<PAGE> 1
KEMPER
HIGH INCOME TRUST
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1996
"... This year's growing economy,
low inflation and low level of defaults were quite
positive for high yield bonds..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
3
Economic Overview
5
Performance Update
7
Largest Holdings
8
Portfolio Statistics
9
Portfolio of Investments
15
Report of Independent Auditors
16
Financial Statements
18
Notes to
Financial Statements
20
Financial Highlights
21
Description of Dividend Reinvestment Plan
AT A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH
INCOME TRUST 16.56% 16.12%
- --------------------------------------------------------------------------------
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/96 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $ 9.20 $8.73
- --------------------------------------------------------------------------------
MARKET PRICE $10.00 $9.50
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
The following table shows per share dividend and yield information for the fund
as of November 30, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
ONE-YEAR INCOME: $ 0.90
- --------------------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.075
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 9.78%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 9.00%
- --------------------------------------------------------------------------------
</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.
Investment by the fund in lower quality bonds present greater risk to principal
and interest than investments in higher quality 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 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
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 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:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</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,
inflations 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 family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter 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.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
PERFORMANCE UPDATE
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH ZURICH KEMPER INVESTMENTS, INC. (ZKI) SINCE 1972 AND
IS A SENIOR VICE PRESIDENT OF ZKI 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 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 THE REPORTING PERIOD HIGH YIELD BONDS OUTPERFORMED NEARLY EVERY OTHER
FIXED-INCOME ASSET CLASS. THE FUND OUTPERFORMED THE AVERAGE RETURN OF ITS
LIPPER ANALYTICAL SERVICES, INC. CATEGORY FOR THE YEAR ENDED NOVEMBER 30, 1996.
PORTFOLIO CO-MANAGERS MICHAEL MCNAMARA AND HARRY RESIS EXPLAIN THE REASONS
BEHIND THIS OUTPERFORMANCE AND DISCUSS THEIR OUTLOOK FOR THE HIGH YIELD MARKET.
Q WERE YOU PLEASED WITH KEMPER HIGH INCOME TRUST'S PERFORMANCE DURING THE
FISCAL YEAR?
A Yes. The fund performed well on a market price basis (up 16.12 percent).
On a net asset value basis, the fund returned 16.56 percent, outperforming the
Lipper high current yield category return of 15.66 percent*. At the end of the
fiscal year, the fund was trading at an 8.70 percent premium to net asset
value.
In addition, the fund was given a five-star overall rating from
Morningstar, Inc. as of November 30, 1996, in the taxable bond category. For
the three-year period ended November 30, 1996, the fund was ranked as a
four-star fund among 132 closed-end funds and ranked as a five-star fund among
83 closed-end funds for the five-year period. All rankings were within the
taxable bond category.**
* Lipper Analytical Services, Inc. returns and rankings are based upon
changes in net asset value with all dividends reinvested.
** Morningstar proprietary ratings reflect risk-adjusted performance through
11/30/96. The ratings are subject to change every month. Past performance
is no guarantee of future results. Morningstar ratings are calculated
from the fund's three- and five-year returns (with fee adjustments) in
excess of 90-day Treasury bill returns, and a risk factor that reflects
fund performance below 90-day T-bill returns. Ten percent of the funds in
a rating category receive 5 stars, and the next 22.5% receive 4 stars.
Q HIGH YIELD BONDS ENJOYED STRONG PERFORMANCE DURING THE YEAR WHILE OTHER
FIXED-INCOME INVESTMENTS STRUGGLED. WHAT WAS THE REASON?
A The growing U.S. economy continued to drive strong high yield bond returns
during the fiscal year. While most fixed-income investments suffered due to the
economy's pickup, high yield bonds flourished in the higher market rate
environment that ensued. That was because stronger economic growth fueled
corporate earnings, which enabled most companies to meet the interest payments
on their outstanding bond issues. The strong stock market was also positive for
high yield bonds. It facilitated an increased number of initial public offerings
by high yield issuers, enabling many issuers to pay down their debt.
Q WOULD YOU CONSIDER THE LAST 12 MONTHS THE OPTIMAL ECONOMIC ENVIRONMENT FOR
HIGH YIELD BONDS?
