<PAGE> 1
Kemper High Income
Trust
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED NOVEMBER 30, 1995
"1995 was a good year. Our holdings and use of leverage generated a
strong total return."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Performance Update
7
Terms to Know
8
Largest Holdings
9
Portfolio Statistics
10
Portfolio of
Investments
15
Report of
Independent Auditors
16
Financial Statements
18
Notes to
Financial Statements
20
Financial Highlights
21
Description
of Dividend Reinvestment and Cash Purchase Plan
At A Glance
TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER
HIGH INCOME
TRUST 16.30% 25.38%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/95 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $8.73 $8.33
- --------------------------------------------------------------------------------
MARKET PRICE $9.50 $8.375
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION
FOR THE FUND AS OF
NOVEMBER 30, 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
1 YEAR INCOME: $0.90
- --------------------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.075
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 10.31%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 9.47%
- --------------------------------------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
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 value 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.
About Your Report
SHAREHOLDER REPORTS REVISED
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made
in an effort to provide additional information to you as well as to explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- Terms you need to know related to your fund
- A look at your fund's portfolio composition and how it has changed
- The maturity and quality of your fund's underlying investments
If you have any comments about the revised format, please
write to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER
OF KEMPER FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES
MANAGE APPROXIMATELY $63 BILLION IN ASSETS, INCLUDING $44 BILLION IN
RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND
HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed very positive performance in both the fixed
income and stock markets in 1995. The returns of most leading
securities markets worldwide were significantly higher than they
were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2 percent
in the third quarter. This follows much lower growth in the first two quarters,
as the economy was adjusting to the Federal Reserve Board's series of interest
rate increases. The slowdown, in fact, was acknowledged by the Fed when it
eased short-term rates by a small but symbolic 25 basis points in July. Now we
know that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very encouraging.
Although we are well along in the economic cycle and at a point when prices
often start hiking up, inflationary pressures have actually been reduced
somewhat.
The Fed reduced rates again in December, this time acknowledging
discussions underway to reduce the federal budget deficit. Assuming these
discussions are productive, a third rate cut is possible later this month. Even
with such reducing by the Fed, our forecast calls for lower growth ranging
between 2 percent to 3 percent for the next few quarters, with the momentum
likely to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the economy
to provide above-average earnings support. Rather, stocks that have proven
themselves with a pattern of consistent earnings are likely to attract investor
support. Specifically, sectors that produce more consistent earnings, such as
health care, consumer nondurables, selected technology and selected capital
goods can be expected to do well. Picking the right sectors to invest in will
be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to its
post-World War II low last year, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
General 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 (12/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.71 6.28 7.78 5.75
Prime rate (2) 8.65 8.80 8.50 6.00
Inflation rate(3)* 2.60 2.97 2.60 2.74
The U.S. dollar (4)* -1.57 -9.31 -4.52 1.71
Capital goods orders (5)** 7.60 17.84 13.53 23.75
Industrial production (6)* 1.88 2.80 6.43 3.76
Employment growth (7)* 1.50 2.29 3.15 2.58
</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%. 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 corporate profits and equity performance.
(7) An influence on family income and retail sales.
* Data as of November 30, 1995
** Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding
how these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate
growth. Given our Republican Congress and Democratic President, however, we do
not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question-and- answer interview with
your fund's portfolio managers. Thank you for your continued support. We
appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
January 9, 1996
4
<PAGE> 5
Performance Update
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH KEMPER FINANCIAL SERVICES, INC.(KFS) SINCE 1972 AND
IS NOW SENIOR VICE PRESIDENT. HE HAS BEEN PORTFOLIO CO-MANAGER OF KEMPER HIGH
INCOME TRUST SINCE 1990. MR. MCNAMARA GRADUATED WITH A B.S. IN BUSINESS
ADMINISTRATION FROM THE UNIVERSITY OF MISSOURI AND WENT ON TO RECEIVE AN M.B.A.
FROM LOYOLA UNIVERSITY.
[RESIS PHOTO]
HARRY RESIS JOINED KEMPER FINANCIAL SERVICES, INC., IN 1988 AND IS NOW SENIOR
VICE PRESIDENT OF KFS AND PORTFOLIO CO-MANAGER OF KEMPER HIGH INCOME TRUST. HE
HAS BEEN THE PORTFOLIO CO-MANAGER SINCE 1992. MR. RESIS RECEIVED A B.A. IN
FINANCE FROM MICHIGAN STATE UNIVERSITY.
The views expressed in this report reflect those of the portfolio managers
only through the end of the period of the report, as stated on the cover. The
managers' views are subject to change at any time, based on market and other
conditions.
IN AN EXCELLENT YEAR FOR THE HIGH YIELD MARKET, PORTFOLIO CO-MANAGERS HARRY
RESIS AND MICHAEL MCNAMARA DISCUSS HOW THE PERFORMANCE OF KEMPER HIGH INCOME
TRUST WAS ENHANCED BY SLOW ECONOMIC GROWTH, STRONG CORPORATE EARNINGS AND A
RETURN TO LEVERAGING THE FUND.
