<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 2000
[LOGO]
the highest level of current income with capital gain as a
second objective
KEMPER HIGH YIELD FUND
"... As the U.S. economy enjoyed the best
of times, investors behaved as if high-yield
bonds faced the worst of times. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
20
FINANCIAL STATEMENTS
23
FINANCIAL HIGHLIGHTS
25
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER HIGH YIELD FUND TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000 (UNADJUSTED FOR ANY SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER HIGH YIELD FUND KEMPER HIGH YIELD FUND LIPPER HIGH CURRENT YIELD
KEMPER HIGH YIELD FUND CLASS A CLASS B CLASS C FUNDS CATEGORY AVERAGE*
------------------------------ ---------------------- ---------------------- -------------------------
<S> <C> <C> <C>
0.38 -0.03 -0.02 1.09
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
3/31/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER HIGH YIELD FUND CLASS A $6.87 $7.23
.........................................................
KEMPER HIGH YIELD FUND CLASS B $6.86 $7.22
.........................................................
KEMPER HIGH YIELD FUND CLASS C $6.88 $7.24
.........................................................
</TABLE>
KEMPER HIGH YIELD FUND RANKINGS
AS OF 3/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER CURRENT HIGH YIELD FUNDS CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #243 of 349 funds #265 of 349 funds #263 of 349 funds
..........................................................................................
5-YEAR #59 of 121 funds #90 of 121 funds #88 of 121 funds
..........................................................................................
10-YEAR #15 of 54 funds N/A N/A
..........................................................................................
15-YEAR #3 of 29 funds N/A N/A
..........................................................................................
20-YEAR #3 of 21 funds N/A N/A
..........................................................................................
</TABLE>
*LIPPER, INC. RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE WITH ALL
DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES
CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. 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 WORTH MORE OR LESS THAN ORIGINAL COST.
DIVIDEND AND YIELD REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MARCH 31, 2000.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...............................................................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTH INCOME: $0.3910 $0.3619 $0.3629
...............................................................................................
MARCH DIVIDEND: $0.0635 $0.0589 $0.0591
...............................................................................................
ANNUALIZED
DISTRIBUTION RATE+: 11.09% 10.30% 10.31%
...............................................................................................
SEC YIELD+: 11.20% 10.94% 10.91%
...............................................................................................
</TABLE>
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON MARCH 31, 2000. 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, 2000, 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.
YOUR FUND'S STYLE
MORNINGSTAR INCOME FUNDS STYLE BOX
<TABLE>
<S> <C>
[MORNINGSTAR EQUITY STYLE Source: Data provided by Morningstar, Inc.,
BOX] 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 PLACEMENTS 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.
</TABLE>
<PAGE> 3
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 $290 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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
As spring moves along towards summer, there isn't much to complain about. For
all the yammering about the "new" economy, the old economy is doing pretty well.
Consumers may hanker for a new GPS handset or a Palm Pilot, but they lust after
a suburban mansion with a garage big enough to hold their luxury car and SUV --
and state and local governments are laying old-fashioned asphalt almost as fast
as businesses are building the information superhighway. Satisfying both old and
new desires got the economy off to a fast start in the new century -- GDP growth
rose at an annual rate of more than 5 percent in the first quarter. Even with a
modest slowdown possible in the second half, growth for the year 2000 is likely
to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show no signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats.
Why are consumers still buying despite Greenspan's attempts to slow their
splurging? There are three answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment.
And just like consumers, businesses are borrowing to buy. You may think that
with booming sales, entrepreneurs are cash-rich. But while 1999 saw economy-wide
earnings jump 10 percent and profits of Standard and Poor's (S&P) 500 companies
leap nearly 14 percent, internal cash covered less than 84 percent of capital
spending. With the exception of 1998, that's the lowest on record. Last year
alone, corporate debt shot up by more than 11 percent to $560 billion. New
economy companies are no exception; they have more debt than most people
realize, issuing more than half of all convertible bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Private
financial obligations must be paid with personal income and corporate profits.
When the economy slows, personal income stagnates and corporate profits often
fall -- which makes it harder to pay off those debts. Consumers and businesses
may have to sell their assets to pay off the debt, and they may risk going into
default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
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 (3/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 6.10 5.20 5.60
Prime rate (2) 9.00 8.25 7.75 8.50
Inflation rate (3)* 3.70 2.60 1.80 1.40
The U.S. dollar (4) 1.10 -0.90 -0.50 4.10
Capital goods orders (5)* 10.10 4.70 5.50 11.50
Industrial production (5)* 5.10 3.50 3.10 5.30
Employment growth (6) 2.30 2.20 2.30 2.60
</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 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 2/29/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some indicators suggest that monetary policy has
actually been lax. Broad money and credit creation have vastly exceeded economic
activity since 1995, and no central bank can allow that to continue indefinitely
without creating inflation. If we begin to see higher core inflation, the Fed
will have to deal with all that money it's created in a less gradualist
manner -- and that could get tricky. Financial turmoil accompanied each of the
Fed's last two efforts to slow the economy down. In 1994, there was a bond
market meltdown that resulted in a Mexican debt crisis. After a more timid Fed
tightening in 1997, crises in Asia were followed by problems with Russian debt,
Brazilian debt and a large American hedge fund. We don't think this is a
coincidence: The global debt market is so vast and interconnected that it's
highly vulnerable to a rise in the cost of its basic raw material -- short-term
funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF MAY 8, 2000, 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
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR. HE IS ALSO LEAD PORTFOLIO MANAGER OF KEMPER HIGH YIELD FUND, KEMPER
HIGH YIELD FUND II 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.
[DOYLE PHOTO]
DAN DOYLE 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.
PERFORMANCE UPDATE
ALTHOUGH THE YIELD-TO-MATURITY OF MANY HIGH-YIELD BONDS WAS MORE THAN DOUBLE
THAT OF COMPARABLE-MATURITY TREASURIES AS OF MARCH 31, PORTFOLIO MANAGER HARRY
RESIS SAYS IT MAY BE A WHILE BEFORE THE HIGH-YIELD MARKET CAN STAGE A STRONG,
SUSTAINED REBOUND. RESIS DISCUSSES HIS POSITIONING OF THE FUND SINCE SEPTEMBER
AND OFFERS HIS VIEW ON WHAT'S AHEAD FOR THE BALANCE OF FISCAL YEAR 2000.
Q HOW DID THE HIGH-YIELD MARKET BEHAVE AND THE FUND PERFORM DURING THE FIRST
HALF OF FISCAL YEAR 2000?
A On an absolute basis, the returns from high-yield bonds were unattractive
for the six months ended March 31, 2000. The total return of the unmanaged
Merrill Lynch High Yield Master Index, a group of lower-rated bonds that vary in
quality, was -0.30 percent for the period. The price component of the index fell
4.61 percent. For many high-yield investors, preserving capital was a challenge,
as income did not offset losses in principal value. Nevertheless, for the six
months ended March 31, the fund provided a modest positive return of 0.38
percent, outperforming the index (for Class A shares unadjusted for sales
charge).
One reason for the high-yield market's weakness was anemic investor demand.
This past autumn and winter, the lure of potentially higher returns from equity
investments, particularly technology stocks, prompted some investors to
liquidate high-yield holdings and redeploy assets. As the U.S. economy enjoyed
the best of times, some investors behaved as if high-yield bonds faced the worst
of times. Some of the fund's peers even put tech stocks in their portfolios in
an effort to boost returns. This strategy backfired as many stocks suffered a
sharp retreat in the early months of calendar year 2000. In fact, in January and
February, high-yield bonds outperformed the unmanaged Standard & Poor's 500
index.
Q COULD YOU DESCRIBE HOW KEMPER HIGH YIELD FUND WAS POSITIONED DURING THE
PERIOD?
A In a difficult environment, we believed success depended on not losing
sight of the fact that the fundamental underpinnings of the high-yield debt
market were sound. Since mid-1999, bond default rates dropped and commodity
prices rebounded, helping many "old economy" companies meet debt payments.
