<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[MORNINGSTAR RATINGS LOGO]
THE HIGHEST LEVEL OF CURRENT INCOME WITH CAPITAL GAIN AS A
SECOND OBJECTIVE
KEMPER HIGH YIELD FUND
"...Our largest sector weighting, media and telecommunications, did very well in
the rally. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
18
FINANCIAL STATEMENTS
20
NOTES TO FINANCIAL
STATEMENTS
24
FINANCIAL HIGHLIGHTS
26
SHAREHOLDERS' MEETING
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 6.68%
CLASS B 6.24%
CLASS C 6.25%
LIPPER HIGH CURRENT YIELD FUNDS CATEGORY AVERAGE *5.74%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE. SO THAT SHARES, WHEN
REDEEMED, MAY BE MORE OR LESS THAN ORIGINAL COST.
* LIPPER ANALYTICAL SERVICES, INC. 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.
THE FUND MAY INVEST IN LOWER-RATED AND NON-RATED SECURITIES WHICH PRESENT
GREATER RISK OF LOSS TO PRINCIPAL AND INTEREST THAN HIGHER-RATED SECURITIES.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH YIELD FUND
CLASS A $7.79 $7.68
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS B $7.78 $7.67
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND
CLASS C $7.80 $7.69
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER HIGH YIELD FUND RANKINGS
AS OF 3/31/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE LIPPER CURRENT HIGH YIELD FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #93 of 266 funds #116 of 266 funds #120 of 266 funds
- --------------------------------------------------------------------------------
5-YEAR #30 of 93 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #13 of 54 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #3 of 26 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #3 of 19 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MARCH 31, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTH INCOME: $.3900 $.3576 $.3594
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $.0635 $.0584 $.0587
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION
RATE+: 9.78% 9.01% 9.03%
- --------------------------------------------------------------------------------
SEC YIELD+: 9.27% 8.92% 8.98%
- --------------------------------------------------------------------------------
</TABLE>
+ CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS
AN ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON MARCH 31, 1999. DISTRIBUTION
RATE SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE MEASURE OF
PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE EARNED OVER THE
MONTH ENDED MARCH 31, 1999, 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.
YIELDS AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
TERMS TO KNOW
YOUR FUND'S STYLE
- --------------------------------------------------------------------------------
MORNINGSTAR INCOME STYLE BOX
- --------------------------------------------------------------------------------
[MORNINGSTAR INCOME STYLE BOX]
SOURCE: Data provided by Morningstar, Inc., Chicago, IL (312) 696-6000. The
Income Style Box placement is based on a fund's average effective maturity or
duration and the average credit rating of the bond portfolio.
THE STYLE BOX REPRESENTS A SNAPSHOT OF A FUND'S PORTFOLIO ON A SINGLE DAY.
PLEASE NOTE THAT STYLE BOXES DO NOT REPRESENT AN EXACT ASSESSMENT OF RISK AND DO
NOT REPRESENT FUTURE PERFORMANCE. THE FUND'S PORTFOLIO CHANGES FROM DAY-TO-DAY.
A LONGER-TERM VIEW IS REPRESENTED BY THE FUND'S MORNINGSTAR CATEGORY, WHICH IS
BASED ON ITS ACTUAL INVESTMENT STYLE AS MEASURED BY ITS UNDERLYING PORTFOLIO
HOLDINGS OVER THE PAST THREE-YEARS. CATEGORY PLACEMENT OF NEW FUNDS ARE
ESTIMATED. MORNINGSTAR HAS PLACED KEMPER HIGH YIELD FUND IN THE HIGH YIELD BOND
CATEGORY. PLEASE CONSULT THE PROSPECTUS FOR A DESCRIPTION OF INVESTMENT
POLICIES.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Throughout April, investor enthusiasm drove the market to its second milestone
in a year -- the Dow Jones Industrial Average rose to 11,000 just a month after
it broke 10,000 for the first time. But those gains don't tell the whole story
- -- investors in the first four months of the year have endured significant
volatility. What drove the climb to 11,000 and what, at the same time, has led
to investor anxiety?
Driving the market, in part, was consumer confidence. In the first quarter of
1999, consumer spending surged 6.7 percent -- the largest rise in 11 years. The
market's rise seems to have buoyed consumer confidence, which rose for the sixth
consecutive month in April. And, the resilience of the economy has bolstered
more optimistic expectations for the next six months.
Inspiring consumer confidence also were the lowest levels of inflation in a
generation. As measured by the consumer price index (CPI), inflation has been
between 1 1/2 and 2 percent, compared to approximately 4 percent in the
beginning of the 1990s and 10-12 percent in the beginning of the 1980s. Still,
inflation worries have been seeping into the market. The growing conviction that
Asian and Latin American economies are recovering is raising commodity prices,
particularly oil. The price of West Texas Intermediate oil surged from less than
$12 in February to almost $19 in early May. That alone almost guarantees a rise
in the "headline" inflation rate this year, which is the rate of inflation as
measured by the entire CPI. But it's important to note that the Federal Reserve
Board looks primarily at the core inflation rate, which is the CPI minus food
and energy -- and the core inflation rate looks as if it will remain low at
about 2 percent this year.
Also contributing to consumer confidence, short-term and long-term interest
rates remained low over the first quarter, and can be expected to remain so.
Today's Fed policy is reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. Consequently, we expect no changes
in short-term interest rates during May and June, and there's only a small
chance that the Fed will raise interest rates in the second half of the year.
Moreover, the federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially from households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
Such a positive environment is exactly what poses risk for investors, and is
key to understanding recent volatility in the market. A stronger economy has the
potential to feed inflation fears and drive up interest rates. Events on April
30 illustrated the domino effect of investors reacting to positive economic
news, which they consider troubling at this point, more than eight years into
the economic expansion. The steady stream of positive economy's news prompted a
sell-off in the markets based on fears that the strong pace of economic growth
will eventually lead to higher inflation. The benchmark 30-year Treasury bond
fell nearly 2 points (close to $20 for a bond with a $1,000 face amount) as the
yield shot up to 5.657 percent. It was the biggest one-day plunge in bonds in
two months. Bonds, in turn, pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggested continued growth as we moved into the second
quarter of 1999. For example, the gross domestic product (GDP), the value of all
goods and services produced in the U.S., rose at an annual rate of 4.5 percent
in the first quarter, following a tremendous fourth-quarter surge of 6 percent.
This is very much in line with what we've grown accustomed to over the past year
- -- over the four quarters of 1998, the U.S. economy expanded by 4.3 percent.
Some people aren't surprised at all by strong GDP growth that once would have
alarmed them. That's partially because we've grown accustomed to a strong
economy in the past three or four years. But it's also because we've been able
to absorb growth without driving up inflation. That's important for investors.
If prices were rising as the economy was growing, the Fed would most likely
raise short-term interest rates, which would change the financial market
outlook. But again, that isn't happening right now.