Q THE FUND'S FISCAL YEAR -- DECEMBER 1, 1994, THROUGH NOVEMBER
30, 1995 -- WAS A STRONG PERIOD FOR THE BOND MARKET. YET 1994 WAS ONE OF THE
WORST YEARS IN BOND MARKET HISTORY. WHAT WAS BEHIND THIS DRAMATIC SHIFT IN
PERFORMANCE?
A Yes, 1995 was a great year for corporate high yield bonds. Healthy
corporate earnings, slow economic growth and declining interest rates created a
positive environment for lower-rated and non-rated securities. When the economy
is growing, credit quality is less of a concern to investors and high yield
corporate bonds become more attractive investments. As you know,
below-investment grade securities, such as the fund invests in, provide greater
incomes potential precisely because they present greater risk of loss to
principal and interest. 1995 was a good year. Our holdings and use of
leverage generated a strong total return.
The fund was upgraded on October 31, 1995, to a five-star overall
rating by Morningstar, Inc. and was given a four star overall rating for the
three- and five-year periods ended 7/31/95. (*)Five stars is the highest
ranking given by the independent national mutual fund rating service. Moreover,
the fund traded at a premium to its net asset value (NAV) throughout the year.
(*)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.
Q DURING THE FISCAL YEAR, THE FUND'S DIVIDEND REMAINED CONSTANT -- EVEN AS
INTEREST RATES FELL. WHAT ADJUSTMENTS DID YOU MAKE TO MAINTAIN THE FUND'S
DIVIDEND?
A Preserving the fund's income is an important concern. To
maintain our $0.075 per share monthly dividend, we relied on our portfolio of
high coupon investments and our ability to leverage the fund. For the last five
months of the year, 10 percent of the fund was leveraged. We borrowed short
term capital at interest rates of approximately 6-7 percent. Then we purchased
bonds with higher coupon rates - between 9 and 11 percent. This generated
additional income and enabled us to preserve the fund's dividend, even as
interest rates fell.
5
<PAGE> 6
Performance Update
Q WHAT ARE THE RISKS OF LEVERAGING?
A Risk is inherent with all investments and, yes, leveraging does
add risk. But our leveraging the fund this year was positive for shareholders
in several ways. First, the leveraging generated more income, enabling us to
preserve the fund's dividend. Second, as the dividend was maintained, the fund
became more appealing to other investors. This helped to boost the fund's
market price from $8.375 per share at the start of the fiscal year to $9.50 per
share by the year's end.
However, it doesn't always make sense to leverage and we are careful about
when we use this tool. In fact, we started the year without any leverage on the
fund.
The reason? We were unsure how well high yield bonds would perform during
1995. Interest rates had peaked in late 1994 and there was concern that as
economic growth slowed, corporate earnings would begin to fall. If that had
happened, it would have been more difficult to find issues that paid a coupon
rate high enough to justify borrowing and taking on greater risk.
During the year, however, we shifted gears. Although economic growth
slowed, corporate earnings did not. And by June, we were convinced that
reinstating the fund's maximum 10 percent leverage made sense. We plan to
maintain this degree of leverage until economic growth slows enough to
significantly hurt corporate earnings.
Q DID YOU MAKE ANY MAJOR CHANGES TO THE FUND'S PORTFOLIO DURING THE YEAR?
A There has not really been a major shift in investment direction
during the fiscal year. We started and ended the year with approximately 55
percent of the fund's assets invested in bonds in cyclical industries, and the
fund's credit quality remained fairly stable. Cyclical industries are those
that produce or support the production of discretionary goods, such as new
homes or automobiles. Companies within these types of industries tend to
flourish when the economy is expanding but are normally the first to suffer
when the economy contracts. By contrast, defensive industries tend to be less
sensitive to economic slowdowns because they support nondiscretionary spending
on items such as food or health and beauty products. As interest rates fell
during the year and economic growth continued, cyclical issues outperformed
defensive issues and were the major contributors to the fund's performance.
During the year, though, we did fine-tune the types of cyclical
companies in whose bonds we invested. As economic growth slowed, we reduced our
level of investment in the metals, mining and steel industries and began
acquiring bonds issued by cable and media companies. These bonds performed well
because they were less sensitive to the year's falling interest rates. In
addition, the deregulation of the cable industry made them more appealing
investments.
Q WERE THERE ANY BONDS THAT PERFORMED PARTICULARLY WELL?
A It was a good year for most of the fund's investments. Two issues that
performed particularly well were Southland Corp. and Trump Taj Mahal.
Our investment in Southland Corp. -- the operator, franchiser and licenser
of 7-Eleven stores -- appreciated in price by 21 percent during the year. When
the year started on December 1, 1994, these BB+ rated bonds, which mature in
2003 were trading at $66. Yet by the end of the year, the market price of the
bonds was $83.25. We began selling some of these bonds in November 1995,
because we believed their total return would not improve much. However, we
still maintain an investment in Southland due to the strength of the credit.
Trump Taj Mahal also provided an excellent return on investment for the
year. This Atlantic City casino's first mortgage issue, of which we own bonds,
was trading at $62.375 on November 30, 1994. At the end of the fiscal year it
was trading at $87.50 and paid a coupon rate of 11.35 percent. As one of our
largest holdings, Trump Taj Mahal represented about 2 percent of the portfolio
throughout the year.
