<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 1998
LONG-TERM INVESTING IN SHORT-TERM WORLD(SM)
KEMPER HIGH YIELD FUND
KEMPER HIGH YIELD OPPORTUNITY FUND
KEMPER HIGH YIELD SERIES
"... The trade-off between the two funds is income vs. total
return. For investors who need regular monthly income,
Kemper High Yield Fund may be the more appropriate
choice. For those who reinvest their dividends, Kemper
High Yield Opportunity Fund may make more sense. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
SHAREHOLDERS' MEETING
9
PORTFOLIO STATISTICS
11
PORTFOLIO OF INVESTMENTS
25
FINANCIAL STATEMENTS
27
NOTES TO FINANCIAL STATEMENTS
32
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED FOR ANY SALES CHARGES)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 5.31%
CLASS B 4.86%
CLASS C 4.87%
LIPPER HIGH CURRENT YIELD FUNDS CATEGORY AVERAGE* 5.47%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD OPPORTUNITY
FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1998
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 8.74%
CLASS B 8.34%
CLASS C 8.35%
LIPPER HIGH CURRENT YIELD FUNDS CATEGORY AVERAGE* 5.47%
- --------------------------------------------------------------------------------
</TABLE>
* Returns and net asset value fluctuate. Shares are redeemable at current
net asset value, which may be more or less than original cost. Returns and
rankings are historical and do not reflect future performance.
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.
Rankings do not include Kemper High Yield Opportunity Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH YIELD FUND
CLASS A $8.55 $8.50
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS B $8.54 $8.49
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS C $8.57 $8.52
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE (CONTINUED)
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/98 10/1/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH YIELD OPPORTUNITY
FUND CLASS A $10.00 9.50
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD OPPORTUNITY
FUND CLASS B $10.00 9.50
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD OPPORTUNITY
FUND CLASS C $10.00 9.50
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND RANKINGS*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER HIGH YIELD FUNDS CATEGORY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #124 of 199 funds #159 of 199 funds #152 of 199 funds
- --------------------------------------------------------------------------------
5-YEAR #20 of 69 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #17 of 52 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #3 of 23 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #3 of 13 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR EACH
FUND AS OF MARCH 31, 1998.
<TABLE>
<CAPTION>
KEMPER HIGH
YIELD FUND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.3900 $0.3533 $0.3552
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $0.0635 $0.0575 $0.0578
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 8.91% 8.08% 8.09%
- --------------------------------------------------------------------------------
SEC YIELD+: 7.82% 7.31% 7.32%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
KEMPER HIGH YIELD
OPPORTUNITY FUND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2860 $0.2508 $0.2511
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $0.0640 $0.0575 $0.0579
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 7.68% 6.90% 6.95%
- --------------------------------------------------------------------------------
SEC YIELD+: 7.23% 6.71% 6.74%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on March 31, 1998. 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, 1998, 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.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVA'S PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS A BACHELOR OF ARTS AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS.
IT IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT
ORGANIZATIONS WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR
MUTUAL FUND INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND
CORPORATE CLIENTS, INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL
ACCOUNTS. IT IS ONE OF THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED
STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained lower inflation have
continued to produce a beneficial market environment for investors in the second
quarter of 1998. Despite heightened sensitivity to earnings estimates and
announcements, the market continued to support financial assets. We can expect
this favorable climate to continue--in spite of the sensitivity--at least over
the shorter term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash--$37.5 billion--into mutual funds in March. This record
flow surpassed the prior monthly record of $32.7 billion in net mutual fund
investing set in January 1996. Two years ago, many experts were concerned that
the bull market was close to being on its last legs. Quite remarkably today,
investors are still betting on equities. Nearly 75 percent of the new cash
flowing into mutual funds in March went into stock funds, according to the
Investment Company Institute, a trade organization that monitors the mutual
fund industry.
Unfortunately, high expectations often combine with high anxiety--today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
On Monday, April 27, expectations were tested by reports that the Federal
Reserve Board (Fed) was considering a hike in interest rates. The markets
reacted immediately to this news, driving stock prices downward. Ultimately, we
do not anticipate that an interest rate hike will materialize in the second
quarter; however, the Fed's monetary policy meeting shortly after the release of
this overview will provide more information.
Our positive outlook for this quarter is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing price
increases for goods and services or a downturn in the housing market, both of
which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 14 percent in the first
quarter of 1998 and returned more than 15 percent year-to-date as of April 30.
Bonds have also rewarded investors in terms of real return, which is total
return less the rate of inflation. The high yield and corporate debt
fixed-income markets also have performed well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 4 percent for the first quarter. Our general
expectation for the year is that growth will increase between 2.5 and 3 percent
over last year. In other words, the economy will remain strong, but will slow
down as the year progresses.
Consumer spending and corporate fixed investments have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profits have grown between 5 and 10 percent, which appears to
be acceptable in an environment of stable interest rates. U.S. employment growth
has ranged from 2 to 2.25 percent, continuing to exceed expectations. Consumer
confidence has continued to hit near all-time highs. The increase in output
prices, an indicator of inflation measured by the Consumer Price Index (CPI),
has remained at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $40
billion to $50 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
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 (4/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.64 5.88 6.71 6.74
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.38 2.08 2.43 2.9
THE U.S. DOLLAR(4) 3.92 9.65 6.55 8.51
CAPITAL GOODS ORDERS(5)* 10.89 11.72 8.17 6.82
INDUSTRIAL PRODUCTION(5)* 4.27 5.77 4.72 3.49
EMPLOYMENT GROWTH(6)* 2.59 2.36 2.27 1.78
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces as 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 March 31, 1998.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
The crisis has yet to hurt most U.S. businesses and investors. Quite the
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S. markets
as investors generally avoid Asia. Europe has also been benefiting from the
crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen.
Other major developments abroad include the final selection of countries to
participate in Europe's single currency next year. Many European countries are
adopting more restrictive fiscal policy and reducing inflation in anticipation
of the momentous European Economic and Monetary Union (EMU). But after the EMU
is established in 1999, tensions may indeed mount as countries work to adapt to
the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the end of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
JOHN E. SILVIA
May 8, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR. HE IS ALSO CO-LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND AND
KEMPER HIGH YIELD OPPORTUNITY FUND AND HANDLES ALL OF THE TRADING ACTIVITY FOR
THE FUNDS. RESIS HOLDS A BACHELOR'S DEGREE IN FINANCE FROM MICHIGAN STATE
UNIVERSITY.
[MCNAMARA PHOTO]
MICHAEL MCNAMARA JOINED THE ORGANIZATION IN 1972, AND IS A MANAGING DIRECTOR. HE
IS ALSO CO-LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND AND KEMPER HIGH
YIELD OPPORTUNITY FUND AND DIRECTS ALL FIXED- INCOME RESEARCH AT SCUDDER KEMPER
INVESTMENTS. HE EARNED AN MBA FROM LOYOLA UNIVERSITY.
[DOYLE PHOTO]
DAN DOYLE IS A PORTFOLIO MANAGER OF KEMPER HIGH YIELD OPPORTUNITY FUND. HE HAS
BEEN INVOLVED WITH KEMPER HIGH YIELD FUND IN BOTH RESEARCH AND TRADING SINCE
1986 AND IS A SENIOR TRADER FOR THE FUND. DOYLE RECEIVED HIS M.B.A. FROM THE
UNIVERSITY OF CHICAGO.
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.
IN OCTOBER 1997, KEMPER FUNDS INTRODUCED A NEW HIGH YIELD FUND--KEMPER HIGH
YIELD OPPORTUNITY FUND. THE NEW FUND WAS ROLLED OUT TO ADDRESS THE NEEDS
OF HIGH YIELD INVESTORS WHO PREFER TO REINVEST THEIR DIVIDENDS. A STRONG
ECONOMY, LOW INFLATION AND LOW INTEREST RATES, COMBINED WITH RECORD LEVELS OF
HIGH YIELD BOND SUPPLY AND DEMAND, CREATED AN IDEAL CLIMATE FOR LAUNCHING A NEW
FUND. CO-LEAD PORTFOLIO MANAGERS HARRY RESIS AND MICHAEL MCNAMARA EXPLAIN THEIR
INVESTMENT APPROACH AND DISCUSS THE FACTORS DRIVING PERFORMANCE IN THE NEW FUND
AND THE FIRM'S FLAGSHIP HIGH YIELD FUND--KEMPER HIGH YIELD FUND.
Q KEMPER HIGH YIELD FUND HAS ALWAYS BEEN A STRONG PERFORMING FUND. WHY WAS
THERE A NEED TO INTRODUCE A NEW HIGH YIELD FUND AND HOW DOES IT DIFFER?
A As a strong performing fund with a 20-year history, Kemper High Yield Fund
has attracted a large shareholder base. But the fund's objective is high current
income, and two-thirds of the fund's shareholders were reinvesting their
dividends. We wanted to offer those shareholders, and others, the opportunity to
achieve a higher total return on their investment.
Kemper High Yield Opportunity Fund's objective is total return. While the
fund invests primarily in the same types of high yield bonds as Kemper High
Yield Fund, it also has the flexibility to invest in equities, emerging market
debt and defaulted or distressed bonds and to use leverage when appropriate.
Under normal circumstances it will hold about 10 percent in equities. These
non-interest bearing investments and its emerging market issues should enable
the fund to generate a better total return than Kemper High Yield Fund.