A This year's growing economy, low inflation and low level of defaults were
quite positive for high yield bonds. Although we didn't realize returns of the
same magnitude as that of 1995 because interest rates rose, the fund was helped
by a low default rate. Let us explain how this occurred.
5
<PAGE> 6
PERFORMANCE UPDATE
Stronger economic growth generated consumer spending, fueling corporate
earnings. With relatively stable corporate earnings, defaults were minimal
because companies were generally able to cover their high yield bond coupon
interest payments. Therefore, demand for high yield bonds increased and prices
rose.
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO KEMPER HIGH INCOME TRUST DURING
THE PERIOD?
A We focused primarily 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 had been heavily weighted in companies within deep
cyclical industries like steel, paper and chemicals. However, 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.
Over the past year, we continued to add issues from companies that, while
cyclical, are somewhat less cyclical, 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 is 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 were to be a sharp downturn in the economy,
we would expect a decline in industry revenues. 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 HAS THE INVESTMENT SELECTION PROCESS GOTTEN ANY SIMPLER GIVEN THE HIGH
YIELD MARKET'S LOW LEVEL OF DEFAULTS?
A Although the low level of defaults has given us more issues to choose
from, it has not predicated a change in our investment analysis process. We
believe our careful bond selection -- which is based on extensive research --
is directly responsible for the fund's outstanding historical long-term
performance. Kemper's team of bond analysts routinely goes beyond traditional
analysis. They visit issuing companies and meet with their senior management,
walk through factories, talk to suppliers and speak with customers. After a
bond is purchased for the fund, analysts continuously monitor the firm's
financial strength and the bond's ongoing investment potential.
Q WHAT CAN YOU TELL US ABOUT THE QUALITY OF THE FUND'S HOLDINGS?
A We didn't significantly alter the quality of the fund's portfolio during
the period. We kept about two-thirds of the fund invested in lower quality
B-rated bonds and close to 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 There were a number of issues that provided outstanding performance during
the year. An example was our investment in Trump Taj Mahal, which was called
away from us at par value ($1,000 per bond) plus accrued interest. These bonds
were issued to finance the Atlantic City casino's first mortgage and we
purchased them in the secondary market at a deep discount to par value. Early
on, many investors doubted the stability of this issue, but we were optimistic
about the future of the casino and Atlantic City. We believed that the bonds'
11.25 percent coupon combined with their discounted price made the investment
worthwhile. In fact, we were so confident about the potential of this
investment, we made it one of the fund's largest holdings.
Our outlook for Atlantic City and Trump Taj Mahal proved to be correct,
and the bonds were consistently one of the fund's top performing investments.
Moreover, the fund enjoyed a phenomenal gain when the vast majority of the
bonds were called away in March 1996.
Another industry that performed well during the year was the
international cable and wireless communications industry. In the United Kingdom
several mergers took place which
6
<PAGE> 7
PERFORMANCE UPDATE
improved the overall credit quality of issues within the industry. We are
optimistic about continued strong performance in this area and will continue to
add these types of issues as appropriate.
Q WHAT ABOUT DISAPPOINTMENTS?
A Three of the fund's issues defaulted during the first part of the fiscal
year. The bonds were issued by Color Tile, a home improvement retailer;
Burlington Motor Holdings, 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.
Color Tile and Burlington were still in the midst of restructuring
their debt at the close of the fiscal period. However, Beatrice Ltd. bonds
recaptured some of their earlier losses.
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 levels from the past couple of
years. 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 slow growth economy.
LARGEST HOLDINGS
THE FUND'S 5 LARGEST HOLDINGS*
Representing 9.5% of the fund's total net assets on November 30, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Holdings Percent
- ------------------------------------------------------------------------------
<S> <C> <C>
1. TRUMP 2.2%
ATLANTIC
CITY
2. TELEWEST COMMUNICATIONS PLC 2.0%
3. STONE CONTAINER 1.8%
4. BELL CABLEMEDIA 1.8%
5. ROGERS CANTEL 1.7%
</TABLE>
*Portfolio composition and holdings are subject to change.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD BONDS 96% 95%
- ----------------------------------------------------------------------------
CASH AND EQUIVALENTS 3 4
- ----------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 1 1
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/96 ON 11/30/95
CORPORATE LONG-TERM FIXED INCOME
SECURITIES RATINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
BB 21% 23%
- ----------------------------------------------------------------------------
B 71 68
- ----------------------------------------------------------------------------
OTHER 8 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.
