<PAGE> 1
DEAR SHAREHOLDER:
We are pleased to provide you with an overview of the performance of Kemper High
Income Trust and the high yield market.
PERFORMANCE HIGHLIGHTS
- Morningstar* gave the fund a 4-star "above average" overall rating as of
5/26/95. The fund also received 4 stars for the 3-year and 5-year periods
ended 4/28/95.
- According to Lipper Analytical Services,** the fund was ranked 15 out of 25
closed-end high yield funds for the six-month period ended May 31, 1995.
- The fund returned 11.15% based on net asset value for the six-month period
ended May 31, 1995. The fund's total return for the period based on market
price was 14.76%.
- The fund's closing price on May 31, 1995, was $9.13. Based on a net asset
value of $8.78 on this same date, the fund was trading at a 3.93% premium.
DIVIDEND REVIEW
The fund continues to deliver a high level of current income, as reflected in
its 10.25% distribution rate based on net asset value and 9.86% distribution
rate based on market price, at the end of May.
MARKET REVIEW
It is a pleasure to report that since we last wrote to you, at the end of
November of 1994, the bond market has greatly improved. To give you an idea of
the change that's occurred--the Salomon Brothers Broad Investment Grade Index+,
which is a broad measure of bond activity, rose 11.56% over the six months ended
May 31, 1995, compared to a decline of 0.04% for the six months prior to
November-end. Bond yields which move inversely to bond prices have also fallen.
For example, the yield on the 10-year Treasury fell from 7.91% at the end of
November, to 6.28% at the end of May.
In late November, the economic data began to suggest that the economy had slowed
from the very strong pace of earlier in 1994. As you may know, slower economic
growth is usually positive for bond prices because it implies that inflation,
which erodes the value of fixed payments, is less likely to rise. Throughout the
first quarter of 1995, economic data such as industrial production, retail
sales, employment and consumer confidence continued to be weak. Since these
suggested slower economic growth, yields declined and bond prices rallied.
High yield bonds, which are the fund's primary investment, beat the broader
fixed-income market according to Salomon Brothers Indices. The Salomon Brothers
Extended High Yield Index++ returned 12.84%, for the six-month period ended May
31, 1995, compared to the Salomon Brothers Broad Investment Grade Index's return
of 11.56%. High yield bonds have benefited from continued economic strength and
favorable supply and demand fundamentals. The recent decline in yields has
boosted demand for the higher income offered by corporate bonds. This and lower
supply, because of a drop in the new-issuance of corporate bonds, have supported
corporate bond prices.
FUND REVIEW
In the six-month period, we continued to position the fund more defensively,
based on our belief that the economy will slow as 1995 progresses. We increased
the portfolio's weighting in media investments, which tend to perform well in
the later stages of economic growth. We also made the fund less sensitive to
market changes by lowering its exposure to deferred-interest bonds, which by
nature tend to amplify movements in the market, and by boosting its weighting in
cash-paying securities.
With our goal of making the fund more defensive, we also continued to increase
its position in BB-rated bonds, when the opportunity arose. At the end of May
1994, 19% of the fund's bond holdings were BB-rated. One year later, 21% were
BB-rated. As you
1
<PAGE> 2
may know, although BB-rated securities provide less income than B-rated issues,
they are higher quality bonds. As a result, their price behavior tends to be
more closely related to Treasuries, which are AAA-rated. This has been the case
over the past six-months. Treasury bonds have rallied and BB-rated securities
have outperformed B-rated bonds.
PORTFOLIO COMPOSITION
As of May 31, 1995, 95% of the fund's portfolio was invested in long-term
corporate securities, 3% preferred and common shares and cash equivalents
comprising the remainder. The corporate securities have the following ratings:
<TABLE>
<CAPTION>
RATING BREAKDOWN PERCENT
----------------- -------
<S> <C>
BB 21%
B 71
Other 8
</TABLE>
The fund's primary sector weightings include the cable industry, where we find
stable cash flow and good consolidation prospects, and the telecommunications
industry, where we see growth potential. The five largest holdings in the
portfolio are K & F Industries, Owens-Illinois Inc., Gaylord Container, American
Standard Inc., and Trump Taj Mahal. The fund's average maturity is approximately
7.8 years.
OUTLOOK
We look for the high yield market to perform reasonably well in 1995, with most
of the return from income rather than price appreciation. The Fed's tightening
during 1994 should slow the economy in 1995. This poses a less favorable
scenario for high yield issuers than in recent years and limits the upside for
prices of high yield bonds. On the other hand, the Fed's actions should be
successful in restraining inflation--a positive environment for fixed-income
securities such as high yield bonds.
Our strategy will continue to be one of positioning the fund so that it is less
sensitive to changes in the market. We will also continue to seek buying
opportunities among higher-quality securities.
Once again, we appreciate having you as a shareholder of Kemper High Income
Trust, and are pleased to report our activities to you.