During the period, we focused exclusively on high-yield securities; on larger,
more liquid bond issues; and on companies with relatively solid cash flow and
proven management.
Throughout calendar year 1999, we reduced the number of holdings in the fund,
eliminating weak, less liquid securities. As shown in the Credit Quality table
on page 8, the percentage of the fund's portfolio invested in unrated bonds and
bonds with ratings of less than B dropped from 15 percent in September to 10
percent as of March 31. This upgrade in quality helped the fund's performance
during the first half of fiscal year 2000.
Q HOW DID HIGH-YIELD BONDS PERFORM RELATIVE TO OTHER TYPES OF BONDS?
A Yields in the high-yield market have increased dramatically since
September
5
<PAGE> 6
PERFORMANCE UPDATE
1999 as the difference in yield, or spread, between 10-year Treasuries and
high-yield bonds widened to more than 630 basis points (6.3 percent). Given that
10-year Treasury bonds yielded 6.02 percent as of March 31, 2000, high-yield
bonds offered double the yield of government bonds for investors willing to
assume additional risk.
Strong economic growth prompted the Federal Reserve to raise its short-term
interest-rate target three times since September by a total of 75 basis points
(0.75 percent) to 6.00 percent. This past winter, the government also announced
a buyback plan for 30-year Treasuries. These two events decreased the
attractiveness of intermediate-term (two- to 10-year) bonds. Along with
high-yield bonds, prices of intermediate, investment-grade corporate bonds and
other non-Treasury debt generally fell.
The fund's yield rose during the first half of fiscal 2000, but like the rest
of the market, we struggled to preserve principal. Health care bonds were a
particularly weak sector due to changes in government reimbursement policies.
Bonds issued by small companies also did not fare as well as bonds issued by
large, established corporations.
Q WHAT HAS BEEN THE HISTORICAL EXPERIENCE OF THE HIGH-YIELD BOND MARKET
DURING PERIODS OF STOCK MARKET WEAKNESS?
A For seven times since October 1987, high-yield bonds outperformed the
Standard & Poor's 500 index during months when the S&P 500 declined 5 percent or
more. While we can't say this pattern will continue, we believe that high-yield
bonds deserve a place in a well-balanced portfolio now more than ever. After
five years of strong equity market performance, many investors have portfolios
that are heavily laden with large-cap stocks. We think it would be a mistake for
investors to overlook the opportunity to maintain the diversification that this
asset class offers.
Q WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A At some point, we believe there is potential for equity-like returns from
high-yield securities and higher bond prices. What we really need is greater
investor interest in the asset class. Overall, several positive trends remain in
place. First, a robust U.S. economy is helping debtors meet their bond
obligations. Second, the default rate for high-yield bonds has been declining
since the end of the second quarter of 1999. And finally, continued stock market
volatility may prompt some investors to revisit fixed-income alternatives.
Q FINALLY, HOW ARE YOU POSITIONING THE PORTFOLIO FOR THE ROAD AHEAD?
A We are focusing our research efforts in sectors and companies where we
think we have a competitive advantage. We believe maintaining a more
concentrated portfolio of companies we closely monitor is a lot better than
having 400 or 500 holdings, which we think increases the likelihood of having
more holdings go into default. If the U.S. economy continues to grow at a
reasonable pace, we should be well-positioned to achieve the fund's objectives.
HIGH YIELD BOND YIELDS (YIELD-TO-WORST)
VS. 10-YEAR TREASURY YIELDS
March 31, 1995 to March 31, 2000
[LINE CHART]
<TABLE>
<CAPTION>
MERRILL LYNCH
GLOBAL BOND TEN YEAR
INDICES TREASURIES
------------- ----------
<S> <C> <C>
3/95 10.531 7.196
9.889 6.203
10.079 6.182
9.762 5.572
3/96 9.796 6.327
9.989 6.711
9.595 6.703
9.385 6.418
3/97 9.665 6.903
9.055 6.500
8.580 6.102
8.600 5.741
3/98 8.391 5.654
8.812 5.446
10.276 4.420
10.304 4.648
3/99 10.365 5.242
10.518 5.780
10.952 5.877
11.021 6.442
3/00 11.922 6.004
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS, MERRILL LYNCH
INTEREST PAYMENTS AND RETURN OF PRINCIPAL FOR HIGH-YIELD BONDS, UNLIKE
TREASURIES, ARE NOT GUARANTEED BY THE U.S. GOVERNMENT. YIELDS ARE AN AVERAGE OF
BONDS WITH B RATINGS AND A SIMILAR DURATION TO 10-YEAR TREASURIES. HIGH-YIELD
BONDS INVOLVE MORE CREDIT RISK THAN INVESTMENT-GRADE SECURITIES. TREASURY BONDS
HAVE NO CREDIT RISK.
YIELD-TO-WORST IS AN EXPRESSION OF THE CURRENT INCOME POTENTIAL OF A BOND
ASSUMING THE ISSUER WILL CALL OR REFINANCE THE BOND AT THE FIRST AVAILABLE
OPPORTUNITY, WHICH IS USUALLY SPECIFIED WHEN A BOND IS ISSUED.
6
<PAGE> 7
PERFORMANCE UPDATE
HIGH-YIELD BOND PERFORMANCE
VS. S&P 500 INDEX
During Months When The S&P 500 Declined Between 1987 to 2000
[BAR CHART]
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH YIELD
S&P 500 MASTER INDEX*
------- ------------------------
<S> <C> <C>
10/87 -2.67 -21.53
11/87 2.53 -8.24
1/90 -1.95 -6.71
8/90 -3.83 -9.03
8/97 -0.17 -5.60
8/98 -4.32 -14.45
1/00 -0.38 -5.02
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS AND MERRILL LYNCH
*THE MERRILL LYNCH HIGH YIELD MASTER INDEX IS AN UNMANAGED GROUP OF LOWER
QUALITY BONDS THAT VARY IN MATURITY AND QUALITY.
TERMS TO KNOW
BASIS POINT The movement of interest rates or yields expressed in hundredths of
a percent. For example, an increase in yield from 5 percent to 5.50 percent is
50 basis points.
CREDIT SPREAD The difference in yields between higher-quality and lower-quality
bonds, typically comparing the same types of bonds. For example, if AAA-rated
corporate bonds yield 5 percent, and BBB-rated corporate bonds yield 6 percent,
the credit spread is 1 percent. When the spread becomes less because the higher
yield drops or the lower yield rises, the spread is said to "narrow." When the
opposite occurs, the spread is said to "widen."
DEFAULT Failure of a borrower to pay what is owed when it is owed. The default
rate of high-yield bonds can be measured as the percentage of bond issuers who
are not meeting their obligations at a given point in time.
FEDERAL FUNDS RATE The interest rate that banks charge each other on overnight
loans. The Federal Reserve Board's Open Market Committee sets a target rate to
either make credit more easily available or tighten monetary policy in an
attempt to avoid economic imbalances such as high inflation.
INVERTED YIELD CURVE A market phenomenon in which intermediate-term bonds
(securities with one- to 10-year maturities) have higher income potential and
current yields than long-term bonds (securities with 10- to 30-year maturities).
Historically it has occurred during a period of rising short-term interest rates
and been viewed as an indicator of a future economic slowdown.
7
<PAGE> 8
PORTFOLIO STATISTICS
KEMPER HIGH YIELD FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION BY SECTOR ON 3/31/00
<S> <C> <C> <C>
TELECOMMUNICATIONS 26%
...............................................................................
CONSUMER CYCLICALS 17
...............................................................................
MEDIA 16
...............................................................................
BASIC INDUSTRY 13
...............................................................................
CAPITAL GOODS 10
...............................................................................
CONSUMER NONCYCLICALS 6
...............................................................................
ENERGY 3
...............................................................................
TECHNOLOGY 3
...............................................................................