However, we do see some vulnerability. Trade is a weak spot in the economy
right now. Exports of U.S. goods and services dropped in the first quarter while
imports soared. This reflects the fact that the U.S. is one of the few countries
financially fit enough to buy goods produced elsewhere in the world. But for as
long as less vibrant international economies are unable to buy U.S. goods, the
profitability of U.S. companies trying to export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which will
most likely lead to the central bank lowering interest rates in order to boost
domestic spending. In many countries in Europe, there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down,
mortgages are reduced and homeowners
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]
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF MARCH 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
spend money elsewhere. This has a huge impact on consumer spending, and will
help European equities in the long term. Additionally, the situation in Japan
remains unchanged. And, problems in the emerging markets haven't had the
negative impact many people expected -- both the Mexican and Brazilian stock
markets have actually risen in the past two months.
But don't forget that international crises have the potential to affect the
U.S. markets drastically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current economic situation and behave
as if no risk exists. But when you see the market soaring and are tempted to
jump in, note that the bull market grew to records on the strength of just a few
dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation -- these are
particularly older investors who are accustomed to inflation accompanying
growth. But we currently just don't see the pressure toward inflation at all, so
there's no reason to want a slowdown. The best approach now, as in any market,
is to diversify and invest for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF MAY 5, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR. HE IS CO-LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND AND IS
RESPONSIBLE FOR THE TRADING ACTIVITY FOR KEMPER'S THREE HIGH-YIELD FUNDS.
[MCNAMARA PHOTO]
MICHAEL MCNAMARA JOINED THE ORGANIZATION IN 1972 AND IS A MANAGING DIRECTOR. HE
IS CO-LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND AND DIRECTS ALL
FIXED-INCOME RESEARCH AT SCUDDER KEMPER.
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.
SINCE THE HIGH-YIELD MARKET HIT A LOW POINT AT THE BEGINNING OF KEMPER HIGH
YIELD FUND'S REPORTING PERIOD, THE MARKET HAS RALLIED, BENEFITING FROM A STRONG
ECONOMY, BENIGN INFLATION, BUT MORE IMPORTANTLY, SPURRED BY CONFIDENCE RESULTING
FROM A SERIES OF FEDERAL RESERVE BOARD RATE CUTS IN THE FALL OF 1998. PORTFOLIO
MANAGERS HARRY RESIS AND MICHAEL MCNAMARA TAKE THIS OPPORTUNITY TO GIVE THEIR
INSIGHT TO THE HIGH-YIELD MARKET OCTOBER 1, 1998, THROUGH MARCH 31, 1999, AND
EXPLAIN HOW THEY MANAGED THE FUND TO OUTPERFORM ITS PEERS (UNADJUSTED FOR SALES
CHARGES).
Q PLEASE PUT THE SIX-MONTH PERIOD IN CONTEXT OF THE GENERAL ECONOMY FOR OUR
SHAREHOLDERS.
A There's a rather clear picture to paint for these six months because of
certain events that defined its beginning. We're talking about the Federal
Reserve Board (the Fed) cutting rates three times in the second half of 1998 --
September 29, October 15 and November 17. The high-yield market bottomed out
with the October 15 easing (see Terms to Know), and has rallied ever since.
Q WHY WOULD THE FED'S RATE CUTS SPUR A RALLY?
A When the Fed lowers the Federal Fund's rate (see Terms to Know), it is
making money less expensive to borrow. This affects business and consumers
similarly. For instance, a cut in the Fed funds rate typically trickles down to
lower mortgage rates, so more people are likely to purchase homes because
borrowing the money to do so is not as expensive. Similarly, corporations are
more likely to borrow money to expand their businesses. Both of these actions
have far-reaching effects on the economy. When you buy a new house, that helps
the housing business, which positively affects many other industries. A
corporation that expands its business employs more people or invests in new
buildings, technology and so forth, boosting those industries. The bottomline is
the simple act of cutting the borrowing rate, the Fed funds rate, creates
confidence in the markets.
Q BUT HOW DOES THAT AFFECT THE HIGH-YIELD MARKET?
A A stronger economy, one in which consumers have confidence, is a signal
for investors. It signals that the risk they are taking in investing in a
high-yield bond, as opposed to a government bond, may be less than it would be
if the economy were on shaky ground. The rally validated the belief that the
economy was not going into a recession. Investors tend to be willing to take on
more risk in such an environment.
The strength of the economy also hurt the Treasury market, which in turn,
generally means an improvement in the other areas of the bond market, both
high-yield bonds and investment-grade corporate bonds. Back in August 1998, it
looked like we'd seen the worst of the Asian financial crisis, which began in
July 1997, but we were facing a new and unexpected financial crisis in Russia.
Throughout those two
5
<PAGE> 6
PERFORMANCE UPDATE
events, the high-yield market struggled while the U.S. Treasury market soared as
investors worldwide sought safety in government bonds. This phenomenon is called
a "flight to quality." For the past six months, we've been witnessing the
unwinding of the flight to quality as our domestic economy has survived the
global crises. Treasury prices, therefore, have dropped and their yields risen.
In such an environment, high-yield bonds are attractive.
Q THE HIGH-YIELD MARKET WAS CHALLENGED DURING THE ASIAN AND RUSSIAN CRISES.
WHY DID IT NOT REACT THE SAME TO THE BRAZILIAN FINANCIAL CRISES THAT HIT IN
MID-JANUARY?
A Crisis can be good if you learn from it. We and the market learned,
particularly from Russia. The market reacted rationally in January to the
Brazilian problems.
Q WHAT AFFECT HAS THE CONTINUING CONFLICT IN KOSOVO HAD ON THE MARKETS?
A What hurts the markets are the unknowns. What is known is usually a
non-event. The conflict in Kosovo has been brewing for a long time, and we don't
expect it to have much effect on the markets.
Q MOVING ONTO THE STRONG PERFORMANCE OF KEMPER HIGH YIELD FUND FOR THE
REPORTING PERIOD OCTOBER 1, 1998 THROUGH MARCH 31, 1999, THE FUND RETURNED 6.68
PERCENT (CLASS A SHARES, UNADJUSTED FOR ANY SALES CHARGE) AGAINST ITS LIPPER
PEER GROUP AVERAGE OF 5.74 PERCENT. TO WHAT DO YOU ATTRIBUTE THE OUTPERFORMANCE?
A Our largest sector weighting, media and telecommunications, did very well
in the rally. Merger and acquisition activity among these companies spurred the
performance of this sector.
Another sector that did well was cyclicals, in which the fund has a heavy
weighting. Cyclical bonds are those within industries whose earnings tend to
rise quickly when the economy strengthens and fall quickly when the economy
weakens. Examples of cyclical industries 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.
We also began to cut back our holdings in health-care companies because of a
negative outlook for Medicare and price declines among nursing home issuers.
Q WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD SECTOR AND FOR KEMPER HIGH YIELD
FUND?
A Our strategy remains the same. We continue to concentrate the fund in the
'B' rated issues, which for the first quarter of 1999, the second half of the
fund's reporting period, had a cumulative total return of 9.64 percent versus
the higher-tier sector, the 'BB' quality issues, which returned 5.37 percent,
according to Donaldson, Lufkin & Jenrette (footnote or endnote: page 54,
LEVERAGED FINANCE RESEARCH dated: week ending April 8, 1999).