Sincerely,
Michael A. McNamara
Vice President and Portfolio Co-Manager
Harry E. Resis, Jr.
Vice President and Portfolio Co-Manager
Mr. McNamara became a Portfolio Manager of the fund in 1990. He is a Senior Vice
President of Kemper Financial Services, Inc. (KFS).
Mr. Resis became Portfolio Co-Manager of the fund in 1992. He joined KFS in 1988
and is a Senior Vice President of KFS.
2
<PAGE> 3
* Morningstar ratings range from five stars (highest) to one star (lowest) and
represent its assessment of the historical risk level and total return
relative to its class as a weighted average for 3- and 5-year periods.
Ratings are not absolute or necessarily predictive of future performance.
** Lipper Analytical Services, Inc. rankings are based upon changes in net asset
value with all dividends reinvested. Rankings are historical and do not
reflect future performance.
+ Salomon Brothers Broad Investment Grade (BIG) Bond Index is a market
capitalization-weighted index that covers an all-inclusive universe of
institutionally traded U.S. Treasury, agency, mortgage, and corporate
securities. This index includes all fixed-rate bonds with a maturity of one
year or longer and issues with at least a $50 million amount outstanding
($200 million for mortgage coupons). Source is Salomon Brothers Inc.
++ The Salomon Brothers Extended High Yield Bond Index is computed on a total
return basis with all dividends reinvested, and is comprised of cash pay,
deferred interest, bankrupt and/or default securities. Source is Salomon
Brothers Inc.
Statistical Note: Current annualized distribution rate is the latest dividend
shown as an annualized percentage of net asset value/market price on the date
shown. Distribution rate simply measures the level of dividends and is not a
complete measure of performance. Total return measures aggregate change in net
asset value/market price assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report. The
ratings of Standard and Poor's Corporation (S&P) and Moody's Investors Service,
Inc. (Moody's) represent their opinions as to the quality of securities that
they undertake to rate. The percentage shown reflects the higher of Moody's or
S&P ratings. Portfolio composition will change over time. Ratings are relative
and subjective and not absolute standards of quality.
3
<PAGE> 4
ANNUAL SHAREHOLDERS MEETING
We are pleased to report that all six trustees have been re-elected to the Board
of Trustees of Kemper High Income Trust at the annual meeting held on May 16,
1995. The Trustees are: Arthur R. Gottschalk, Frederick T. Kelsey, David B.
Mathis, Stephen B. Timbers, John B. Tingleff and John G. Weithers.
Along with the re-election of the Trustees, shareholders were asked to ratify
the selection of Ernst & Young LLP as the independent auditors for the fund. The
results of the shareholders' vote at the May 16, 1995 meeting were as follows:
- Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Arthur R.
Gottschalk 18,382,262 354,004
Frederick T. Kelsey 18,391,870 344,396
David B. Mathis 18,360,971 375,295
Stephen B. Timbers 18,349,527 386,739
John B. Tingleff 18,404,202 332,064
John G. Weithers 18,401,592 334,674
</TABLE>
- Ratification of the selection of Ernst & Young LLP as independent auditors for
the fund
For: 18,203,274
Against: 179,849
4
<PAGE> 5
PORTFOLIO OF INVESTMENTS May 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
CORPORATE OBLIGATIONS
BROADCASTING, CABLESYSTEMS
AND PUBLISHING-15.9%
----------------------------------------------------------
Act III Broadcasting, Inc., 9.625%,
2003 $ 290 $ 284
----------------------------------------------------------
Adelphia Communication Corporation,
12.50%, 2002 1,480 1,465
----------------------------------------------------------
(b)Australis Media Ltd., units,
14.00%, 2003 1,570 801
----------------------------------------------------------
Affinity Group, Inc., 11.50%, 2003 1,420 1,420
----------------------------------------------------------
(b)Bell Cablemedia PLC, 11.95%, 2004 1,320 865
----------------------------------------------------------
Big Flower Press, Inc., 10.75%, 2003 1,800 1,786
----------------------------------------------------------
CF Cable TV, Inc., 11.625%, 2005 645 684
----------------------------------------------------------
Cablevision Industries Corporation,
10.75%, 2002 1,710 1,847
----------------------------------------------------------
Cablevision Systems Company
9.875%, 2013 865 891
9.875%, 2023 220 224
----------------------------------------------------------
Century Communications Corporation,
11.875%, 2003 2,945 3,136
----------------------------------------------------------
Comcast Corporation
9.50%, 2008 2,360 2,336
10.625%, 2012 850 901
----------------------------------------------------------
Continental Cablevision, Inc.