TRANSPORTATION 2
...............................................................................
CASH AND EQUIVALENTS 4
-------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AVERAGE MATURITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 6.5 years 6.6 years
--------------------------------------------------------------------------------
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
BBB 2% 1%
................................................................................
BB 14 13
................................................................................
B 74 71
................................................................................
BELOW AND NONRATED 10 15
--------------------------------------------------------------------------------
100% 100%
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH YIELD FUND
Portfolio of Investments at March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENTS--.6%
State Street Bank and Trust Company,
6.05%, to be repurchased at
$22,318,246 on 04/03/2000 (Cost
$22,307,000)** $22,307,000 $ 22,307,000
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT & AGENCIES--.3%
U.S. Treasury Bond, 15.750%, 11/15/2001
(Cost $9,165,000) 8,000,000 9,106,240
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS --
U.S. $ DENOMINATED--.3%
Kappa Beheer BV, 10.625%, 07/15/2009
(Cost $11,920,650) 11,820,000 11,760,900
---------------------------------------------------------------------------------
<CAPTION>
CORPORATE BONDS--95.8%
<S> <C> <C> <C> <C> <C>
CONSUMER DISCRETIONARY--11.9%
AFC Enterprises, 10.250%, 05/15/2007 20,880,000 20,253,600
AMF Bowling, Inc, 10.875%, 06/15/2006 33,642,000 12,447,540
AMF Bowling, Inc., Step-up Coupon, 0%
to 03/15/2001, 12.250% to 03/15/2006 20,291,000 5,072,750
Advantica Restaurant Co., 11.250%,
01/15/2008 16,224,718 10,627,190
Avis Rent A Car, 11.000%, 05/01/2009 16,550,000 16,384,500
Avondale Mills, 10.250%, 05/01/2006 21,391,000 20,107,540
Boca Resorts, Inc., 9.875%, 04/15/2009 20,775,000 18,905,250
Cinemark USA, Inc., 8.500%, 08/01/2008 18,860,000 12,636,200
Cinemark USA, Inc., Series D, 9.625%,
08/01/2008 3,680,000 2,649,600
Cole National Group Inc., 9.875%,
12/31/2006 6,446,000 5,027,880
Cole National Group Inc., 8.625%,
08/15/2007 12,420,000 8,942,400
Color Tile, Inc., 10.750%, 12/15/2001 20,480,000 204,800
Eldorado Resorts, 10.500%, 08/15/2006 17,981,000 17,621,380
Finlay Enterprises, Inc., 9.000%,
05/01/2008 5,670,000 5,074,650
Finlay Fine Jewelry Co., 8.375%,
05/01/2008 14,570,000 13,113,000
Galey & Lord, Inc., 9.125%, 03/01/2008 13,850,000 4,986,000
Guitar Center Management, 11.000%,
07/01/2006 19,500,000 19,110,000
Harvey's Casino Resorts, 10.625%,
06/01/2006 11,830,000 11,948,300
Herff Jones, Inc., 11.000%, 08/15/2005 21,710,000 22,632,675
Hines Horticulture, Inc., 11.750%,
10/15/2005 12,183,000 11,939,340
Hollywood Entertainment Corp., Series
B, 10.630%, 08/15/2004 12,550,000 11,044,000
Horseshoe Gaming Holdings, 8.625%,
05/15/2009 1,640,000 1,496,500
Horseshoe Gaming L.L.C., 9.375%,
06/15/2007 5,470,000 5,210,175
Imperial Home Decor Group, Inc.,
11.000%, 03/15/2008 12,740,000 127,400
International Game Technology, 8.375%,
05/15/2009 14,580,000 13,122,000
J. Crew Group, Step-up Coupon, 0% to
10/15/2002, 13.125% to 10/15/2008 15,893,000 8,900,080
J. Crew Group, 10.375%, 10/15/2007 20,843,000 18,446,055
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Krystal Inc., 10.250%, 10/01/2007 $10,190,000 $ 9,349,325
Mohegan Tribal Gaming Authority,
8.750%, 01/01/2009 18,550,000 17,483,375
National Vision Association, Ltd.,
12.750%, 10/15/2005 23,240,000 8,134,000
Park Place Entertainment, Inc., 7.875%,
12/15/2005 1,830,000 1,683,600
Park Place Entertainment, Inc., 9.375%,
02/15/2007 18,090,000 17,682,975
Perkins Finance, L.P., 10.125%,
12/15/2007 15,450,000 14,986,500
Pillowtex Corp., 10.000%, 11/15/2006 540,000 194,400
Pillowtex Corp., 9.000%, 12/15/2007 2,700,000 972,000
Players International, 10.875%,
04/15/2005 10,075,000 10,452,812
Regal Cinemas, Inc., 9.500%, 06/01/2008 12,672,000 5,322,240
Regal Cinemas, Inc., 8.875%, 12/15/2010 6,220,000 2,363,600
Restaurant Co., Step-up Coupon, 0% to
05/15/2003, 11.250% to 05/15/2008 18,220,000 10,932,000
Sealy Mattress Co., Step-up Coupon, 0%
to 12/15/2002, 10.875% to 12/15/2007 14,610,000 10,153,950
Specialty Retailers, Inc., 8.500%,
07/15/2005 5,145,000 1,389,150
Specialty Retailers, Inc., 9.000%,
07/15/2007 19,715,000 985,750
Station Casinos, Inc., 10.125%,
03/15/2006 11,730,000 11,759,325
Station Casinos, Inc., 9.750%,
04/15/2007 8,050,000 7,909,125
---------------------------------------------------------------------------------
429,784,932
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.9%
Dyersburg Corp., 9.750%, 09/01/2007 18,155,000 8,169,750
Grove Worldwide LLC, 9.250%, 05/01/2008 11,800,000 5,428,000
Jafra Cosmetics International, Inc.,
11.750%, 05/01/2008 20,920,000 20,083,200
---------------------------------------------------------------------------------
33,680,950
------------------------------------------------------------------------------------------------------------------------
HEALTH--2.4%
ALARIS Medical Systems, Inc., Step-up
Coupon, 0% to 08/01/2003, 11.125% to
08/01/2008 13,730,000 4,324,950
Dade International, Inc., 11.125%,
05/01/2006 34,700,000 32,791,500
MEDIQ, Inc., 11.000%, 06/01/2008 4,850,000 485,000
Magellan Health Services, Inc., 9.000%,
02/15/2008 33,950,000 23,425,500
Mariner Post-Acute Network, Inc.,
Step-up Coupon, 0% to 11/01/2002,
10.500% to 11/01/2007 58,210,000 582,100
Mariner Post-Acute Network, Inc.,
10.500%, 08/01/2006 26,160,000 23,020,800
Vencor, Inc., 9.875%, 05/01/2005 10,520,000 1,998,800
---------------------------------------------------------------------------------
86,628,650
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--26.3%
21st Century Telecom Group, Inc.,
Step-up Coupon, 0% to 02/15/2003,
12.250% to 02/15/2008 22,040,000 15,207,600
21st Century Telecom Group, Inc.,
13.750%, 02/15/2010 3,740,000 3,366,000
Allegiance Telecom, Inc., 12.875%,
05/15/2008 26,090,000 27,916,300
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Call-Net Enterprises, Inc., Step-up
Coupon 0% to 08/15/2002, 9.270% to
08/15/2007 $ 3,940,000 $ 2,167,000
Call-Net Enterprises, Inc., Step-up
Coupon, 0% to 05/15/2004, 10.800% to
05/15/2009 8,940,000 4,112,400
Call-Net Enterprises, Inc., Step-up
Coupon, 0% to 8/15/2003, 8.940% to
08/15/2008 12,110,000 5,691,700
Call-Net Enterprises, Inc., 9.375%,
05/15/2009 7,640,000 5,882,800
Century Communications Corp., 8.375%,
12/15/2007 8,100,000 7,249,500
Communication Cellular, S.A., Step-up
Coupon, 0% to 09/29/2000, 14.125% to
03/01/2005 33,190,000 21,241,600
Crown Castle International Corp.,
Step-up Coupon, 0% to 11/15/2002,
10.625% to 11/15/2007 17,160,000 11,840,400
Crown Castle International Corp.,
9.500%, 08/01/2011 6,400,000 5,824,000
Crown Castle International Corp.,
Step-up Coupon, 0% to 08/01/2004,
11.25% to 08/01/2011 7,270,000 4,198,425
Dolphin Telecom PLC, Zero coupon,
05/15/2009 13,860,000 5,544,000
Esprit Telecom Group, PLC, 11.500%,
12/15/2007 23,270,000 20,710,300
Esprit Telecom Group, PLC, 10.875%,
06/15/2008 10,060,000 8,752,200
Global Crossing Holdings Ltd., 9.500%,
11/15/2009 30,150,000 29,170,125
Global Telesystems Group, 9.875%,
02/15/2005 8,960,000 7,257,600
Hermes Europe Railtel BV, 11.500%,
08/15/2007 1,340,000 1,259,600
ICG Holdings, Inc., Step-up Coupon, 0%
to 09/15/2000, 13.500% to 09/15/2005 44,660,000 42,203,700
IPC Communications, Inc., Step-up
Coupon, 0% to 11/01/2001, 10.875% to
05/01/2008 37,310,000 32,459,700
Impsat Corp., 12.375%, 06/15/2008 21,990,000 19,351,200
Intermedia Communications of Florida,
Inc., Step-up Coupon, 0% to
05/15/2001, 12.500% to 05/15/2006 21,080,000 19,288,200
Intermedia Communications of Florida,
Inc., Step-up Coupon, 0% to
07/15/2002, 11.250% to 07/15/2007 25,885,000 19,672,600
KMC Telecom Holdings, Inc., Step-up
Coupon, 0% to 02/15/2003, 12.500% to
02/15/2008 44,960,000 25,402,400
KMC Telecom Holdings, Inc., 13.500%,