[PIE CHART] [PIE CHART]
ON 11/30/96 ON 11/30/95
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- ----------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 7.7 YEARS 8.0 YEARS
- ----------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AEROSPACE--3.3% Airplanes Pass Through Trust, 10.875%, 2019 $ 990 $ 1,094
Fairchild Corporation, 12.00%, 2001 2,580 2,586
Howmet Inc., 10.00%, 2003 220 241
K & F Industries, Inc.
11.875%, 2003 660 710
10.375%, 2004 1,150 1,208
RHI Holdings, 11.875%, 1999 885 887
UNC, Inc., 11.00%, 2006 420 447
-----------------------------------------------------------------------------
7,173
- ----------------------------------------------------------------------------------------------------------------
BROADCASTING, CABLESYSTEMS Adelphia Communications Corporation
AND PUBLISHING--21.7% 12.50%, 2002 1,240 1,252
11.875%, 2004 380 377
Affinity Group, Inc., 11.50%, 2003 1,420 1,487
American Radio Systems, 9.00%, 2006 1,190 1,166
(b)American Telecasting
14.50%, 2004 830 498
14.50%, 2005 560 280
(b)Bell Cablemedia PLC
11.95%, 2004 4,270 3,651
11.875%, 2005 210 165
Big Flower Press, Inc., 10.75%, 2003 1,281 1,345
CAI Wireless Systems, 12.25%, 2002 1,000 820
Cablevision Systems Corporation
9.875%, 2013 515 502
10.50%, 2016 890 903
9.875%, 2023 410 392
Century Communications Corporation,
11.875%, 2003 1,625 1,735
(b)Charter Communications, 14.00%, 2007 1,600 899
(b)Comcast UK Cable Partners Limited,
11.20%, 2007 3,510 2,422
(b)CS Wireless, 11.375%, 2006 1,960 764
(b)Echostar Communications, 12.875%, 2004 1,905 1,576
Frontiervision, 11.00%, 2006 780 774
Granite Broadcasting Corp.
12.75%, 2002 2,250 2,453
9.375%, 2005 340 327
Intermedia Capital Partners, 11.25%, 2006 960 974
(b)International Cabletel Incorporated
12.75%, 2005 3,920 2,783
11.50%, 2006 390 251
Multicanal Participacoes, 12.625%, 2004 670 721
Neodata Services, 12.00%, 2003 1,290 1,342
Newsquest Capital PLC, 11.00%, 2006 630 643
(b)People's Choice TV Unit, 13.125%, 2004 1,590 652
Sinclair Broadcasting Group, Inc., 10.00%, 2003 3,250 3,295
Sullivan Broadcasting
10.25%, 2005 320 324
13.25%, 2006 630 668
(b)Telewest Communications PLC, 11.00%, 2007 6,260 4,226
(b)UIH Australia Pacific, Inc., 14.00%, 2006 1,970 1,044
Univision TV, 11.75%, 2001 625 658
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Videotron Holdings PLC
11.125%, 2004 $ 3,290 $ 2,805
11.00%, 2005 840 659
Young Broadcasting Inc.,
11.75%, 2004 1,730 1,851
-----------------------------------------------------------------------------
46,684
- --------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--2.4% Allied Waste Industries, 10.25%, 2006 460 472
Coinmach Corporation, 11.75%, 2005 2,120 2,290
Monarch Marking Systems, 12.50%, 2003 2,090 2,330
-----------------------------------------------------------------------------
5,092
- --------------------------------------------------------------------------------------------------------------
CHEMICALS AND Arcadian Partners, L.P., 10.75%, 2005 1,370 1,514
AGRICULTURE--5.8% Atlantis Group, Inc., 11.00%, 2003 1,605 1,645
Hines Horticulture, 11.75%, 2005 510 537
NL Industries, Inc., 11.75%, 2003 1,310 1,349
Pioneer Americas Acquisition Corporation,
13.375%, 2005 950 1,069
Polymer Group Inc., 12.25%, 2002 1,420 1,544
Rexene Corporation, 11.75%, 2004 1,790 2,023
Terra Industries Inc., 10.50%, 2005 1,600 1,736
UCC Investors Holdings, Inc.