9.50%, 2013 2,675 2,702
----------------------------------------------------------
Granite Broadcasting Corp., 10.375%,
2005 500 500
----------------------------------------------------------
(b)International Cabletel, 12.75%,
2005 2,700 1,532
----------------------------------------------------------
Katz Corporation, 12.75%, 2002 1,175 1,275
----------------------------------------------------------
(b)Neodata Services, 12.00%, 2003 940 780
----------------------------------------------------------
Rogers Cablesystems Limited
9.625%, 2002 650 653
10.00%, 2005 670 680
----------------------------------------------------------
Sinclair Broadcasting Group, Inc.,
10.00%, 2003 1,250 1,250
----------------------------------------------------------
Summit Communications Group Inc.,
10.50%, 2005 1,075 1,180
----------------------------------------------------------
Univision TV, 11.75%, 2001 625 675
----------------------------------------------------------
Viacom International, Inc., 8.00%,
2006 2,420 2,360
----------------------------------------------------------
Videotron Groupe, 10.625%, 2005 420 441
----------------------------------------------------------
(b)Videotron Holdings PLC, 11.12%,
2004 850 544
----------------------------------------------------------
Webcraft Technologies, Inc., 9.375%,
2002 660 591
----------------------------------------------------------
31,803
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
BUSINESS SERVICES-3.5%
----------------------------------------------------------
Comdata Network, Inc.
12.50%, 1999 $ 600 $ 656
13.25%, 2002 1,270 1,429
----------------------------------------------------------
Computervision Corporation
10.875%, 1997 1,390 1,404
11.375%, 1999 580 561
----------------------------------------------------------
Corporate Express Inc., 9.125%, 2004 830 805
----------------------------------------------------------
Merisel, Inc., 12.50%, 2004 1,350 1,188
----------------------------------------------------------
Outdoor Systems, Inc., 10.75%, 2003 1,080 1,037
----------------------------------------------------------
7,080
CHEMICALS-4.9%
----------------------------------------------------------
Arcadian Partners, L.P., 10.75%, 2005 1,420 1,454
----------------------------------------------------------
Atlantis Group, Inc., 11.00%, 2003 1,125 1,136
----------------------------------------------------------
G-I Holdings Inc., zero coupon, 1998 1,940 1,339
----------------------------------------------------------
Pioneer Americas Acquisition
Corporation, 13.375%, 2005 1,300 1,362
----------------------------------------------------------
Polymer Group, Inc., 12.25%, 2002 725 732
----------------------------------------------------------
Rexene Corporation, 11.75%, 2004 1,390 1,512
----------------------------------------------------------
UCC Investors Holdings, Inc.
10.50%, 2002 1,980 2,064
11.00%, 2003 260 271
----------------------------------------------------------
9,870
COMMUNICATIONS-6.5%
----------------------------------------------------------
(b)Call-Net Enterprises Inc., 13.25%,
2004 840 501
----------------------------------------------------------
(b)Celcaribe S.A., 13.50%, 2004 900 756
----------------------------------------------------------
(b)Cellular, Inc., 11.75%, 2003 585 433
----------------------------------------------------------
(b)Echostar Communications units,
12.875%, 2004 3,850 1,829
----------------------------------------------------------
Intermedia Communications Florida,
units, 13.50%, 2005 1,000 1,004
----------------------------------------------------------
Paging Network, Inc.
11.75%, 2002 1,995 2,150
(a) 9.25%, 2002 1,000 1,000
----------------------------------------------------------
(b)PanAmSat, L.P., 11.375%, 2003 2,350 1,669
----------------------------------------------------------
Rogers Cantel, 11.125%, 2002 2,553 2,655
----------------------------------------------------------
USA Mobile Communications, Inc. II,
14.00%, 2004 850 939
----------------------------------------------------------
12,936
</TABLE>
5
<PAGE> 6
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
CONSTRUCTION MATERIALS-5.9%
----------------------------------------------------------
American Standard Inc.
10.875%, 1999 $ 1,838 $ 1,976
11.375%, 2004 720 799
(b) 10.50%, 2005 950 713
9.25%, 2016 660 663
----------------------------------------------------------
(b)Building Materials Corporation of
America, 11.75%, 2004 3,205 1,955
----------------------------------------------------------
Nortek, 9.875%, 2004 1,400 1,330
----------------------------------------------------------
Triangle Pacific Corporation, 10.50%,
2003 2,185 2,229
----------------------------------------------------------
Waxman Industries, Inc.
