<PAGE> 1
KEMPER HIGH INCOME
TRUST
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MAY 31, 1996
"...when the economy is growing, credit quality becomes less of a concern
to investors in high yield corporate bonds."
<PAGE> 2
Table of
Contents
2
Terms to Know
3
General
Economic Overview
5
Performance Update
7
Largest Holdings
8
Portfolio Statistics
9
Portfolio of
Investments
15
Financial Statements
17
Notes to
Financial Statements
19
Financial Highlights
At A Glance
- -------------------------------------------------
Total Returns
- -------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------
<S> <C> <C>
KEMPER
HIGH INCOME
TRUST 7.36% 4.84%
- -------------------------------------------------
</TABLE>
- -------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
5/31/96 11/30/95
- -------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $ 8.91 $ 8.73
- -------------------------------------------------
MARKET PRICE $ 9.50 $ 9.50
- -------------------------------------------------
</TABLE>
DIVIDEND REVIEW
The following table shows per share dividend information for the fund as of May
31, 1996.
<TABLE>
<S> <C>
- -----------------------------------------------
SIX-MONTH INCOME: $0.45
- -----------------------------------------------
MAY DIVIDEND: $0.075
- -----------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 10.10%
- -----------------------------------------------
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 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.
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 a specified period, assuming the
reinvestment of all dividends. It represents the aggregate percentage change in
the value of an investment in the fund over the period. Total return may be
based upon net asset value or market price.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $78 BILLION IN ASSETS, INCLUDING $45 BILLION
IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN
M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first six months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In July, the U.S. economy entered its 64th month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
CONSUMERS AND JOB SECURITY
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds
of the new jobs created in the United States in 1994 and 1995 paid better than
the average job. The report found that the rate at which jobs were eliminated
has risen slightly despite strong economic growth of recent years -- however, it
reported that the length of time most workers spent unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the
recent relationship between number of jobs created versus the number of jobs
lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
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.
<TABLE>
<CAPTION>
Now (5/31/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.74 5.71 6.17 7.10
Prime rate(2) 8.25 8.63 9.00 7.25
Inflation rate(3) 2.96 2.60 3.04 2.56
The U.S. dollar(4) 8.51 -2.58 -9.31 0.51
Capital
goods orders(5) 2.93 11.03 12.98 25.11
Industrial production(6) 3.26 1.08 2.80 6.61
Employment growth(7) 2.00 1.92 2.71 3.12
</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, infla-
tion 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.
Source: Economics Department, Zurich Kemper Investments, Inc.
Such ebb and flow is to be expected in investing, especially at this point in
the cycle. Attempting to "prepare" for a correction is futile, we believe. Those
whose caution caused them to excuse themselves from the market early this year,
for example, would have forgone its significant gain year to date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
July 2, 1996
4
<PAGE> 5
PERFORMANCE UPDATE
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH ZURICH KEMPER INVESTMENTS, INC. (ZKI) SINCE 1972 AND
IS SENIOR VICE PRESIDENT OF ZKI AND A VICE PRESIDENT AND PORTFOLIO CO- MANAGER
OF KEMPER HIGH INCOME TRUST. MCNAMARA GRADUATED WITH A B.S. IN BUSINESS
ADMINISTRATION FROM THE UNIVERSITY OF MISSOURI AND EARNED AN M.B.A. FROM LOYOLA
UNIVERSITY.
[RESIS PHOTO]
HARRY RESIS IS A SENIOR VICE PRESIDENT OF ZKI. HE JOINED THE COMPANY IN 1988 AND
IS A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER HIGH INCOME TRUST. 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.
DURING A TIME WHEN THE OVERALL BOND MARKET STRUGGLED, HIGH YIELD BONDS
PROVIDED POSITIVE RETURNS. KEMPER HIGH INCOME TRUST PORTFOLIO CO-MANAGERS HARRY
RESIS AND MICHAEL MCNAMARA EXPLAIN HOW THE PERIOD'S RISING INTEREST RATES
IMPACTED THE FUND'S PERFORMANCE.