Additionally, the small size of the new fund is advantageous in terms of
managing its investments. However, as a total return-oriented fund, we
anticipate that its distribution rate will be slightly below that of Kemper
High Yield Fund.
The trade-off between the two funds is income vs. total return. For
investors who need regular monthly income, Kemper High Yield Fund may be the
more appropriate choice. For those who reinvest their dividends, Kemper High
Yield Opportunity Fund may make more sense. Your financial representative can
help you determine which fund makes most sense for your particular situation.
Q HOW DID THE TWO FUNDS PERFORM FOR THE SEMI-ANNUAL PERIOD, OCTOBER 1, 1997
THROUGH MARCH 31, 1998?
A Both funds had strong returns during the six months. True to its
objective, Kemper High Yield Opportunity Fund provided the strongest total
return performance. Unadjusted for sales charge, Class A shares gained 8.74
percent, while Class A shares of Kemper High Yield Fund gained 5.31 percent. For
comparison purposes, the average return of the Lipper Analytical Services, Inc.
High Current Yield Category for the six-month period was 5.47 percent. The
Lipper category represents 230 high yield bond funds and includes Kemper High
Yield Fund.
Q WHAT FACTORS ARE SUPPORTING THIS STRONG PERFORMANCE?
A The past six months have been a continuation of an ideal environment for
high yield
5
<PAGE> 6
PERFORMANCE UPDATE
bonds. Basically over the last three years we've experienced stable economic
growth amid relatively benign inflation. This environment has helped corporate
earnings to grow, and the equity market to flourish. On the other hand, this
slow growth economy has kept interest rates and Treasury yields relatively low.
Investors look at a number of factors when deciding which type of bond to
invest in. As yields (coupon rates) on Treasuries remain low, many people have
looked to other types of bonds to find more income. High yield bonds are
attractive because they pay higher rates of income in return for the higher
level of risk associated with them. Over the past several years, investors have
been willing to accept more risk to earn more income on their investments. This
has paid off as the economy and strong performance of high yield issuers has led
to relatively few defaulted bonds.
This strong performance has supported record high supply levels in the
high yield market, offset by record levels of demand. High yield mutual fund
flows in 1997 were a record $23 billion, up from $16 billion the year before.
And, those figures include only cash flows coming into the market from mutual
funds. They don't include the flows from insurance companies, pension funds and
foreign investors, places we know billions of dollars keep coming in, more than
offsetting this record supply. What this supply and demand scenario seems to be
saying is that investors are becoming more comfortable with the risk involved
in the high yield market. As a result, this demand has been driving the strong
high yield market performance.
Q WITH SO MUCH DEMAND FOR HIGH YIELD BONDS, ARE YOU FINDING IT MORE
CHALLENGING TO LOCATE APPROPRIATE BONDS FOR THE FUNDS?
A Much of the new supply in the high yield market is in lower-quality bonds
(C-rated and non-rated issues). Lower credit quality implies more risk, but
these bonds offer higher yields to compensate for the assumed higher risk. So,
it is a bit more difficult to find higher quality bonds (B-rated and higher)
today. We have been investing more in lower quality issues than we were a year
ago. However, we're not making these investments simply because they're
available, we're making them because the issues make sense given the current
strength of the economy. The economy has given these weaker credits a greater
likelihood of flourishing. If we sense that the economy is beginning to shift,
we'll change our strategy.
Another reason we're buying some of these higher yielding securities is
that we've been underweighted in them for the last year or so relative to our
peers. We're really adding some spice to the portfolio that we may have been
missing and the economic environment makes us comfortable with that decision.
Q WHAT OTHER CHANGES HAVE YOU MADE TO THE FUNDS' PORTFOLIO COMPOSITIONS?
A In the past six months we've increased our level of deferred interest
bonds to be more in line with other high yield funds. Deferred interest bonds
have low credit quality ratings. They are purchased at a discount to their par
value and do not start paying interest until later in the life of the loan. They
tend to have a longer duration, making them sensitive to interest rate changes.
Just over a year ago we reduced our position in these bonds in anticipation of
higher interest rates, which proved to be a good move when interest rates jumped
in March 1997. Today, we feel that the economic environment and interest rates
will remain stable, making deferred interest bonds a better investment for the
funds.
Additionally, we've added some preferred stocks to both portfolios to help
enhance total return potential. Kemper High Yield Fund has always had the
ability to invest a portion of its assets in preferred stocks, which are
generally categorized as high yield securities. Kemper High Yield Fund may not
invest in common stock, while the new fund may.
Q HAS THE ASIAN MARKET CRISIS NEGATIVELY AFFECTED THE HIGH YIELD MARKET?
A The Asian crisis is having a stronger impact on large, major companies
that do business in Asia. Most high yield bond issuers are companies that are
considered "small cap" and that conduct business primarily in the United States,
so the negative impact was barely felt by the U.S. high yield market. We do
believe, however, that all of the affects of Asia have not yet been felt by the
U.S. economy. And we expect that they may be revealed in a slight slow down of
gross domestic product growth in the second quarter of 1998. We don't think the
impact will be significant, but we will watch it closely and monitor its effects
on the U.S. economy and the high yield market.
6
<PAGE> 7
PERFORMANCE Update
Q ARE YOU MANAGING THE NEW FUND VERY DIFFERENTLY FROM KEMPER HIGH YIELD
FUND?
A Because of its small size, Kemper High Yield Opportunity Fund has much
more flexibility so we can be a bit more aggressive. We're buying some more
deferred interest bonds and some riskier issues because we can move in quickly
and get out quickly if there is trouble on the horizon. Late in the period, we
went from being 110 percent invested (using leverage) to 90 percent invested in
a couple of hours by taking our leverage off and selling some bonds. It's
difficult to do that in a large fund. In Kemper High Yield Fund, we don't take
big positions in riskier issues that are overly large relative to the fund's
size. That's because it's difficult to get out of those positions quickly should
we need to.
The ability to use leverage in the new fund will be an important
difference. We plan to use it strategically, and may use it more frequently in
the future. Short-term interest rates are already low and could go lower. If we
borrow at 6 percent, which is about what the loan rate is today, and reinvest
that money in issues yielding 9 percent, that gives our shareholders an added
advantage. Another difference is our ability to invest in equities. We
haven't used this capability to its fullest yet, but we plan to slowly ramp up
the fund's equity position in the next few months as we find the right
investments.
Q WHAT KIND OF STOCKS ARE YOU LOOKING FOR?
A We're trying to stay true to buying equities only from high yield issuers.
Often our analysts visit companies issuing high yield bonds. Although they may
be impressed with a company, the bond issues are not always appropriate. But, we
may discover that the company's stock is under followed and under valued. It
could be an excellent investment, but in the past we haven't had the latitude to
buy it. Now we can include such equities in Kemper High Yield Opportunity Fund's
portfolio to help boost total return.
Sometimes we find the potential to invest in both bonds and stocks from a
particular company. One example of an equity we acquired this way is Waxman
Industries, a plumbing products business that holds a 50 percent ownership in
Barnett, a successful telemarketing company. We've owned Waxman bonds for many
years in Kemper High Yield Fund. Recently, the company did an initial public
offering of stock and used the proceeds to repurchase most of their bonds.
We made money on the bond calls and found a good opportunity to invest in their
stock, which we believe has great potential because of their Barnett holdings.
Q DO YOU FORESEE ANY ALLOCATION CHANGES TO THE FUNDS IN THE NEAR FUTURE?
A Not really. We've gotten slightly more aggressive over the past three
months in both funds by buying some lower credit-quality issues. This adjustment
has paid off, but we don't plan to increase our positions in these bottom tier
investments dramatically. We plan to keep a close eye on the economy and the
high yield market and make our investment decisions based on the direction of
both.
Q SO HIGH YIELD FUNDS CONTINUE TO BE A GOOD CHOICE FOR INVESTORS TODAY?
A Definitely. All indicators point to continued strength in the high yield
market. Defaults remain relatively low and supply and demand continue to grow at
a breakneck pace. For both income-oriented and total return-oriented investors,
the high yield market makes a great deal of sense right now.
TERMS TO KNOW
CYCLICAL ISSUES Cyclical issues are bonds within industries whose earnings tend
to rise quickly when the economy strengthens and fall quickly when the economy
weakens. Examples are housing, automobiles and paper companies. The performance
of noncyclical industries such as food, insurance and drugs 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.
7
<PAGE> 8
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper High Yield Fund shareholders were asked to vote on five
separate issues: election of the nine members to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors, approval of new
investment management agreement with Scudder Kemper Investments, Inc., approval
of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure and approval of a new rule 12b-1 distribution plan
with Zurich Kemper Distributors, Inc. for Class B shares and Class C shares. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
David W. Belin 347,328,495 6,740,541
Lewis A. Burnham 347,577,796 6,491,241
Donald L. Dunaway 347,538,492 6,530,545
Robert B. Hoffman 347,562,272 6,506,765
Donald R. Jones 347,542,070 6,526,967
Shirley D. Peterson 347,291,934 6,777,103
Daniel Pierce 347,432,372 6,636,665
William P. Sommers 347,549,992 6,519,045
Edmond D. Villani 347,404,085 6,664,951
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
344,265,890 2,567,659 7,235,487
</TABLE>
3) Approval of new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
321,876,287 6,749,386 11,582,410
</TABLE>
4) Approval of changes in the fund's fundamental investment policies to permit a
master/feeder fund structure.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
290,898,755 12,070,755 19,190,878
</TABLE>
5) To approve a new rule 12b-1 distribution plan with Zurich Kemper
Distributors, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C> <C>
Class B 78,738,289 1,447,876 3,499,709 5,481,571
Class C 7,590,717 235,950 210,430 1,653,026
</TABLE>
8
<PAGE> 9
PORTFOLIO STATISTICS
KEMPER HIGH YIELD FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
BONDS 89% 93%
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 4 3
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 5 2
- --------------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 2 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/98 ON 9/30/97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 88% 87%
- --------------------------------------------------------------------------------
11-20 YEARS 6 8
- --------------------------------------------------------------------------------
OVER 21 YEARS 2 2
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 4 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/98 ON 9/30/97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 3/31/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 5% 2%
- --------------------------------------------------------------------------------
BBB -- 2
- --------------------------------------------------------------------------------
BB 11 15
- --------------------------------------------------------------------------------
B 73 75
- --------------------------------------------------------------------------------
OTHER 10 6
- --------------------------------------------------------------------------------
NOT RATED 2 --
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/98 ON 9/30/97
* Portfolio composition is subject to change.