12.25%, 1998 500 480
13.75%, 1999 936 791
(a)(b) 12.75%, 2004, with warrants
expiring 2004 1,853 841
----------------------------------------------------------
11,777
CONSUMER PRODUCTS AND SERVICES-7.3%
----------------------------------------------------------
Allied Waste Industry, 12.00%, 2004 500 520
----------------------------------------------------------
Bally's Park Place Funding, Inc.,
9.25%, 2004 2,330 2,138
----------------------------------------------------------
Beatrice Foods, Inc., 12.00%, 2001 2,350 2,162
----------------------------------------------------------
Cinemark USA, Inc., 12.00%, 2002 907 983
----------------------------------------------------------
(b)Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 1,165 885
----------------------------------------------------------
Empress River Casino, 10.75%, 2002 1,000 1,010
----------------------------------------------------------
Mid-American Waste Systems Inc.,
12.25%, 2003 920 948
----------------------------------------------------------
P&C Food Markets, Inc., 11.50%, 2001 830 880
----------------------------------------------------------
Players International, 12.25%, 2005 320 324
----------------------------------------------------------
Sante Fe Hotel Inc., 11.00%, 2000,
with warrants expiring 1996 745 687
----------------------------------------------------------
Trump Taj Mahal, PIK, 11.35%, 1999 5,398 4,082
----------------------------------------------------------
14,619
DRUGS AND HEALTH CARE-3.9%
----------------------------------------------------------
Abbey Healthcare Group Incorporated,
9.50%, 2002 560 574
----------------------------------------------------------
Amerisource Distribution Corp, PIK,
11.25%, 2005 710 796
----------------------------------------------------------
Charter Medical Corporation,
11.25%, 2004 1,440 1,526
----------------------------------------------------------
Dade International Inc., 13.00%, 2005 850 901
----------------------------------------------------------
National Medical Enterprises
9.625%, 2002 420 443
10.125%, 2005 1,240 1,183
----------------------------------------------------------
Ornda Healthcorporation
12.25%, 2002 1,110 1,221
11.375%, 2004 1,000 1,092
----------------------------------------------------------
7,736
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
ENERGY AND RELATED SERVICES-3.5%
----------------------------------------------------------
Chesapeake Energy Corp., 10.50%, 2002 $ 385 $ 389
----------------------------------------------------------
Dual Drilling Company, 9.875%, 2004 330 290
----------------------------------------------------------
Empire Gas Corporation, 7.00%, 2004,
with warrants expiring 2004 1,300 1,054
----------------------------------------------------------
Gerrity Oil & Gas, 11.75%, 2004 1,970 1,852
----------------------------------------------------------
Global Marine, 12.75%, 1999 250 275
----------------------------------------------------------
Gulf Canada Resources Limited,
9.25%, 2004 700 693
----------------------------------------------------------
HS Resources, 9.875%, 2003 190 186
----------------------------------------------------------
Trans-Texas Gas Corporation, 10.50%,
2000 1,590 1,713
----------------------------------------------------------
WRT Energy Corporation unit,
13.875%, 2002 510 523
----------------------------------------------------------
6,975
FINANCIAL SERVICES, HOME BUILDING AND
REAL ESTATE DEVELOPMENT-3.2%
----------------------------------------------------------
Continental Homes Holding,
12.00%, 1999 1,100 1,097
----------------------------------------------------------
The Forecast Group L.P., 11.375%, 2000 200 122
----------------------------------------------------------
(a)Great America Holdings, 11.00%,
1998 900 905
----------------------------------------------------------
Hovnanian Kent
11.25%, 2002 1,138 1,044
9.75%, 2005 600 490
----------------------------------------------------------
J.M. Peters, 12.75%, 2002 460 391
----------------------------------------------------------
NVR, Inc., 11.00%, 2003 1,170 1,112
----------------------------------------------------------
Oriole Homes Corp., 12.50%, 2003 240 207
----------------------------------------------------------
The Presley Companies, 12.50%, 2001 1,200 1,008
----------------------------------------------------------
6,376
MANUFACTURING, METALS AND MINING-18.7%
----------------------------------------------------------
Aftermarket Technology, 12.00%, 2004 950 1,007
----------------------------------------------------------
Amstar Corporation, 11.375%, 1997 2,326 2,338
----------------------------------------------------------
BE Aerospace, 9.75%, 2003 720 713
----------------------------------------------------------
Bluebird Body Company, 11.75%, 2002 1,600 1,640
----------------------------------------------------------
Day International Group, 11.125%, 2005 330 335
----------------------------------------------------------
Earle M. Jorgensen Co., 10.75%, 2000 835 827
----------------------------------------------------------
Essex Group, Incorporated,
10.00%, 2003 880 858
----------------------------------------------------------
Exide Corporation
10.75%, 2002 560 591
10.00%, 2005 970 994
----------------------------------------------------------
Fairchild Corporation
12.00%, 2001 2,280 1,961
13.00%, 2007 249 209
----------------------------------------------------------
Fairchild Industries, 12.25%, 1999 1,770 1,788
----------------------------------------------------------
Fairfield Manufacturing Company,
11.375%, 2001 795 755
----------------------------------------------------------
</TABLE>
6
<PAGE> 7
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
(b)Foamex - JPS Automotive L.P.,
14.00%, 2004 with warrants expiring
1999 $ 950 $ 541
----------------------------------------------------------
Foamex L.P.,
11.25%, 2002 660 673
11.875%, 2004 1,790 1,736
----------------------------------------------------------
Great Dane Holdings, 12.75%, 2001 2,987 3,017
----------------------------------------------------------
GS Technologies, 12.00%, 2004 1,160 1,177
----------------------------------------------------------
Gulf States Steel, units,
13.50%, 2003 900 913
----------------------------------------------------------
Jordan Industries, 10.375%, 2003 1,370 1,308
----------------------------------------------------------
JPS Automotive Products Corporation,
11.125%, 2001 930 930
----------------------------------------------------------
K & F Industries, Inc.