Q. HOW WOULD YOU CHARACTERIZE THE HIGH YIELD MARKET OVER THE SIX-MONTH
PERIOD, DECEMBER 1, 1995, THROUGH MAY 31, 1996?
A. High yield bonds performed well during the period. The economy continued
to drive corporate earnings and strong high yield bond performance.
Slow economic growth was sustained in December and January and interest rates
declined. By February, however, perceptions of a strengthening economy caused
market rates to begin rising, with a significant jump in March as higher than
anticipated gains in employment figures were reported.
Although this news hurt many income funds in the U.S. government market,
it did not have the same impact in the high yield market. That's
because when the economy is growing, credit quality becomes less of a concern
to investors in high yield corporate bonds. A stronger economy assumes that
more growth in corporate earnings will occur. And solid earnings are essential
for companies to continue paying the interest on their outstanding bond issues.
Q. WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND DURING THE PERIOD?
A. During the period, we focused on changing the mix of the fund's cyclical
holdings. 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.
Historically, the fund has been heavily weighted in companies within deep
cyclical industries like steel, paper and chemicals. But last year we began
moving out of deep cyclical industries. That's because those types of companies
tend to experience large movements in their revenues and earnings during changes
in the economy or in their industry cycles. In the past six months, we continued
to add issues from companies that, although cyclical, have less cyclicality, or
have some degree of independence from changes in the overall U.S. economy.
For example, we've increased our weighting in the energy sector. Another
example would be our increased investment in the casino and gaming industry.
Although some may argue that gaming is not a cyclical industry, we believe it
is. If there would be a sharp downturn in the economy, we expect that revenues
in this industry would decline.
5
<PAGE> 6
PERFORMANCE UPDATE
Although the gaming industry would suffer from an economic downturn, the losses
would not be anywhere near as significant as those that the steel or auto
industries might experience.
Q. HOW HAVE DEFAULTS IMPACTED THE HIGH YIELD MARKET DURING THE PERIOD?
A. The high yield market enjoyed a relatively low rate of defaults in 1995.
However, default rates should climb back to their historical levels of between
3 and 4 percent in 1996. We saw defaults pick up slightly during the last few
months of 1995, but then slow again during the first few months of 1996.
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, 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, we are confident that the default rate should climb back to its
norm.
Of course, we always consider the possibility for default when analyzing a
possible investment. But default is the risk we assume and why we tend to earn
higher yields on the fund's investments. It's also the reason we do not try to
"shoot the moon" on any one credit. While we are permitted greater
concentration, our largest investment currently represents about 2 percent of
the fund's total net assets. And most of the fund's other investments each
account for less than 1 percent of total net assets. By diversification we
attempt to limit the exposure the fund has to any one credit. That way, if a
specific default does occur, it would not typically severely impact the fund's
overall performance.
Q. WHAT CAN YOU TELL US ABOUT THE QUALITY OF THE FUND'S HOLDINGS?
A. The quality of the fund's portfolio didn't change too much over the
six-month period. We kept about two-thirds of the fund invested in lower
quality B-rated bonds and about 25 percent invested in relatively higher rated
BB-rated bonds. This positioning provided a good level of income for the fund,
while mitigating some potential risk.
Q. WERE THERE ANY BONDS THAT PERFORMED PARTICULARLY WELL?
A. Waxman Industries, a supplier of plumbing, electrical and hardware
products, provided a great boost to the fund during the period. One of its
subsidiaries, Barnett, Inc., issued its stock through an initial public
offering. This offering boosted the price of some of our Waxman bonds
significantly. These bonds have provided solid earnings with very little credit
concern. Their recent rise in price substantiates the strength of the company's
management and operations.