9
<PAGE> 10
PORTFOLIO STATISTICS
KEMPER HIGH YIELD OPPORTUNITY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 3/31/98
- --------------------------------------------------------------------------------
<S> <C>
BONDS 93%
- --------------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 6
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 1
- --------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
ON 3/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 3/31/98
- --------------------------------------------------------------------------------
<S> <C>
1-10 YEARS 84%
- --------------------------------------------------------------------------------
11-20 YEARS 10
- --------------------------------------------------------------------------------
OVER 21 YEARS 4
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 2
- --------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
ON 3/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 3/31/98
- --------------------------------------------------------------------------------
<S> <C>
BBB 1%
- --------------------------------------------------------------------------------
BB 7
- --------------------------------------------------------------------------------
B 74
- --------------------------------------------------------------------------------
OTHER 17
- --------------------------------------------------------------------------------
NOT RATED 1
- --------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
ON 3/31/98
* Portfolio composition is subject to change.
10
<PAGE> 11
PORTFOLIO OF Investments
KEMPER HIGH YIELD FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--4.6% PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--4.2%
U.S. Treasury bonds
11.75%, 2001 $ 60,000 $ 69,694
13.375%, 2001 45,000 55,575
U.S. Treasury note,
9.125%, 1999 107,500 111,548
----------------------------------------------------------------------------
236,817
- -------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT
OBLIGATIONS--.4%
(PRINCIPAL AMOUNT IN (a)Republic of Argentina,
U.S. DOLLARS) 9.50%, 2002 8,900 8,927
Federal Republic of Brazil,
9.375%, 2008 4,240 4,229
United Mexican States,
8.625%, 2008 8,580 8,532
----------------------------------------------------------------------------
21,688
----------------------------------------------------------------------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost: $261,595) 258,505
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--89.3%
- -------------------------------------------------------------------------------------------------------------------
AEROSPACE--.2%
L-3 Communication Corp., 10.375%, 2007 7,220 7,996
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
BROADCASTING, CABLESYSTEMS
AND PUBLISHING--14.5%
Affinity Group, Inc., 11.50%, 2003 23,411 24,873
American Banknote Corp., 11.25%, 2007 16,850 17,018
(b)American Lawyer, 12.25%, 2008 2,940 1,874
American Radio Systems, 9.00%, 2006 18,490 19,645
Australis Holdings
14.00%, 2000 4,779 3,370
(b) 15.00%, with warrants, 2002 49,213 14,764
Big Flower Press, Inc., 8.875%, 2007 33,580 34,420
Busse Broadcasting, 11.625%, 2000 10,860 11,702
CCA Holdings, 13.00%, 1999 17,500 26,031
CSC Holdings Inc.
9.25%, 2005 8,560 9,095
7.875%, 2007 4,100 4,213
8.125%, 2009 13,516 14,226
Cablevision Systems Corp., 10.50%, 2016 27,375 32,165
Capstar Broadcasting
9.25%, 2007 13,890 14,585
(b) 12.75%, 2009 9,540 7,179
Century Communications Corp.
9.50%, 2005 3,630 3,911
8.375%, 2007 8,100 8,222
(b)Charter Communications, 14.00%, 2007 30,410 24,480
(b)Comcast Cellular Holdings, Inc.,
13.125%, 2003 30,800 23,870
Comcast Corp., 9.125%, 2006 34,485 36,554
(b)Comcast UK Cable Partners, Ltd., 11.20%,
2007 45,225 37,197
(b)DIVA Systems Corp., 12.625%, 2008 21,020 11,613
(b)Diamond Cable Communications, PLC
13.25%, 2004 29,130 26,872
11.75%, 2005 7,740 6,153
10.75%, 2007 8,900 6,297
EZ Communications, 9.75%, 2005 8,760 9,636
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foxkids Worldwide
9.25%, 2007 $ 18,600 $ 18,693
(b) 10.25%, 2007 8,820 5,645
Frontiervision
11.00%, 2006 19,050 21,241
(b) 11.875%, 2007 21,439 16,641
Granite Broadcasting Corp., 10.375%, 2005 8,080 8,584
Intermedia Capital Partners, 11.25%, 2006 20,880 23,593
(b)International Cabletel, Inc., 12.75%,
2005 48,940 42,333
Mediacom LLC, 8.50%, 2008 8,720 8,731
NTL, 10.00%, 2007 7,761 8,362
Newsquest Capital, PLC, 11.00%, 2006 13,794 15,450
(b)PX Escrow Corp., 9.625%, 2006 19,230 13,677
Rogers Communications, 8.875%, 2007 8,120 8,201
SFX Entertainment, Inc., 9.125%, 2008 24,140 23,899
Salem Communications Corp., 9.50%, 2007 12,490 13,114
Sinclair Broadcasting Group, Inc., 8.75%,
2007 12,970 13,327
Star Choice, 13.00%, 2005 10,100 10,504
Sullivan Broadcasting
10.25%, 2005 6,190 6,701
13.25%, 2006 12,850 18,761
(b)21st Century Telecom Group, Inc.,
12.25%, 2008 14,900 8,791
TeleWest Communications, PLC
9.625%, 2006 22,005 23,380
(b) 11.00%, 2007 41,443 33,362
(b)Transwestern Holdings, 11.875%, 2008 5,885 4,046
Transwestern Publishing, 9.625%, 2007 13,220 13,947
(b)UIH Australia Pacific, Inc., 14.00%,
with warrants, 2006 14,150 9,799
(b)United International Holdings, 10.75%,
2008 32,500 20,312
------------------------------------------------------------------------------
821,059
- -------------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--2.1%
Allied Waste Industries
10.25%, 2006 12,970 14,380
(b) 11.30%, 2007 26,805 19,601
Corporate Express, Inc., 9.125%, 2004 18,760 18,948
Intertek Finance, 10.25%, 2006 13,190 14,113
Outdoor Systems, Inc.
9.375%, 2006 23,880 25,611
8.875%, 2007 23,910 25,165
------------------------------------------------------------------------------
117,818
- -------------------------------------------------------------------------------------------------------------------------
CHEMICALS AND
AGRICULTURE--3.5%
Agriculture, Mining and Chemicals, Inc.,
10.75%, 2003 19,230 20,528
Atlantis Group, Inc., 11.00%, 2003 25,355 26,116
Hines Horticulture, 11.75%, 2005 14,450 15,895
Huntsman Polymer Corp., 11.75%, 2004 31,845 35,189
NL Industries, Inc.
11.75%, 2003 27,770 30,893
(b) 13.00%, 2005 21,370 21,691
Terra Industries, Inc., 10.50%, 2005 12,200 13,237
Texas Petrochemicals, 11.125%, 2006 19,410 21,254
UCC Investors Holdings, Inc., 10.50%, 2002 10,480 11,842
------------------------------------------------------------------------------
196,645
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--13.0%
ATC Group Services, 12.00%, 2008 $ 9,240 $ 9,286
American Mobil Satellite, 12.25%, 2008 8,190 8,497
(b)Call-Net Enterprises, Inc.
13.25%, 2004 7,240 6,797
9.27%, 2007 10,990 7,775
Communication and Power Industry, Inc.,
12.00%, 2005 7,975 8,972
(b)Crown Castle International Corp.,
10.625%, 2007 33,550 22,646
Dobson Communication Corp., 11.75%, 2007 24,500 27,072
Econophone, Inc., 13.50%,
with warrants, 2007 34,545 40,919
Esprit Telecom, 11.50%, 2007 15,380 16,841
FaciliCom International, Inc., 10.50%, 2008 8,140 8,506
(b)Focal Communications Corp., 12.125%,
2008 14,760 8,635
GCI General Communication, 9.75%, 2007 22,570 24,037
(b)ICG Holdings, 13.50%, 2005 44,105 37,599
(b)ICG Services, Inc., 10.00%, 2008 16,430 10,474
Interamerica Communications, 14.00%, 2007 3,930 4,068
(b)Intermedia Communications, 12.25%, 2006 19,310 15,738
Intermedia Communications of Florida, Inc.,
8.875%, 2007 with warrants 8,115 11,246
(b) 11.25%, 2007 27,170 20,174
(b)KMC Telecom Holdings, Inc., 12.50%, 2008 23,900 14,340
MGC Communications, 13.00%,
with warrants, 2001 18,116 19,384
McLeod, Inc.