13.75%, 2001 3,900 4,017
11.875%, 2003 560 568
----------------------------------------------------------
New-Flo Corporation, 13.25%, 2002 980 975
----------------------------------------------------------
Pace Industries, Inc., 10.625%, 2002 560 538
----------------------------------------------------------
Penda Industries Inc., 10.75%, 2004 600 540
----------------------------------------------------------
RHI Holdings, 11.875%, 1999 665 638
----------------------------------------------------------
SPX Corporation, 11.75%, 2002 490 521
----------------------------------------------------------
Sequa Corporation
9.625%, 1999 200 202
8.75%, 2001 650 626
9.375%, 2003 250 240
----------------------------------------------------------
Thermedyne Industries, Inc., PIK
10.25%, 2002 792 780
10.75%, 2003 1,785 1,749
----------------------------------------------------------
Unisys Corporation
13.50%, 1997 490 541
10.625%, 1999 1,150 1,219
----------------------------------------------------------
37,465
PAPER, FOREST PRODUCTS AND
CONTAINERS-8.3%
----------------------------------------------------------
Berry Plastics Corporation,
12.25%, 2004, with warrants expiring
2004 400 417
----------------------------------------------------------
Container Corporation of America
11.25%, 2004 885 947
----------------------------------------------------------
Gaylord Container Corporation,
11.50%, 2001 670 719
(b) 12.75%, 2005 1,730 1,687
----------------------------------------------------------
Maxxam Group Inc.
(b) 12.25%, 2003 620 384
11.25%, 2003 475 451
----------------------------------------------------------
Owens-Illinois, Inc.
11.00%, 2003 1,940 2,148
9.95%, 2004 1,440 1,480
9.75%, 2004 770 781
----------------------------------------------------------
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
Repap New Brunswick, Inc., 10.625%,
2005 $ 1,030 $ 1,045
----------------------------------------------------------
Stone-Consolidated Corporation,
10.25%, 2000 1,150 1,190
----------------------------------------------------------
Stone Container Corporation,
10.75%, 2002 3,570 3,775
----------------------------------------------------------
Sweetheart Cup Company Inc.,
10.50%, 2003 700 686
----------------------------------------------------------
SD Warren Company, 12.00%, 2004 850 927
----------------------------------------------------------
16,637
RETAILING-12.1%
----------------------------------------------------------
Color Tile Inc., 10.75%, 2001 2,010 1,286
----------------------------------------------------------
Dominick's Finer Foods, 10.875%, 2005 700 711
----------------------------------------------------------
Federated Department Stores, Inc.,
convertible, 9.72%, 2004 440 442
----------------------------------------------------------
Finlay Fine Jewelry Corporation,
10.625%, 2003 590 572
----------------------------------------------------------
Flagstar Corporation
10.75%, 2001 570 529
10.875%, 2002 590 547
----------------------------------------------------------
Food 4 Less Supermarket
10.45%, 2000 1,630 1,634
13.75%, 2001 780 862
----------------------------------------------------------
(c)Grand Union Company, 12.25%, 2002 3,395 1,120
----------------------------------------------------------
(b)International Semi-Tech
Microelectronics, Inc., 11.50%, 2003 1,310 655
----------------------------------------------------------
Orchard Supply Hardware Corporation,
9.375%, 2002 860 748
----------------------------------------------------------
Pamida Holdings, 11.75%, 2003 1,915 1,819
----------------------------------------------------------
Pathmark Stores, Inc.