We'll continue to increase our paper and forest product holdings and consumer
durables as the outlook for these sectors is good considering the strength of
the economy. Meanwhile, we expect to keep our homebuilders weighting equal to
that of the high-yield industry.
In general, we're optimistic about the high-yield market. Inflation continues
to be benign, first quarter 1999 corporate earnings were strong, and we expect
that to continue.
6
<PAGE> 7
TERMS TO KNOW
AVERAGE ANNUAL TOTAL RETURN A fund's total return expressed as an annualized
average, adjusted for the maximum sales charge for Class A shares or the
applicable contingent deferred sales charge in effect at the end of the period
for Class B and C shares.
BOND RALLY A sharp, short-lived rise in bond values after a period of either
little movement or falling values.
CYCLICAL ISSUES 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.
EASE Occurs when the Federal Reserve Board of Governors changes monetary policy
by decreasing the federal funds rate.
FEDERAL FUNDS (Fed funds) Commercial banks are required to keep these funds on
deposit at the Federal Reserve Bank in their district. In order to meet these
reserve requirements, occasionally commercial banks need to borrow funds. These
funds are borrowed from banks that have an excess of the required amount on hand
in what is called the "Fed funds market." The interest rate on these loans is
called the "Fed funds rate" and is the key money market rate that influences all
other short-term rates.
FEDERAL FUNDS RATE The interest rate banks charge each other for overnight loans
that are needed to meet reserve requirements. Often considered the most
sensitive indicator of the direction of interest rates.
HIGH-YIELD BONDS 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.
U.S. TREASURIES These debt securities are issued by the U.S. Treasury and
include Treasury bills, Treasury bonds and Treasury notes. They are considered
the safest of all securities. Their safety rests in the power of the U.S.
government to obtain tax revenues to repay its obligations, and in its
historical record of always having done so.
7
<PAGE> 8
PORTFOLIO STATISTICS
KEMPER HIGH YIELD FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 3/31/99 ON 9/30/98
- ---------------------------------------------------------------------------
<S> <C> <C>
BONDS 92% 93%
- ----------------------------------------------------------------------------
CASH EQUIVALENTS 1 3
- ----------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 2 2
- ----------------------------------------------------------------------------
U.S. TREASURIES 5 2
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
QUALITY ON 3/31/99 ON 9/30/98
- ----------------------------------------------------------------------------
<S> <C> <C>
AAA 5% 2%
- ----------------------------------------------------------------------------
BB 13 11
- ----------------------------------------------------------------------------
B 70 74
- ----------------------------------------------------------------------------
OTHER 11 11
- ----------------------------------------------------------------------------
NOT RATED 1 2
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
YEARS TO MATURITY ON 3/31/99 ON 9/30/98
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS 1% 3%
- ----------------------------------------------------------------------------
1-10 95 90
- ----------------------------------------------------------------------------
11-20 4 5
- ----------------------------------------------------------------------------
21+ YEARS -- 2
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH YIELD FUND
Portfolio of Investments at March 31, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
GOVERNMENT OBLIGATIONS--5.0% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS
U.S. Treasury bonds, 15.75%, 2001
(Cost: $268,177) $ 212,000 $ 266,490
-------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--90.8%
BASIC INDUSTRIES--14.2%
AK Steel Corp., 10.75%, 2004 14,110 14,674
Allied Waste Industries
7.625%, 2006 17,500 16,975
7.875%, 2009 15,000 14,550
Atlantis Group, Inc., 11.00%, 2003 25,355 25,672
Bar Technologies,
13.50%, with warrants, 2001 16,335 17,667
California Steel Corp., 8.50%, 2009 4,620 4,666
Dimac Corp., 12.50%, 2008 21,510 18,284
Doman Industries, Ltd.
8.75%, 2004 9,010 5,857
9.25%, 2007 8,740 5,244
Euramax International, PLC, 11.25%, 2006 19,265 19,987
Gaylord Container Corp.
9.75%, 2007 19,980 19,431
9.875%, 2008 27,535 24,231
Golden Northeast Aluminum, Inc., 12.00%,
2006 16,020 16,100
GS Technologies
12.00%, 2004 5,875 4,583
12.25%, 2005 8,970 6,907
Hines Horticulture, Inc., 11.75%, 2005 12,183 13,219
Huntsman Polymer Corp., 11.75%, 2004 36,635 39,016
Jorgensen (Earl M) Co., 9.50%, 2005 5,700 5,187
Metal Management, Inc., 10.00%, 2008 12,070 7,846
Metals USA, Inc., 8.625%, 2008 18,160 17,615
Millar Western Forest Products, Ltd.,
9.875%, 2008 18,470 16,438
MMI Products, Inc., 11.25%, 2007 16,730 17,776
Neenah Corp., 11.125%, 2007 15,040 15,867
NL Industries, Inc., 11.75%, 2003 38,877 41,210
Norampac, Inc., 9.50%, 2008 22,870 23,670
Packaging Corporation of America, 9.625%,
2009 11,740 11,740
Pen Holdings, Inc., 9.875%, 2008 14,980 15,429
Pindo Deli Finance Mauritius, Ltd.,
10.75%, 2007 810 425
Plainwell, Inc., 11.00%, 2008 18,460 14,399
Renco Metals, Inc., 11.50%, 2003 14,945 15,319
Renco Steel Holdings Co., 10.875%, 2005 32,220 28,031
Riverwood International Corp.
10.25%, 2006 5,460 5,637
10.625%, 2007 18,541 19,561
10.875%, 2008 62,330 60,304
Spinnaker Industries, 10.75%, 2006 23,070 15,226
Stone Container Corp.
12.25%, 2002 6,170 6,201
11.50%, 2006 11,030 11,912
Tembec Industries, Inc., 8.625%, 2009 18,440 18,740
Terra Industries, Inc.
10.75%, 2003 34,560 34,560
10.50%, 2005 12,520 12,144
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas Petrochemicals Corp., 11.125%, 2006 $ 19,610 $ 18,433
Tjiwi Kiamia International Finance Co.,
10.00%, 2004 890 481
UCC Investors Holdings, Inc., 10.50%,
2002 10,480 11,423
United Rentals, Inc.
9.00%, 2009 10,000 9,987
9.25%, 2009 16,690 16,857
Wells Aluminum Corp., 10.125%, 2005 20,506 20,096
-------------------------------------------------------------------------------
759,577
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--9.0%
- --------------------------------------------------------------------------------------------------------------------------
AEP Industries, Inc., 9.875%, 2007 7,180 7,360
American Standard Companies, Inc.