Q WHAT ABOUT DISAPPOINTMENTS?
A Three of the fund's issues defaulted during the year. Two,
Grand Union and ColorTile, are in the retail industry, and the other,
Burlington Motor Freights, is a trucking company. They were hurt by the
6
<PAGE> 7
Performance Update
debt they had taken on and the effect that 1994's rising interest rate
environment had on their businesses. Currently, these companies are in the
midst of restructuring workouts. Based on the outcome, we intend to either sell
these bonds or trade them for an equity stake in the companies if the
prospective business plan offers a suitable investment opportunity.
Q WHAT KIND OF AN IMPACT DO DEFAULTS HAVE ON THE FUND'S PERFORMANCE?
A The possibility for default is something we always consider
when analyzing a possible investment. But, of course, default is the risk we
assume and why we earn higher yields on the fund's investments. It's also the
reason we never try to "shoot the moon" on any one credit. Our largest
investment represents only 2.4 percent of the fund's total net assets. And
most of the fund's other investments each account for less than 1 percent of
assets. By diversification, we limit the exposure the fund has to any one
credit. That way, if a default occurs, it should not severely impact the
fund's performance. And although the fund experienced three defaults this year,
those issues represented less than 1 percent of the fund's total net assets.
Moreover, the high yield market has been enjoying an unprecedented low
- -- and unsustainable -- rate of defaults. Defaults tend to occur according to
a somewhat predictable schedule -- you don't expect a company to get into
financial trouble until at least a year or two after it has issued debt. If it
borrowed too much or overestimated its potential or underestimated its
competition, for example, that's when the issuer starts to have trouble making
coupon payments.
Defaults have been practically nonexistent in the last few years
because most of the credits have been relatively young. As issues age, and the
economic expansion ages, we believe that the default rate will climb back to
its norm -- which has averaged 3-4 percent in the 1970 - 1995 period. In 1995
there were about 35 defaults in the relatively small high yield market. We
expect defaults to increase in 1996 and are watching these trends carefully.
Q WILL THE HIGH YIELD BOND MARKET BE ABLE TO SUSTAIN ITS MOMENTUM IN 1996?
A Based on our current outlook, we believe that next year should
be another good one for the high yield bond market, although we don't expect
corporate earnings to keep pace with their 1994 and 1995 levels. This slowdown
in earnings and the aging of issues will most likely lead to an increased
default rate, but we do not believe that it will be alarming. We will continue
to focus our investments within cyclical companies because we anticipate
further interest rate cuts and slow economic growth with low inflation.
Together, these factors should be a positive for high yield bonds.
Terms To Know
CYCLICAL ISSUES Cyclical issues are securities within industries whose
earnings tend to rise quickly when the economy strengthens and fall quickly
when the economy weakens. Examples are housing, automobiles and paper
companies. The performance of non cyclical industries such as food, insurance
and drugs are normally not as directly affected by economic changes.
HIGH YIELD BONDS High yield bonds are issued by companies, often without long
track records of sales and earnings, or by those with questionable credit
strength and pay a higher yield to investors to help compensate for their
greater risk of loss to principal and interest. High yield bonds carry a credit
rating of BB or lower from either Moody's or Standard & Poor's bond rating
services and are considered to be "below investment grade" by these rating
agencies. Such bonds may also be unrated.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or
dollar value change over the period.
7
<PAGE> 8
Largest Holdings
THE FUND'S 5 LARGEST HOLDINGS
REPRESENTING 10.5% OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1995
- ----------------------------------------------------------------------------
Holdings Percent
- ----------------------------------------------------------------------------
1. TRUMP Operates hotel and casino in Atlantic City, 2.4%
TAJ MAHAL New Jersey.
2. K&F INDUSTRIES Manufacturer of airliner brakes and wheels. 2.3%
3. COMPUTERVISION World's leading supplier of CAD/CAM software 2.1%
and related services to the mechanical design
automation market.
4. CONTAINER Manufactures line of commodity and specialty 1.9%
CORPORATION paperboard and corrugated shipping containers.
5. STONE Engaged in the production and sale of 1.8%
CONTAINER CORP. commodity paper and packaging products.
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, a special shareholders' meeting was held. Kemper High
Income Trust shareholders were asked to vote on three separate issues: election
of two additional members to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors and approval of a new investment management
agreement with Kemper Financial Services, Inc. or its successor on the same
terms as the current agreement. We are pleased to report that all nominees were
elected and all other items were approved. Following are the results for each
issue:
1) Election of additional Trustees
For Withheld
James E. Akins 16,152,452 25,885
Fred B. Renwick 16,167,012 11,325
2) Ratification of the selection of Ernst & Young LLP as
independent auditors for the fund
For Against Abstain
15,635,803 211,272 331,262
3) Approval of new investment management agreement
For Against Abstain
15,332,416 357,565 488,356
8
<PAGE> 9
Portfolio Statistics
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ---------------------------------------------------------------
<S> <C> <C>
HIGH YIELD BONDS 98% 96%
CASH AND EQUIVALENTS 1 1
PREFERRED AND COMMON STOCK 1 3
===============================================================
100% 100%
</TABLE>
- HIGH YIELD BONDS
- CASH AND EQUIVALENTS
- PREFERRED AND COMMON STOCK
[PIE CHART]
ON 11/30/95 ON 11/30/94
CORPORATE LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ---------------------------------------------------------------
<S> <C> <C>
AAA -- 5%
A -- 1
BBB -- 1
BB 23% 19
B 68 66
OTHER 9 8
===============================================================
100% 100%
</TABLE>
The ratings of Standard & Poor's Corporation (S&P) and Moody's Investors
Services, 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.
