cos., 12.50%, 2001 23,195 22,093
UDC Homes, 12.50%, 2000 13,270 13,536
Williams Scotsman, Inc., 9.875%, 2007 20,600 20,857
-----------------------------------------------------------------------------
169,201
- --------------------------------------------------------------------------------------------------------------------
HOTELS AND GAMING--2.1% Eldorado Resorts, 10.50%, 2006 16,040 17,644
Empress River Casino, 10.75%, 2002 17,573 18,935
Harvey's Casino Resorts, 10.625%, 2006 11,580 12,680
Players International, 10.875%, 2005 9,765 10,497
Trump Atlantic City, 11.25%, 2006 46,705 45,304
-----------------------------------------------------------------------------
105,060
- --------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Aftermarket Technology, 12.00%, 2004 16,624 18,536
AND MINING--11.8% Alvey Systems, 11.375%, 2003 5,715 6,001
Bar Technologies, 13.50%, with warrants,
2001 16,335 18,116
Bucyrus International, Inc., 9.75%, 2007 8,340 8,413
Collins & Aikman Corp., 11.50%, 2006 26,400 30,162
Crain Industries, Inc., 13.50%, 2005 19,500 22,328
Day International Group, Inc., 11.125%, 2005 25,025 26,777
Delco Remy International, 10.625%, 2006 26,115 28,041
Euramax International, PLC, 11.25%, 2006 23,595 25,896
Fairfield Manufacturing Co., 11.375%, 2001 13,160 13,983
Foamex, L.P., 9.875%, 2007 22,770 23,681
GS Technologies
12.00%, 2004 5,875 6,440
12.25%, 2005 8,970 10,024
Hayes Wheels International, Inc., 11.00%,
2006 23,070 25,838
IMO Industries, 11.75%, 2006 22,940 24,890
Johnstown American, 11.75%, 2005 9,880 10,670
JPS Automotive Products Corp., 11.125%, 2001 27,270 29,861
Knoll, Inc., 10.875%, 2006 10,062 11,219
MMI Products, Inc., 11.25%, 2007 7,090 7,728
Motors and Gears, Inc., 10.75%, 2006 17,250 18,458
Neenah Corp., 11.125%, 2007 20,150 21,963
Newflo Corp., 13.25%, 2002 17,850 18,921
Oxford Automotive, Inc., 10.125%, 2007 5,740 5,984
Renco Metals, 11.50%, 2003 29,715 31,944
Spinnaker Industries, 10.75%, 2006 23,070 24,166
Thermadyne Industries, Inc.
10.25%, 2002 12,226 12,791
10.75%, 2003 10,536 11,366
UCAR Global, 12.00%, 2005 35,060 39,837
Venture Holdings, 9.50%, 2005 16,730 16,730
WCI Steel, Inc., 10.00%, 2004 10,880 11,560
Weirton Steel Corp., 11.375%, 2004 5,090 5,548
Wells Aluminum Corp., 10.125%, 2005 15,130 15,887
-----------------------------------------------------------------------------
583,759
- --------------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS, BPC Holding Corp., 12.50%, 2006 12,240 13,525
AND CONTAINERS--7.8%
BWAY Corp., 10.25%, 2007 14,060 15,396
Berry Plastics Corp., 12.25%, 2004 20,499 22,600
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C>
Container Corporation of America, 11.25%,
2004 $ 7,730 $ 8,580
Fonda Group, 9.50%, 2007 11,730 11,437
Gaylord Container Corp.
9.75%, 2007 11,280 11,421
12.75%, 2005 20,850 22,726
Maxxam Group, Inc.
11.25%, 2003 24,325 25,541
(b) 12.25%, 2003 7,265 7,120
National Fiberstock Corp., 11.625%, 2002 11,810 12,460
Owens-Illinois, Inc., 9.95%, 2004 13,062 13,748
Pindo Deli Finance Mauritius, Ltd., 10.75%,
2007 8,100 8,232
Plastic Container, 10.00%, 2006 960 1,022
Printpack, Inc.
9.875%, 2004 8,440 8,946
10.625%, 2006 21,920 23,674
Riverwood International
10.25%, 2006 19,880 20,377
10.625%, 2007 9,340 9,760
10.875%, 2008 61,480 61,326
Specialty Paperboard, 9.375%, 2006 13,370 13,905
Stone Container Corp.