12.625%, 2002 1,100 1,173
9.625%, 2003 1,110 1,077
----------------------------------------------------------
Penn Traffic Company
8.625%, 2003 820 769
9.625%, 2005 630 594
----------------------------------------------------------
Ralph's Grocery Company
9.00%, 2003 2,505 2,562
10.45%, 2004 1,120 1,123
----------------------------------------------------------
Service Merchandise Company,
9.00%, 2004 735 588
----------------------------------------------------------
Southland Corporation, 5.00%, 2003 4,005 3,054
----------------------------------------------------------
Specialty Retailers, Inc., 11.00%,
2003 950 893
----------------------------------------------------------
Thrifty Payless
11.75%, 2003 800 856
12.25%, 2004 585 608
----------------------------------------------------------
24,222
</TABLE>
7
<PAGE> 8
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount or
Number of
Shares Value
--------- --------
<S> <C> <C>
TRANSPORTATION-1.5%
----------------------------------------------------------
Burlington Motor Holdings Inc.,
11.50%, 2003 $ 1,350 $ 1,185
----------------------------------------------------------
OMI Corp., 10.25%, 2003 1,630 1,369
----------------------------------------------------------
(b)Transtar Holdings, L.P., 13.375%,
2003 580 348
----------------------------------------------------------
2,902
TOTAL CORPORATE OBLIGATIONS-95.2%
(Cost: $192,067) 190,398
----------------------------------------------------------
COMMON AND PREFERRED STOCKS
----------------------------------------------------------
BCP/Essex Holdings 18,000 hs. 477
----------------------------------------------------------
(c)Computervision Corporation 231,191 1,300
----------------------------------------------------------
(c)Echostar Communications 23,100 254
----------------------------------------------------------
(c)Gaylord Container Corporation 210,492 1,789
----------------------------------------------------------
(c)Gillett Co. 6,731 140
----------------------------------------------------------
(c)J.M. Peters 3,634 4
----------------------------------------------------------
(c)Panamset Corporation, PIK 1,500 524
----------------------------------------------------------
(a)(c)Peebles, Inc. 38,659 966
----------------------------------------------------------
(c)Specialty Equipment Companies, Inc. 15,500 183
----------------------------------------------------------
(c)Thrifty Payless Inc. 27,550 103
----------------------------------------------------------
(c)UGI Inc. 5,550 7
----------------------------------------------------------
(c)Walter Industries, Inc. 7,469 102
----------------------------------------------------------
<CAPTION>
Number of
Contracts
or
Principal
Amount Value
--------- --------
<S> <C> <C>
TOTAL COMMON AND
PREFERRED STOCKS-2.9%
(Cost: $4,139) $ 5,849
----------------------------------------------------------
LONG PUT OPTIONS
(Cost: $47)
Treasury Note Futures
September 1995; 108 strike 30 cts. 22
----------------------------------------------------------
MONEY MARKET INSTRUMENT-.5%
(Cost: $1,000)
Yield-6.03%
Due-June 1995
Renaissance Energy Company $ 1,000 1,000
----------------------------------------------------------
TOTAL INVESTMENTS-98.6%
(Cost $197,253) 197,269
----------------------------------------------------------
CASH AND OTHER ASSETS
LESS LIABILITIES-1.4% 2,694
----------------------------------------------------------
NET ASSETS-100% $199,963
----------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolio of Investments.
8
<PAGE> 9
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition.
These securities are valued at fair value as determined in good faith by the
Board of Trustees of the Fund. There were no market quotations available for
unrestricted securities of the same class on the dates of acquisition or on
May 31, 1995. At May 31, 1995, the value of the Fund's restricted securities
was $2,878,000, which represented 1.44% of net assets.
<TABLE>
<CAPTION>
Principal
Amount
Date of or Number Unit
Security Description Acquisition of Shares Cost
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Great America Holdings, 11.00%, 1998 July 1990-March 1992 $900,000 $ 86.06
------------------------------------------------------------------------------------------------------------------------
Paging Network, Inc., 9.25%, 2002 March 1995 1,000,000 99.75
------------------------------------------------------------------------------------------------------------------------
Peebles, Inc., common stock July 1989-August 1994 38,659 shs. 27.50
------------------------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June 1994 55,106 2.00
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(c) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of interest or has filed for bankruptcy.
"PIK" denotes that interest or dividends are paid in kind.
Based on the cost of investments of $197,253,000 for federal income tax purposes
at May 31, 1995, the aggregate gross unrealized appreciation was $7,250,000, the
aggregate gross unrealized depreciation was $7,234,000 and the net unrealized
appreciation of investments was $16,000.
See accompanying Notes to Financial Statements.