- AAA
- A
- BBB
- BB
- B
- OTHER
[PIE CHART]
ON 11/30/95 ON 11/30/94
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ---------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 8.0 YEARS 7.4 YEARS
</TABLE>
9
<PAGE> 10
Portfolio of Investments
KEMPER HIGH INCOME TRUST
Portfolio of Investments at November 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
AEROSPACE--5.5% BE Aerospace, 9.75%, 2003 $ 720 $ 718
Fairchild Corporation, 12.00%, 2001 2,280 2,189
Fairchild Industries, 12.25%, 1999 1,770 1,854
Howmet Inc., 10.00%, 2003 220 227
K & F Industries, Inc.
13.75%, 2001 3,900 4,056
11.875%, 2003 560 602
RHI Holdings, 11.875%, 1999 885 872
Sequa Corporation, 8.75%, 2001 650 598
--------------------------------------------------------------------------
11,116
- -----------------------------------------------------------------------------------------------------------
BROADCASTING,
CABLESYSTEMS AND
PUBLISHING--21.3%
Act III Broadcasting, Inc., 9.625%, 2003 290 302
Adelphia Communication Corporation, 12.50%,
2002 930 921
Affinity Group, Inc., 11.50%, 2003 1,420 1,434
(b) Australis Media Corporation, 14.00%, 2003 1,570 1,130
(b) Bell Cablemedia PLC
11.95%, 2004 2,980 2,041
11.875%, 2005 870 527
Big Flower Press, Inc., 10.75%, 2003 1,800 1,916
CAI Wireless Systems, 12.25%, 2002 1,000 1,060
CF Cable TV, Inc., 11.625%, 2005 945 1,030
Cablevision Systems Corporation
9.25%, 2005 470 478
9.875%, 2013 865 904
9.875%, 2023 220 228
Century Communications Corporation
11.875%, 2003 2,945 3,151
9.50%, 2005 130 132
(b) Comcast UK Cable Partners Limited, 11.20%,
2007 2,800 1,610
Comcast Corporation
9.125%, 2006 1,360 1,389
9.50%, 2008 1,700 1,751
(b) Echostar Communications, 12.875%, with
warrants, 2004 3,850 2,655
EZ Communications, 9.75%, 2005 760 758
Fundy Cable Limited, 11.00%, 2005 260 266
Granite Broadcasting Corp., 12.75%, 2002 2,250 2,503
(b) International Cabletel, 12.75%, 2005 4,140 2,541
Katz Corporation, 12.75%, 2002 1,175 1,298
(b) Neodata Services, 12.00%, 2003 1,290 1,164
(b) People's Choice TV Unit, 13.125%, 2004 1,260 715
Rogers Cablesystems Limited
9.625%, 2002 600 615
10.00%, 2005 670 704
Sinclair Broadcasting Group, Inc., 10.00%, 2003 3,250 3,323
(b) Telewest PLC, 11.00%, 2007 2,500 1,456
Univision TV, 11.75%, 2001 625 670
Videotron Groupe, 10.625%, 2005 420 445
(b) Videotron Holdings PLC
11.12%, 2004 3,140 2,120
11.00%, 2005 900 536
Webcraft Technologies, Inc., 9.375%, 2002 660 634
Young Broadcasting Inc., 11.75%, 2004 330 370
--------------------------------------------------------------------------
42,777
- -----------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
BUSINESS SERVICES--3.4%
Comdata Network, Inc.
12.50%, 1999 $ 860 $ 976
13.25%, 2002 1,270 1,514
Host Marriott Travel Plazas, Inc., 9.50%, 2005 1,015 992
Monarch Marking, 12.50%, 2003 2,090 2,195
Outdoor Systems, Inc., 10.75%, 2003 1,080 1,042
--------------------------------------------------------------------------
6,719
- -----------------------------------------------------------------------------------------------------------
CHEMICALS--6.7%
Arcadian Partners, L.P., 10.75%, 2005 1,370 1,497
Atlantis Group, Inc., 11.00%, 2003 1,125 917
G-I Holdings Inc., zero coupon, 1998 2,420 1,839
Hines Horticulture, 11.75%, 2005 300 307
Huntsman Corporation, 10.625%, 2001 400 434
Pioneer Americas Acquisition Corporation,
13.375%, 2005 830 867
Polymer Group, Inc., 12.25%, 2002 2,055 2,127
Rexene Corporation, 11.75%, 2004 1,390 1,480
Terra Industries, 10.50%, 2005 1,600 1,744
UCC Investors Holdings, Inc.