Q. WHAT ABOUT DISAPPOINTMENTS?
A. Three of the fund's issues defaulted during the period. The bonds were
issued by ColorTile, a home improvement retailer, Burlington Motor Freights, a
trucking company and Beatrice Ltd., a Canadian dairy company. All three were
hurt by the debt they had taken on and the effect that 1994's rising interest
rate environment had on their businesses. Currently, the companies are all in
the midst of restructuring their debt.
Q. WILL THE HIGH YIELD BOND MARKET BE ABLE TO SUSTAIN ITS MOMENTUM?
A. Our outlook for the high yield bond market is positive, 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. Our
investment focus will continue to be on healthy companies that are positioned
to perform well in the current moderate growth economy.
6
<PAGE> 7
LARGEST HOLDINGS
THE FUND'S FIVE LARGEST HOLDINGS*
Representing 9.8% of the fund's total net assets on May 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
HOLDINGS PERCENT
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1. TRUMP ATLANTIC CITY Operates hotel and casino in Atlantic City, New Jersey 2.4%
- ----------------------------------------------------------------------------------------
2. TELEWEST Provides cable television and residential and business 2.0%
COMMUNICATIONS cable telephone services.
- ----------------------------------------------------------------------------------------
3. MGM GRAND Operates hotel and casino in Las Vegas, Nevada. 1.9%
- ----------------------------------------------------------------------------------------
4. ROGERS CANTEL Operates cellular telephone network in Canada. 1.8%
- ----------------------------------------------------------------------------------------
5. CONTAINER Manufactures line of commodity and specialty paperboard 1.7%
CORPORATION and corrugated shipping containers.
- ----------------------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
On May 29, 1996, an annual shareholders' meeting was held. Kemper High Income
Trust shareholders were asked to vote on two separate issues: re-election of the
eight members to the Board of Trustees and ratification of Ernst & Young LLP as
independent auditors. We are pleased to report that all nominees were elected
and the selection of Ernst & Young LLP as the fund's auditors was ratified.
Following are the results for each issue:
1) Re-election of Trustees:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 18,725,515 362,676
Arthur R. Gottschalk 18,796,142 292,049
Frederick T. Kelsey 18,763,692 324,499
Dominique P. Morax 18,750,330 337,861
Fred B. Renwick 18,748,421 339,770
Stephen B. Timbers 18,811,412 276,779
John B. Tingleff 18,832,409 255,782
John G. Weithers 18,813,321 274,870
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
18,795,622 109,758 182,900
</TABLE>
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 5/31/96 ON 11/30/95
- --------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD BONDS 97% 95%
- --------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 4
- --------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 1 1
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHARTS]
CORPORATE LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 5/31/96 ON 11/30/95
- --------------------------------------------------------------------------
<S> <C> <C>
BB 25% 23%
- --------------------------------------------------------------------------
B 66 68
- --------------------------------------------------------------------------
OTHER 9 9
- --------------------------------------------------------------------------
100% 100%
</TABLE>
The ratings of Standard and 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.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 5/31/96 ON 11/30/95
- --------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 7.7 YEARS 8.0 YEARS
- --------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH INCOME TRUST
PORTFOLIO OF INVESTMENTS AT MAY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AEROSPACE--3.3%
Fairchild Corporation, 12.00%, 2001 $2,280 $ 2,274
Howmet Inc., 10.00%, 2003 220 234
K & F Industries, Inc.