05/15/2009 14,875,000 14,428,750
Level 3 Communications Inc., 11.250%,
03/15/2010 7,080,000 6,726,000
Level 3 Communications, Inc., 9.125%,
05/01/2008 15,260,000 13,161,750
MGC Communications, 13.000%, 10/01/2004 21,256,000 22,318,800
McLeod USA, Inc., Step-up Coupon, 0% to
03/01/2002, 10.500% to 03/01/2007 7,460,000 5,837,450
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
McLeod USA, Inc., 9.250%, 07/15/2007 $16,065,000 $ 15,101,100
McLeod USA, Inc., 9.500%, 11/01/2008 4,690,000 4,408,600
MetroNet Communications Corp., Step-up
Coupon, 0% to 11/01/2002, 10.750% to
11/01/2007 10,450,000 9,091,500
MetroNet Communications Corp., 12.000%,
08/15/2007 8,280,000 9,387,450
MetroNet Communications Corp., Step-up
Coupon, 0% to 06/15/2003, 9.950% to
06/15/2008 25,235,000 20,188,000
MetroNet Communications Corp., 10.625%,
11/01/2008 16,190,000 17,970,900
Metromedia Fiber Network, Inc.,
10.000%, 11/15/2008 22,590,000 21,686,400
Millicom International Cellular, S.A.,
Step-up Coupon, 0% to 06/01/2001,
13.500% to 06/01/2006 45,005,000 37,354,150
Netia Holdings, 10.250%, 11/01/2007 5,470,000 4,840,950
Nextel Communications, Inc., Step-up
Coupon, 0% to 02/15/2003, 9.950% to
02/15/2008 3,650,000 2,482,000
Nextel Communications, Inc., Step-up
Coupon, 0% to 10/31/2002, 9.750% to
10/31/2007 4,810,000 3,367,000
Nextel Communications, Inc., 9.375%,
11/15/2009 58,350,000 53,827,875
Nextlink Communications, Inc., 12.500%,
04/15/2006 27,230,000 28,046,900
Nextlink Communications, Inc., 10.750%,
11/15/2008 22,690,000 21,839,125
PTC International Finance, Step-up
Coupon, 0% to 07/01/2002, 10.750% to
07/01/2007 16,630,000 11,641,000
PTC International Finance, 11.250%,
12/01/2009 3,700,000 3,774,000
Price Communications Wireless, 9.125%,
12/15/2006 21,710,000 21,058,700
Primus Telecommunications Group,
11.750%, 08/01/2004 21,226,000 20,376,960
Primus Telecommunications Group,
11.250%, 01/15/2009 5,560,000 5,115,200
Primus Telecommunications Group,
12.750%, 10/15/2009 5,400,000 5,238,000
Rogers Cantel, 9.750%, 06/01/2016 28,795,000 31,170,588
SBA Communications Corp., Step-up
Coupon, 0% to 03/01/2003, 12.000% to
03/01/08 16,390,000 10,571,550
Telecorp PCS, Inc., Step-up-Coupon, 0%
to 4/15/2004, 11.625 to 04/15/2009 8,310,000 5,110,650
Teligent, Inc., Step-up Coupon, 0% to
03/01/2003, 11.500% to 03/01/2008 14,650,000 7,911,000
Teligent, Inc., 11.500%, 12/01/2007 15,860,000 14,274,000
Tritel PCS Inc., Step-up Coupon, 0% to
05/01/2004, 12.75% to 05/15/2009 19,580,000 12,041,700
Triton Communications, L.L.C., Step-up
Coupon, 0% to 05/01/2003, 11.000% to
05/01/2008 44,100,000 29,877,750
U.S. Xchange, L.L.C., 15.000%,
07/1/2008 13,830,000 10,234,200
USA Mobile Communications Holdings,
Inc., 14.000%, 11/01/2004 7,185,000 6,682,050
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
United Pan-Europe Communications,
10.875%, 11/01/2007 $ 8,040,000 $ 7,718,400
Versatel Telecom, 13.250%, 05/15/2008 11,330,000 11,613,250
Versatel Telecom, 13.250%, 05/15/2008 5,960,000 6,109,000
Versatel Telecom, 11.875%, 07/15/2009 4,540,000 4,449,200
Viatel, Inc., Step-up Coupon, 0% to
04/15/2003, 12.500% to 04/15/2008 23,300,000 12,815,000
Viatel, Inc., 11.250%, 04/15/2008 4,290,000 3,882,450
Viatel, Inc., 11.500%, 03/15/2009 5,405,000 4,972,600
Voicestream Wireless Corp., 10.375%,
11/15/2009 24,420,000 24,420,000
Winstar Equipment II, 12.500%,
03/15/2004 13,430,000 15,310,200
---------------------------------------------------------------------------------
944,201,498
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--2.2%
HMH Properties, 7.875%, 08/01/2008 30,880,000 25,784,800
Intertek Finance, PLC, 10.250%,
11/01/2006 8,730,000 7,420,500
Spectrasite Holdings, Inc., Step-up
Coupon, 0% to 4/15/2004, 11.250% to
4/15/2009 26,430,000 14,470,425
Spectrasite Holdings, Inc., Step-up
Coupon, 0% to 7/15/2003, 12.000% to
07/15/2008 35,290,000 21,879,800
Spectrasite Holdings, Inc., 10.750%,
03/15/2010 10,500,000 10,080,000
---------------------------------------------------------------------------------
79,635,525
------------------------------------------------------------------------------------------------------------------------
MEDIA--16.0%
AMFM, Inc., Step-up Coupon, 0% to
02/01/2002, 12.750% to 02/01/2009 25,000,000 22,250,000
AMFM, Inc., 9.000%, 10/01/2008 5,570,000 5,556,075
AMFM, Inc., 8.000%, 11/01/2008 21,930,000 21,655,875
Adelphia Communications Corp., 9.375%,
11/15/2009 11,650,000 10,951,000
American Lawyer Media, Inc., Step-up
Coupon, 0% to 12/15/2002, 12.250% to
12/15/2008* 6,480,000 4,114,800
Australis Holdings, Step-up Coupon 0%
to 11/01/2000, 15.000% to 11/01/2002 49,213,000 492,130
Australis Holdings, Zero Coupon,
11/01/2000 1,527,070 1,172,026
Avalon Cable Holdings LLC, Step-up
Coupon, 0% to 12/01/2003, 11.875% to
12/01/2008 21,170,000 13,337,100
CSC Holdings, Inc., 9.250%, 11/01/2005 12,740,000 12,931,100
CSC Holdings, Inc., Senior Note,
7.250%, 07/15/2008 5,500,000 5,101,250
CSC Holdings, Inc., 8.125%, 07/15/2009 5,200,000 5,083,000
CSC Holdings, Inc., 8.125%, 08/15/2009 15,156,000 14,814,990
CSC Holdings, Inc., 10.500%, 05/15/2016 27,375,000 29,291,250
Cablevision Systems Corp., 7.875%,
12/15/2007 4,100,000 3,956,500
Century Communications Corp., 9.500%,
03/1/2005 1,920,000 1,862,400
Chancellor Media Corp., 8.125%,
12/15/2007 6,070,000 6,009,300
Charter Communication Holdings LLC,
8.250%, 04/01/2007 46,110,000 41,268,450
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Charter Communications Holdings LLC,
Step-Up Coupon, 0% to 04/01/2004,
9.92% to 04/01/2011 $25,580,000 $ 14,069,000
Charter Communications Holdings LLC,
10.000%, 04/01/2009 11,380,000 10,924,800
Comcast UK Cable Partners, Ltd.,
Step-up Coupon 0% to 11/15/2000,
11.2000% to 11/15/2007 10,225,000 9,662,625
Diamond Cable Communications, PLC,
Step-up Coupon, 0% to 12/15/2000,
11.750% to 12/15/2005 14,660,000 13,633,800
Echostar DBS Corp., 9.250%, 02/01/2006 18,950,000 18,002,500
Echostar DBS Corp., 9.375%, 02/01/2009 13,285,000 12,487,900
Frontiervision Holdings, LP, Step-up
Coupon, 0% to 09/15/2001,
11.875% to 09/15/2007 11,839,000 10,240,735
Frontiervision LP, 11.000%, 10/15/2006 14,450,000 14,739,000
Interep National Radio Sales, Inc.,
10.000%, 07/01/2008 14,790,000 13,237,050
NTL Communications Corp., Step-up
Coupon 0% to 10/01/2003,
12.375% to 10/01/2008 7,190,000 4,709,450
NTL, Inc., 11.500%, 10/01/2008 56,285,000 57,410,700
Outdoor Systems, Inc., 9.375%,
10/15/2006 32,270,000 33,359,112
Panavision, Inc., Step-up Coupon, 0% to
02/01/2002, 9.625% to 02/01/2006 19,840,000 10,118,400
Renaissance Media Group, Step-up
Coupon, 0% to 04/15/2003,
10.000% to 04/15/2008 14,545,000 9,454,250
Rogers Cablesystems Ltd., 10.000%,
03/15/2005 8,120,000 8,526,000
SFX Entertainment, Inc., 9.125%,
02/01/2008 12,840,000 12,807,900
SFX Entertainment, Inc., 9.125%,
12/01/2008 22,600,000 22,543,500
Sinclair Broadcasting Group, Inc.,
8.750%, 12/15/2007 7,190,000 6,183,400
Star Choice Communications, Inc.,
13.000%, 12/15/2005 3,850,000 3,907,750
TeleWest Communications, PLC, Step-up
Coupon, 0% to 10/01/2000,
11.000% to 10/01/2007 35,309,000 32,925,642
TeleWest Communications, PLC, 9.625%,
10/01/2006 13,195,000 12,931,100
TeleWest Communications, PLC, 11.250%,
11/01/2008 19,430,000 19,915,750
Transwestern Publishing, Step-up
Coupon, 0% to 11/15/2002, 11.875% to
11/15/2008 5,885,000 4,237,200
Transwestern Publishing, 9.625%,
11/15/2007 8,650,000 8,282,375
United International Holdings, Step-up
Coupon, 0% to 02/15/2003,
10.750% to 02/15/2008 20,400,000 13,464,000
---------------------------------------------------------------------------------
577,621,185
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--3.8%
Coinmach Corp., 11.750%, 11/15/2005 51,760,000 51,760,000
ImPac Group, Inc., 10.125%, 03/15/2008 22,800,000 18,924,000
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Integrated Electrical Services, Inc.,
9.375%, 02/01/2009 $ 8,500,000 $ 7,140,000
Kindercare Learning Centers, Inc.,
9.500%, 02/15/2009 25,000,000 22,500,000
La Petite Academy, Inc., 10.000%,
05/15/2008 12,320,000 7,515,200