10.50%, 2002 1,980 2,030
11.00%, 2003 260 265
--------------------------------------------------------------------------
13,507
- -----------------------------------------------------------------------------------------------------------
COMMUNICATIONS--9.2%
(b) Call-Net Enterprises Inc., 13.25%, 2004 3,000 2,126
(a)(b) Celcaribe, S.A., 13.50%, 2004 900 833
(b) Cellular, Inc., 11.75%, 2003 585 456
(b) Comcel, 13.125%, 2003 2,000 1,085
Commnet Cellular, 11.25%, 2005 400 421
IXC Communication Services, 12.50%, 2005 1,850 1,945
(b) Intelcom Group, 13.50%, 2005 1,500 863
Intermedia Communications of Florida, Inc.,
13.50%, with warrants, 2005 1,500 1,642
Mobilemedia Communications, 9.375%, 2007 330 332
Paging Network, Inc. 11.75%, 2002 2,035 2,254
(b) PanAmSat, L.P., 11.375%, 2003 2,710 2,182
Rogers Cantel, 11.125%, 2002 2,553 2,719
USA Mobile Communications, Inc. II
14.00%, 2004 850 986
9.50%, 2004 600 589
--------------------------------------------------------------------------
18,433
- -----------------------------------------------------------------------------------------------------------
CONSTRUCTION
MATERIALS--6.3%
American Standard Inc.
10.875%, 1999 1,838 2,008
11.375%, 2004 720 794
(b) 10.50%, 2005 950 799
(b) Building Materials Corporation of America,
11.75%, 2004 3,205 2,163
Nortek, 9.875%, 2004 1,840 1,716
Triangle Pacific Corporation, 10.50%, 2003 2,185 2,294
Waxman Industries, Inc.
12.25%, 1998 1,300 1,261
13.75%, 1999 936 749
(b) 12.75%, 2004 1,853 741
(a) 55,000 warrants expiring 2004 7
--------------------------------------------------------------------------
12,532
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
CONSUMER PRODUCTS
AND SERVICES--5.5%
Allied Waste Industry, 12.00%, 2004 $ 500 $ 535
Beatrice Foods, Inc., 12.00%, 2001 2,350 588
Cinemark USA, Inc., 12.00%, 2002 907 989
Coinmach Corp., 11.75%, 2005 750 758
(b) Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 1,165 932
Herff Jones, Inc., 11.00%, 2005 320 337
P&C Food Markets, Inc., 11.50%, 2001 1,090 1,061
Premier Parks Inc., 12.00%, 2003 500 513
(b) Six Flags Theme Park, 12.25%, 2005 3,120 2,426
Trump Plaza Funding, 10.875%, 2001 940 944
Van De Kamps, Inc., 12.00%, 2005 500 518
West Point Stevens, Inc., 9.375%, 2005 1,450 1,457
--------------------------------------------------------------------------
11,058
- -----------------------------------------------------------------------------------------------------------
DRUGS AND
HEALTH CARE--3.9%
Amerisource Distribution, 11.25%, 2005 710 774
Charter Medical Corporation, 11.25%, 2004 1,440 1,562
Dade International Inc., 13.00%, 2005 850 939
Graphic Controls, 12.00%, 2005 600 615
Merit Behavioral, 11.50%, 2005 310 318
Ornda Healthcorporation
12.25%, 2002 1,110 1,215
11.375%, 2004 1,000 1,113
Tenet Healthcare, 10.125%, 2005 1,120 1,215
--------------------------------------------------------------------------
7,751
- -----------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES--4.3%
Chesapeake Energy Corp., 10.50%, 2002 385 398
Clark USA, Inc., 10.875%, 2005 440 452
Empire Gas Corporation, 7.00%, with warrants,
2004 1,300 1,073
Gerrity Oil & Gas, 11.75%, 2004 1,970 1,837
Gulf Canada Resources Limited, 9.25%, 2004 700 711
HS Resources, 9.875%, 2003 190 186
Santa Fe Energy Resources, 11.00%, 2004 550 601
TransTexas Gas Corporation, 11.50%, 2002 2,650 2,739
United Meridian Corp., 10.375%, 2005 500 516
--------------------------------------------------------------------------
8,513
- -----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES,
HOME BUILDING
AND REAL ESTATE
DEVELOPMENT--2.0%
Continental Homes Holding, 12.00%, 1999 780 837
The Forecast Group L.P., 11.375%, 2000 250 143
Hovnanian Kent
11.25%, 2002 1,188 1,120
9.75%, 2005 550 477
J.M. Peters Company, 12.75%, with warrants,
2002 460 422
The Presley Companies, 12.50%, 2001 1,335 1,068
--------------------------------------------------------------------------
4,067
- -----------------------------------------------------------------------------------------------------------
HOTEL AND
GAMING--5.6%
Bally's Park Place Funding, Inc., 9.25%, 2004 2,100 2,100
Empress River Casino, 10.75%, 2002 2,175 2,240
Grand Casinos, Inc., 10.125%, 2003 440 451
Players International, Inc., 10.875%, 2005 1,420 1,328
Sante Fe Hotel, Inc., 11.00%, 2000 662 464
Trump Taj Mahal, PIK, 11.35%, 1999 5,398 4,724
--------------------------------------------------------------------------
11,307