13.75%, 2001 1,776 1,834
11.875%, 2003 660 709
RHI Holdings, 11.875%, 1999 885 882
Sequa Corporation, 8.75%, 2001 650 624
UNC, Inc., 11.00%, 2006 420 426
--------------------------------------------------------------------------
6,983
- -----------------------------------------------------------------------------------------------------------
BROADCASTING,
CABLESYSTEMS AND
PUBLISHING--25.4%
Adelphia Communication Corporation, 12.50%, 2002 1,240 1,274
Affinity Group, Inc., 11.50%, 2003 1,420 1,438
American Radio Systems, 9.00%, 2006 1,310 1,244
(b)American Telecasting
14.50%, 2004 830 603
14.50%, 2005 560 353
(b)Australis Media Corporation, 14.00%, 2003 500 312
(b)Bell Cablemedia PLC, 11.95%, 2004 4,590 3,293
Big Flower Press, Inc., 10.75%, 2003 1,201 1,201
CAI Wireless Systems, 12.25%, 2002 1,000 1,050
CF Cable TV, Inc., 11.625%, 2005 1,005 1,095
Cablevision Systems Corporation
9.250%, 2005 300 289
9.875%, 2013 675 648
10.50%, 2016 90 90
9.875%, 2023 410 381
Century Communications Corporation
11.875%, 2003 2,945 3,144
9.50%, 2005 130 129
(b)Comcast UK Cable Partners Limited, 11.20%, 2007 3,890 2,305
Comcast Corporation
9.125%, 2006 1,190 1,148
9.50%, 2008 1,050 1,045
10.625%, 2012 400 426
(b)CS Wireless, 11.375%, 2006 1,960 1,005
(b)Echostar Communications, 12.875%, 2004 2,405 1,816
EZ Communications, 9.75%, 2005 1,190 1,136
Granite Broadcasting Corp.
12.75%, 2002 2,250 2,469
9.375%, 2005 340 314
(b)International Cabletel Incorporated
12.75%, 2005 3,920 2,573
11.50%, 2006 390 228
Katz Corporation, 12.75%, 2002 1,175 1,306
Neodata Services, 12.00%, 2003 1,290 1,303
Newsquest Capital PLC, 11.00%, 2006 630 632
(b)People's Choice TV Unit, 13.125%, 2004 1,590 946
Rogers Cablesystems Limited
9.625%, 2002 600 599
10.00%, 2005 510 512
10.00%, 2007 460 460
Sinclair Broadcasting Group, Inc., 10.00%, 2003 3,250 3,165
Sullivan Broadcasting
10.25%, 2005 320 306
13.25%, 2006 630 613
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telewest Communications PLC
9.625%, 2006 $ 950 $ 935
(b) 11.00%, 2007 5,480 3,261
(b)UIH Australia Pacific, Inc., 14.00%, 2006 2,170 1,150
Univision TV, 11.75%, 2001 625 666
(b)Videotron Holdings PLC
11.125%, 2004 3,290 2,468
11.00%, 2005 840 554
Young Broadcasting Inc.
11.75%, 2004 1,730 1,836
9.00%, 2006 790 711
--------------------------------------------------------------------------
52,432
- -----------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--1.9%
Allied Waste Industries, 12.00%, 2004 500 545
Monarch Marking Systems, 12.50%, 2003 2,090 2,231
Outdoor Systems, Inc., 10.75%, 2003 1,080 1,102
--------------------------------------------------------------------------
3,878
- -----------------------------------------------------------------------------------------------------------
CHEMICALS AND
AGRICULTURE--6.2%
Arcadian Partners, L.P., 10.75%, 2005 1,370 1,480
Atlantis Group, Inc., 11.00%, 2003 1,605 1,521
G-I Holdings Inc., zero coupon, 1998 2,420 1,948
Hines Horticulture, 11.75%, 2005 300 313
Pioneer Americas Acquisition Corporation, 13.375%,
2005 830 884
Polymer Group Inc., 12.25%, 2002 2,055 2,230
Rexene Corporation, 11.75%, 2004 1,580 1,667
Terra Industries, 10.50%, 2005 1,600 1,704
UCC Investors Holdings, Inc.