9.25%, 2007 13,435 14,342
(b) 10.50%, 2007 35,190 27,008
Metronet Communications 331
(b) 10.75%, 2007 8,460 5,626
12.00%, with warrants, 2007 8,280 9,563
(b)Millicom International Cellular, S.A.,
13.50%, 2006 35,740 28,056
Netia Holdings
10.25%, 2007 3,220 3,300
(b) 11.25%, 2007 8,355 5,723
(b)Nextel Communications
9.75%, 2004 19,300 18,552
9.75%, 2007 9,980 6,487
Nextlink Communications
12.50%, 2006 12,160 14,045
9.00%, 2008 15,590 16,058
(b) 9.45%, 2008 8,260 5,224
Orbital Imaging, 11.625%, 2005 5,720 6,263
(b)PTC International Finance, B.V., 10.75%,
2007 21,080 14,703
Primus Telecommunications Group, 11.75%,
with warrants, 2004 13,050 15,008
RCN Corp.
10.00%, 2007 10,390 11,065
(b) 9.80%, 2008 20,000 12,500
Rogers Cantel, 9.75%, 2016 27,745 30,103
(b)SBA Communication, 12.00%, 2008 32,000 18,880
Satelites Mexicanos, S.A. de C.V., 10.125%,
2004 8,150 8,394
Telex Communication, 10.50%, 2007 5,165 4,648
Teligent, Inc.
11.50%, 2007 12,100 12,705
(b) 11.50%, 2008 14,650 8,442
USA Mobile Communications, Inc. II, 14.00%,
2004 9,650 10,687
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard Cellular Systems, 9.375%, 2006 $ 20,790 $ 21,933
Western Wireless
10.50%, 2006 7,425 8,065
10.50%, 2007 17,016 18,547
Winstar Communication
15.00%, 2007 14,180 18,789
11.00%, 2008 8,200 8,436
Winstar Equipment
12.50%, 2004 20,840 23,862
10.00%, 2008 5,900 5,989
------------------------------------------------------------------------------
736,340
- -------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION
MATERIALS--3.9%
American Standard, Inc., 9.25%, 2016 15,517 15,983
Airxcel, 11.00%, 2007 15,590 16,603
Brand Scaffold Services, Inc., 10.25%, 2008 6,670 6,870
(b)Building Materials Corporation of
America, 11.75%, 2004 51,930 50,112
Desa International, 9.875%, 2007 16,490 16,985
Falcon Building Products, Inc., 9.50%, 2007 17,410 17,845
Kevco, 10.375%, 2007 14,730 15,393
Nortek, Inc.
9.875%, 2004 14,255 14,771
9.125%, 2007 15,600 16,165
Terex Corp., 8.875%, 2008 5,600 5,600
Triangle Pacific Corp., 10.50%, 2003 26,565 27,893
Waxman Industries, Inc.
(b) 12.75%, 2004 6,510 5,957
800,453 warrants expiring 2004 1,881
Werner Holdings, 10.00%, 2007 10,630 11,228
------------------------------------------------------------------------------
223,286
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND
SERVICES--10.4%
AMF Bowling World
10.875%, 2006 47,547 52,361
(b) 12.25%, 2006 14,691 11,900
Avondale Mills, 10.25%, 2006 24,151 26,083
Cinemark USA, Inc.
8.50%, 2008 13,550 13,618
9.625%, 2008 14,750 15,469
Coinmach Corp., 11.75%, 2005 51,656 57,725
Doskocil Manufacturing Co., 10.125%, 2007 12,830 13,728
Dyersburg Corp., 9.75%, 2007 18,155 18,813
Eagle Family Foods, 8.75%, 2008 12,485 12,485
Grupo Azucarero Mexico, S.A. de C.V.,
11.50%, 2005 12,290 12,198
Hedstrom Corp., 10.00%, 2007 11,280 11,590
Herff Jones, Inc., 11.00%, 2005 20,810 22,995
Hollywood Entertainment Corp., 10.625%,
2004 5,140 5,346
IMPAC Group, Inc., 10.125%, 2008 8,700 8,852
Imperial Home Decor Group Inc., 11.00%,
2008 11,900 12,197
Kinder-Care Learning Centers, 9.50%, 2009 41,550 42,485
Mastellone Hermonos, 11.75%, 2008 15,750 16,065
NBTY, Inc., 8.625%, 2007 14,280 14,566
Nine West Group, 9.00%, 2007 8,300 7,802
Perkins Family Restaurants, L.P., 10.125%,
2007 8,130 8,536
Pillowtex Corp, 9.00%, 2007 6,450 6,708
(b)Pinnacle Holdings, 10.00%, 2008 24,700 15,376
Planet Hollywood, 12.00%, 2005 4,030 4,100
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premier Parks, Inc., 12.00%, 2003 $ 8,900 $ 9,857
Purina Mills, Inc., 9.00%, 2010 17,500 18,069
Riddell Sports, Inc., 10.50%, 2007 15,606 16,347
(b)Sealy Mattress, 10.875%, 2007 7,300 4,836
(b)Six Flags Theme Park, 12.25%, 2005 54,395 60,378
Van De Kamps, Inc., 12.00%, 2005 13,945 15,618
West Point Stevens, Inc.
8.75%, 2005 10,000 10,425
9.375%, 2005 34,045 36,002
Windy Hill Pet Food Company, Inc., 9.75%,
2007 4,020 4,281
------------------------------------------------------------------------------
586,811
- -------------------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE--3.5%
CONMED Corp., 9.00%, 2008 4,000 4,070
Dade International Inc., 11.125%, 2006 27,400 30,414
Genesis Eldercare, 9.00%, 2007 25,565 26,268
Magellan Health Services, 9.00%, 2008 31,540 31,855
Paracelsus Healthcare, 10.00%, 2006 5,810 6,057
(b)Paragon Healthcare Networks, 10.50%,
2007 50,720 32,841
Tenet Healthcare
8.00%, 2005 9,920 10,193
10.125%, 2005 38,141 41,764
8.625%, 2007 14,230 14,728
------------------------------------------------------------------------------
198,190
- -------------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES--6.3%
AEI Holdings, 10.00%, 2007 16,380 17,240
Bellweather Exploration Co., 10.875%, 2007 14,460 15,291
Benton Oil & Gas Co.
11.625%, 2003 23,865 25,804
9.375%, 2007 7,630 7,640
Clark Refining, 8.875%, 2007 9,050 9,163
Coda Energy, 10.50%, 2006 23,610 25,558
Dailey International, 9.50%, 2008 16,230 16,352
Denbury Management, 9.00%, 2008 13,570 13,638
Espirito Santos Centrais Electricas S.A.,
10.00%, 2007 21,810 21,319
Flores & Rucks, Inc., 9.75%, 2006 7,370 8,033
Forcenergy Gas Exploration
9.50%, 2006 19,260 20,030
8.50%, 2007 14,085 13,838
Mariner Energy, 10.50%, 2006 3,840 4,003
Michael Petroleum Corp., 11.50%, 2005 8,190 8,088
National Energy Corp., 10.75%, 2006 5,870 5,694
Pacalta Resources, Ltd., 10.75%, 2004 27,855 28,551
Parker Drilling Corp., 9.75%, 2006 21,510 23,040
Plains Resources, 10.25%, 2006 15,590 16,759
Pool Energy Services, 8.625%, 2008 5,710 5,724
RAM Energy, 11.50%, 2008 8,250 8,209
Rutherford-Moran Oil Corp., 10.75%, 2004 9,120 9,713
Stone Energy Corp., 8.75%, 2007 18,880 19,258
United Meridian Corp., 10.375%, 2005 25,495 28,299
(b)Universal Compress, 9.875%, 2008 9,940 6,212
------------------------------------------------------------------------------
357,456
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES,
HOME BUILDERS AND
REAL ESTATE--3.3%
Beazer Homes
9.00%, 2004 2,430 2,436
8.875%, 2008 15,470 15,509
DVI, Inc., 9.875%, 2004 8,570 9,148
Del Webb Corp., 9.75%, 2008 24,710 26,440
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Emergent Group, 10.75%, 2004 $ 8,250 $ 7,899
Engle Homes, Inc., 9.25%, 2008 8,060 8,241
Forecast Group, L.P., 11.375%, 2000 14,620 14,108
Fortress Group, 13.75%, 2003 14,080 15,910
Hovnanian Enterprises, 11.25%, 2002 30,257 31,354
New Millen Home Building, 12.00%, 2004 3,340 3,307
Presley Cos., 12.50%, 2001 14,455 13,877
UDC Homes, 12.50%, 2000 14,920 15,218
Williams Scotsman, Inc., 9.875%, 2007 24,100 25,184
------------------------------------------------------------------------------
188,631
- -------------------------------------------------------------------------------------------------------------------------
HOTELS AND GAMING--2.1%
Eldorado Resorts, 10.50%, 2006 17,981 19,914
Empress River Casino, 10.75%, 2002 21,493 23,239
HMH Properties
9.50%, 2005 22,790 24,157
8.875%, 2007 10,230 10,741
Hard Rock Hotel, 9.25%, 2005 6,120 6,212
Harvey's Casino Resorts, 10.625%, 2006 14,770 16,469
Players International, 10.875%, 2005 9,765 10,644
Trump Atlantic City, 11.25%, 2006 8,300 8,466
------------------------------------------------------------------------------
119,842
- -------------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS
AND MINING--12.0%
Accuride, 9.25%, 2008 12,175 12,175
Aftermarket Technology, 12.00%, 2004 16,624 18,453
Alvey Systems, 11.375%, 2003 6,827 7,254
Bar Technologies, 13.50%,
with warrants, 2001 16,335 18,565
Centaur Mining, 11.00%, 2007 10,600 10,998
Collins & Aikman Corp., 11.50%, 2006 15,030 16,909
Columbus McKinnon, 8.50%, 2008 5,290 5,316
Day International Group, Inc.