10.50%, 2002 720 774
11.00%, 2003 260 277
-----------------------------------------------------------------------------
12,468
- --------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--11.1% (b)Brooks Fiber Properties, 11.875%, 2006 1,100 698
(b)Call-Net Enterprises Inc., 13.25%, 2004 3,000 2,423
(b)Cellular, Inc., 11.75%, 2003 1,465 1,322
(b)Communicacion Cellular, 13.125%, with warrants,
2003 2,000 1,420
CommNet Cellular, 11.25%, 2005 580 615
(b)ICG Holdings, 13.50%, 2005 2,040 1,423
IMPSAT Corporation, 12.125%, 2003 670 703
Intermedia Communications of Florida, Inc.,
13.50%, 2005, with warrants expiring 2000 1,915 2,277
(b)Millicom International Cellular S.A., 13.50%,
2006 1,720 1,058
Netsat Servicos, 12.75%, 2004 500 525
Nextlink Communications, 12.50%, 2006 335 354
Paging Network, Inc.
11.75%, 2002 1,855 2,000
10.125%, 2007 370 373
(b)PanAmSat, L.P., 11.375%, 2003 2,710 2,486
Rogers Cantel
11.125%, 2002 2,553 2,695
9.375%, 2008 430 450
9.75%, 2016 400 418
(b)Shared Technologies, 12.25%, 2006 680 554
USA Mobile Communications, Inc. II
14.00%, 2004 850 956
9.50%, 2004 530 500
Vanguard Cellular Systems, 9.375%, 2006 330 331
Western Wireless
10.50%, 2006 240 248
10.50%, 2007 80 83
-----------------------------------------------------------------------------
23,912
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION American Standard Inc.
MATERIALS--4.0% 11.375%, 2004 $ 620 $ 668
(b) 10.50%, 2005 950 886
(b)Building Materials Corporation of America,
11.75%, 2004 3,205 2,756
Nortek, 9.875%, 2004 1,840 1,849
Triangle Pacific Corporation, 10.50%, 2003 2,185 2,338
-----------------------------------------------------------------------------
8,497
- --------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AMF Group
AND SERVICES--6.8% (b) 12.25%, 2006 1,130 720
10.875%, 2006 1,130 1,188
Avondale Mills, 10.25%, 2006 930 960
Beatrice Foods, Inc., 12.00%, 2001 2,350 2,092
Cinemark USA, Inc., 9.625%, 2008 840 851
(b)Dr. Pepper Bottling Holdings, Inc., 11.625%, 2003 1,335 1,228
Herff Jones, Inc., 11.00%, 2005 490 527
Pillowtex Corp., 10.00%, 2006 450 461
Premier Parks Inc., 12.00%, 2003 1,290 1,406
(b)Six Flags Theme Park, 12.25%, 2005 3,120 2,878
Van De Kamps, Inc., 12.00%, 2005 500 546
West Point Stevens, Inc., 9.375%, 2005 1,680 1,726
-----------------------------------------------------------------------------
14,583
- --------------------------------------------------------------------------------------------------------------
DRUGS AND Dade International Inc., 11.125%, 2006 770 831
HEALTHCARE--3.5% Genesis Health Venture, 9.25%, 2006 590 604
Magellan Health Services, 11.25%, 2004 1,640 1,820
Ornda Healthcorporation
12.25%, 2002 1,610 1,725
11.375%, 2004 920 1,053
Tenet Healthcare, 10.125%, 2005 840 926
Unison Healthcare, 12.25%, 2006 580 586
-----------------------------------------------------------------------------
7,545
- --------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED Benton Oil & Gas Co., 11.625%, 2003 1,015 1,119
SERVICES--5.6% Chesapeake Energy Corporation, 10.50%, 2002 465 509
Clark USA, Inc., 10.875%, 2005 240 249
Coda Energy, 10.50%, 2006 1,240 1,311
Empire Gas Corporation, 7.00%, with warrants, 2004 1,300 1,107
Flores & Rucks Inc., 13.50%, 2004 1,050 1,244
Forcenergy Gas Exploration, 9.50%, 2006 420 441
Gulf Canada Resources Limited
9.25%, 2004 550 583
9.625%, 2005 570 621
Mesa Operating Co., 10.625%, 2006 950 1,026
Parker Drilling Corp., 9.75%, 2006 440 455
Plains Resources, 10.25%, 2006 780 819