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
MANUFACTURING,
METALS AND
MINING--12.1%
Aftermarket Technology, 12.00%, 2004 $ 950 $ 995
Bluebird Body Company, 11.75%, 2002 1,550 1,589
Communication and Power Industry, Inc., 12.00%,
2005 600 618
Crain Industries, Inc., 13.50%, 2005 630 643
Day International Group, 11.125%, 2005 1,750 1,754
Essex Group, Incorporated, 10.00%, 2003 300 294
Fairfield Manufacturing Company, 11.375%, 2001 1,165 1,130
(b) Foamex - JPS Automotive L.P.,
14.00%, 2004, with warrants, 1999 950 545
Foamex L.P.,
11.25%, 2002 660 660
11.875%, 2004 1,790 1,772
GS Technologies
12.00%, 2004 1,680 1,663
12.25%, 2005 480 479
Great Dane Holding Company, 12.75%, 2001 1,907 1,759
Gulf States Steel, 13.50%, with warrants, 2003 1,150 1,000
Jordan Industries, 10.375%, 2003 1,370 1,151
JPS Automotive Products Corporation, 11.125%,
2001 970 970
Newflo Corporation, 13.25%, 2002 980 1,014
NS Group, Inc., 13.50%, 2003 1,160 998
Pace Industries, Inc., 10.625%, 2002 560 496
Penda Industries, Inc., 10.75%, 2004 1,600 1,296
RBX Corporation, 11.25%, 2005 50 49
Thermadyne Industries, Inc.
10.25%, 2002 792 800
10.75%, 2003 2,535 2,560
--------------------------------------------------------------------------
24,235
- -----------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS
AND CONTAINERS--8.5%
Berry Plastics Corporation, 12.25%, with
warrants, 2004 400 429
Container Corporation of America, 11.25%, 2004 3,605 3,704
Crown Paper, 11.00%, 2005 900 841
Gaylord Container Corporation, 12.75%, 2005,
(b) with warrants, 1996 2,330 2,350
Maxxam Group, Inc.
(b) 12.25%, 2003 770 539
11.25%, 2003 1,125 1,097
Repap New Brunswick, Inc., 10.625%, 2005 1,030 1,009
SD Warren Company, 12.00%, 2004 850 939
Stone-Consolidated Corporation, 10.25%, 2000 1,150 1,225
Stone Container Corporation, 10.75%, 2002 3,570 3,668
Sweetheart Cup Company, Inc., 10.50%, 2003 700 704
Williamhouse-Regency, 13.00%, 2005 510 528
--------------------------------------------------------------------------
17,033
- -----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
RETAILING--5.2%
(c) Color Tile, Inc., 10.75%, 2001 $ 1,260 $ 113
Finlay Fine Jewelry Corporation, 10.625%, 2003 720 698
(b) International Semi-Tech Microelectronics,
Inc., 11.50%, 2003 1,100 567
Pamida Holdings, 11.75%, 2003 1,915 1,575
Pathmark Stores, Inc. 12.625%, 2002 1,100 1,103
Penn Traffic Company
10.25%, 2002 370 345
10.375%, 2004 520 478
Ralph's Grocery Company, 10.45%, 2004 2,030 2,007
Southland Corporation, 5.00%, 2003 1,122 934
Specialty Retailers, Inc., 11.00%, 2003 950 865
Thrifty Payless
11.75%, 2003 1,110 1,202
12.25%, 2004 495 531
--------------------------------------------------------------------------
10,418
- -----------------------------------------------------------------------------------------------------------
TECHNOLOGY--3.9%
Computervision Corporation
10.875%, 1997 2,140 2,233
11.375%, 1999 1,890 1,994
Merisel, Inc., 12.50%, 2004 1,350 1,012
Unisys Corporation
13.50%, 1997 1,490 1,430
10.625%, 1999 1,250 1,113
--------------------------------------------------------------------------
7,782
- -----------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.7%
(c) Burlington Motor Holdings, Inc., 11.50%,
2003 1,850 389
OMI Corp., 10.25%, 2003 1,530 1,350
(b) Transtar Holdings, L.P., 13.375%, 2003 2,580 1,729
--------------------------------------------------------------------------
3,468
--------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--105.1%
(Cost: $211,684) 210,716
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON AND PREFERRED STOCKS NUMBER OF SHARES VALUE
BCP/Essex Holdings, PIK, preferred 19,375shs. 511
(c) Gaylord Container Corporation 23,698 219
(c) Gillett Holdings, Inc. 6,731 141
(c) Grand Union Co. 60,004 450
(c) Thrifty Payless Inc. 27,550 117
(c) Walter Industries, Inc. 7,468 97
--------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--.8%
(Cost: $3,944) 1,535
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--.6% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Yield--5.92%
Due--December 1995
(Cost: $1,300) $ 1,300 1,300
--------------------------------------------------------------------------
TOTAL INVESTMENTS--106.5%
(Cost: $216,928) 213,551
--------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(6.5%) (13,049)
--------------------------------------------------------------------------
NET ASSETS--100% $200,502
--------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments.