11.125%, 2005 22,045 24,029
9.50%, 2008 5,730 5,816
Delco Remy International, 10.625%, 2006 26,115 28,661
Doe Run Co.
12.00%, 2003 4,100 4,202
11.25%, 2005 5,880 6,115
E-P Acquisition, Inc., 9.375%, 2008 3,200 3,248
Earle M. Jorgensen Co., 9.50%, 2005 6,500 6,516
Euramax International, PLC, 11.25%, 2006 23,595 25,954
Foamex, L.P.
13.50%, 2005 19,500 22,620
9.875%, 2007 2,900 3,074
GS Technologies
12.00%, 2004 5,875 6,448
12.25%, 2005 8,970 10,091
Hayes Wheels International, Inc.
11.00%, 2006 23,070 26,127
9.125%, 2007 17,875 18,925
JPS Automotive Products Corp., 11.125%,
2001 27,270 30,406
Key Plastics, 10.25%, 2007 8,375 8,919
Knoll, Inc., 10.875%, 2006 11,684 13,261
Koppers Industries, 9.875%, 2007 8,180 8,589
MMI Products, Inc., 11.25%, 2007 7,090 7,834
Metal USA, 8.625%, 2008 8,950 8,905
Morris Material Holdings, 9.50%, 2008 9,900 9,949
Motors and Gears, Inc., 10.75%, 2006 17,250 18,457
NSM Steel
12.00%, 2006 22,240 21,017
12.25%, 2008 23,540 22,716
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Neenah Corp., 11.125%, 2007 $ 28,840 $ 31,940
Park-Ohio Industries, 9.25%, 2007 8,600 9,030
Prestolite Electric, 9.625%, 2008 5,680 5,808
Renco Metals, 11.50%, 2003 15,945 17,100
Renco Steel Holdings, 10.875%, 2005 11,300 11,695
Scovill Fasteners, 11.25%, 2007 11,020 11,516
Spinnaker Industries, 10.75%, 2006 23,070 23,877
Thermadyne Industries, Inc.
10.25%, 2002 12,226 12,700
10.75%, 2003 11,916 12,750
UCAR Global, 12.00%, 2005 22,110 24,431
Venture Holdings
9.75%, 2004 3,240 3,280
9.50%, 2005 26,320 27,175
WCI Steel, Inc., 10.00%, 2004 5,850 6,172
Wells Aluminum Corp., 10.125%, 2005 20,442 21,975
Wheeling Pitt Corp., 9.25%, 2007 28,300 28,724
------------------------------------------------------------------------------
679,722
- -------------------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS
AND CONTAINERS--8.3%
AEP Industries Inc., 9.875%, 2007 7,180 7,530
BPC Holding Corp., 12.50%, 2006 12,240 13,464
Berry Plastics Corp., 12.25%, 2004 20,499 22,395
Doman Industry, 9.25%, 2007 12,950 13,047
Fonda Group, 9.50%, 2007 11,730 11,495
Gaylord Container Corp.
12.75%, 2005 32,850 35,190
9.75%, 2007 11,280 11,506
9.875%, 2008 33,100 32,935
Graham Packaging Co.
8.75%, 2008 7,420 7,457
9.25%, 2008 8,220 8,302
(b) 10.75%, 2009 7,840 4,978
Maxxam Group, Inc.
11.25%, 2003 24,325 25,845
(b) 12.25%, 2003 7,265 7,410
National Fiberstock Corp., 11.625%, 2002 12,960 13,867
Norampac, 9.50%, 2008 21,320 22,119
Pindo Deli Finance Mauritius, Ltd., 10.75%,
2007 810 656
Plainwell Inc., 11.00%, 2008 8,150 8,374
Printpack, Inc.
9.875%, 2004 8,440 8,989
10.625%, 2006 22,640 24,564
Riverwood International
10.25%, 2006 14,180 14,712
10.625%, 2007 18,331 19,385
10.875%, 2008 51,175 51,559
(b)SF Holdings Group, Inc., 12.75%, 2008 13,450 7,498
Specialty Paperboard, 9.375%, 2006 8,830 9,271
Stone Container Corp.
9.875%, 2001 28,440 29,009
12.25%, 2002 11,980 12,309
11.50%, 2006 12,130 13,040
Tjiwi Kimia Finance Mauritius, Ltd.,
10.00%, 2004 890 730
U.S. Can Corp., 10.125%, 2006 31,079 32,982
------------------------------------------------------------------------------
470,618
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAILING--4.6%
Advantica Restaurant Company, 11.25%, 2008 $ 24,050 $ 25,793
AFC Enterprises, Inc., 10.25%, 2007 18,950 19,968
Ameriking, 10.75%, 2006 15,635 16,729
Cole National Group
9.875%, 2006 6,170 6,710
8.625%, 2007 18,890 19,339
(c)Color Tile, Inc., 10.75%, 2001 20,480 205
Finlay Fine Jewelry Corp., 10.625%, 2003 27,300 28,665
Galey & Lord, 9.125%, 2008 11,570 11,715
Guitar Center Management, 11.00%, 2006 15,050 16,706
J. Crew Group
10.375%, 2007 16,450 15,463
(b) 13.125%, 2008 17,480 8,740
Krystal Co., 10.25%, 2007 8,100 8,424
Pamida Holdings, 11.75%, 2003 12,995 13,417
Pathmark Stores, 9.625%, 2003 16,810 16,768
Petro Stopping Centers, 10.50%, 2007 29,670 32,044
TravelCenters of America, Inc., 10.25%,
2007 16,830 17,966
------------------------------------------------------------------------------
258,652
- -------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.6%
Axiohm Transaction Solutions, Inc.,
9.75%, 2007 8,650 8,801
Viasystems, Inc., 9.75%, 2007 24,670 25,780
------------------------------------------------------------------------------
34,581
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.0%
TFM, S.A. de C.V., 10.25%, 2007 23,470 24,291
Trans World Airlines, Inc., 11.375%, 2006 12,140 12,231
(b)Transtar Holdings, L.P., 13.375%, 2003 10,100 9,216
Valujet, Inc., 10.25%, 2001 8,240 7,910
------------------------------------------------------------------------------
53,648
------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $4,854,119) 5,051,295
------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED
STOCKS--2.5%
Benedek Unit, PIK, preferred with warrants 90,000 13,545
(c)Capital Pacific Holdings 54,431 54
Clark USA, PIK, preferred 43,781 4,575
Com Cell, warrants 30,800 2,148
Crown American Realty Trust, preferred 272,650 14,638
Day International Exchange, PIK, preferred 4,880 5,014
Dobson Communication, PIK, preferred 6,170 6,787
E-P Acquisition, Inc., preferred 970 5,614
(c)EchoStar Communications Corp. 108,723 2,392
(c)Empire Gas Corp., warrants 31,795 159
(c)Foamex International, warrants 16,620 332
(c)Gaylord Container Corp. 1,805,934 13,432
(c)Gulf States Steel, warrants 29,670 148
(c)Intelcom Group, Inc. 67,617 1,082
Nextel, PIK, preferred 30,240 31,903
Nextlink Communication, convertible
preferred 34,300 1,646
SF Holdings, PIK, preferred 420 3,854
Sinclair Capital, preferred 210,400 23,249
(c)Sullivan Broadcasting 205,600 6,168
21st Century Telecom Group, Inc., preferred 2,850shs. 3,192
------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--2.5%
(Cost: $111,498) 139,932
------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET
INSTRUMENTS--2.1%
Yields--5.53% - 6.00%
Due--April, 1998
(Cost: $116,486) $ 116,800 $ 116,483
------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.5%
(Cost: $5,343,698) 5,566,215
------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.5% 87,089
------------------------------------------------------------------------------
NET ASSETS--100% $5,653,304
------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Variable rate security. Rate shown is the effective rate on March 31, 1998
and date shown represents the final maturity of the obligation.
(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 that
issuer has defaulted on the payment of principal or interest or has filed
for bankruptcy.
Based on the cost of investments of $5,343,698,000 for federal income tax
purposes at March 31, 1998, the gross unrealized appreciation was $271,545,000,
the gross unrealized depreciation was $49,028,000 and the net unrealized
appreciation on investments was $222,517,000.
See accompanying Notes to Financial Statements.