10.875%, 1999 300 302
9.25%, 2016 12,778 13,034
Axiohm Transaction Solutions, Inc.,
9.75%, 2007 12,460 11,339
BE Aerospace, Inc., 9.50%, 2008 8,770 9,318
Berry Plastics Corp., 12.25%, 2004 20,499 21,627
BPC Holdings Corp., 12.50%, 2006 12,240 12,852
Building Materials Corp., 8.00%, 2008 19,135 18,848
Congoleum Corp., 8.625%, 2008 17,400 16,878
Consumers International, 10.25%, 2005 15,150 15,945
Day International Group, Inc., 11.125%,
2005 22,045 23,616
DeCrane Aircraft Holdings, Inc., 12.00%,
2008 15,830 15,988
Desa International, 9.875%, 2007 15,170 11,833
Eagle-Picher Holdings, Inc., 9.375%, 2008 12,260 11,892
Falcon Building Products, Inc.
9.50%, 2007 12,570 11,564
10.50%, 2007 1,620 996
Foamex, L.P.
13.50%, 2005 19,500 19,890
9.875%, with warrants, 2007 2,900 2,701
Fonda Group, 9.50%, 2007 11,730 9,795
Graham Packaging Co.
8.75%, 2008 8,730 8,643
(b) 10.75%, 2009 7,840 5,488
(b) Grove Holdings, L.L.C., 11.625%, 2009 4,070 1,465
Grove Investors, PIK, 14.50%, 2010 8,909 5,880
IMPAC Group, Inc., 10.125%, 2008 22,800 22,572
Integrated Electrical Services, Inc.,
9.375%, 2009 8,590 8,783
Kevco, Inc., 10.375%, 2007 14,080 7,462
Knoll, Inc., 10.875%, 2006 21,384 23,629
L-3 Communications Corp., 10.375%, 2007 7,220 7,960
Nortek, Inc.
9.875%, 2004 6,515 6,776
9.125%, 2007 15,600 16,263
8.875%, 2008 6,430 6,639
Printpack, Inc.
9.875%, 2004 4,870 4,833
10.625%, 2006 22,640 20,942
(b) SF Holdings Group, Inc., 12.75%, 2008 13,450 3,228
Terex Corp., 8.875%, 2008 27,040 26,229
Transdigm, Inc., 10.375%, 2008 16,280 16,199
U.S. Can Corp., 10.125%, 2006 31,079 32,788
</TABLE>
10
<PAGE> 11
(DOLLARS IN THOUSANDS)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) Waxman Industries, Inc.,
12.75%, with warrants, 2004 $ 6,510 $ 3,400
Werner Holdings, Inc., 10.00%, 2007 14,670 14,688
-------------------------------------------------------------------------------
479,645
- --------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--20.1%
- --------------------------------------------------------------------------------------------------------------------------
Allegiance Telecom, Inc.
(b) 11.75%, 2008 21,130 13,312
12.875%, 2008 24,440 27,128
American Cellular Corp., 10.50%, 2008 19,730 20,667
Birch Telecom, Inc.,
14.00%, with warrants, 2008 8,000 7,280
(b) Call-Net Enterprises
13.25%, 2004 13,660 13,728
9.27%, 2007 10,990 8,023
8.94%, 2008 16,230 10,712
Centennial Cellular, 10.75%, 2008 6,090 6,425
ComCast Cellular, 9.50%, 2007 1,700 1,925
(b) Communications Cellular, zero coupon,
with warrants, 2005 33,190 24,123
(b) Crown Castle International Corp.,
10.625%, 2007 31,730 21,894
Dobson Communication Corp., 11.75%, 2007 20,600 21,991
(b) Econophone, Inc.,
11.00%, with warrants, 2008 7,880 5,050
Esprit Telecom Group, PLC
11.50%, 2007 23,270 24,666
10.875%, 2008 10,060 10,462
Global Crossing Holdings, Ltd., 9.625%,
2008 21,235 23,624
Global Telesystems Group, 9.875%, 2005 5,510 5,496
(b) ICG Holdings, Inc.,
13.50%, with warrants, 2005 74,655 66,320
Impsat Corp., 12.375%, 2008 21,990 19,791
Intermedia Capital Partners, 11.25%, 2006 20,880 23,594
Intermedia Communications of Florida,
Inc.
(b) 12.50%, 2006 24,005 20,644
8.875%, with warrants, 2007 8,115 9,708
(b) 11.25%, 2007 27,170 20,581
(b) KMC Telecom Holdings, Inc.,
12.50%, with warrants, 2008 30,890 16,854
Level 3 Communications, Inc., 9.125%,
2008 46,040 46,443
Long Distance International, Inc.,
12.25%, with warrants, 2008 16,300 10,636
McLeod USA, Inc.
9.25%, 2007 16,065 16,788
(b) 10.50%, 2007 35,460 28,457
9.50%, 2008 4,690 5,018
Metromedia Fiber Network, Inc., 10.00%,
2008 22,590 24,284
Metronet Communications
(b) 10.75%, 2007 8,460 6,853
12.00%, with warrants, 2007 8,280 10,267
(b) 9.95%, 2008 31,110 24,032
10.625%, 2008 16,190 18,861
MGC Communications,
13.00%, with warrants, 2004 18,116 14,479
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) Millicom International Cellular, S.A.,
13.50%, 2006 $ 40,915 $ 30,073
Netia Holdings
10.25%, 2007 3,220 3,043
(b) 11.25%, 2007 11,005 7,483
(b) Nextel Communications, Inc.
9.75%, 2004 18,450 19,188
9.75%, 2007 4,810 3,439
10.65%, 2007 16,835 12,374
9.95%, 2008 14,890 10,497
Nextlink Communications, Inc.
12.50%, 2006 27,230 30,089
10.75%, 2008 22,690 24,392
(b) Pinnacle Holdings, Inc., 10.00%, 2008 18,400 10,994
Price Communications Wireless, Inc.,
9.125%, 2006 27,470 28,569
Primus Telecommunications Group, Inc.
11.75%, with warrants, 2004 18,956 19,768
9.875%, 2008 2,500 2,400
11.25%, 2009 7,830 8,065
(b) PTC International Finance, 10.75%, 2007 21,080 15,178
RCN Corp.
10.00%, 2007 10,390 10,650
(b) 11.00%, 2008 10,980 6,753
Rogers Cantel Mobile Communications, Inc.
9.375%, 2008 6,660 7,293
9.75%, 2016 28,795 33,114
Satelites Mexicanos, S.A. de C.V.,
10.125%, 2004 2,500 2,050
(b) SBA Communications Corp., 12.00%, 2008 16,390 10,162
(b) Spectrasite Holdings, Inc., 12.00%, 2008 27,240 16,889
Teligent, Inc.
11.50%, 2007 12,100 11,495
(b) 11.50%, 2008 14,650 7,765
(b) Triton Communications, L.L.C., 11.00%,
2008 29,670 17,505
U.S. Xchange, L.L.C., 15.00%, 2008 13,830 14,522
USA Mobile Communications Holdings, Inc.,
14.00%, 2004 15,635 16,260
Versatel Telecom,
13.25%, with warrants, 2008 17,290 19,408
Viatel, Inc.