Sante Fe Energy Resources, Inc., 11.00%, 2004 550 605
United Meridian Corp., 10.375%, 2005 780 852
Vintage Petroleum, 9.00%, 2005 950 977
-----------------------------------------------------------------------------
11,918
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES, Aames Financial, 9.125%, 2003 $ 60 $ 62
HOME BUILDERS AND Continental Homes Holding, 10.00%, 2006 590 605
REAL ESTATE--3.5% Forecast Group L.P., 11.375%, 2000 660 581
Fortress Group, 13.75%, 2003 550 579
Hovnanian Kent, 11.25%, 2002 1,568 1,576
Intertek Finance, 10.25%, 2006 300 308
Kaufman & Broad Home Corp., 9.625%, 2006 700 700
J.M. Peters Company, 12.75%, 2002 680 646
Presley Companies, 12.50%, 2001 1,335 1,262
Ryland Group, 10.50%, 2006 1,170 1,211
-----------------------------------------------------------------------------
7,530
- --------------------------------------------------------------------------------------------------------------
HOTEL AND GAMING--6.9% Bally's Park Place Funding, Inc., 9.25%, 2004 2,100 2,314
Eldorado Resorts, 10.50%, 2006 650 686
Empress River Casino, 10.75%, 2002 1,685 1,811
Harvey's Casino Resorts, 10.625%, 2006 310 332
MGM Grand Hotel Finance Corporation,
12.00%, 2002 2,200 2,368
Players International, 10.875%, 2005 1,440 1,426
Station Casinos Inc., 10.125%, 2006 1,330 1,312
Trump Atlantic City, 11.25%, 2006 4,860 4,666
-----------------------------------------------------------------------------
14,915
- --------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Aftermarket Technology, 12.00%, 2004 950 1,055
AND MINING--15.5% Alvey Systems, 11.375%, 2003 845 881
Bar Technologies, 13.50%, with warrants, 2001 880 937
Collins & Aikman Corporation, 11.50%, 2006 1,660 1,776
Crain Industries, Inc., 13.50%, 2005 820 920
Day International Group, Inc., 11.125%, 2005 2,320 2,459
Delco Remy International, 10.625%, 2006 1,130 1,181
Essex Group Incorporated, 10.00%, 2003 320 331
Euramax International PLC, 11.25%, 2006 1,130 1,158
Fairfield Manufacturing Company, 11.375%, 2001 1,355 1,409
(b)Foamex -- JPS Automotive L.P.,
14.00%, with warrants, 2004 950 770
Foamex L.P., 11.25%, 2002 2,020 2,121
Great Dane Holding Company, 12.75%, 2001 1,247 1,247
GS Technologies
12.00%, 2004 530 550
12.25%, 2005 740 775
Gulf States Steel, 13.50%, with warrants, 2003 1,380 1,309
Hayes Wheels International, Inc., 11.00%, 2006 1,560 1,669
IMO Industries, 11.75%, 2006 360 340
Jordan Industries, 10.375%, 2003 1,370 1,325
JPS Automotive Products Corporation,
11.125%, 2001 1,370 1,421
Knoll Inc., 10.875%, 2006 700 763
Motors And Gears Inc., 10.75%, 2006 900 920
Newflo Corporation, 13.25%, 2002 980 1,085
Penda Industries, Inc., 10.75%, 2004 1,010 934
Spinnaker Industries, 10.75%, 2006 410 420
Thermadyne Industries, Inc.
10.25%, 2002 792 821
10.75%, 2003 2,535 2,617
WCI Steel Inc., 10.00%, 2004 1,300 1,313
Weirton Steel Corp., 11.375%, 2004 740 729
-----------------------------------------------------------------------------
33,236
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL
CORPORATE OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER, FOREST BPC Holding Corp., 12.50%, 2006 $ 620 $ 657
PRODUCTS AND Berry Plastics Corporation, 12.25%, 2004 800 880
CONTAINERS--9.0% Container Corporation of America, 11.25%, 2004 1,155 1,242
Crown Paper, 11.00%, 2005 1,700 1,568
Florida Coast Paper Company, 12.75%, 2003 290 306
Four M Corporation, 12.00%, 2006 470 485
Gaylord Container Corporation, 12.75%, 2005 1,300 1,424
Maxxam Group, Inc.