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
KEMPER HIGH YIELD OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--1.8% PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(PRINCIPAL AMOUNT IN
U.S. DOLLARS)
(a)Republic of Argentina,
9.50%, 2002 $ 100 $ 100
Federal Republic of Brazil,
9.375%, 2008 100 100
United Mexican States,
8.625%, 2008 100 99
----------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $299) 299
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--90.3%
- -----------------------------------------------------------------------------------------------------------------------
BROADCASTING, CABLESYSTEMS
AND PUBLISHING--12.1%
American Banknote Corp., 11.25%, 2007 100 101
CSC Holding
7.875%, 2007 10 10
8.125%, 2009 34 36
Cablevision Systems Corp., 10.50%, 2016 60 71
Capstar Broadcasting, 9.25%, 2007 100 105
(b)Charter Communications, 14.00%, 2007 150 121
Comcast Corp., 9.125%, 2006 100 106
(b)DIVA Systems Corp., 12.625%, 2008 200 110
Foxkids Worldwide, 9.25%, 2007 100 101
Frontiervision
11.00%, 2006 100 112
(b) 11.875%, 2007 100 77
Mediacom LLC, 8.50%, 2008 100 100
NTL, 10.00%, 2007 104 112
(b)PX Escrow Corp., 9.625%, 2006 220 156
SFX Entertainment, Inc., 9.125%, 2008 100 99
Sinclair Broadcasting Group, Inc., 8.75%, 2007 100 103
Star Choice, 13.00%, 2005 50 52
(b)TeleWest Communications, PLC, 11.00%, 2007 125 101
(b)Transwestern Holdings, 11.875%, 2008 60 41
Transwestern Publishing, 9.625%, 2007 60 63
(b)21st Century Telecom Group, Inc., 12.25%,
2008 100 59
(b)United International Holdings, 10.75%, 2008 200 125
----------------------------------------------------------------------------
1,961
- -----------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--1.9%
ATC Group Services, 12.00%, 2008 100 101
Intertek Finance, 10.25%, 2006 100 107
Outdoor System, Inc.
9.375%, 2006 50 54
8.875%, 2007 50 52
----------------------------------------------------------------------------
314
- -----------------------------------------------------------------------------------------------------------------------
CHEMICALS --.6%
Texas Petrochemicals, 11.125%, 2006 100 110
----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--15.1%
American Mobil Satellite, 12.25%, 2008 100 105
(b)Crown Castle International Corp., 10.625%, 2007 175 118
Econophone, Inc., 13.50%, 2007 100 115
Esprit Telecom, 11.50%, 2007 100 109
FaciliCom International, Inc., 10.50%, 2008 100 105
(b)Focal Communications Corp., 12.125%, 2008 200 117
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GCI General Communication, 9.75%, 2007 $ 40 $ 42
(b)ICG Holdings, 13.50%, 2005 100 84
(b)ICG Services, Inc., 10.00%, 2008 130 83
Interamerica Communications, 14.00%, 2007 50 52
Intermedia Communication of Florida, Inc.,
8.875%, 2007 75 79
(b)KMC Telecom Holdings, Inc., 12.50%, 2008 160 96
McLeod, Inc., 9.25%, 2007 100 107
(b)Metronet Communications, 10.75%, 2007 150 100
Netia Holdings
10.25%, 2007 50 51
(b) 11.25%, 2007 75 51
(b)Nextel Communications
9.75%, 2004 15 14
9.75%, 2007 60 39
(b) 9.95%, 2008 25 16
Nextlink Communications
9.00%, 2008 100 102
(b) 9.45%, 2008 30 19
Orbital Imaging, 11.625%, 2005 100 110
(b)PTC International Finance, B.V., 10.75%, 2007 120 84
RCN Corp., 10.00%, 2007 120 129
(b)SBA Communication, 12.00%, 2008 200 118
Satelites Mexicanos, S.A. de C.V., 10.125%, 2004 100 103
Teligent, Inc.
11.50%, 2007 50 52
(b) 11.50%, 2008 200 115
Winstar Communications
15.00%, 2007 20 26
11.00%, 2008 30 31
Winstar Equipment, 12.50% 2004 60 69
----------------------------------------------------------------------------
2,441
- -----------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--5.2%
American Standard, Inc., 9.25%, 2016 110 113
Airxcel, 11.00%, 2007 100 107
Brand Scaffold Services, Inc., 10.25%, 2008 100 103
Desa International, 9.875%, 2007 100 103
Kevco, 10.375%, 2007 105 109
Nortek, Inc., 9.875%, 2004 100 104
Terex Corp., 8.875%, 2008 100 100
Werner Holdings, 10.00%, 2007 100 106
----------------------------------------------------------------------------
845
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AND
SERVICES--9.6%
AFC Enterprises, Inc., 10.25%, 2007 100 105
(b) AMF Bowling World, 12.25%, 2006 125 101
Avondale Mills, 10.25%, 2006 84 90
Cinemark USA, Inc., 8.50%, 2008 100 101
Dyersburg Corp., 9.75%, 2007 100 104
Grupo Azucarero Mexico, S.A. de C.V., 11.50%,
2005 100 99
IMPAC Group, Inc., 10.125%, 2008 100 102
Imperial Home Decor Group Inc., 11.00%, 2007 175 103
Mastellone Hermonos, 11.75%, 2008 100 102
Perkins Finance, 10.125%, 2007 100 105
Pillowtex Corp, 9.00%, 2007 100 104
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Pinnacle Holdings, 10.00%, 2008 $ 200 $ 124
Purina Mills, Inc., 9.00%, 2010 100 103
(b)Sealy Mattress, 10.875%, 2007 150 99
Windy Hill Pet Food Company, Inc., 9.75%, 2007 100 107
----------------------------------------------------------------------------
1,549
- -----------------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH CARE--3.0%
CONMED Corp., 9.00%, 2008 100 101
Genesis Eldercare, 9.00%, 2007 70 72
Magellan Health Services, 9.00%, 2008 100 101
Paracelsus Healthcare, 10.00%, 2006 100 103
(b)Paragon Healthcare Networks, 10.50%, 2007 160 104
----------------------------------------------------------------------------
481
- -----------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES--9.4%
AEI Holdings, 10.00%, 2007 100 105
Bellweather Exploration Co., 10.875%, 2007 100 105
Benton Oil & Gas Co., 9.375%, 2007 100 100
Dailey International, 9.50%, 2008 100 101
Denbury Management, 9.00%, 2008 100 101
Espirito Santo Centrais Electricas S.A.,
10.00%, 2007 100 98
Mariner Energy, 10.50%, 2006 100 104
Michael Petroleum Corp., 11.50%, 2005 100 99
Pacalta Resources, Ltd., 10.75%, 2004 100 103
Parker Drilling Corp., 9.75%, 2006 100 106
Plains Resources, 10.25%, 2006 100 108
RAM Energy, 11.50%, 2008 100 100
Stone Energy Corp., 8.75%, 2007 100 102
(b)Universal Compress, 9.875%, 2008 300 187
----------------------------------------------------------------------------
1,519
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES,
HOME BUILDERS AND
REAL ESTATE--2.4%
Beazer Homes, 8.875%, 2008 100 100
Emergent Group, 10.75%, 2004 80 77
Engle Homes, Inc., 9.25%, 2008 50 51
Forecast Group, L.P., 11.375%, 2000 100 96
UDC Homes, 12.50%, 2000 70 71
----------------------------------------------------------------------------
395
- -----------------------------------------------------------------------------------------------------------------------
HOTELS AND GAMING--2.0%
Empress River Casino, 10.75%, 2002 100 108
Hard Rock Hotel, 9.25%, 2005 100 101
Harvey's Casino Resorts, 10.625%, 2006 100 112
----------------------------------------------------------------------------
321
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS
AND MINING--12.7%
Accuride, 9.25%, 2008 100 100
Alvey Systems, 11.375%, 2003 100 106
Centaur Mining, 11.00%, 2007 100 104
Columbus McKinnon, 8.50%, 2008 100 101
Day International Group, Inc.
11.125%, 2005 15 16
9.50%, 2008 100 102
Doe Run Co.
12.00%, 2003 50 51
11.25%, 2005 100 104
E-P Acquisition, Inc., 9.375%, 2008 50 51
Earle M. Jorgensen Co., 9.50%, 2005 100 100
Euramax International, PLC, 11.25%, 2006 100 110
JPS Automotive Products Corp., 11.125%, 2001 40 45
Metal USA, 8.625%, 2008 100 100
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Morris Material Holdings, 9.50%, 2008 $ 100 $ 100
NSM Steel
12.00%, 2006 60 57
12.25%, 2008 60 58
Neenah Corp., 11.125%, 2007 100 111
Prestolite Electric, 9.625%, 2008 100 102
Renco Metals, 10.875%, 2005 100 104
Scovill Fasteners, 11.25%, 2007 50 52
Venture Holdings
9.75%, 2004 70 71
9.50%, 2005 30 31
WCI Steel, Inc., 10.00%, 2004 100 106
Wells Aluminum Corp., 10.125%, 2005 64 69
Wheeling Pitt Corp., 9.25%, 2007 100 102
----------------------------------------------------------------------------
2,053
- -----------------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS
AND CONTAINERS--8.0%
AEP Industries Inc., 9.875%, 2007 100 105
Doman Industry, 9.25%, 2007 100 101
Gaylord Container Corp.
12.75%, 2005 10 11
9.75%, 2007 40 41
9.875%, 2008 100 100
Graham Packaging Co.
8.75%, 2008 30 30
9.25%, 2008 30 30
10.75%, 2009 60 38
National Fiberstock Corp., 11.625%, 2002 100 107
Norampac, 9.50%, 2008 100 104
Plainwell Inc., 11.00%, 2008 100 103
Printpack, Inc., 10.625%, 2006 100 109
Riverwood International
10.25%, 2006 30 31
10.875%, 2008 65 65
(b)SF Holdings Group, Inc., 12.75%, 2008 200 112
Stone Container Corp.