9.875%, 2001 24,740 25,111
12.25%, 2002 3,280 3,395
11.50%, 2006 11,480 12,054
Tjiwi Kimia Finance Mauritius, Ltd., 10.00%,
2004 7,800 7,644
U.S. Can Corp., 10.125%, 2006 24,455 25,922
-----------------------------------------------------------------------------
385,922
- --------------------------------------------------------------------------------------------------------------------
RETAILING--4.6%
Ameriking, 10.75%, 2006 15,635 16,573
Cole National Group
9.875%, 2006 3,760 4,014
8.625%, 2007 14,830 14,811
(a)Color Tile, Inc., 10.75%, 2001 20,480 307
Dominick's Finer Foods, 10.875%, 2005 3,600 4,122
Emergent Group, 10.75%, 2004 8,340 8,491
Finlay Fine Jewelry Corp., 10.625%, 2003 27,300 28,938
Flagstar Corp.
10.75%, 2001 12,880 13,252
10.875%, 2002 7,900 8,169
Guitar Center Management, 11.00%, 2006 15,050 16,706
Krystal Co., 10.25%, 2007 5,820 5,936
Pamida Holdings, 11.75%, 2003 21,845 21,845
Pathmark Stores
12.625%, 2002 18,100 18,643
9.625%, 2003 8,125 8,044
Petro Stopping Centers, 10.50%, 2007 26,000 27,170
Riddell Sports, Inc., 10.50%, 2007 10,410 10,878
TravelCenters of America, Inc., 10.25%, 2007 16,830 17,671
-----------------------------------------------------------------------------
225,570
- --------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.0% Communication and Power Industry, Inc.,
12.00%, 2005 7,975 8,892
EV International, 11.00%, 2007 13,930 14,348
L-3 Communucation Corp., 10.375%, 2007 7,220 7,762
Viasystems, Inc., 9.75%, 2007 16,740 17,493
-----------------------------------------------------------------------------
48,495
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR VALUE
NUMBER OF SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MISCELLANEOUS--.9% Espirito Santo Centrais Eletricas, S.A.,
10.00%, 2007 $ 14,600 $ 14,600
TFM, S.A. de C.V., 10.25%, 2007 19,920 21,065
(b)Transtar Holdings, L.P., 13.375%, 2003 10,100 8,686
44,351
-----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--93.4%
(Cost: $4,381,616) 4,612,492
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED Benedek Unit, PIK, preferred with warrants 90,000shs. 11,295
STOCKS--1.8%
(a)Capital Pacific Holdings 54,431 54
Clark USA, PIK, preferred 41,400 4,243
Computervision Corp. 3,112,436 11,477
Crown American Realty Trust, preferred 250,000 13,375
(a)EchoStar Communications Corp. 218,250 5,293
Empire Gas Corp. 31,795 159
Foamex International 16,620 465
(a)Gaylord Container Corp. 1,805,934 15,350
Gulf States Steel 29,670 148
(a)Intelcom Group, Inc. 67,617 879
(a)Intermedia Communications of Florida,
Inc. 16,300 1,239
(a)Sinclair Capital, preferred 210,400 22,828
(a)Sullivan Broadcasting 205,600 2,056
-----------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--1.8%
(Cost: $66,140) 88,861
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yields--5.53% to 5.71%
INSTRUMENTS--1.0%
Due--October 1997
(Cost: $52,422) $ 52,500 52,422
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--97.8%
(Cost: $4,577,654) 4,832,116
-----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.2% 107,186
-----------------------------------------------------------------------------
NET ASSETS--100% $4,939,302
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of principal or interest or has filed
for bankruptcy.
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
Based on the cost of investments of $4,577,654,000 for federal income tax
purposes at September 30, 1997, the gross unrealized appreciation was
$281,187,000, the gross unrealized depreciation was $26,725,000 and the net
unrealized appreciation on investments was $254,462,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
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, 1997, 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 1993.