(b) 12.25%, 2003 770 643
11.25%, 2003 1,215 1,251
National Fiberstock Corporation, 11.625%, 2002 910 951
Owens-Illinois Inc.
11.00%, 2003 560 619
9.95%, 2004 800 840
Printpack Inc., 10.625%, 2006 760 798
Riverwood International
10.25%, 2006 860 830
10.875%, 2008 1,720 1,557
Specialty Paperboard, 9.375%, 2006 560 567
Stone Container Corporation
10.25%, 2000 1,150 1,223
11.50%, 2006 1,650 1,691
11.875%, 2016 950 998
US Can Corp., 10.125%, 2006 700 731
-----------------------------------------------------------------------------
19,261
- --------------------------------------------------------------------------------------------------------------
RETAILING--4.2% Ameriking Inc., 10.75%, 2006 250 255
Brunos, 10.50%, 2005 1,790 1,859
Cole National Group, 9.875%, 2006 700 709
(a)Color Tile, Inc., 10.75%, 2001 1,260 65
Finlay Fine Jewelry Corporation, 10.625%, 2003 1,160 1,206
Guitar Center Management, 11.00%, 2006 420 443
Hills Stores Co., 12.50%, 2003 250 216
Pamida Holdings, 11.75%, 2003 1,240 1,035
Pathmark Stores, Inc., 12.625%, 2002 2,130 2,229
Southland Corporation, 5.00%, 2003 802 660
Thrifty Payless Inc., 12.25%, 2004 322 374
-----------------------------------------------------------------------------
9,051
- --------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.2% Communication and Power Industry, Inc.,
12.00%, 2005 600 654
Computervision Corporation, 11.375%, 1999 1,890 1,980
-----------------------------------------------------------------------------
2,634
- --------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
CORPORATE OBLIGATIONS NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--1.0% (a)Burlington Motor Holdings, Inc., 11.50%, 2003 $ 1,850 $ 41
(b)Transtar Holdings, L.P., 13.375%, 2003 2,580 2,012
-------------------------------------------------------------------------------
2,053
-------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--105.5%
(Cost: $219,994) 226,552
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
COMMON AND (a)Benedek Unit, preferred 5,000shs. 557
PREFERRED STOCKS--.8% (a)Capital Pacific Holdings 3,634 4
(a)Echostar Communications 11,825 316
(a)Gaylord Container Corporation 13,125 84
(a)Grand Union Company 47,504 273
(a)Intelcom Group, Inc., warrants 4,950 64
(a)Sullivan Broadcasting 10,080 101
(a)Thrifty Payless Inc. 8,265 212
(a)Waxman Industries, Inc., warrants 55,106 110
-------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost: $3,252) 1,721
-------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--5.34%
INSTRUMENT--1.4%
Due--December 1996
(Cost: $2,992) $ 3,000 2,992
-------------------------------------------------------------------------------
TOTAL INVESTMENTS--107.7%
(Cost: $226,238) 231,265
-------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(7.7)% (16,616)
-------------------------------------------------------------------------------
NET ASSETS--100% $214,649
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on the payment of interest or has filed for bankruptcy.