9.875%, 2001 65 66
11.50%, 2006 40 43
U.S. Can Corp., 10.125%, 2006 100 106
----------------------------------------------------------------------------
1,302
- -----------------------------------------------------------------------------------------------------------------------
RETAILING--5.7%
Advantica Restaurant Co., 11.25%, 2008 100 107
Cole National Group
9.875%, 2006 50 54
8.625%, 2007 50 51
Galey & Lord, 9.125%, 2008 100 101
Hedstrom Corp., 10.00%, 2007 100 103
J. Crew Group
10.375%, 2007 50 47
(b) 13.125%, 2008 50 25
Krystal Co., 10.25%, 2007 100 104
Pathmark Stores, 9.625%, 2003 110 110
Petro Stopping Centers, 10.50%, 2007 100 108
TravelCenters of America, Inc., 10.25%, 2007 100 107
----------------------------------------------------------------------------
917
</TABLE>
23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--1.3%
Axiohm Transaction Solutions, Inc.,
9.75%, 2007 $ 100 $ 102
Viasystems, Inc., 9.75%, 2007 100 105
------------------------------------------------------------------------------
207
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3%
TFM, S.A. de C.V., 10.25%, 2007 100 103
Trans World Airlines, Inc., 11.375%, 2006 100 101
------------------------------------------------------------------------------
204
------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $14,373) 14,619
------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED
STOCKS--6.3%
Crown American Realty Trust, preferred 1,900shs. 102
Day International Exchange, PIK, preferred 100 103
Dobson Communication, PIK, preferred 60 66
E-P Acquisition, Inc., preferred 20 116
(c)Gaylord Container Corp. 20,000 149
Nextel, PIK, preferred 83 87
Nextlink, convertible preferred 100 5
SF Holdings Group, Inc., PIK, preferred 10 92
Standard & Poor's Depository Receipts 1,000 110
21st Century Telecom Group, Inc., preferred 50 56
Teligent, Inc. 2,000 61
Waxman Industries Inc. 18,000 72
------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--6.3%
(Cost: $992) 1,019
------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $15,664) 15,937
------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.6% 251
------------------------------------------------------------------------------
NET ASSETS--100% $16,188
------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Variable rate security. Rate shown is the effective rate on March 31, 1998
and date shown represents the final maturity of the obligation.
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(c) Non-income producing security.
Based on the cost of investments of $15,664,000 for federal income tax purposes
at March 31, 1998, the gross unrealized appreciation was $299,000, the gross
unrealized depreciation was $26,000 and the net unrealized appreciation on
investments was $273,000.
See accompanying Notes to Financial Statements.
24
<PAGE> 25
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH YIELD
HIGH YIELD OPPORTUNITY
FUND FUND
<S> <C> <C>
- -----------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------
Investments, at value (Cost: $5,343,698 and $15,664,
respectively) $5,566,215 15,937
- -----------------------------------------------------------------------------------------
Cash 4,099 436
- -----------------------------------------------------------------------------------------
Receivable for:
Investments sold 100,885 954
- -----------------------------------------------------------------------------------------
Fund shares sold 10,115 157
- -----------------------------------------------------------------------------------------
Interest 117,700 277
- -----------------------------------------------------------------------------------------
TOTAL ASSETS 5,799,014 17,761
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------------------------
Payable for:
Investments purchased 137,601 1,538
- -----------------------------------------------------------------------------------------
Fund shares redeemed 2,473 --
- -----------------------------------------------------------------------------------------
Management fee 2,417 8
- -----------------------------------------------------------------------------------------
Administrative services fee 1,074 2
- -----------------------------------------------------------------------------------------
Distribution services fee 1,055 5
- -----------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 948 9
- -----------------------------------------------------------------------------------------
Trustees' fees and other 142 11
- -----------------------------------------------------------------------------------------
Total liabilities 145,710 1,573
- -----------------------------------------------------------------------------------------
NET ASSETS $5,653,304 16,188
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------------------------
Paid-in capital $5,416,878 15,635
- -----------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (80,719) 169
- -----------------------------------------------------------------------------------------
Net unrealized appreciation on investments 222,517 273
- -----------------------------------------------------------------------------------------
Undistributed net investment income 94,628 111
- -----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $5,653,304 16,188
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -----------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $3,906,418 7,779
- -----------------------------------------------------------------------------------------
Shares outstanding 456,804 778
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $8.55 10.00
- -----------------------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
4.71% of net asset value or 4.50% of offering price) $8.95 10.47
- -----------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $1,523,388 7,269
- -----------------------------------------------------------------------------------------
Shares outstanding 178,317 727
- -----------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $8.54 10.00
- -----------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $188,114 1,140
- -----------------------------------------------------------------------------------------
Shares outstanding 21,957 114
- -----------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $8.57 10.00
- -----------------------------------------------------------------------------------------
CLASS I SHARES
Net assets applicable to shares outstanding $35,384 --
- -----------------------------------------------------------------------------------------
Shares outstanding 4,138 --
- -----------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $8.55 --
- -----------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
HIGH YIELD
HIGH YIELD OPPORTUNITY
FUND FUND(a)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------
Interest income $259,499 397
- -------------------------------------------------------------------------------------------------
Dividends 2,038 --
- -------------------------------------------------------------------------------------------------
Total investment income 261,537 397
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 13,892 28
- -------------------------------------------------------------------------------------------------
Administrative services fee 5,866 8
- -------------------------------------------------------------------------------------------------
Distribution services fee 5,940 14
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 3,964 13
- -------------------------------------------------------------------------------------------------
Interest expense -- 10
- -------------------------------------------------------------------------------------------------
Professional fees 52 --
- -------------------------------------------------------------------------------------------------
Reports to shareholders 479 7
- -------------------------------------------------------------------------------------------------
Trustees' fees and other 312 7
- -------------------------------------------------------------------------------------------------
Total expenses 30,505 87
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 231,032 310
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------
Net realized gain on sales of investments 71,516 187
- -------------------------------------------------------------------------------------------------
Net realized loss from futures transactions (524) --
- -------------------------------------------------------------------------------------------------
Net realized gain 70,992 187
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (31,943) 273
- -------------------------------------------------------------------------------------------------
Net gain on investments 39,049 460
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $270,081 770
- -------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended March 31, 1998 (unaudited) and the year ended September
30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH YIELD
HIGH YIELD FUND OPPORTUNITY FUND(a)
----------------------------------- -------------------
1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------------------------------
Net investment income $ 231,032 396,225 310
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 70,992 (1,945) 187
- ------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (31,943) 178,138 273
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 270,081 572,418 770
- ------------------------------------------------------------------------------------------------------------------
Net equalization credits 11,651 12,110 89
- ------------------------------------------------------------------------------------------------------------------
Distribution from net investment income (238,954) (416,460) (288)
- ------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- (18)
- ------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (238,954) (416,460) (306)
- ------------------------------------------------------------------------------------------------------------------
Net increase from capital share transactions 671,224 674,295 15,535
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 714,002 842,363 16,088
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Beginning of period 4,939,302 4,096,939 100
- ------------------------------------------------------------------------------------------------------------------
END OF PERIOD $5,653,304 4,939,302 16,188
- ------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME AT END OF
PERIOD $ 94,628 90,899 111
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The High Yield Opportunity Fund commenced operations on October 1, 1997.
See accompanying Notes to Financial Statements.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND The Kemper High Yield Series (the Trust) is an
open-end diversified management investment company
comprised of Kemper High Yield Fund (High Yield
Fund) and Kemper High Yield Opportunity Fund (High
Yield Opportunity Fund). The Trust is organized as
a business trust under the laws of Massachusetts.
The High Yield Opportunity Fund commenced
operations on October 1, 1997.
Each Fund offers four classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares 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 each Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
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. 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 for
each Fund is determined as of the earlier of 3:00
p.m. Chicago time or the
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
close of the Exchange. The net asset value per
share is determined separately for each class by
dividing each Fund's net assets attributable to
that class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES. Each Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended March 31, 1998. For High Yield Fund,
the accumulated net realized loss on sales of
investments for federal income tax purposes at
March 31, 1998, amounting to approximately
$80,662,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 1998 through 2004.
DIVIDENDS TO SHAREHOLDERS. Each 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
AFFILIATES INVESTMENT MANAGER COMBINATION. Effective December
31, 1997, Zurich Insurance Company, the parent of
Zurich Kemper Investments, Inc. (ZKI), acquired a
majority interest in Scudder, Stevens & Clark, Inc.
(Scudder), another major investment manager. As a
result of this transaction, the operations of ZKI
were combined with Scudder to form a new global
investment organization named Scudder Kemper
Investments, Inc. (Scudder Kemper). The transaction
resulted in the termination of the Funds'
investment management agreement with ZKI, however,
a new investment management agreement between the
Funds and Scudder Kemper was approved by the Funds'
Board of Trustees and by the Funds' shareholders.
The new management agreement, which was effective
December 31, 1997, is the same in all material
respects as the previous management agreement,
except that Scudder Kemper is the new investment
adviser to the Funds. In addition, the names of the
Funds' principal underwriter and shareholder
service agent were changed to Kemper Distributors,
Inc. (KDI) and Kemper Service Company (KSvC),
respectively.
MANAGEMENT AGREEMENT. The Funds have a management
agreement with Scudder Kemper. The High Yield Fund
pays a 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 High Yield Fund incurred a
management fee of $13,892,000 for the six months
ended March 31, 1998.