11.25%, 2008 11,410 11,638
(b) 12.50%, 2008 23,300 14,388
Winstar Communications, 15.00%, 2007 5,840 4,964
Winstar Equipment II, 12.50%, 2004 14,840 14,543
-------------------------------------------------------------------------------
1,075,067
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--16.3%
- --------------------------------------------------------------------------------------------------------------------------
(b) American Lawyer Media, Inc., 12.25%, 2008 2,940 1,904
AMF Bowling Worlwide, Inc.
10.875%, 2006 35,217 27,997
(b) 12.25%, 2006 16,911 9,808
Avondale Mills, 10.25%, 2006 16,131 16,776
CEX Holdings, Inc., 9.625%, 2008 1,610 1,497
Cinemark USA, Inc.
8.50%, 2008 18,860 18,577
9.625%, 2008 15,450 15,991
Circus Circus Enterprises, Inc., 9.25%,
2005 12,560 13,141
Coinmach Corp., 11.75%, 2005 56,860 62,546
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cole National Group, Inc.
9.875%, 2006 $ 3,210 $ 3,322
8.625%, 2007 12,420 12,234
(a) Color Tile, Inc., 10.75%, 2001 20,480 205
Corporate Express, Inc., 4.50%, 2000 33,320 29,488
Delco Remy International, 10.625%, 2006 22,195 23,860
Del Webb Corp., 9.75%, 2008 17,060 16,889
Dyersburg Corp., 9.75%, 2007 18,155 12,708
Eldorado Resorts, 10.50%, 2006 17,981 18,925
Finlay Enterprises, Inc., 9.00%, 2008 6,990 6,571
Finlay Fine Jewelry Corp., 8.375%, 2008 13,100 12,838
Forecast Group, L.P., 11.375%, 2000 14,620 14,474
Fortress Group, 13.75%, 2003 14,080 13,235
Fruit of the Loom, Inc., 8.875%, 2006 7,560 7,579
Galey & Lord, Inc., 9.125%, 2008 11,190 8,672
Guitar Center Management, 11.00%, 2006 15,050 15,953
Harvey's Casino Resorts, 10.625%, 2006 14,770 15,582
Hayes Wheels International, Inc.,
11.00%, 2006 23,070 25,492
Hovnanian Enterprises
11.25%, 2002 5,657 5,756
9.75%, 2005 3,015 2,894
Imax Corp., 7.875%, 2005 8,070 7,949
Imperial Home Decor Group, Inc.,
11.00%, 2008 16,010 12,968
Iron Age Corp.
9.875%, 2008 12,730 9,166
(b) 12.125%, 2009 7,350 2,132
J. Crew Group, Inc.
10.375%, 2007 24,615 23,384
(b) 13.50%, 2008 27,633 13,816
JPS Automotive Products Corp.,
11.125%, 2001 18,830 19,677
Kindercare Learning Centers, Inc.,
9.50%, 2009 27,590 27,797
La Petite Academy, Inc., 10.00%, 2008 15,050 14,749
Lennar Corp., 7.625%, 2009 6,380 6,252
Mohegan Tribal Gaming Authority
8.125%, 2006 4,070 4,156
8.75%, 2009 11,800 12,287
Motors and Gears, Inc., 10.75%, 2006 9,190 9,443
MTS, Inc., 9.375%, 2005 4,400 4,180
National Vision Association, Ltd.,
12.75%, 2005 22,180 23,067
Nine West Group, Inc., 9.00%, 2007 6,220 6,391
Pamida Holdings Corp., 11.75%, 2003 22,255 20,141
Phillips-Van Heusen Corp., 9.50%, 2008 16,980 16,938
Pillowtex Corp., 9.00%, 2007 6,450 6,514
Players International, Inc.,
10.875%, 2005 15,075 15,980
Protection One, Inc., 8.125%, 2009 4,160 4,202
Regal Cinemas, Inc.
9.50%, 2008 31,170 31,793
8.625%, 2010 8,820 8,622
Rio Hotel & Casino, Inc., 9.50%, 2007 7,290 7,891
Ryland Group, Inc., 8.25%, 2008 14,950 14,240
Scovill Fasteners, Inc., 11.25%, 2007 11,020 8,045
Six Flags Entertainment Corp.,
12.25%, 2005 40,465 44,613
Specialty Retailers, Inc.
8.50%, 2005 5,145 4,528
9.00%, 2007 17,675 13,787
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) Spincycle, Inc.,
12.75%, with warrants, 2005 $ 26,295 $ 11,044
Station Casinos, Inc.
10.125%, 2006 7,950 8,467
9.75%, 2007 8,050 8,493
Toll Corp., 8.125%, 2009 7,730 7,730
United Artists Theatre Circuit, Inc.,
9.75%, 2008 22,695 18,610
Venture Holdings Corp., 9.50%, 2005 9,870 9,623
---------------------------------------------------------------------------
873,589
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER
NON-CYCLICALS--6.6%
Abbey Healthcare Group, Inc., 9.50%, 2002 23,380 23,146
Advantica Restaurant Group, Inc.,
11.25%, 2008 37,725 38,574
AFC Enterprises, Inc., 10.25%, 2007 20,380 21,705
Agrilink Foods, Inc., 11.875%, 2008 6,050 6,504
(b) ALARIS Medical Systems, Inc.,
11.125%, 2008 13,730 8,238
Ameriking, Inc., 10.75%, 2006 16,535 17,486
Carrols Corp., 9.50%, 2008 16,060 16,261
Dade International, Inc., 11.125%, 2006 27,400 30,345
Doskocil Manufacturing Co., 10.125%, 2007 10,590 8,154
Grupo Azucarero Mexico, S.A. de C.V.,
11.50%, 2005 9,010 3,063
Hedstrom Corp., 10.00%, 2007 16,980 14,093
Herff Jones, Inc., 11.00%, 2005 20,810 22,475
Jafra Cosmetics International, Inc.,
11.75%, 2008 19,830 17,450
Krystal, Inc., 10.25%, 2007 10,740 11,331
Magellan Health Services, Inc.,
9.00%, 2008 33,950 29,282
(b) Mariner Post-Acute Network, Inc.,
10.50%, 2007 58,210 9,314
Mastellone Hermonos, S.A., 11.75%, 2008 13,090 11,388
MEDIQ, Inc., 11.00%, 2008 9,650 8,395
Paracelsus Healthcare, 10.00%, 2006 8,180 5,501
Perkins Family Restaurants, L.P.,
10.125%, 2007 15,450 16,609
Purina Mills, Inc., 9.00%, 2010 6,650 5,586
(b) Restaurant Co., 11.25%, 2008 17,460 11,000
Sealy Matress Co.
9.875%, 2007 2,328 2,311
(b) 10.875%, 2007 14,610 9,350
Simmons Co., 10.25%, 2009 1,690 1,749
Vencor, Inc., 9.875%, 2005 21,350 3,630
---------------------------------------------------------------------------
352,940
- ----------------------------------------------------------------------------------------------------------------------
ENERGY--3.5%
Benton Oil & Gas Co., 11.625%, 2003 19,985 13,890
Clark Refining & Manufacturing, Inc.,
8.875%, 2007 1,160 974
Continental Resources, Inc., 10.25%, 2008 19,580 15,077
Forcenergy, Inc.