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, 1997, 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 30, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $4,577,654) $4,832,116
- --------------------------------------------------------------------------
Receivable for:
Fund shares sold 21,508
- --------------------------------------------------------------------------
Investments sold 44,471
- --------------------------------------------------------------------------
Interest 108,841
- --------------------------------------------------------------------------
TOTAL ASSETS 5,006,936
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Cash overdraft 3,366
- --------------------------------------------------------------------------
Payable for:
Fund shares redeemed 5,296
- --------------------------------------------------------------------------
Investments purchased 54,289
- --------------------------------------------------------------------------
Management fee 2,132
- --------------------------------------------------------------------------
Distribution services fee 882
- --------------------------------------------------------------------------
Administrative services fee 880
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 656
- --------------------------------------------------------------------------
Trustees' fees and other 133
- --------------------------------------------------------------------------
Total liabilities 67,634
- --------------------------------------------------------------------------
NET ASSETS $4,939,302
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $4,745,654
- --------------------------------------------------------------------------
Accumulated net realized loss on investments (151,713)
- --------------------------------------------------------------------------
Net unrealized appreciation on investments 254,462
- --------------------------------------------------------------------------
Undistributed net investment income 90,899
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $4,939,302
- --------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net asset value and redemption price per share
($3,462,790 / 407,389 shares outstanding) $8.50
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $8.90
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($1,316,902 / 155,073 shares outstanding) $8.49
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($125,074 / 14,689 shares outstanding) $8.52
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price per share
($34,536 / 4,063 shares outstanding) $8.50
- --------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended September 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest $445,055
- ------------------------------------------------------------------------
Dividends 1,499
- ------------------------------------------------------------------------
Total investment income 446,554
- ------------------------------------------------------------------------
Expenses:
Management fee 23,419
- ------------------------------------------------------------------------
Distribution services fee 9,582
- ------------------------------------------------------------------------
Administrative services fee 9,596
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 6,774
- ------------------------------------------------------------------------
Professional fees 90
- ------------------------------------------------------------------------
Reports to shareholders 600
- ------------------------------------------------------------------------
Trustees' fees and other 268
- ------------------------------------------------------------------------
Total expenses 50,329
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 396,225
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of investments (948)
- ------------------------------------------------------------------------
Net realized loss from futures transactions (997)
- ------------------------------------------------------------------------
Net realized loss (1,945)
- ------------------------------------------------------------------------
Change in net unrealized appreciation on investments 178,138
- ------------------------------------------------------------------------
Net gain on investments 176,193
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $572,418
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 396,225 336,758
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) (1,945) 42,422
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation 178,138 66,471
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 572,418 445,651
- -----------------------------------------------------------------------------------------------
Net equalization credits 12,110 7,259
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (416,460) (338,218)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 674,295 454,293
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 842,363 568,985
- -----------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 4,096,939 3,527,954
- -----------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$90,899 and $99,021, respectively) $4,939,302 4,096,939
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper High Yield Fund is an open-end diversified
FUND management investment company organized as a
business trust under the laws of Massachusetts. The
Fund offers four classes of shares. Class A shares
are sold to investors subject to an initial sales
charge. Class B shares are sold without an initial
sales charge but are subject to higher ongoing
expenses than Class A shares and a contingent
deferred sales charge payable upon certain
redemptions. Class B shares automatically convert
to Class A shares six years after issuance. Class C
shares are sold without any initial sales charges
but are subject to higher ongoing expenses than
Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of the Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT 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. Financial futures and options 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. Over-the-counter traded options are
valued based upon prices provided by market makers.
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
discount amortization on 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 shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the 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.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES. 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, 1997, amounting to approximately
$151,654,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 1998 through 2006.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
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 WITH MANAGEMENT AGREEMENT. The Fund has a management
AFFILIATES agreement with Zurich Kemper Investments, Inc.
(ZKI), and pays a management fee at an annual rate
of .58% of the first $250 million of average daily
net assets declining to .42% of average daily net
assets in excess of $12.5 billion. The Fund
incurred a management fee of $23,419,000 for the
year ended September 30, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Fund has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI). Underwriting commissions paid in
connection with the distribution of Class A shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS ----------------------------
RETAINED BY ZKDI TO ALL FIRMS TO AFFILIATES
---------------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1997 $1,714,000 11,779,000 181,000
</TABLE>
For services under the distribution services
agreement, the Fund pays ZKDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, ZKDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
Class B and Class C shares and the CDSC received in
connection with the redemption of such shares are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY ZKDI BY ZKDI TO FIRMS
----------------- ----------------------
<S> <C> <C>
Year ended September 30, 1997 $11,113,000 17,522,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has an
administrative services agreement with ZKDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays ZKDI a fee at an annual rate of up to
.25% of average daily net assets of each class.