</TABLE>
14
<PAGE> 15
Portfolio of Investments
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. At November 30, 1995, the value of the Fund's
restricted securities was $839,000 which represented .42% of net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
DATE OF OR NUMBER UNIT
SECURITY DESCRIPTION ACQUISITION OF SHARES COST
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Celcaribe, S.A., 13.50%, 2004 May 1994 $900,000 $0.80
------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June 1994 55,106 shs. 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 $216,928,000 for federal income tax purposes
at November 30, 1995, the aggregate gross unrealized appreciation was
$8,258,000, the aggregate gross unrealized depreciation was $11,635,000 and the
net unrealized depreciation of investments was $3,377,000.
See accompanying Notes to Financial Statements.
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER HIGH INCOME TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper High Income Trust as of
November 30, 1995, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period then ended and
financial highlights for each of the fiscal years since 1991. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
High Income Trust at November 30, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the fiscal years
since 1991, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 12, 1996
15
<PAGE> 16
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments, at value
(Cost: $216,928) $ 213,551
- -------------------------------------------------------------------------------------------------
Cash 2,794
- -------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 2,332
- -------------------------------------------------------------------------------------------------
Interest 5,031
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 223,708
- -------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Note payable 20,000
- -------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 2,956
- -------------------------------------------------------------------------------------------------
Management fee 142
- -------------------------------------------------------------------------------------------------
Administration fee 24
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 64
- -------------------------------------------------------------------------------------------------
Other 20
- -------------------------------------------------------------------------------------------------
Total liabilities 23,206
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 22,958 SHARES OUTSTANDING, $.01 PAR VALUE, EQUIVALENT TO
$8.73 PER SHARE $ 200,502
- -------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $ 243,831
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (42,531)
- -------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (3,377)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 2,579
- -------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 200,502
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($200,502 / 22,958 shares outstanding) $8.73
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
Financial Statements
STATEMENT OF OPERATIONS
Year ended November 30, 1995
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
<S> <C>
Interest $23,862
- -------------------------------------------------------------------------------------------------
Dividends 48
- -------------------------------------------------------------------------------------------------
Total investment income 23,910
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,670
- -------------------------------------------------------------------------------------------------
Interest expense 664
- -------------------------------------------------------------------------------------------------
Administration fee 285
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 239
- -------------------------------------------------------------------------------------------------
Professional fees 46
- -------------------------------------------------------------------------------------------------
Reports to shareholders 37
- -------------------------------------------------------------------------------------------------
Trustees' fees and other 55
- -------------------------------------------------------------------------------------------------
Total expenses 2,996
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 20,914
- -------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on sales of investments (including options purchased) (3,100)
- -------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments 11,843
- -------------------------------------------------------------------------------------------------
Net gain on investments 8,743
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $29,657
- -------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 20,914 19,981
- --------------------------------------------------------------------------------------------------
Net realized loss (3,100) (11,455)
- --------------------------------------------------------------------------------------------------
Change in net unrealized depreciation 11,843 (13,448)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 29,657 (4,922)
- --------------------------------------------------------------------------------------------------
Distribution from net investment income (20,603) (20,319)
- --------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(348 shares in 1995 and 251 shares in 1994) 3,154 2,341
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 12,208 (22,900)
- --------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 188,294 211,194
- --------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income of $2,579
and $2,262, respectively) $200,502 188,294
- --------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
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.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax provision is required. The accumulated
net realized loss on sales of investments for
federal income tax purposes at November 30, 1995,
amounting to approximately $42,516,000, is
available to offset future taxable gains. If not
applied, the loss carryover expires during the
period 1997 through 2004.
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.
Dividends 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
18
<PAGE> 19
Notes to Financial Statements
of recognized rating agencies or are non-rated, and
thus involve more risk than higher rated bonds.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES The Fund has a management agreement with Kemper
Financial Services, Inc. (KFS) and pays a
management fee at an annual rate of .85% of average
weekly net assets. The Fund incurred a management
fee of $1,670,000 for the year ended November 30,
1995.
Pursuant to a services agreement with the Fund's
transfer agent, Kemper Service Company (KSvC) is
the shareholder service agent of the Fund. For the
year ended November 30, 1995, the transfer agent
remitted shareholder services fees to KSvC of
$58,000.
Certain officers or trustees of the Fund are also
officers or directors of KFS. During the year ended
November 30, 1995, the Fund made no direct payments
to its officers and incurred trustees' fees of
$15,000 to independent trustees.
- --------------------------------------------------------------------------------
3 ADMINISTRATOR The Fund had an administration agreement with
Mitchell Hutchins Asset Management, Inc.
(Administrator) that terminated effective December
1995. For services rendered to the Fund by the
Administrator, the Fund paid 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 $285,000 for the year ended
November 30, 1995.
- --------------------------------------------------------------------------------
4 INVESTMENT TRANSACTIONS For the year ended November 30, 1995, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $238,587
Proceeds from sales 231,291
- --------------------------------------------------------------------------------
5 NOTE PAYABLE The note payable represents a $20,000,000 loan from
Bank of America. The note bears interest at the
London Interbank Offered Rate plus .45% which is
payable quarterly. The loan amount and rate are
reset periodically under a credit facility which is
available until June 30, 1996.