The High Yield Opportunity Fund pays a management
fee at an annual rate of .65% of the first $250
million of average daily net assets declining to
.49% of average daily net assets in excess of $12.5
billion. The High Yield Opportunity Fund incurred a
management fee of $28,000 for the six months ended
March 31, 1998.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
Each Fund has an underwriting and distribution
services agreement with KDI. Underwriting
commissions
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
paid in connection with the distribution of Class A
shares for the six months ended March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY KDI
COMMISSIONS ----------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
High Yield Fund $847,000 6,163,000 92,000
High Yield Opportunity Fund 10,000 80,000 --
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees, CDSC
and commissions related to Class B and Class C
shares for the six months ended March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO FIRMS
------------------ ----------------------
<S> <C> <C>
High Yield Fund $6,915,000 10,513,000
High Yield Opportunity Fund 14,000 270,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. Each Fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, each
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
for the six months ended March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY THE ----------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
High Yield Fund $5,866,000 6,051,000 32,000
High Yield Opportunity Fund 8,000 25,000 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds' transfer agent,
KSvC is the shareholder service agent of each Fund.
Under the agreement, for the six months ended March
31, 1998, KSvC received shareholder services fees
as follows:
High Yield Fund $2,872,000
High Yield Opportunity Fund 5,000
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the six months ended March 31,
1998, the Funds made no payments to their officers
and incurred trustees' fees of $24,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1998, investment
transactions (excluding short term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
HIGH YIELD HIGH YIELD
FUND OPPORTUNITY FUND
---------- -----------------
<S> <C> <C>
Purchases $4,286,058 30,354
Proceeds from sales 3,659,827 14,877
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 BORROWING The High Yield Opportunity Fund may borrow money
for leverage purposes up to a maximum of 20% of the
total assets of the Fund, including the amount
borrowed. During the six months ended March 31,
1998, the maximum borrowings were $1,000,000.
Interest paid on the amount borrowed was based on
an annual rate of 6.175%. There were no amounts
outstanding as of March 31, 1998.
- --------------------------------------------------------------------------------
6 CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997
-------------------- ------------------------
HIGH YIELD FUND SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 98,690 $ 815,116 190,692 $ 1,527,552
------------------------------------------------------------------------------
Class B 54,183 457,865 109,720 900,384
------------------------------------------------------------------------------
Class C 10,449 92,481 16,667 137,204
------------------------------------------------------------------------------
Class I 8,158 55,461 12,114 100,487
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 12,569 106,511 22,581 187,057
------------------------------------------------------------------------------
Class B 4,364 36,963 7,931 65,657
------------------------------------------------------------------------------
Class C 575 761 686 5,708
------------------------------------------------------------------------------
Class I 222 1,880 367 3,044
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (74,791) (619,481) (175,031) (1,410,231)
------------------------------------------------------------------------------
Class B (22,340) (187,585) (80,748) (661,407)
------------------------------------------------------------------------------
Class C (3,756) (31,651) (9,742) (80,133)
------------------------------------------------------------------------------
Class I (8,305) (57,097) (12,153) (101,027)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 12,947 110,059 15,517 129,053
------------------------------------------------------------------------------
Class B (12,963) (110,059) (15,533) (129,053)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 671,224 $ 674,295
------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1998
----------------------
HIGH YIELD OPPORTUNITY FUND SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
---------------------------------------------------------------------------
Class A 841 $ 8,116
---------------------------------------------------------------------------
Class B 855 8,284
---------------------------------------------------------------------------
Class C 119 1,166
---------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
---------------------------------------------------------------------------
Class A 13 131
---------------------------------------------------------------------------
Class B 9 90
---------------------------------------------------------------------------
Class C 1 14
---------------------------------------------------------------------------
SHARES REDEEMED
---------------------------------------------------------------------------
Class A (81) (792)
---------------------------------------------------------------------------
Class B (140) (1,374)
---------------------------------------------------------------------------
Class C (10) (100)
---------------------------------------------------------------------------
CONVERSION OF SHARES
---------------------------------------------------------------------------
Class A 1 12
---------------------------------------------------------------------------
Class B (1) (12)
---------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 15,535
---------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, --------------------------------------------------
HIGH YIELD FUND 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.50 8.23 8.01 7.74 8.12
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .38 .76 .76 .83 .73
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .06 .31 .23 .20 (.35)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .44 1.07 .99 1.03 .38
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income .39 .80 .77 .76 .76
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.55 8.50 8.23 8.01 7.74
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.31% 13.69 13.00 14.10 4.64
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses .88% .88 .88 .90 .86
- -------------------------------------------------------------------------------------------------------------------------
Net investment income 8.95% 9.18 9.45 10.74 9.22
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS MAY 31
ENDED YEAR ENDED SEPTEMBER 30, TO
MARCH 31, --------------------------- SEPTEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.49 8.22 8.00 7.73 7.96
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .34 .69 .69 .76 .23
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .06 .31 .23 .20 (.23)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .40 1.00 .92 .96 --
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income .35 .73 .70 .69 .23
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.54 8.49 8.22 8.00 7.73
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.86% 12.72 12.02 13.09 --
- -------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------------------------
Expenses 1.75% 1.76 1.77 1.77 1.80
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 8.08% 8.30 8.56 9.87 8.70
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS C
------------------------------------------------------
SIX MONTHS YEAR ENDED SEPTEMBER MAY 31
ENDED 30, TO
MARCH 31, --------------------- SEPTEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.52 8.24 8.02 7.75 7.96
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .35 .70 .69 .77 .25
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .06 .31 .23 .20 (.23)
- -------------------------------------------------------------------------------------------------
Total from investment operations .41 1.01 .92 .97 .02
- -------------------------------------------------------------------------------------------------
Less distribution from net investment
income .36 .73 .70 .70 .23
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $8.57 8.52 8.24 8.02 7.75
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.87% 12.88 12.06 13.13 .27
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 1.71% 1.71 1.71 1.71 1.74
- -------------------------------------------------------------------------------------------------
Net investment income 8.12% 8.35 8.62 9.93 8.75
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS I
------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 29, 1994
ENDED SEPTEMBER 30, TO
MARCH 31, ------------- SEPTEMBER 30,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.50 8.23 8.01 7.55
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .39 .78 .78 .66
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain .06 .31 .23 .39
- ---------------------------------------------------------------------------------------------
Total from investment operations .45 1.09 1.01 1.05
- ---------------------------------------------------------------------------------------------
Less distribution from net investment
income .40 .82 .79 .59
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $8.55 8.50 8.23 8.01
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.46% 13.96 13.32 14.37
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses .60% .62 .61 .61
- ---------------------------------------------------------------------------------------------
Net investment income 9.23% 9.44 9.72 10.70
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $5,653,304 4,939,302 4,096,939 3,527,954 3,152,029
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 94% 91 102 99 93
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR BOTH FUNDS: Total return does not reflect the effect of any sales
charges. Data for the period ended March 31, 1998 is unaudited.
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM OCTOBER 1, 1997 (COMMENCEMENT OF OPERATIONS) TO MARCH 31,
1998
<TABLE>
<CAPTION>
HIGH YIELD OPPORTUNITY FUND
- ------------------------------------------------ ------------------- ------------------- -------------------
PER SHARE OPERATING PERFORMANCE CLASS A CLASS B CLASS C
- ------------------------------------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.50 9.50 9.50
- ------------------------------------------------ ------------------- ------------------- -------------------
Income from investment operations:
Net investment income .36 .32 .32
- ------------------------------------------------ ------------------- ------------------- -------------------
Net realized and unrealized gain .46 .46 .46
- ------------------------------------------------ ------------------- ------------------- -------------------
Total from investment operations .82 .78 .78
- ------------------------------------------------ ------------------- ------------------- -------------------
Less dividends:
Distribution from net investment income .29 .25 .25
- ------------------------------------------------ ------------------- ------------------- -------------------
Distribution from net realized gain .03 .03 .03
- ------------------------------------------------ ------------------- ------------------- -------------------
Total dividends .32 .28 .28
- ------------------------------------------------ ------------------- ------------------- -------------------
Net asset value, end of period $10.00 10.00 10.00
- ------------------------------------------------ ------------------ ------------------ ------------------
TOTAL RETURN (NOT ANNUALIZED) 8.74% 8.34% 8.35%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------ ------------------- ------------------- -------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C>
Expenses 1.44% 2.28 2.25
- ------------------------------------------------ ------------------ ------------------ ------------------
Net investment income 7.99% 7.15 7.18
- ------------------------------------------------ ------------------ ------------------ ------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31,
1998
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Net assets at end of period (in thousands) $16,188
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 309%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
35
NOTES
<PAGE> 36
TRUSTEES & OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY ROBERT C. PECK, JR.
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA HARRY E. RESIS, JR.
Trustee Vice President, Secretary Vice President
and Treasurer
LEWIS A. BURNHAM LINDA J. WONDRACK
Trustee JERALD K. HARTMAN Vice President
Vice President
DONALD L. DUNAWAY JOHN R. HEBBLE
Trustee THOMAS W. LITTAUER Assistant Treasurer
Vice President
ROBERT B. HOFFMAN MAUREEN E. KANE
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
DONALD R. JONES CAROLINE PEARSON
Trustee MICHAEL A. MCNAMARA Assistant Secretary
Vice President
SHIRLEY D. PETERSON ELIZABETH C. WERTH
Trustee KATHRYN L. QUIRK Assistant Secretary
Vice President
WILLIAM P. SOMMERS
Trustee
EDMOND D. VILLANI
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER 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
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[KEMPER FUNDS LOGO]
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
Printed in the U.S.A. on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Fixed Income Fund prospectus.
KHYFS - 3 (5/98) 1047040