Spincycle, Inc., Step-up Coupon, 0% to
05/01/2001, 12.750% to 05/01/2005 26,295,000 7,888,500
Verio, Inc., 11.250%, 12/01/2008 7,695,000 7,541,100
Verio, Inc., 10.625%, 11/15/2009 15,300,000 14,764,500
---------------------------------------------------------------------------------
138,033,300
------------------------------------------------------------------------------------------------------------------------
DURABLES--2.2%
Accuride Corp., 9.250%, 02/01/2008 9,785,000 8,415,100
Airxcel, 11.000%, 11/15/2007 16,475,000 14,333,250
DeCrane Aircraft Holdings, Inc.,
12.000%, 09/30/2008 13,840,000 12,179,200
Fairchild Corp., 10.750%, 04/15/2009 7,830,000 4,228,200
Transdigm, Inc., 10.375%, 12/01/2008 16,280,000 12,698,400
United Rentals, Inc., 9.250%,
01/15/2009 20,170,000 17,900,875
United Rentals, Inc., 9.000%,
04/01/2009 8,670,000 7,586,250
---------------------------------------------------------------------------------
77,341,275
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--16.9%
Agriculture, Mining and Chemicals,
Inc., 10.750%, 09/30/2003 24,185,000 18,380,600
Atlantis Group, Inc., 11.000%,
02/15/2003 25,355,000 25,355,000
BPC Holdings Corp., 12.500%, 6/15/2006 13,051,000 11,745,900
Berry Plastics Corp., 12.250%,
04/15/2004 20,499,000 20,191,515
Consolidated Container Capital, Inc.,
10.125%, 07/15/2009 8,360,000 8,171,900
Consumers International, 10.250%,
04/01/2005 15,150,000 9,544,500
Day International Group, Inc., 11.125%,
06/01/2005 22,087,000 22,307,870
Delco Remy International, 10.625%,
08/01/2006 22,195,000 21,640,125
Eagle-Picher Holdings, Inc., 9.375%,
03/01/2008 12,260,000 10,421,000
Foamex, L.P., 13.500%, 08/15/2005 17,810,000 16,563,300
Fonda Group, 9.500%, 03/01/2007 15,720,000 13,047,600
GS Technologies, 12.000%, 09/01/2004 13,795,000 7,449,300
GS Technologies, 12.250%, 10/01/2005 16,830,000 8,919,900
Gaylord Container Corp., 9.750%,
06/15/2007 22,680,000 20,412,000
Gaylord Container Corp., 9.875%,
02/15/2008 4,615,000 3,738,150
Graham Packaging Co., Step-up Coupon,
0% to 01/15/2003, 10.750% to
01/15/2009 7,840,000 4,155,200
Graham Packaging Co., 8.750%,
01/15/2008 8,730,000 7,071,300
Grove Holdings LLC, Step-up Coupon, 0%
to 05/01/2003, 11.625% to 05/01/2009 3,865,000 347,850
Grove Holdings LLC, 14.500%, 05/01/2010 10,271,927 513,596
Hayes Wheels International, Inc.,
11.000%, 07/15/2006 23,070,000 22,608,600
Huntsman Package, 11.750%, 12/01/2004 36,635,000 36,635,000
Knoll, Inc., 10.875%, 03/15/2006 17,344,000 17,690,880
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Millar Western Forest Products, Ltd.,
9.875%, 05/15/2008 $11,230,000 $ 10,668,500
Motors and Gears, Inc., 10.750%,
11/15/2006 9,190,000 8,914,300
NL Industries, Inc. , Senior Note,
11.750%, 10/15/2003 45,814,000 46,959,350
Neenah Corp., 11.125%, 05/01/2007 12,290,000 10,569,400
Plainwell, Inc., 11.000%, 03/01/2008 18,460,000 4,615,000
Printpack, Inc., 9.875%, 08/15/2004 6,280,000 6,060,200
Printpack, Inc., 10.625%, 08/15/2006 22,640,000 21,734,400
Riverwood International Corp., 10.250%,
04/01/2006 9,390,000 9,108,300
Riverwood International Corp., 10.625%,
08/01/2007 13,041,000 12,780,180
Riverwood International Corp., 10.875%,
04/01/2008 57,900,000 53,847,000
SF Holdings Group, Inc., Step-up
Coupon, 0% to 03/15/2003, 12.750% to
03/15/08 23,110,000 12,306,075
Spinnaker Industries, 10.750%,
10/15/2006 12,150,000 9,963,000
Stone Container Corp., 12.250%,
04/01/2002 6,170,000 6,185,425
Stone Container Corp., 10.750%,
10/01/2002 2,915,000 2,987,875
Stone Container Corp., 11.500%,
08/15/2006 7,800,000 8,034,000
Tenneco Automotive, Inc., 11.625%,
10/15/2009 12,960,000 12,636,000
Terex Corp., 8.875%, 04/01/2008 16,760,000 14,665,000
Terex Corp., 8.875%, 04/01/2008 5,230,000 4,576,250
Terra Industries, Inc., 10.500%,
06/15/2005 8,175,000 6,049,500
Texas Petrochemicals, 11.125%,
07/01/2006 10,800,000 8,964,000
U.S. Can Corp., 10.125%, 10/15/2006 27,679,000 29,062,950
---------------------------------------------------------------------------------
607,597,791
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.3%
PSINet, Inc., 10.000%, 02/15/2005 3,900,000 3,646,500
PSINet, Inc., 11.500%, 11/01/2008 16,620,000 16,453,800
PSINet, Inc., 11.000%, 08/01/2009 27,010,000 26,469,800
---------------------------------------------------------------------------------
46,570,100
------------------------------------------------------------------------------------------------------------------------
ENERGY--2.1%
Benton Oil & Gas Co., 11.625%, 05/01/03 8,300,000 5,644,000
Continental Resources, Inc., 10.250%,
08/01/2008 17,300,000 15,310,500
Key Energy Services, Inc., 14.000%,
01/15/2009 7,780,000 8,441,300
Pen Holdings, Inc., 9.875%, 06/15/2008 7,870,000 6,689,500
Pride International, Inc., 10.000%,
06/01/2009 14,320,000 14,033,600
R&B Falcon Corp., 11.000%, 03/15/2006 6,320,000 6,604,400
R&B Falcon Corp., 9.500%, 12/15/2008 5,320,000 5,107,200
RAM Energy, 11.500%, 02/15/2008 6,720,000 3,292,800
Stone Energy Corp., 8.750%, 09/15/2007 12,740,000 11,848,200
---------------------------------------------------------------------------------
76,971,500
------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--3.4%
Euramax International, PLC, 11.250%,
10/01/2006 15,405,000 15,019,875
MMI Products, Inc., 11.250%, 04/15/2007 14,900,000 15,049,000
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Metal Management, Inc., 10.000%,
05/15/2008 $21,680,000 $ 16,043,200
Metals USA, Inc., 8.625%, 02/15/2008 24,820,000 22,338,000
Renco Steel Holdings Co., Series B,
10.875%, 02/01/2005 28,530,000 25,391,700
Republic Technologies International,
13.750%, 07/15/2009 29,690,000 7,422,500
---------------------------------------------------------------------------------
101,264,275
------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--4.1%
Congoleum Corp., 8.625%, 08/01/2008 20,770,000 17,446,800
Del Webb Corp., 9.750%, 01/15/2008 16,290,000 13,439,250
Dimac Corp., 12.500%, 10/01/2008 21,510,000 215,100
Forecast Group, L.P., 11.375%,
12/15/2000 14,620,000 14,620,000
Fortress Group, 13.750%, 05/15/2003 14,080,000 8,025,600
Hovnanian Enterprises, Inc., 9.750%,
06/01/2005 6,315,000 5,557,200
Hovnanian Enterprises, Inc., 9.125%,
05/01/2009 11,790,000 10,021,500
Lennar Corp., 7.625%, 03/01/2009 3,750,000 3,187,500
Nortek, Inc., 9.875%, 03/01/2004 15,675,000 14,695,312
Nortek, Inc., 9.125%, 09/01/2007 15,600,000 14,274,000
Nortek, Inc., Series A, 8.875%,
08/01/2008 6,430,000 5,787,000
Ryland Group, Inc., 8.250%, 04/01/2008 14,950,000 12,109,500
Standard Pacific Corp., 8.000%,
02/15/2008 3,400,000 2,958,000
Standard Pacific Corp., 8.500%,
04/01/2009 6,760,000 5,746,000
Toll Corp., 8.125%, 02/01/2009 1,400,000 1,218,000
Toll Corp., 8.000%, 05/01/2009 2,830,000 2,433,800
Toll Corp., 7.75%, 09/15/2007 2,280,000 1,960,800
Toll Corp., 8.75%, 11/15/2006 1,900,000 1,748,000
U.S. Home Corp., Senior Subordinated
Notes, 8.875%, 02/15/2009 11,370,000 11,142,600
---------------------------------------------------------------------------------
146,585,962
------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.9%
Petro Stopping Centers, 10.500%,
02/01/2007 25,150,000 21,880,500
TFM, S.A. de C.V., 10.250%, 06/15/2007 17,350,000 16,222,250
Trans World Airlines, Inc., 11.375%,
03/01/2006 10,580,000 3,597,200
Transtar Holdings, Inc., 13.375%,
12/15/2003 10,100,000 10,377,750
Travelcenters America, 10.250%,
04/01/07 16,380,000 15,561,000
---------------------------------------------------------------------------------
67,638,700
------------------------------------------------------------------------------------------------------------------------
UTILITIES--.4%
Azurix Corp, 10.750%, 02/15/2010 9,000,000 8,820,000
Azurix Corp., 10.375%, 02/15/2007 7,460,000 7,385,400
---------------------------------------------------------------------------------
16,205,400
---------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $4,004,049,803) $3,429,761,043
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED STOCKS--2.0% SHARES VALUE
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--.9%