9
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
----------------------------------------------------------
Investments, at value
(Cost: $197,253) $ 197,269
----------------------------------------------------------
Cash 688
----------------------------------------------------------
Receivable for:
Investments sold 6,878
----------------------------------------------------------
Interest and dividends 4,765
----------------------------------------------------------
Total assets 209,600
----------------------------------------------------------
LIABILITIES AND NET ASSETS
----------------------------------------------------------
Payable for:
Investments purchased 9,375
----------------------------------------------------------
Management fee 141
----------------------------------------------------------
Administration fee 70
----------------------------------------------------------
Custodian and transfer agent
fees and related expenses 35
----------------------------------------------------------
Other 16
----------------------------------------------------------
Total liabilities 9,637
----------------------------------------------------------
Net assets applicable to 22,769 shares
outstanding, $.01 par value,
equivalent to $8.78 per share $ 199,963
----------------------------------------------------------
ANALYSIS OF NET ASSETS
----------------------------------------------------------
Net amount received from issuance
of shares on account of capital $ 242,059
----------------------------------------------------------
Accumulated net realized loss
on sales of investments (44,578)
----------------------------------------------------------
Unrealized appreciation of investments 16
----------------------------------------------------------
Undistributed net investment income 2,466
----------------------------------------------------------
Net assets applicable to shares outstanding $ 199,963
----------------------------------------------------------
Net asset value per share ($199,963 /
22,769 shares outstanding) $8.78
----------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six months ended May 31, 1995
(in thousands)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
----------------------------------------------------------
Interest $ 11,687
----------------------------------------------------------
Dividends 12
----------------------------------------------------------
Total investment income 11,699
----------------------------------------------------------
EXPENSES
----------------------------------------------------------
Management fee 818
----------------------------------------------------------
Interest expense 116
----------------------------------------------------------
Administration fee 186
----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 82
----------------------------------------------------------
Professional fees 16
----------------------------------------------------------
Reports to shareholders 7
----------------------------------------------------------
Trustees' fees and other 40
----------------------------------------------------------
Total expenses 1,265
----------------------------------------------------------
Net investment income 10,434
----------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
----------------------------------------------------------
Net realized loss on sales of investments (5,153)
----------------------------------------------------------
Net change in balance of unrealized
depreciation of investments 15,236
----------------------------------------------------------
Net gain on investments 10,083
----------------------------------------------------------
Net increase in net assets resulting from
operations $ 20,517
----------------------------------------------------------
</TABLE>
10
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
Six months
ended Year ended
May 31, November 30,
1995 1994
----------- ------------
<S> <C> <C>
OPERATIONS
---------------------------------------------------------
Net investment income $ 10,434 19,981
---------------------------------------------------------
Net realized loss on
investments (5,153) (11,455)
---------------------------------------------------------
Net change in unrealized
depreciation 15,236 (13,448)
---------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 20,517 (4,922)
---------------------------------------------------------
Distribution from net
investment income (10,230) (20,319)
---------------------------------------------------------
Proceeds from shares issued
in reinvestment of
dividends
(159 shares in 1995 and
251 shares in 1994) 1,382 2,341
---------------------------------------------------------
Total increase (decrease) in
net assets 11,669 (22,900)
---------------------------------------------------------
NET ASSETS
---------------------------------------------------------
Beginning of period 188,294 211,194
---------------------------------------------------------
End of period (including
undistributed net investment
income of $2,466 in
1995 and $2,262 in 1994) $ 199,963 188,294
---------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF FUND
The Fund is registered under the Investment Company Act of 1940 as a
diversified, closed-end management investment company.
INVESTMENT VALUATION
Investments are stated at value. Fixed income securities are valued by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Portfolio securities
that are traded on a domestic securities exchange are valued at the last sale
price on the exchange where primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio securities that are primarily traded
on foreign securities exchanges are generally valued at the preceding closing
values of such securities on their respective exchanges where primarily traded.
Securities not so traded are valued at the last current bid quotation if market
quotations are available. Exchange traded options are valued at the last sale
price unless there is no sale price, in which event prices provided by market
makers are used. Over-the-counter traded options are valued based upon prices
provided by market makers. Financial futures and options thereon are valued at
the settlement price established each day by the board of trade or exchange on
which they are traded. Other securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Dividend income is recorded on the ex-dividend date,
and interest income is recorded on the accrual basis. Interest income includes
premium and discount amortization on money market instruments; it also includes
original issue and market discount amortization on long-term fixed income
securities. Realized gains and losses from investment transactions are reported
on an identified cost basis. Realized and unrealized gains and losses on
financial futures and options
11
<PAGE> 12
are included in net realized and unrealized gain (loss) on investments, as
appropriate.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies for the six months ended May 31, 1995. The
accumulated net realized loss on sales of investments for federal income tax
purposes at May 31, 1995, amounting to approximately $44,570,000, is available
to offset future taxable gains. If not applied, the loss carryover expires
during the period 1997 through 2003.
The Fund declares and pays dividends on a monthly basis. Net realized capital
gains, if any, reduced by capital loss carryovers, will be distributed at least
annually. Dividends payable to its shareholders are recorded by the Fund on the
ex-dividend date.
Distributions are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles.
OTHER CONSIDERATIONS
The Fund invests a substantial portion of its assets in high yield bonds. These
bonds ordinarily are in the lower rating categories of recognized rating
agencies or are non-rated, and thus involve more risk than higher rated bonds.
Kemper Financial Services, Inc. (KFS), the Fund's investment manager, may serve
as a member of various bondholders' committees. These committees represent the
interests of bondholders in restructuring negotiations and court proceedings. As
a result of participation on such committees, KFS may receive material,
non-public information with respect to bonds the Fund owns. Accordingly, the
Fund may be temporarily precluded from effecting transactions in such bonds due
to various restraints imposed by federal and state securities laws involving the
possession of material, non-public information.
