<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1997
KEMPER HIGH INCOME TRUST
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
PORTFOLIO STATISTICS
8
LARGEST HOLDINGS
9
PORTFOLIO OF
INVESTMENTS
17
REPORT OF
INDEPENDENT AUDITORS
18
FINANCIAL STATEMENTS
20
NOTES TO
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
23
DESCRIPTION OF
DIVIDEND REINVESTMENT PLAN
At A GLANCE
TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
......................................................
<S> <C> <C>
KEMPER HIGH
INCOME TRUST 12.99% 11.98%
......................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/97 11/30/96
......................................................
<S> <C> <C>
NET ASSET VALUE $9.44 $9.20
......................................................
MARKET PRICE $10.19 $10.00
......................................................
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1997.
<TABLE>
<CAPTION>
KEMPER HIGH
INCOME TRUST
......................................................
<S> <C>
ONE-YEAR INCOME: $0.9000
......................................................
NOVEMBER DIVIDEND: $0.0750
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 9.53%
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 8.83%
......................................................
</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
GRAY MONDAY The name used to identify Monday, October 27, 1997. On that day the
Dow Jones Industrial Average lost 554 points or 7 percent of its total value.
Gray Monday is a comparison to Black Monday, October 19, 1987, when the market
lost almost 23 percent of its total value.
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
[ALLYN PHOTO]
MAUREEN F. ALLYN, A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.,
SERVES AS THE FIRM'S CHIEF ECONOMIST. ALLYN GRADUATED SUMMA CUM LAUDE FROM
OAKLAND UNIVERSITY NEAR DETROIT, WITH A BACHELOR'S DEGREE IN PSYCHOLOGY. SHE
RECEIVED HER MASTER'S IN ECONOMICS, WITH A SPECIALIZATION IN INTERNATIONAL TRADE
AND FINANCE, FROM THE NEW SCHOOL FOR SOCIAL RESEARCH IN NEW YORK.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT ADVISOR FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPANIES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
We start 1998 optimistic about the long-term prospects of the U.S. economy and
financial markets but cautious about the next several months. The Asian
financial crisis that dominated the global investment environment in the second
half of 1997 promises to continue, posing significant risks to the economy and
investors. We look for the strength of the American consumer -- currently
enjoying rising real incomes, better employment opportunities, lower mortgage
rates and easy access to credit -- and the secular strength of the trend toward
capital spending on high technology to be sufficient to override the influence
of Asia on the U.S. In short, our best case scenario calls for the U.S. to
muddle through an unsettling period. As it has for several years, the country
should continue to enjoy relatively low interest rates and low inflation. But
the new year will be different in at least two ways, both of which can be
expected to have direct bearing on investment opportunities.
First, the economy should grow at a much slower pace. A slowdown in Asia will
depress capital goods spending and heighten import pricing pressure, putting a
damper on American corporations' pricing and profit growth at least through
1999. While the U.S. economy grew at an almost 4 percent rate in 1997, we look
for no better than 2 percent growth for the next two years -- with more than
half of the change attributable to the effect of the Asian fallout.
Disappointing corporate profits is another given for 1998. Profits had begun
to slow last year even before the height of the Asian crisis. High current
valuations, however, seem to suggest that Wall Street has yet to recognize this.
The clash between Wall Street profit expectations and actual reported earnings
is part of the risk likely to be associated with equity investing in 1998.
Volatility, such as we experienced in 1997, should continue. In fact, the
overall market volatility is not likely to reflect the turmoil that individual
equities may experience. There will be a narrowing of the number of companies
able to meet analysts' expectations and this market will be absolutely
unforgiving to those companies that fall far short.
Having stated this, however, we look for the Standard & Poor's 500 to return
about 9.5 percent, including the effect of reinvested dividends. This would be
an average return and in line with the historical long-term 10 percent return of
the stock market. On the heels of the last three 20 percent-plus return years,
an investor in 1998 may weigh the 10 percent prospect against a projected 7
percent total return on bonds and consider the difference insufficient
compensation for the inherent added risk. Adopting a more conservative posture
for the new year may be an appropriate step that you'll want to discuss with
your financial representative in the context of your long-term investing
objectives.