10.50%, 2002 720 765
11.00%, 2003 260 275
--------------------------------------------------------------------------
12,787
- -----------------------------------------------------------------------------------------------------------
COMMUNICATIONS--11.0%
(b)Arch Communications Group, 10.875%, 2008 700 394
(b)Call-Net Enterprises Inc., 13.25%, 2004 3,000 2,213
(a)(b)Celcaribe S.A., 13.50%, 2004 900 918
(b)Cellular, Inc., 11.75%, 2003 585 481
(b)Charter Communications, 14.00%, 2007 1,600 896
(b)Commcell, 13.125%, with warrants, 2003 2,000 1,255
CommNet Cellular, 11.25%, 2003 400 426
(b)Intelcom Group Inc., 13.50% with warrants, 2005 1,500 959
Intermedia Communications of Florida, Inc., 13.50%,
with warrants, 2005 1,500 1,736
(b)Millicom International Cellular S.A., 13.50%, 2006 1,180 624
Mobilemedia Communications, 9.375%, 2007 780 733
Nextlink Communications, 12.50%, 2006 1,120 1,134
Paging Network, Inc.
11.75%, 2002 2,035 2,213
10.125%, 2007 230 236
(b)PanAmSat, L.P., 11.375%, 2003 2,710 2,331
Rogers Cantel
9.75%, 2016 1,040 1,032
11.125%, 2002 2,553 2,706
(b)Shared Technologies, 12.25%, 2006 680 517
USA Mobile Communications, Inc. II
14.00%, 2004 850 988
9.50%, 2004 600 574
Vanguard Cellular Systems, 9.375%, 2006 330 324
--------------------------------------------------------------------------
22,690
- -----------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION
MATERIALS--4.8%
American Standard Inc.
10.875%, 1999 $1,838 $ 1,953
11.375%, 2004 620 674
(b) 10.50%, 2005 950 817
(b)Building Materials Corporation of America, 11.75%,
2004 3,205 2,396
Nortek Inc., 9.875%, 2004 1,840 1,734
Triangle Pacific Corporation, 10.50%, 2003 2,185 2,261
--------------------------------------------------------------------------
9,835
- -----------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS
AND SERVICES--7.1%
AMF Group, 10.875%, 2006 700 695
Avondale Mills, 10.25%, 2006 930 916
(c)Beatrice Foods, Inc., 12.00%, 2001 2,350 705
Brunos, 10.50%, 2005 900 889
Cinemark USA, Inc., 12.00%, 2002 907 984
Coinmach Corporation, 11.75%, 2005 1,900 1,985
(b)Dr. Pepper Bottling Holdings, Inc., 11.625%, 2003 1,165 990
Foodbrands America, 10.75%, 2006 430 438
Herff Jones, Inc., 11.00%, 2005 410 431
P&C Food Markets, Inc., 11.50%, 2001 1,180 1,192
Premier Parks Inc., 12.00%, 2003 600 644
(b)Six Flags Theme Park, 12.25%, 2005 3,120 2,644
Van De Kamps, Inc., 12.00%, 2005 500 534
West Point Stevens, Inc., 9.375%, 2005 1,680 1,634
--------------------------------------------------------------------------
14,681
- -----------------------------------------------------------------------------------------------------------
DRUGS AND
HEALTHCARE--3.1%
Dade International Inc., 11.125%, 2006 770 801
Magellan Health Services, 11.25%, 2004 1,440 1,580
Ornda Healthcorporation
12.25%, 2002 1,610 1,743
11.375%, 2004 1,000 1,110
Tenet Healthcare, 10.125%, 2005 1,120 1,184
--------------------------------------------------------------------------
6,418
- -----------------------------------------------------------------------------------------------------------
ENERGY AND RELATED
SERVICES--5.0%
Benton Oil & Gas Co., 11.625%, 2003 585 603
Chesapeake Energy Corporation, 10.50%, 2002 465 486
Clark USA Inc., 10.875%, 2005 1,210 1,261
Cliffs Drilling Co., 10.25%, 2003 710 714
Coda Energy, 10.50%, 2006 910 912