ZKDI in turn has various agreements with financial
services firms that provide these
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
services and pays these firms based on assets of
Fund accounts the firms service. Administrative
services fees (ASF) paid are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY THE ----------------------------
FUND TO ZKDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Year ended September 30, 1997 $9,596,000 10,067,000 49,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Fund. Under the
agreement, ZKSvC received shareholder services fees
of $4,802,000 for the year ended September 30,
1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended September 30, 1997, the Fund
made no payments to its officers and incurred
trustees' fees of $49,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended September 30, 1997, investment
TRANSACTIONS transactions (excluding short term instruments) are
as follows (in thousands):
Purchases $5,497,888
Proceeds from sales 4,757,024
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 190,692 $ 1,527,552 119,890 $ 932,368
--------------------------------------------------------------------------------------
Class B 109,720 900,384 71,697 573,147
--------------------------------------------------------------------------------------
Class C 16,667 137,204 8,808 70,603
--------------------------------------------------------------------------------------
Class I 12,114 100,487 2,785 22,315
--------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 22,581 187,057 18,832 151,343
--------------------------------------------------------------------------------------
Class B 7,931 65,657 6,906 55,478
--------------------------------------------------------------------------------------
Class C 686 5,708 299 2,414
--------------------------------------------------------------------------------------
Class I 367 3,044 300 2,407
--------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (175,031) (1,410,231) (112,436) (879,849)
--------------------------------------------------------------------------------------
Class B (80,748) (661,407) (52,980) (422,563)
--------------------------------------------------------------------------------------
Class C (9,742) (80,133) (4,106) (32,901)
--------------------------------------------------------------------------------------
Class I (12,153) (101,027) (2,554) (20,469)
--------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 15,517 129,053 15,982 129,116
--------------------------------------------------------------------------------------
Class B (15,533) (129,053) (16,001) (129,116)
--------------------------------------------------------------------------------------
Net increase from
capital share
transactions $ 674,295 $ 454,293
--------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------
Class A
-----------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $8.23 8.01 7.74 8.12 7.86
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .76 .76 .83 .73 .81
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .31 .23 .20 (.35) .23
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 .99 1.03 .38 1.04
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income .80 .77 .76 .76 .78
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $8.50 8.23 8.01 7.74 8.12
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 13.69% 13.00 14.10 4.64 13.92
RATIOS TO AVERAGE NET ASSETS
Expenses .88% .88 .90 .86 .80
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income 9.18% 9.45 10.74 9.22 10.22
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Class B
-----------------------------------------------------------
YEAR ENDED MAY 31 TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.22 8.00 7.73 7.96
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .69 .69 .76 .23
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .31 .23 .20 (.23)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00 .92 .96 --
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income .73 .70 .69 .23
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.49 8.22 8.00 7.73
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.72% 12.02 13.09 --
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.76% 1.77 1.77 1.80
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 8.30% 8.56 9.87 8.70
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class C
YEAR ENDED SEPTEMBER
30, MAY 31 TO
----------------------- SEPTEMBER 30,
1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.24 8.02 7.75 7.96
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .70 .69 .77 .25
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .31 .23 .20 (.23)
- --------------------------------------------------------------------------------------------
Total from investment operations 1.01 .92 .97 .02
- --------------------------------------------------------------------------------------------
Less distribution from net investment
income .73 .70 .70 .23
- --------------------------------------------------------------------------------------------
Net asset value, end of period $8.52 8.24 8.02 7.75
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 12.88% 12.06 13.13 .27
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses 1.71% 1.71 1.71 1.74
- --------------------------------------------------------------------------------------------
Net investment income 8.35% 8.62 9.93 8.75
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
Class I
--------------------------------------
YEAR ENDED DECEMBER 29, 1994
SEPTEMBER 30, TO SEPTEMBER 30,
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $8.23 8.01 7.55
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .78 .78 .66
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .31 .23 .39
- -------------------------------------------------------------------------------------------
Total from investment operations 1.09 1.01 1.05
- -------------------------------------------------------------------------------------------
Less distribution from net investment
income .82 .79 .59
- -------------------------------------------------------------------------------------------
Net asset value, end of period $8.50 8.23 8.01
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 13.96% 13.32 14.37
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .62% .61 .61
- -------------------------------------------------------------------------------------------
Net investment income 9.44% 9.72 10.70
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $4,939,302 4,096,939 3,527,954 3,152,029 1,957,524
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 91% 102 99 93 101
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
23
<PAGE> 24
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS MICHAEL A. MCNAMARA
President and Trustee Vice President
DAVID W. BELIN CHARLES R. MANZONI, JR.
Trustee Vice President
LEWIS A. BURNHAM JOHN E. NEAL
Trustee Vice President
DONALD L. DUNAWAY ROBERT C. PECK, JR.
Trustee Vice President
ROBERT B. HOFFMAN HARRY E. RESIS, JR.
Trustee Vice President
DONALD R. JONES PHILIP J. COLLORA
Trustee Vice President
and Secretary
SHIRLEY D. PETERSON JEROME L. DUFFY
Trustee Treasurer
WILLIAM P. SOMMERS ELIZABETH C. WERTH
Trustee Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER ZURICH KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL
60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
This report is not to be distributed unless preceded
or accompanied by a Kemper Fixed Income
Fund prospectus.
KHYF - 2 (11/97) 1039830
Printed in the U.S.A.
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