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
Based on the cost of investments of $226,238,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $12,639,000, the
gross unrealized depreciation was $7,612,000 and the net unrealized appreciation
on investments was $5,027,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
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, 1996, 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 1992. 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, 1996, 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, 1996, 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 1992, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
15
<PAGE> 16
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $226,238) $231,265
- -------------------------------------------------------------------------------------------------------
Cash 66
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 1,190
- -------------------------------------------------------------------------------------------------------
Interest 4,657
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 237,178
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Note payable 20,000
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 2,127
- -------------------------------------------------------------------------------------------------------
Management fee 152
- -------------------------------------------------------------------------------------------------------
Interest 195
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 29
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 26
- -------------------------------------------------------------------------------------------------------
Total liabilities 22,529
- -------------------------------------------------------------------------------------------------------
NET ASSETS $214,649
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $249,635
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (42,951)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 5,027
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,938
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $214,649
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($214,649 / 23,328 shares outstanding) $9.20
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $24,562
- -------------------------------------------------------------------------------------------------------
Dividends 61
- -------------------------------------------------------------------------------------------------------
Total investment income 24,623
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,756
- -------------------------------------------------------------------------------------------------------
Interest expense 1,210
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 120
- -------------------------------------------------------------------------------------------------------
Professional fees 44
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 67
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 81
- -------------------------------------------------------------------------------------------------------
Total expenses 3,278
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 21,345
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including options purchased) 1,842
- -------------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments 8,404
- -------------------------------------------------------------------------------------------------------
Net gain on investments 10,246
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $31,591
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
- --------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 21,345 20,914
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,842 (3,100)
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation 8,404 11,843
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 31,591 29,657
- --------------------------------------------------------------------------------------------------------
Distribution from net investment income (20,992) (20,603)
- --------------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(370 shares and 348 shares, respectively) 3,548 3,154
- --------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 14,147 12,208
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
Beginning of year 200,502 188,294
- --------------------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment income
of $2,938 and $2,579, respectively) $214,649 200,502
- --------------------------------------------------------------------------------------------------------
</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 financial futures and
options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded options are valued based upon prices
provided by market makers. 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 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, 1996, amounting to approximately
$40,675,000, 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.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI), and pays a management fee at an annual rate
of .85% of average weekly net assets. The Fund
incurred a management fee of $1,756,000 for the
year ended November 30, 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 $49,000
for the year ended November 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended November 30, 1996, the Fund
made no payments to its officers and incurred
trustees' fees of $23,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $208,696
Proceeds from sales 202,920
- --------------------------------------------------------------------------------
4 NOTE PAYABLE The note payable represents a $20,000,000 loan from
Bank of America which was outstanding throughout
the year. The note bears interest at the London
Interbank Offered Rate plus .275% (6.01% at
November 30, 1996) which is payable quarterly. The
loan amount and rate are reset periodically under a
credit facility which is available until June 30,
1999.
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 8.73 8.33 9.45 8.70 8.28
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .91 .91 .88 .99 .94
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .46 .39 (1.10) .71 .45
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 1.37 1.30 (.22) 1.70 1.39
- --------------------------------------------------------------------------------------------------------------
Distribution from net investment income .90 .90 .90 .95 .97
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 9.20 8.73 8.33 9.45 8.70
- --------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $10.00 9.50 8.38 9.13 9.13
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN
Based on net asset value 16.56% 16.30 (2.55) 20.62 17.42
- --------------------------------------------------------------------------------------------------------------
Based on market value 16.12% 25.81 1.47 11.00 18.18
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.59% 1.52 1.64 1.82 2.03
- --------------------------------------------------------------------------------------------------------------
Net investment income 10.33% 10.64 9.91 11.08 10.86
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $214,649 200,502 188,294 211,194 190,950
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 74% 85 83 98 47
- --------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of year (in
thousands) $ 20,000 20,000 20,000 20,000 17,312
- --------------------------------------------------------------------------------------------------------------
Asset coverage ratio per $1,000 of debt 11.7 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.
20
<PAGE> 21
DESCRIPTION OF DIVIDEND REINVESTMENT 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 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 PLAN
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
JAMES E. AKINS CHARLES R. MANZONI, JR.
Trustee Vice President
ARTHUR R. GOTTSCHALK MICHAEL A. MCNAMARA
Trustee Vice President
FREDERICK T. KELSEY JOHN E. NEAL
Trustee Vice President
DOMINIQUE P. MORAX HARRY E. RESIS, JR.
Trustee Vice President
FRED B. RENWICK PHILIP J. COLLORA
Trustee Vice President
and Secretary
JOHN B. TINGLEFF
Trustee JEROME L. DUFFY
Treasurer
JOHN G. WEITHERS
Trustee
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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 ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza
Chicago, IL 60606
http://www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper.
KHIT - 2 (1/97) 1027580
Printed in the U.S.A. [KEMPER FUNDS LOGO]