Empire Gas Corporation, 7.00%, with warrants, 2004 1,300 1,147
Ferrellgas Partners, LP., 9.375%, 2006 900 875
Gulf Canada Resources Limited
9.25%, 2004 700 698
9.625%, 2005 420 425
Nuevo Energy Co., 9.50%, 2006 450 448
Plains Resources, 10.25%, 2006 780 786
Santa Fe Energy Resources, 11.00%, 2004 550 594
United Meridian Corp., 10.375%, 2005 700 724
Vintage Petroleum, 9.00%, 2005 590 563
--------------------------------------------------------------------------
10,236
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES,
HOME BUILDING AND
REAL ESTATE
- --2.3%
Continental Homes Holding, 10.00%, 2006 $ 910 $ 892
Forecast Group L.P., 11.375%, 2000 640 422
Fortress Group, 13.75%, 2003 550 568
Hovnanian Kent, 11.25%, 2002 1,068 991
J.M. Peters Company, 12.75%, with warrants, 2002 680 639
Presley Companies, 12.50%, 2001 1,335 1,288
--------------------------------------------------------------------------
4,800
- -----------------------------------------------------------------------------------------------------------
HOTEL AND GAMING
- --7.7%
Bally's Park Place Funding, Inc., 9.25%, 2004 2,100 2,121
Empress River Casino, 10.75%, 2002 1,685 1,757
Harvey's Casino Resorts, 10.625%, 2006 340 342
MGM Grand Hotel Finance Corporation
11.75%, 1999 1,354 1,442
12.00%, 2002 2,200 2,409
Majestic Star Casino, 12.75%, 2003 170 178
Players International, 10.875%, 2005 1,440 1,476
Station Casinos Inc., 10.125%, 2006 1,250 1,228
Trump Atlantic City, 11.25%, 2006 4,860 4,872
--------------------------------------------------------------------------
15,825
- -----------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS
AND MINING--13.2%
Aftermarket Technology, 12.00%, 2004 950 1,017
Alvey Systems, 11.375%, 2003 545 562
Bar Technologies, 13.50%, 2001 1,000 1,013
Bluebird Body Company, 11.75%, 2002 1,640 1,697
Crain Industries, Inc., 13.50%, 2005 630 661
Day International Group, 11.125%, 2005 2,130 2,194
Essex Group, Incorporated, 10.00%, 2003 320 323
Fairfield Manufacturing Company, 11.375%, 2001 1,205 1,229
(b)Foamex - JPS Automotive L.P., 14.00%, 2004,
with warrants, 1999 950 665
Foamex L.P.
11.25%, 2002 1,370 1,418
11.875%, 2004 650 663
Great Dane Holdings, Inc., 12.75%, 2001 1,127 1,085
GS Technologies
12.00%, 2004 530 546
12.25%, 2005 740 767
Gulf States Steel, 13.50%, with warrants, 2003 900 819
IMO Industries, 11.75%, 2006 560 579
Jordan Industries, 10.375%, 2003 1,370 1,288
JPS Automotive Products Corporation, 11.125%, 2001 1,370 1,404
Knoll Inc., 10.875%, 2006 700 715
Newflo Corporation, 13.25%, 2002 980 1,054
NS Group, Inc., 13.50%, 2003 1,010 970
Pace Industries, Inc., 10.625%, 2002 780 881
Penda Industries, Inc., 10.75%, 2004 1,650 1,514
Terex Corporation Unit, 13752, 2002 800 824
Thermadyne Industries, Inc.
10.25%, 2002 792 812
10.75%, 2003 2,535 2,586
----------------------------------------------------------------------------
27,286
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER, FOREST
AND CONTAINER
PRODUCTS--8.3%
Berry Plastics Corporation, 12.25%, with warrants,
2004 $ 400 $ 440
Container Corporation of America, 11.25%, 2004 3,605 3,722
Crown Paper, 11.00%, 2005 1,340 1,270
Florida Coast Paper Company, 12.75%, 2003 420 430
Four M Corporation, 12.00%, 2006 420 428
Gaylord Container Corporation, 12.75%, 2005, with
warrants, 1996 1,820 2,032
Maxxam Group, Inc.