To achieve a 9.5 percent return in 1998, the market's already high valuations
need to move even higher. We expect this to occur for a few reasons: the market
has so far demonstrated a certain complacency about the valuation levels;
American investors don't perceive there's anywhere better to go than the U.S.
equity market; and foreigners think of the U.S. market as a safe haven. All
should help support the market.
Where, then, are the opportunities likely to be in 1998? Expect to see
disparate performance within industry sectors. For example, while the financial
services sector in 1997 tended to provide across-the-board strong performance,
in 1998 we expect the sector to include its share of winners and losers. Stock
selection will be key, too, to benefiting from the technology sector. Over the
long term, we are optimistic about technology and corporate America's continuing
commitment to it. It will be difficult to participate in a market return in 1998
without having some exposure to technology-based companies. One caution: Not all
technology companies will survive the year, which raises the risk of investing
in the sector.
Conventional wisdom might argue in favor of remaining in the U.S. with your
investment dollars in 1998 and, more specifically, invested in small
capitalization companies with domestic lines of business. We'd challenge such
thinking as slower growth, slower inflation and even
<PAGE> 4
ECONOMIC OVERVIEW
[BAR GRAPH]
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 (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.81 6.22 6.58 5.65
PRIME RATE(2) 8.5 8.5 8.25 8.5
INFLATION RATE(3) 1.7 2.23 3.04 2.72
THE U.S. DOLLAR(4) 10.43 7.32 4.59 -0.57
CAPITAL GOODS ORDERS(5)* 11.61 8.58 2.23 9.56
INDUSTRIAL PRODUCTION(5)* 5.59 3.91 4.7 2.34
EMPLOYMENT GROWTH(6) 2.66 2.3 2.41 1.57
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1997.
Source: Economics Department, Scudder Kemper Investment, Inc.
deflation and pricing pressures change the U.S. economic climate. The only real
antidote is growth, and from now on growth is more likely to be found outside
the United States. Today to participate in the growth from global business you'd
need to be exposed to large capitalization companies.
International investing is a promising proposition in 1998, the Asian fallout
notwithstanding. In established markets, there are attractive opportunities to
be found in Europe and in Japan. Several Japanese companies have real cash flows
and even relatively attractive valuations. In addition, the effect of the Asian
problems has not been to discourage all investment into emerging markets; rather
investors have tended to divert investment dollars and business to other
increasingly attractive emerging markets in eastern Europe, the Middle East,
Africa and Latin America.
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/ Maureen Allyn
MAUREEN ALLYN
Chief Economist, Scudder Kemper Investments, Inc.
January 9, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH WHAT IS NOW SCUDDER KEMPER INVESTMENTS,
INC. SINCE 1972 AND IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS 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 MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS. 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 5 TIME, BASED ON MARKET
AND OTHER CONDITIONS.
THE HIGH YIELD MARKET EXPERIENCED RECORD LEVELS OF NEW SUPPLY DURING
THE FUND'S FISCAL YEAR DECEMBER 1, 1996, THROUGH NOVEMBER 30, 1997. PORTFOLIO
CO-MANAGERS HARRY RESIS AND MICHAEL MCNAMARA EXPLAIN THE DYNAMICS OF THIS
RAPIDLY EXPANDING MARKET AND HOW KEMPER HIGH INCOME TRUST WEATHERED A FEDERAL
RESERVE BOARD INTEREST RATE INCREASE AND GRAY MONDAY.
Q WHAT WAS THE ENVIRONMENT LIKE FOR HIGH YIELD BONDS DURING THE FUND'S
FISCAL YEAR?
A It was another strong year for high yield bonds, but we began to see some
intermittent bouts of volatility enter the market. The market was impacted by
both a Federal Reserve Board (the Fed) interest rate tightening early in the
year and a global equity market sell-off late in the fiscal year. However, the
market wasn't sidelined for long on either occasion. High yield supply grew
phenomenally during the year, reaching record levels and was met with strong
demand. Much of the new supply was lower quality issues (C-rated or lower).
Since yield spreads in the market remained very tight, investors looked to these
lower quality issues for higher rates of return.