2. TRANSACTIONS WITH AFFILIATES
The Fund has a management agreement with KFS. For management services and
facilities furnished, the Fund pays a fee at an annual rate of .85% of average
weekly net assets. The Fund incurred a management fee of $818,000 for the six
months ended May 31, 1995.
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31,
1995, when KFS completed the sale of IFTC to a third party. For the six months
ended May 31, 1995, the Fund incurred custodian and transfer agent fees of
$50,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the six months ended May 31, 1995, IFTC remitted
shareholder service fees of $31,000 to KSvC.
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the six months ended May 31, 1995, the Fund made no direct payments to
its officers and incurred trustees' fees of $5,000 to independent trustees.
3. ADMINISTRATOR
The Fund has an administration agreement with Mitchell Hutchins Asset
Management, Inc. (Administrator). For services rendered to the Fund by the
Administrator, the Fund pays an annual fee of .15 of 1% on the first
$100,000,000 of average weekly net assets and .14 of 1% of average weekly net
assets over $100,000,000. The Fund incurred an administration fee of $186,000
for the six months ended May 31, 1995.
4. INVESTMENT TRANSACTIONS
For the six months ended May 31, 1995, investment transactions (excluding money
market instruments) are as follows (in thousands):
<TABLE>
<S> <C>
Purchases $ 108,067
----------------------------------------------------------
Proceeds from sales 118,093
----------------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The fund has a $20,000,000 line of credit facility with Bank of America which is
available until June 30, 1996. As of May 31, 1995, there were no amounts
outstanding, however, on June 29, 1995 the fund borrowed $20,000,000 under the
facility. The loan bears interest at the London Interbank Offered Rate plus .45%
which is payable quarterly.
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six months
ended
May 31, Year ended November 30,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.33 9.45 8.70 8.28 6.25
---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .88 .99 .94 1.01
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .44 (1.10) .71 .45 2.07
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .90 (.22) 1.70 1.39 3.08
---------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .45 .90 .95 .97 .94
---------------------------------------------------------------------------------------------------------------------------------
Distribution from paid in surplus -- -- -- -- .11
---------------------------------------------------------------------------------------------------------------------------------
Total dividends .45 .90 .95 .97 1.05
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.78 8.33 9.45 8.70 8.28
---------------------------------------------------------------------------------------------------------------------------------
Market value, end of period $9.13 8.38 9.13 9.13 8.63
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%):
Based on net asset value 11.12 (2.55) 20.62 17.42 52.90
---------------------------------------------------------------------------------------------------------------------------------
Based on market value 14.76 1.28 10.14 17.50 65.03
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.31 1.64 1.82 2.03 2.22
---------------------------------------------------------------------------------------------------------------------------------
Net investment income 10.33 9.91 11.08 10.86 13.78
---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $199,963 188,294 211,194 190,950 178,145
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 95 83 98 47 27
---------------------------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of period (in thousands) $ -- 20,000 20,000 17,312 17,312
---------------------------------------------------------------------------------------------------------------------------------
Asset coverage ratio per $1,000 of debt -- 10.4 11.6 12.0 11.3
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value
reflects changes in market value. Each figure includes reinvestment of
dividends. These figures will differ depending upon the level of any
discount from or premium to net asset value at which the Fund's shares
trade during the period.
13
<PAGE> 14
KEMPER HIGH INCOME TRUST SEMIANNUAL REPORT TO SHAREHOLDERS
May 31, 1995
---------------------------------------
KEMPER
---------------------------------------
HIGH
---------------------------------------
INCOME
---------------------------------------
TRUST
---------------------------------------
Trustees Officers
STEPHEN B. TIMBERS JOHN E. PETERS
President and Trustee Vice President
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY MICHAEL A. MCNAMARA
Trustee Vice President
DAVID B. MATHIS HARRY E. RESIS, JR.
Trustee Vice President
JOHN B. TINGLEFF PHILIP J. COLLORA
Trustee Vice President
and Secretary
JOHN G. WEITHERS CHARLES F. CUSTER
Trustee Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
--------------------------------------------------------------
Legal Counsel Investment Manager
VEDDER, PRICE, KAUFMAN KEMPER FINANCIAL
& KAMMHOLZ SERVICES, INC.
222 North LaSalle Street 120 South LaSalle Street
Chicago, IL 60601 Chicago, IL 60603
Shareholder Service Agent Custodian and Transfer Agent
KEMPER SERVICE COMPANY INVESTORS FIDUCIARY
P.O. Box 419430 TRUST COMPANY
Kansas City, MO 64141 127 West 10th Street
Kansas City, MO 64105
240740 [KEMPER LOGO]
KHIT-3 (7/95) [LOGO] PRINTED ON RECYCLED PAPER PRINTED IN U.S.A.
WE'RE BUILDING TOMORROWS TODAY(SM)