(b) 12.25%, 2003 770 578
11.25%, 2003 1,215 1,209
Owens-Illinois
11.00%, 2003 560 608
9.75%, 2004 200 203
9.95%, 2004 800 820
Repap New Brunswick, Inc., 10.625%, 2005 1,660 1,544
Riverwood International Corp.
10.25%, 2006 450 447
10.875%, 2008 1,590 1,568
Stone-Consolidated Corporation, 10.25%, 2000 1,150 1,185
Sweetheart Cup Company, Inc., 10.50%, 2003 700 689
-------------------------------------------------------------------------------
17,173
- ----------------------------------------------------------------------------------------------------------------
RETAILING--4.4%
(c)Color Tile, Inc., 10.75%, 2001 1,260 63
Finlay Fine Jewelry Corporation, 10.625%, 2003 1,030 1,040
Pamida Holdings, 11.75%, 2003 2,000 1,775
Pathmark Stores, Inc., 12.625%, 2002 2,100 2,178
Penn Traffic Company
10.25%, 2002 170 162
10.375%, 2004 560 533
11.50%, 2006 640 646
Ralph's Grocery Company, 10.45%, 2004 1,650 1,594
Smith's Food & Drug Centers, 11.25%, 1997 40 41
Southland Corporation, 5.00%, 2003 802 633
Thrifty Payless, 12.25%, 2004 322 360
-------------------------------------------------------------------------------
9,025
- ----------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.3%
Communication and Power Industry, Inc., 12.00%, 2005 600 633
Computervision Corporation, 11.375%, 1999 1,890 1,963
-------------------------------------------------------------------------------
2,596
- ----------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.5%
(c)Burlington Motor Holdings, Inc., 11.50%, 2003 1,850 171
GPA Group PLC, 10.875%, 2019 990 1,039
(b)Transtar Holdings, L.P., 13.375%, 2003 2,580 1,883
-------------------------------------------------------------------------------
3,093
-------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--106.5%
(Cost: $218,443) 219,738
-------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BCP/Essex Holdings, PIK, preferred 20,856shs $ 553
(a) Benedek Unit, PIK, preferred 500 500
Capital Pacific Holdings 3,634 4
(c) Echostar Communications 11,825 408
(c) Grand Union Company 60,004 397
(c) Sullivan Broadcasting 10,080 101
(c) Thrifty Payless Inc. 27,550 121
(c) UGI Inc. 5,550 7
(c) Walter Industries, Inc. 7,468 95
(a) Waxman Industries, Inc., warrants 55,106 165
-----------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--1.1%
(Cost: $4,415) 2,351
-----------------------------------------------------------------
TOTAL INVESTMENTS--107.6%
(Cost: $222,858) 222,089
-----------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS--(7.6%) (15,817)
-----------------------------------------------------------------
NET ASSETS--100% $206,272
-----------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
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 May 31, 1996, the value of the Fund's
restricted securities was $1,583,000 which represented .77% 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 $80.13
------------------------------------------------------------------------------------------------------------------
Benedek Unit, PIK, preferred May 1996 500shs 1,000
------------------------------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June 1994 55,106 2.00
------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Deferred interest obligations; currently zero coupon under terms of the
initial offering.