19
<PAGE> 20
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $8.33 9.45 8.70 8.28 6.25
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .91 .88 .99 .94 1.01
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .39 (1.10) .71 .45 2.07
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.30 (.22) 1.70 1.39 3.08
- -----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .90 .90 .95 .97 .94
- -----------------------------------------------------------------------------------------------------------------
Distribution from paid-in capital -- -- -- -- .11
- -----------------------------------------------------------------------------------------------------------------
Total dividends .90 .90 .95 .97 1.05
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $8.73 8.33 9.45 8.70 8.28
- -----------------------------------------------------------------------------------------------------------------
Market value, end of year $9.50 8.38 9.13 9.13 8.63
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN
Based on net asset value 16.30% (2.55) 20.62 17.42 52.90
- -----------------------------------------------------------------------------------------------------------------
Based on market value 25.38 1.28 10.14 17.50 65.03
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.52% 1.64 1.82 2.03 2.22
- -----------------------------------------------------------------------------------------------------------------
Net investment income 10.64 9.91 11.08 10.86 13.78
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $200,502 188,294 211,194 190,950 178,145
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85% 83 98 47 27
- -----------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of year
(in thousands) $ 20,000 20,000 20,000 17,312 17,312
- -----------------------------------------------------------------------------------------------------------------
Asset coverage ratio per $1,000 of debt 11.0 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 year. 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
year.
20
<PAGE> 21
Description of Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment and Cash Purchase Plan (the
"Plan") which is available to you as a shareholder
of Kemper High Income Trust (the "Fund"). If you
wish to participate and your shares are held in
your own name, simply contact Kemper Service
Company, whose address and phone number are
provided in Paragraph 4 for the appropriate form.
If your shares are held in the name of a brokerage
firm, bank, or other nominee, you must instruct
that nominee to re-register your shares in your
name so that you may participate in the Plan,
unless your nominee has made the Plan available on
shares held by them. Shareholders who so elect will
be deemed to have appointed United Missouri Bank,
n.a. ("UMB") as their agent and as agent for the
Fund under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account; and (c) voluntary cash
contributions made pursuant to Paragraph 5 hereof.
Sources described in clauses (a) and (b) of the
preceding sentence are hereinafter called
"Distributions."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS HELD
IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
All cash contributions to a participant's Account
made pursuant to Paragraph 5 hereof will be
invested in Shares purchased in the open market.
- --------------------------------------------------------------------------------
4 ADDITIONAL INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
21
<PAGE> 22
Description of Dividend Reinvestment and Cash Purchase Plan
- --------------------------------------------------------------------------------
5 VOLUNTARY CASH
CONTRIBUTIONS A participant may from time to time make voluntary
cash contributions to his Account by sending to
Agent a check or money order, payable to Agent, in
a minimum amount of $100 with appropriate
accompanying instructions. (No more than $500 may
be contributed per month.) Agent will inform UMB of
the total funds available for the purchase of
Shares and UMB will use the funds to purchase
additional Shares for the participant's account the
earlier of: (a) when it next purchases Shares as a
result of a Distribution or (b) on or shortly after
the first day of each month and in no event more
than thirty days after such date except when
temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of
Federal securities laws. Cash contributions
received more than fifteen calendar days or less
than five calendar days prior to a Payment Date
will be returned uninvested. Interest will not be
paid on any uninvested cash contributions.
Participants making voluntary cash investments will
be charged a $.75 service fee for each such
investment and will be responsible for their pro
rata brokerage commissions.
- --------------------------------------------------------------------------------
6 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
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7 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 8 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
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8 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions
as well as from voluntary cash contributions. With
respect to purchases from voluntary cash
contributions, UMB will charge a pro rata share of
the brokerage commissions. Brokerage charges for
purchasing small amounts of Shares for individual
Accounts through the Plan can be expected to be
less than the usual brokerage charges for such
transactions, as UMB will be purchasing Shares for
all participants in blocks and prorating the lower
commission thus attainable.
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9 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraphs 5 and 13
hereof. However, the Fund reserves the right to
amend the Plan in the future to include a service
charge.
22
<PAGE> 23
Description of Dividend Reinvestment and Cash Purchase Plan
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10 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
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11 SHARES NOT HELD
IN SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
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12 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
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13 WITHDRAWAL FROM PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 12 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
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14 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of Federal income tax returns. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
23
<PAGE> 24
Trustees and Officers
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL
President and Trustee Vice President
JAMES E. AKINS JOHN E. PETERS
Trustee Vice President
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY MICHAEL A. MCNAMARA
Trustee Vice President
FRED B. RENWICK HARRY E. RESIS, JR.
Trustee Vice President
JOHN B. TINGLEOFF PHILIP J. COLLORA
Trustee Vice President and
Secretary
JOHN G. WEITHERS
Trustee CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
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LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
[RECYCLED LOGO]
Printed on recycled paper.
KGP-2 (1/96) [KEMPER MUTUAL FUNDS LOGO]
1008300
Printed in the U.S.A.