Strong corporate earnings, a strong economy with benign levels of
inflation, and a relative lack of high yield defaults created a strong market
and fueled demand for lower quality, high yield bonds, in particular. For the
most part, lower-quality issues outperformed BB rated high yield bonds during
the year. However, as economic and market events impacted the high yield
market, these lower-rated issues took much deeper plunges than the higher
quality bonds. By the end of the period, the market began to see a slight
pick-up in defaults, primarily in lower-quality issues, but the high yield
default rate remains uncharacteristically low.
Q WHAT TYPE OF IMPACT DID THE FED'S INTEREST RATE INCREASE HAVE ON HIGH
YIELD BONDS?
A The Fed's 0.25 percent interest rate increase in late March did not have
any lasting impact on the high yield market. However the rate hike came on the
heels of upsetting comments made by Federal Reserve Board Chairman Alan
Greenspan. In February, Greenspan, who doesn't often discuss the high yield
market, expressed his concern about the historically tight spreads in the market
and whether or not the strong performance of high yield bonds could be
sustained. He also commented that investors were acting with "irrational
exuberance" and that the values of securities might be inflated.
These remarks upset the high yield market, and planted a seed of doubt in
investors' minds. In a preemptive move to ward off inflation, the Fed increased
short-term rates in March, which in-turn initiated a sharp sell-off in the
securities markets and a widening of high yield spreads. The high yield market
was hit harder than it might have been if Greenspan had not expressed his
concern about the market's bull run. However, the high yield market, along with
the other securities markets, began to recover as quickly as April.
5
<PAGE> 6
PERFORMANCE UPDATE
Q WHAT ABOUT THE GLOBAL SELL-OFF YOU MENTIONED? WHAT IMPACT DID THAT HAVE ON
HIGH YIELD BONDS?
A The October 27 sell-off was dramatic but short-lived for high yield bonds.
Gray Monday, as the day was later named, ushered in steep declines in all equity
markets. In the income sector, emerging market bonds were hurt most
dramatically, with declines less significant in high yield and investment grade
corporate bonds. The small allocation of emerging market high yield issues in
Kemper High Income Trust's portfolio enabled the fund to weather the sell-off
quite well.
Q WHAT WAS YOUR INVESTMENT STRATEGY DURING THE YEAR?
A We managed the fund defensively early in 1997 because we believed that the
economy was gaining momentum and that the Fed would most likely tighten interest
rates in response. We reduced the fund's level of BB-rated bonds. BB-rated bonds
are the highest quality securities that are still considered to be high yield,
or below investment grade bonds. Reducing our BB holdings made sense because the
closer a bond is to an investment-grade security, the more it tends to perform
inline with interest rates. And, as interest rates rise, the value of Treasuries
and higher quality bonds tends to fall. At the start of the period, BB-rated
bonds accounted for 21 percent of the fund's assets. At the close of the fiscal
year, the BB-rated allocation was 15 percent of the fund.
To take advantage of the strong performance in lower-quality issues in
the market, we increased our allocation to deferred interest bonds. Deferred
interest bonds are purchased at a discount to their par value and do not start
paying interest until later in the life of the loan. These securities pay a
higher rate of interest than cash-pay bonds and better support the fund's
dividend. Some of these issues do involve more credit risk and can be more
volatile than higher quality issues. Therefore, our allocation to these
investments never exceeded 24 percent of the fund's portfolio.
Our primary investment strategy for this fund has always been to carefully
select high yield bonds that are able to withstand market stresses. Our bond
selection is based on extensive research that includes visiting issuing
companies and meeting with their senior management, walking through factories,
and talking to suppliers and customers.
Q WHAT OTHER TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND?
A We did not make any major shifts in the fund's portfolio composition as
there were no major changes in the economic environment to warrant it. The
fund's portfolio is well diversified by both credit quality and type of
industry. The fund is still heavily invested in cyclical holdings because of
their long-term earnings potential. And, with the continued strength of the U.S.
economy, these issues have performed well. However, we focused on adding issues
from companies that, although cyclical, have some degree of independence from
changes in the overall U.S. economy. We will continue to monitor economic events
and make adjustments to the portfolio as necessary.
Q WHAT'S YOUR OUTLOOK FOR THE HIGH YIELD MARKET?