(c) Non-income producing securities. 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 $222,858,000 for federal income tax purposes
at May 31, 1996, the gross unrealized appreciation was $8,239,000, the gross
unrealized depreciation was $9,008,000 and the net unrealized depreciation of
investments was $769,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $222,858) $222,089
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 3,853
- -------------------------------------------------------------------------------------------------------
Interest 4,412
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 230,354
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft 1,000
- -------------------------------------------------------------------------------------------------------
Note payable 20,000
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 2,588
- -------------------------------------------------------------------------------------------------------
Management fee 146
- -------------------------------------------------------------------------------------------------------
Interest 287
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 49
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 12
- -------------------------------------------------------------------------------------------------------
Total liabilities 24,082
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 23,146 SHARES OUTSTANDING,
$.01 PAR VALUE, EQUIVALENT TO $8.91 PER SHARE $206,272
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $245,561
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (41,314)
- -------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (769)
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,794
- -------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $206,272
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($206,272 / 23,146 shares outstanding) $8.91
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $12,211
- -------------------------------------------------------------------------------------------------------
Dividends 38
- -------------------------------------------------------------------------------------------------------
Total investment income 12,249
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 870
- -------------------------------------------------------------------------------------------------------
Interest expense 599
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 45
- -------------------------------------------------------------------------------------------------------
Professional fees 65
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 14
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 30
- -------------------------------------------------------------------------------------------------------
Total expenses 1,623
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,626
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 1,217
- -------------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments 2,608
- -------------------------------------------------------------------------------------------------------
Net gain on investments 3,825
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,451
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MAY NOVEMBER 30,
31, 1996 1995
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 10,626 20,914
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,217 (3,100)
- -----------------------------------------------------------------------------------------------------
Change in net unrealized depreciation 2,608 11,843
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,451 29,657
- -----------------------------------------------------------------------------------------------------
Distribution from net investment income (10,411) (20,603)
- -----------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends (188 shares
and 348 shares, respectively) 1,730 3,154
- -----------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 5,770 12,208
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------
Beginning of period 200,502 188,294
- -----------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income of
$2,794 and $2,579, respectively) $206,272 200,502
- -----------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
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
discount amortization on fixed income securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended May 31, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1996, amounting to
approximately $41,300,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 1997 through
2003.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.), and pays a management fee at an annual rate
of .85% of average weekly net assets. The Fund
incurred a management fee of $870,000 for the six
months ended May 31, 1996.
SHAREHOLDER SERVICE AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder service fees of $25,000
for the six months ended May 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended May 31, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $12,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $118,595
Proceeds from sales 112,582
- --------------------------------------------------------------------------------
4 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 .275% which is
payable quarterly. The loan amount and rate are
reset periodically under a credit facility which is
available until June 30, 1999.
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ---------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.73 8.33 9.45 8.70 8.28
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .91 .88 .99 .94
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .17 .39 (1.10) .71 .45
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations .63 1.30 (.22) 1.70 1.39
- ---------------------------------------------------------------------------------------------------------------
Distribution from net investment income .45 .90 .90 .95 .97
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.91 8.73 8.33 9.45 8.70
- ---------------------------------------------------------------------------------------------------------------
Market value, end of period $9.50 9.50 8.38 9.13 9.13
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------
Based on net asset value 7.36% 16.30 (2.55) 20.62 17.42
- ---------------------------------------------------------------------------------------------------------------
Based on market value 4.84 25.38 1.28 10.14 17.50
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------------------
Expenses 1.58% 1.52 1.64 1.82 2.03
- ---------------------------------------------------------------------------------------------------------------
Net investment income 10.38 10.64 9.91 11.08 10.86
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $206,272 200,502 188,294 211,194 190,950
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 86% 85 83 98 47
- ---------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of period (in thousands) $ 20,000 20,000 20,000 20,000 17,312
- ---------------------------------------------------------------------------------------------------------------
Asset coverage ratio per $1,000 of debt 11.3 11.0 10.4 11.6 12.0
- ---------------------------------------------------------------------------------------------------------------
</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.
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL CHARLES F. CUSTER
President and Trustee Vice President Vice President and
Assistant Secretary
JAMES E. AKINS JOHN E. PETERS
Trustee Vice President JEROME L. DUFFY
Treasurer
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY MICHAEL A. MCNAMARA
Trustee Vice President
DOMINIQUE P. MORAX HARRIS E. RESIS, JR.
Trustee Vice President
FRED B. RENWICK PHILIP J. COLLORA
Trustee Vice President
and Secretary
JOHN B. TINGLEFF
Trustee
JOHN G. WEITHERS
Trustee
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCE LOGO)
Printed on recycled paper.
KHIT-3 (7/96) KEMPER LOGO
1018270
Printed in the U.S.A.