CELLULAR TELEPHONE--.4%
Dobson Communications, PIK 12,827 $ 12,955,270
---------------------------------------------------------------------------------
TELEPHONE/
COMMUNICATIONS--.5%
Nextel Communications, Inc., PIK 9,218 8,296,358
---------------------------------------------------------------------------------
World Access, Inc.* 10,856 10,747,440
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
FINANCIAL--.4%
REAL ESTATE
Crown American Realty Trust 354,060 13,144,478
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MEDIA--.5%
BROADCASTING &
ENTERTAINMENT
Sinclair Capital 210,400 18,936,000
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--.2%
CONTAINERS &
PAPER--.1%
SF Holdings Group, Inc., PIK 523 2,353,500
---------------------------------------------------------------------------------
MACHINERY/COMPONENTS
CONTROLS--.1%
Eagle-Picher Holdings, Inc. 1,750 4,900,000
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ENERGY--0.0%
OIL & GAS PRODUCTION
Clark USA, PIK 43,760 875,200
---------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $96,254,321) $ 72,208,246
---------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS--1.0%
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--.8%
TELEPHONE/
COMMUNICATIONS
21st Century Telecom Group, Inc.,
Warrants* 2,850 712,500
AT&T Canada Inc.* 28,392 1,731,912
Benedek Communications Corp., Warrants* 90,000 180,000
Communicacion Cellular, S.A., Warrants* 30,800 770,000
Econophone, Inc., Warrants* 19,865 3,476,375
Intelcom Group, Inc., Warrants* 67,617 2,231,361
Intermedia Communications of Florida,
Inc., Warrants* 16,300 3,178,500
KMC Telecom Holdings, Inc., Warrants* 23,900 239,000
MGC Communications* 97,655 6,982,333
Primus Telecommunications Group,
Warrants* 13,050 809,100
Star Choice Communications, Warrants* 233,916 1,578,933
Tele1 Europe Holding AB -- ADR* 122,760 2,347,785
---------------------------------------------------------------------------------
24,237,799
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
<S> <C> <C> <C> <C> <C>
FINANCIAL--0.0%
OTHER FINANCIAL COMPANIES
Ono Finance PLC, Warrants* 6,960 $ 1,044,000
---------------------------------------------------------------------------------
MEDIA--0.0%
CABLE TELEVISION
UIH Australia Pacific, Inc., Warrants* 14,150 424,500
---------------------------------------------------------------------------------
MISCELLANEOUS
Australis Holdings, Warrants* 49,523 0
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--0.0%
MISCELLANEOUS CONSUMER
SERVICES
Spincycle, Inc., Warrants* 26,295 263
---------------------------------------------------------------------------------
PRINTING/PUBLISHING
American Banknote Corp., Warrants* 16,850 169
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DURABLES--0.0%
AEROSPACE
Decrane Holdings Co., Warrants* 15,830 0
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--.2%
CONTAINERS & PAPER
Gaylord Container Corp.* 1,353,034 8,625,592
SF Holdings Group, Inc.* 6,176 62
---------------------------------------------------------------------------------
8,625,654
------------------------------------------------------------------------------------------------------------------------
ENERGY--0.0%
OIL/GAS TRANSMISSION
Empire Gas Corp., Warrants* 31,795 3,180
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--0.0%
STEEL & METALS
Gulf States Steel, Warrants* 29,670 297
Republic Technologies International,
Warrants* 29,690 297
---------------------------------------------------------------------------------
594
MISCELLANEOUS
Bar Technologies, Warrants* 9,370 187,400
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--0.0%
BUILDING MATERIALS
Waxman Industries, Inc., Warrants* 800,453 8,004
---------------------------------------------------------------------------------
HOMEBUILDING
Capital Pacific Holdings, Warrants* 54,431 27,216
---------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $12,426,194) 34,558,779
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $4,156,122,968)(a) $3,579,702,208
---------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of interest or has filed for bankruptcy.
** Repurchase agreements are fully collateralized by U.S. Treasury or Government
agency securities.
(a) The cost for federal income tax purposes was $4,158,162,192. At March 31,
2000, net unrealized depreciation for all securities based on tax cost was
$578,459,984. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$50,697,313 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $629,157,297.
PIK denotes that interest or dividend is paid in kind.
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
As of March 31, 2000 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $4,156,122,968) $3,579,702,208
------------------------------------------------------------------------------
Receivable for investments sold 57,184,215
------------------------------------------------------------------------------
Interest receivable 101,885,406
------------------------------------------------------------------------------
Receivable for Fund shares sold 3,546,771
------------------------------------------------------------------------------
TOTAL ASSETS 3,742,318,600
------------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 22,825,359
------------------------------------------------------------------------------
Payable for investments purchased 9,407,608
------------------------------------------------------------------------------
Payable for Fund shares redeemed 17,944,459
------------------------------------------------------------------------------
Accrued management fee 1,524,529
------------------------------------------------------------------------------
Other accrued expenses and payables 4,492,931
------------------------------------------------------------------------------
Total liabilities 56,194,886
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $3,686,123,714
------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
------------------------------------------------------------------------------
Undistributed net investment income $ 8,223,954
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (576,420,760)
------------------------------------------------------------------------------
Accumulated net realized gain (loss) (293,757,477)
------------------------------------------------------------------------------
Paid-in capital 4,548,077,997
------------------------------------------------------------------------------
NET ASSETS, AT VALUE $3,686,123,714
------------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($2,590,850,495 / 377,265,037 outstanding shares of
beneficial interest, $.01 par value, unlimited number of
shares authorized) $6.87
------------------------------------------------------------------------------
Maximum offering price per share (100/95.50 of $6.87) $7.19
------------------------------------------------------------------------------
CLASS B SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($936,458,232
/ 136,487,058 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized) $6.86
------------------------------------------------------------------------------
CLASS C SHARES
Net asset value, offering and redemption price (subject to
contingent deferred sales charge) per share ($144,922,546
/ 21,067,032 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized) $6.88
------------------------------------------------------------------------------
CLASS I SHARES
Net asset value, offering and redemption price per share
($13,892,441 / 2,023,547 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares
authorized) $6.87
------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 2000 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 6,191,192
-----------------------------------------------------------------------------
Interest 247,288,256
-----------------------------------------------------------------------------
Total income 253,479,448