9.50%, 2006 16,360 7,526
8.50%, 2007 1,920 883
Forest Oil Corp., 10.50%, 2006 3,790 3,923
Gulfmark Offshore, Inc., 8.75%, 2008 9,100 8,417
HS Resources, Inc., 9.25%, 2006 3,720 3,646
Mariner Energy, Inc., 10.50%, 2006 26,160 21,974
Ocean Energy, Inc.
10.375%, 2005 11,055 11,414
9.75%, 2006 3,995 4,135
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacalta Resources, Ltd., 10.75%, 2004 $ 32,975 $ 33,305
Parker Drilling Corp., 9.75%, 2006 9,730 8,076
R&B Falcon Finance Corp.
11.00%, 2006 7,910 8,305
9.50%, 2008 7,840 6,821
11.375%, 2009 7,910 8,365
RAM Energy, Inc., 11.50%, 2008 8,250 4,950
Rutherford-Moran Oil Corp., 10.75%, 2004 4,980 5,727
Stone Energy Corp., 8.75%, 2007 18,880 18,880
---------------------------------------------------------------------------
186,288
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL--1.0%
American Banknote Corp.,
11.25%, with warrants, 2007 16,850 5,055
HMH Properties, Inc., 7.875%, 2008 35,170 33,851
Intertek Finance, PLC, 10.25%, 2006 13,190 12,927
---------------------------------------------------------------------------
51,833
- ----------------------------------------------------------------------------------------------------------------------
MEDIA--16.5%
American Radio Systems, Corp., 9.00%,
2006 12,720 13,706
(b) Australis Holdings
14.00%, 2000 2,070 1,589
(a) 15.00%, with warrants, 2002 49,213 985
Avalon Cable Holdings, Inc.
9.375%, 2008 3,070 3,235
(b) 11.875%, 2008 21,170 13,840
Big Flower Press Holdings, Inc., 8.875%,
2007 33,580 33,832
Bresnan Communications Co., L.P.
8.00%, 2009 3,770 3,864
(b) 9.25%, 2009 7,800 5,265
(b) Capstar Broadcasting Corp., 12.75%, 2009 25,000 21,250
Century Communications Corp.
9.50%, 2005 3,630 3,902
8.375%, 2007 8,100 8,303
Chancellor Media Corp.
8.125%, 2007 10,500 10,710
8.00%, 2008 21,930 22,807
9.00%, 2008 5,570 5,918
Charter Communication Holdings, L.L.C.
8.25%, 2007 48,110 49,132
(b) 9.92%, 2011 50,320 32,456
Comcast Corp., 9.125%, 2006 34,485 36,554
(b) Comcast UK Cable Partners, Ltd., 11.20%,
2007 10,225 9,202
CSC Holdings, Inc.
9.25%, 2005 12,740 13,664
7.875%, 2007 4,100 4,310
7.25%, 2008 5,500 5,555
8.125%, 2009 15,156 16,274
10.50%, 2016 27,375 32,576
(b) Diamond Cable Communications, PLC,
11.75%, 2005 14,660 12,974
(b) Diva Systems Corp.,
12.625%, with warrants, 2008 24,770 8,273
EchoStar DBS Corp.
9.25%, 2006 18,950 19,661
9.375%, 2009 30,175 31,382
EZ Communications, Inc., 9.75%, 2005 8,760 9,373
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Falcon Holding Group, L.P.
8.375%, 2010 $ 37,445 $ 37,539
(b) 9.285%, 2010 25,375 17,509
Frontiervision Capital Corp.
11.00%, 2006 14,450 16,220
(b) 11.875%, 2007 16,839 14,566
Interep National Radio Sales, Inc.,
10.00%, 2008 12,110 12,685
Mediacom, L.L.C., 8.50%, 2008 17,350 17,610
NTL, Inc.
11.50%, 2008 64,675 72,759
(b) 12.375%, 2008 7,190 4,943
Outdoor Systems, Inc.
9.375%, 2006 32,270 35,013
8.875%, 2007 15,520 16,606
(b) PX Escrow, 9.625%, 2006 19,840 11,507
(b) Radio Unica Corp., 11.75%, 2006 17,880 10,058
Rogers Communications, Inc., 8.875%, 2007 8,120 8,485
Salem Communications Corp., 9.50%, 2007 12,490 13,302
SFX Entertainment, Inc., 9.125%, 2008 35,440 35,972
Sinclair Broadcasting Group, Inc., 8.75%,
2007 12,970 13,100
Star Choice, 13.00%, with warrants, 2005 3,850 4,355
TeleWest Communications, PLC
9.625%, 2006 13,075 13,892
(b) 11.00%, 2007 32,333 28,534
11.25%, 2008 19,430 22,587
Transwestern Publishing Co., L.L.C.
9.625%, 2007 8,650 9,039
(b) 11.875%, 2008 5,885 4,120
(b) 21st Century Telecommunications, Inc.,
12.25%, with warrants, 2008 18,650 6,585
(b) United International Holdings, Inc.,
10.75%, 2008 32,000 21,760
---------------------------------------------------------------------------
879,338
- ----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.6%
Communications and Power Industry, Inc.,
12.00%, 2005 7,975 8,413
(b) IPC Information Systems, 10.875%, 2008 37,310 24,065
PSINet, Inc.
10.00%, 2005 14,630 15,508
11.50%, 2008 20,490 23,051
Viasystems, Inc., 9.75%, 2007 15,910 14,876
---------------------------------------------------------------------------
85,913
- ----------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.0%
Accuride Corp., 9.25%, 2008 9,785 9,883
Airxcel, 11.00%, 2007 13,290 13,024
Canadian Airlines, 10.00%, 2005 6,640 4,980
Petro Stopping Centers, 10.50%, 2007 25,150 26,973
TFM, S.A. de C.V., 10.25%, 2007 21,050 18,840
Trans World Airlines, Inc., 11.375%, 2006 12,140 6,192
(b) Transtar Holdings, Inc., 13.375%, 2003 10,100 9,923
Travelcenters America, 10.25%, 2007 16,380 17,117
---------------------------------------------------------------------------
106,932
---------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--90.8%
(Cost: $5,069,244) 4,851,122
---------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
OR PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON AND PREFERRED
STOCK--2.0%
(a) Benedek Communications Corp., warrants 90,000 shs. $ 180
(a) Capital Pacific Holdings, warrants 54,431 27
Clark USA, PIK, preferred 46,290 3,009
Crown American Realty Trust, preferred 354,060 16,995
Dobson Communications, PIK, preferred 11,352 10,671
(a) Eagle-Picher Holdings, Inc., preferred 1,750 9,100
(a) EchoStar Communications Corp. 108,723 8,874
(a) Empire Gas Corp., warrants 31,795 16
(a) Gaylord Container Corp. 1,353,034 10,148
Global Crossing, Ltd., PIK, preferred 24,000 2,760
Nextel Communications, PIK, preferred 15,697 16,011
(a) SF Holdings Group, Inc. 42,440 85
(a) SF Holdings Group, Inc., PIK, preferred 463 1,678
Sinclair Capital, preferred 210,400 22,934
21st Century Telecommunications Group,
Inc., preferred 3,268 1,471
(a) UIH Australia Pacific, Inc., warrants 14,150 14
Viatel, Inc., preferred 18,262 3,287
-------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK--2.0%
(Cost: $95,568) 107,260
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--2.2%
(c) Repurchase Agreement
State Street Bank and Trust Company
dated 3/31/99, 4.00%, due 4/1/99 $ 603 603
-------------------------------------------------------------------------------
Other
Yield--4.76% to 4.90%
Due--April 1999 119,000 118,920
-------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--2.2%
(Cost: $119,523) 119,523
-------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $5,552,512) $5,344,395
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of principal or interest or has filed
for bankruptcy.