-----------------------------------------------------------------------------
Expenses:
Management fee 11,184,401
-----------------------------------------------------------------------------
Services to shareholders 4,091,951
-----------------------------------------------------------------------------
Custodian fees 70,575
-----------------------------------------------------------------------------
Distribution services fees 4,742,470
-----------------------------------------------------------------------------
Administrative services fees 5,270,201
-----------------------------------------------------------------------------
Auditing 55,034
-----------------------------------------------------------------------------
Legal 186,459
-----------------------------------------------------------------------------
Trustees' fees and expenses 44,765
-----------------------------------------------------------------------------
Reports to shareholders 441,888
-----------------------------------------------------------------------------
Registration fees 76,687
-----------------------------------------------------------------------------
Other 83,951
-----------------------------------------------------------------------------
Total expenses, before expense reductions 26,248,382
-----------------------------------------------------------------------------
Expense reductions (145,996)
-----------------------------------------------------------------------------
Total expenses, after expense reductions 26,102,386
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 227,377,062
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (100,627,689)
-----------------------------------------------------------------------------
Futures 786,733
-----------------------------------------------------------------------------
(99,840,956)
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (104,153,633)
-----------------------------------------------------------------------------
Net gain (loss) on investment transactions (203,994,589)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 23,382,473
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED
2000 SEPTEMBER 30,
(UNAUDITED) 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 227,377,062 488,708,705
----------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (99,840,956) (138,276,269)
----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (104,153,633) (123,431,127)
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 23,382,473 227,001,309
----------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (161,705,463) (341,058,994)
----------------------------------------------------------------------------------------------
Class B (55,096,180) (122,442,895)
----------------------------------------------------------------------------------------------
Class C (8,767,336) (18,351,826)
----------------------------------------------------------------------------------------------
Class I (974,595) (2,107,052)
----------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 820,968,237 2,668,257,234
----------------------------------------------------------------------------------------------
Reinvestment of distributions 127,266,335 283,361,413
----------------------------------------------------------------------------------------------
Cost of shares redeemed (1,340,344,903) (3,197,526,043)
----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (392,110,331) (245,907,396)
----------------------------------------------------------------------------------------------
Increase (decrease) in net assets (595,271,432) (502,866,854)
----------------------------------------------------------------------------------------------
Net assets at beginning of period 4,281,395,146 4,784,262,000
----------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $8,223,954 and $7,390,468,
respectively) $ 3,686,123,714 4,281,395,146
----------------------------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 ------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.23 7.68 8.50 8.23 8.01 7.74
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40(a) .78(a) .76(a) .76 .76 .83
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.37) (.46) (.05) 1.07 .23 .20
-------------------------------------------------------------------------------------------------------
Total from investment operations .03 .32 .77 .80 .77 .76
-------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.39) (.77) (.77) (.80) (.77) (.76)
-------------------------------------------------------------------------------------------------------
Total distributions (.39) (.77) (.77) (.80) (.77) (.76)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.87 7.23 7.68 8.50 8.23 8.01
-------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) .38** 4.11 (.95) 13.69 13.00 14.10
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 2,591 2,945 3,304 3,463 2,909 2,493
-------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.00* .96 .89 .88 .88 .90
-------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .99* .96 .89 .88 .88 .90
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 11.00* 10.15 9.09 9.18 9.45 10.74
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47* 67 92 91 102 99
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 ------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.22 7.67 8.49 8.22 8.00 7.73
-------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37(a) .71(a) .68(a) .69 .69 .76
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.37) (.45) (.80) .31 .23 .20
-------------------------------------------------------------------------------------------------------
Total from investment operations -- .26 (.12) 1.00 .92 .96
-------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.71) (.70) (.73) (.70) (.69)
-------------------------------------------------------------------------------------------------------
Total distributions (.36) (.71) (.70) (.73) (.70) (.69)
-------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.86 7.22 7.67 8.49 8.22 8.00
-------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) (.03)** 3.26 (1.82) 12.72 12.02 13.09
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 936 1,145 1,292 1,317 1,099 993
-------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.82* 1.78 1.76 1.76 1.77 1.77
-------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.81* 1.78 1.76 1.76 1.77 1.77
-------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 10.18* 9.33 8.22 8.30 8.56 9.87
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47* 67 92 91 102 99
-------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
2000 ----------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.24 7.69 8.52 8.24 8.02 7.75
------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37(a) .72(a) .69(a) .70 .69 .77
------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.37) (.46) (.82) .31 .23 .20
------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .26 (.13) 1.01 .92 .97
------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.71) (.70) (.73) (.70) (.70)
------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.71) (.70) (.73) (.70) (.70)
------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.88 7.24 7.69 8.52 8.24 8.02
------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) (.02)** 3.30 (1.89) 12.88 12.06 13.13
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 145 176 171 125 58 17
------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.79* 1.73 1.71 1.71 1.71 1.71
------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.78* 1.73 1.71 1.71 1.71 1.71
------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 10.21* 9.38 8.27 8.35 8.62 9.93
------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47* 67 92 91 102 99
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS I
FOR THE PERIOD
SIX MONTHS DECEMBER 29, 1994
ENDED (COMMENCEMENT OF
MARCH 31, YEAR ENDED SEPTEMBER 30, OPERATIONS) TO
2000 ------------------------------------- SEPTEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.22 7.68 8.50 8.23 8.01 7.55
-----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .42(a) .82(a) .76(a) .78 .78 .66
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.37) (.48) (.78) 0.31 .23 .39
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .34 (.02) 1.08 1.01 1.05
-----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.40) (.80) (.80) (.82) (.79) (.59)
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.80) (.80) (.82) (.79) (.59)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.87 7.22 7.68 8.50 8.23 8.01
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (B) .66** 4.36 (.66) 13.96 13.32 14.37**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 14 15 17 35 31 26
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) .65* .62 .60 .62 .61 .61*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .64* .62 .60 .62 .61 .61*
-----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 11.35* 10.49 9.38 9.44 9.72 10.70*
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47* 67 92 91 102 99*
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper High Yield Fund (the "Fund") is diversified
series of Kemper High Yield Series (the "Trust"),
which is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an
open-end, management investment company organized
as a Massachusetts business trust.
The Fund offers multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of the Fund have
equal rights with respect to voting subject to
class specific arrangements.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Portfolio debt
securities purchased with an original maturity
greater than sixty days are valued by pricing
agents approved by the officers of the Trust, whose
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. All other securities are
valued at their fair value as determined in good
faith by the Valuation Committee of the Board of
Trustees.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
period, the Fund sold interest rate futures to
hedge against declines in the value of portfolio
securities.
Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the Fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction,
the Fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the Fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
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.
In addition, from November 1, 1998 through
September 30, 1999 the fund incurred approximately
$97,478,000 of net realized capital losses. As
permitted by tax regulations, the Fund intends to
elect to defer these losses and treat them as
arising in the fiscal year ended September 30,
2000.
At September 30, 1999, the fund had a net tax basis
capital loss carryforward of approximately
$90,019,000 which may be applied against any
realized net taxable capital gains of each
succeeding year until fully utilized or until
September 30, 2003 ($46,033,000) or September 30,
2004 ($6,237,000) or September 30, 2007
($37,749,000), the respective expiration dates.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made monthly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
losses from investment transactions are recorded on
an identified cost basis. All discounts are
accreted for both tax and financial reporting
purposes.
--------------------------------------------------------------------------------
2
PURCHASES AND SALES
OF SECURITIES For the six months ended March 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $ 944,012,762
Proceeds from sales 1,387,933,516
The aggregate face value of futures contracts
opened and closed during the six months ended March
31, 2000 was $121,211,550.
--------------------------------------------------------------------------------
3
TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Fund 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 $11,184,401 for the
six months ended March 31, 2000, which was
equivalent to an annualized effective rate of .53%.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of Class A shares for the six months ended March
31, 2000 are $230,358.
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the 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, 2000 are
$6,703,028, of which $648,551 is unpaid at March
31, 2000.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets. KDI in turn has
various agreements with financial services firms
that provided 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, 2000 are
$5,270,201, of which $1,458,000 is unpaid at March
31, 2000.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of
$2,882,472 for the six months ended March 31, 2000
of which $2,060,635 is unpaid at March 31, 2000.
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,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $44,765 to independent
trustees.
27
<PAGE> 28
NOTES TO FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 78,439,604 $ 560,669,237 220,715,377 $ 1,686,405,480
------------------------------------------------------------------------------------------
Class B 21,100,604 150,646,397 79,949,454 609,882,550
------------------------------------------------------------------------------------------
Class C 6,861,922 49,190,112 24,394,873 187,139,209
------------------------------------------------------------------------------------------
Class I 1,529,138 10,926,291 4,010,745 30,630,024
------------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 12,969,697 92,085,585 26,426,040 201,825,296
------------------------------------------------------------------------------------------
Class B 4,112,039 29,160,269 8,975,843 68,240,173
------------------------------------------------------------------------------------------
Class C 710,208 5,052,741 1,462,149 11,187,155
------------------------------------------------------------------------------------------
Class I 136,393 967,740 276,170 2,108,789
------------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (128,658,702) (914,246,342) (289,812,007) (2,223,309,916)
------------------------------------------------------------------------------------------
Class B (40,427,130) (286,581,642) (78,710,000) (603,232,381)
------------------------------------------------------------------------------------------
Class C (10,869,564) (77,655,450) (23,782,312) (182,865,557)
------------------------------------------------------------------------------------------
Class I (1,730,954) (12,325,269) (4,409,042) (33,918,218)
------------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 6,893,876 $ 49,536,200 20,032,269 154,199,971
------------------------------------------------------------------------------------------
Class B (6,821,904) (49,536,200) (20,048,704) (154,199,971)
------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $(392,110,331) $ (245,907,396)
------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the six months ended March 31,
2000, the Fund's custodian and transfer agent fees
were reduced by $22,826 and $123,170, respectively
under these arrangements.
--------------------------------------------------------------------------------
6
LINE OF CREDIT The Fund and several Kemper Funds (the
"Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemption
requests that otherwise might require the untimely
disposition of securities. The Participants are
charged an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the
agreement.
28
<PAGE> 29
NOTES
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS ADDITIONAL OFFICERS
JOHN W. BALLANTINE MARK S. CASADY HARRY E. RESIS, JR.
Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
LINDA C. COUGHLIN MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
ROBERT B. HOFFMAN BRENDA LYONS
Trustee KATHRYN L. QUIRK Assistant Treasurer
Vice President
DONALD R. JONES
Trustee
THOMAS W. LITTAUER
Trustee and Vice President
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02109
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
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 (5/25/00) 1111810