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(c) Repurchase agreements are fully collateralized by U.S. Treasury or
Government securities. The collateral is monitored daily by the Fund so that
its market value exceeds the carrying value of the repurchase agreement.
PIK denotes that interest or dividend is paid in kind.
Based on the cost of investments of $5,552,512,000 for federal income tax
purposes at March 31, 1999, the gross unrealized appreciation was $165,995,000,
the gross unrealized depreciation was $374,112,000 and the net unrealized
depreciation on investments was $208,117,000.
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
March 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
Investments, at value
(Cost: $5,552,512) $5,344,395
- --------------------------------------------------------------------------
Receivable for:
Investments sold 20,763
- --------------------------------------------------------------------------
Fund shares sold 5,953
- --------------------------------------------------------------------------
Interest 138,861
- --------------------------------------------------------------------------
TOTAL ASSETS 5,509,972
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Cash overdraft 934
- --------------------------------------------------------------------------
Payable for:
Investments purchased 99,482
- --------------------------------------------------------------------------
Fund shares redeemed 4,636
- --------------------------------------------------------------------------
Management fee 1,961
- --------------------------------------------------------------------------
Distribution services fee 865
- --------------------------------------------------------------------------
Administrative services fee 828
- --------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,060
- --------------------------------------------------------------------------
Trustees' fees and other 139
- --------------------------------------------------------------------------
Total liabilities 110,905
- --------------------------------------------------------------------------
NET ASSETS $5,399,067
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $5,705,996
- --------------------------------------------------------------------------
Undistributed net realized loss on investments (109,916)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments (208,117)
- --------------------------------------------------------------------------
Futures 92
- --------------------------------------------------------------------------
Undistributed net investment income 11,012
- --------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $5,399,067
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($3,704,051 / 475,568 shares outstanding) $7.79
- --------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $8.16
- --------------------------------------------------------------------------
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge)
per share ($1,442,304 / 185,356 shares outstanding) $7.78
- --------------------------------------------------------------------------
CLASS C SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge)
per share ($229,867 / 29,469 shares outstanding) $7.80
- --------------------------------------------------------------------------
CLASS I SHARES
Net asset value and redemption price
per share ($22,845 / 2,934 shares outstanding) $7.79
- --------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 4,432
- ------------------------------------------------------------------------
Interest income 280,890
- ------------------------------------------------------------------------
Total investment income 285,322
- ------------------------------------------------------------------------
Expenses:
Management fee 13,049
- ------------------------------------------------------------------------
Distribution services fee 5,766
- ------------------------------------------------------------------------
Administrative services fee 5,618
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 5,034
- ------------------------------------------------------------------------
Professional fees 52
- ------------------------------------------------------------------------
Reports to shareholders 268
- ------------------------------------------------------------------------
Registration fees 103
- ------------------------------------------------------------------------
Trustees' fees and other 136
- ------------------------------------------------------------------------
Total expenses 30,026
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 255,296
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (60,917)
- ------------------------------------------------------------------------
Futures 3,330
- ------------------------------------------------------------------------
(57,587)
- ------------------------------------------------------------------------
Change in net unrealized appreciation on:
Investments 140,719
- ------------------------------------------------------------------------
Futures 92
- ------------------------------------------------------------------------
140,811
- ------------------------------------------------------------------------
Net gain on investments 83,224
- ------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $338,520
- ------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended March 31, 1999 (unaudited) and the year ended
September 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 255,296 471,713
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) (57,587) 99,384
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 140,811 (603,298)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 338,520 (32,201)
- -----------------------------------------------------------------------------------------------
Distribution from net investment income (249,187) (477,479)
- -----------------------------------------------------------------------------------------------
Net increase from capital share transactions 525,472 354,640
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 614,805 (155,040)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Beginning of period 4,784,262 4,939,302
- -----------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment
income of $11,012 and $4,903, respectively) $5,399,067 4,784,262
- -----------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE
FUND The Kemper High Yield Fund (the fund) is an
open-end diversified management investment company
organized as a business trust under the laws of
Massachusetts. The fund offers four classes of
shares. Class A shares are sold to investors
subject to an initial sales charge. Class B shares
are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions. Class B shares
automatically convert to Class A shares six years
after issuance. Class C shares are sold without 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 generally have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of the fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities with remaining
maturities greater than sixty days are valued by
pricing agents approved by the officers of the
fund, which quotations reflect broker/dealer-
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. An exchange-traded
options contract on securities, futures and other
financial instruments is valued at its most recent
sale price on such exchange. Lacking any sales, the
options contract is valued at the calculated mean.
Lacking any calculated mean, the options contract
is valued at the most recent bid quotation in the
case of a purchased options contract, or the most
recent asked quotation in the case of a written
options contract. An options contract on securities
and other financial instruments traded
over-the-counter is valued at the most recent bid
quotation in the case of a purchased options
contract and at the most recent asked quotation in
the case of a written options contract. Futures
contracts are valued at the most recent settlement
price. All other securities are valued at their
fair market value as determined in good faith by
the Valuation Committee of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is
recorded on the accrual basis. Interest income
includes discount amortization on all fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
share is determined separately for each class by
dividing the fund's net assets attributable to that
class by the number of shares of the class
outstanding.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1998, the fund had a tax basis net
loss carryforward of approximately $45,015,000
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 1999
through 2004.
DIVIDENDS TO SHAREHOLDERS. The fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper), and pays a monthly investment
management fee of 1/12 of the annual rate of .58%
of the first $250 million of average daily net
assets declining to .42% of average daily net
assets in excess of $12.5 billion. The fund
incurred a management fee of $13,049,000 for the
six months ended March 31, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The fund has an underwriting and distribution
services agreement with Kemper Distributions, Inc.
(KDI). Underwriting commissions retained by KDI in
connection with the distribution of Class A shares
for the six months ended March 31, 1999 are
$331,000, of which $18,000 was paid by KDI to
affiliates.
For services under the distribution services
agreement, the fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares. In addition,
KDI receives any contingent deferred sales charges
(CDSC) from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the six months ended March 31, 1999 are
$7,163,000.
ADMINISTRATIVE SERVICES AGREEMENT. The fund has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of fund accounts the firms
service. Administrative services fees paid by the
fund to KDI for the six months ended March 31, 1999
are $5,618,000, of which $17,000 was paid by KDI to
affiliates.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
service agent of the fund. Under the agreement,
KSvC received shareholder services fees of
$3,360,000 for the six months ended March 31, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended March 31,
1999, the fund made no payments to its officers and
incurred trustees' fees of $32,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1999, investment
transactions (excluding short term instruments) are
as follows (in thousands):
<TABLE>
<S> <C>
Purchases $2,945,765
Proceeds from sales 2,435,124
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the fund (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1999 1998
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
------------------------------------------------------------------------------
Class A 157,562 $1,206,177 175,709 $1,448,862
------------------------------------------------------------------------------
Class B 57,629 439,741 96,842 810,635
------------------------------------------------------------------------------
Class C 17,088 131,297 19,096 163,577
------------------------------------------------------------------------------
Class I 2,881 22,031 8,956 61,720
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 13,857 106,802 25,177 210,714
------------------------------------------------------------------------------
Class B 4,799 36,886 8,726 73,008
------------------------------------------------------------------------------
Class C 783 6,052 1,217 10,192
------------------------------------------------------------------------------
Class I 148 1,139 344 3,282
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (133,533) (1,031,326) (201,412) (1,666,803)
------------------------------------------------------------------------------
Class B (38,006) (292,771) (68,856) (573,586)
------------------------------------------------------------------------------
Class C (10,692) (82,696) (12,712) (106,155)
------------------------------------------------------------------------------
Class I (2,306) (17,860) (11,152) (80,801)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 7,423 57,448 23,396 197,625
------------------------------------------------------------------------------
Class B (7,423) (57,448) (23,428) (197,630)
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE
TRANSACTIONS $ 525,472 $ 354,640
------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES
CONTRACTS The fund has entered into exchange traded financial
futures contracts in order to take advantage of
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the fund entered into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, payments are made
on a daily basis between the fund and the broker as
the market value of the futures contract fluctuates
and are recorded for financial reporting purposes
as unrealized gains or losses by the fund. At March
31, 1999, the market value of assets pledged by the
fund to cover margin requirements for open futures
positions was $1,450,000. The fund also had liquid
securities in its portfolio in excess of the face
amount of the following short futures position open
at March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION
TYPE AMOUNT MONTH GAIN
----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond $144,869 June '99 $92
----------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.68 8.50 8.23 8.01 7.74 8.12
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40 .76 .76 .76 .83 .73
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) .10 (.81) .31 .23 .20 (.35)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .50 (.05) 1.07 .99 1.03 .38
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from net
investment income .39 .77 .80 .77 .76 .76
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.79 7.68 8.50 8.23 8.01 7.74
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.68% (.95) 13.69 13.00 14.10 4.64
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses .93% .89 .88 .88 .90 .86
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 10.34% 9.09 9.18 9.45 10.74 9.22
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
CLASS B
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30, MAY 31 TO
MARCH 31, ----------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.67 8.49 8.22 8.00 7.73 7.96
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .36 .68 .69 .69 .76 .23
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) .11 (.80) .31 .23 .20 (.23)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .47 (.12) 1.00 .92 .96 --
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment
income .36 .70 .73 .70 .69 .23
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.78 7.67 8.49 8.22 8.00 7.73
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.24% (1.82) 12.72 12.02 13.09 --
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.77% 1.76 1.76 1.77 1.77 1.80
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 9.50% 8.22 8.30 8.56 9.87 8.70
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------------------
CLASS C
----------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30, MAY 31 TO
MARCH 31, ----------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.69 8.52 8.24 8.02 7.75 7.96
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37 .69 .70 .69 .77 .25
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .10 (.82) .31 .23 .20 (.23)
- -----------------------------------------------------------------------------------------------------
Total from investment operations .47 (.13) 1.01 .92 .97 .02
- -----------------------------------------------------------------------------------------------------
Less distribution from net investment
income .36 .70 .73 .70 .70 .23
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $7.80 7.69 8.52 8.24 8.02 7.75
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.25% (1.89) 12.88 12.06 13.13 .27
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses 1.70% 1.71 1.71 1.71 1.71 1.74
- -----------------------------------------------------------------------------------------------------
Net investment income 9.57% 8.27 8.35 8.62 9.93 8.75
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------
CLASS I
-----------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 29, 1994
MARCH 31, -------------------- TO SEPTEMBER 30,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.68 8.50 8.23 8.01 7.55
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .43 .76 .78 .78 .66
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .08 (.78) .31 .23 .39
- ------------------------------------------------------------------------------------------------
Total from investment operations .51 (.02) 1.09 1.01 1.05
- ------------------------------------------------------------------------------------------------
Less distribution from net investment
income .40 .80 .82 .79 .59
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.79 7.68 8.50 8.23 8.01
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.85% (.66) 13.96 13.32 14.37
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses .57% .60 .62 .61 .61
- ------------------------------------------------------------------------------------------------
Net investment income 10.70% 9.38 9.44 9.72 10.70
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $5,399,067 4,784,262 4,939,302 4,096,939 3,527,954 3,152,029
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 76% 92 91 102 99 93
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Data for the period ended March 31, 1999 is unaudited.
25
<PAGE> 26
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper High Yield Fund shareholders were asked to vote on two
separate issues: approval of the new Investment Management Agreement between the
fund and Scudder Kemper Investments, Inc., and to modify or eliminate certain
policies and to eliminate the shareholder approval requirements as to certain
other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
394,359,305 6,468,596 17,586,217
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,684,506 15,892,483 33,009,379
</TABLE>
Investment policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,767,152 15,810,834 33,008,382
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,967,442 15,610,544 33,008,382
</TABLE>
Borrowing
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,624,178 15,953,808 33,008,382
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
287,016,162 15,561,824 33,008,382
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,990,124 15,587,863 33,008,382
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
287,009,044 15,568,942 33,008,382
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,917,886 15,660,101 33,008,382
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,679,656 15,898,331 33,008,382
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,769,860 15,808,546 33,007,962
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
285,980,594 16,597,392 33,008,382
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,345,849 16,228,714 33,011,805
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
286,618,763 15,955,800 33,011,805
</TABLE>
Investment in non-US dollar denominated
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
285,624,291 16,950,272 33,011,805
</TABLE>
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES & OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <C> <C>
DANIEL PIERCE MARK S. CASADY HARRY E. RESIS, JR.
Chairman and Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
DONALD L. DUNAWAY MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
ROBERT B. HOFFMAN CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
DONALD R. JONES ELIZABETH C. WERTH
Trustee MICHAEL A. MCNAMARA Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President KATHRYN L. QUIRK Assistant Treasurer
Vice President
SHIRLEY D. PETERSON
Trustee ROBERT C. PECK, JR.
Vice President
WILLIAM P. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
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 STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02109
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[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.
KHYF - 3 (5/24/99) 1074010