A We're quite optimistic about the long-term outlook for the high yield
market. We anticipate a pick-up in defaults as some of the lower-quality new
issues begin to age. However, we believe that the current economic environment
combined with the low rate of defaults are both positive indicators. We will
continue to focus on adding issues from stable, fundamentally strong companies
to the fund's portfolio.
6
<PAGE> 7
PORTFOLIO Statistics
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
ON 11/30/97 ON 11/30/96
- -------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD BONDS 94% 96%
- -------------------------------------------------------------------------
CASH AND EQUIVALENTS 3 3
- -------------------------------------------------------------------------
SHORT-TERM TREASURIES 2 --
- -------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 1 1
- -------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/97 ON 11/30/96
LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
ON 11/30/97 ON 11/30/96
- -------------------------------------------------------------------------
<S> <C> <C>
AAA 2% --
- -------------------------------------------------------------------------
BBB 1 --
- -------------------------------------------------------------------------
BB 15 21%
- -------------------------------------------------------------------------
B 75 71
- -------------------------------------------------------------------------
OTHER 7 8
- -------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/97 ON 11/30/96
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 11/30/97 ON 11/30/96
- -------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 7.6 years 7.7 years
- -------------------------------------------------------------------------
</TABLE>
*Portfolio composition and holdings are subject to change.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 5 LARGEST HOLDINGS*
Representing 8.5 percent of the fund's total net assets on November 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
TELEWEST COMMUNICATIONS
1. 1.9%
- --------------------------------------------------------------------------------
RIVERWOOD INTERNATIONAL
2. 1.7%
- --------------------------------------------------------------------------------
SIX FLAGS
3. 1.7%
- --------------------------------------------------------------------------------
INTERNATIONAL CABLETEL
4. 1.6%
- --------------------------------------------------------------------------------
SINCLAIR BROADCASTING
5. 1.6%
- --------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO HOLDINGS AND COMPOSITION ARE SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES--2.0% Notes, 9.125%, 1999 $2,000 $ 2,092
Bonds, 11.75%, 2001 2,000 2,348
--------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES--2.0%
(Cost: $4,449) 4,440
--------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- -----------------------------------------------------------------------------------------------------------------------
AEROSPACE--2.2% Airlines Pass Through Trust, 10.875%,
2019 990 1,116
Fairchild Corp., 12.00%, 2001 2,020 2,030
Howmet, Inc., 10.00%, 2003 220 243
RHI Holdings, 11.875%, 1999 649 652
Tracor, 8.50%, 2007 350 350
Valuejet, Inc., 10.25%, 2001 570 522
--------------------------------------------------------------------------
4,913
- -------------------------------------------------------------------------------------------------------------------
BROADCASTING, Affinity Group, Inc., 11.50%, 2003 1,420 1,512
CABLESYSTEMS AND American Radio Systems, 9.00%, 2006 990 1,046
PUBLISHING--17.2% (b)Australis Holdings, 15.00%, with
warrants, 2002 2,750 1,238
Big Flower Press, Inc., 8.875%, 2007 1,400 1,407
Busse Broadcasting, 11.625%, 2000 480 516
CCA Holdings, 13.00%, 1999 1,000 1,395
Cablevision Systems Corp.
8.125%, 2009 470 480
9.875%, 2013 840 912
10.50%, 2016 1,040 1,190
Capstar Broadcasting
9.25%, 2007 1,110 1,135
(b) 12.75%, 2009 890 632
(b)Charter Communications, 14.00%, 2007 1,600 1,216
Comcast Cellular, 9.50%, 2007 1,700 1,760
Comcast Corp., 9.125%, 2006 820 869
(b)Comcast UK Cable Partners, Ltd.,
11.20%, 2007 3,510 2,799
(b)Diamond Cable Communications, PLC
13.25%, 2004 1,115 987
11.75%, 2005 740 561
10.75%, 2007 640 422
EZ Communications, 9.75%, 2005 380 417
(b)Foxkids, 10.25%, 2007 1,000 573
Foxkids Worldwide, 9.25%, 2007 850 811
Frontiervision
11.00%, 2006 780 845
(b) 11.875%, 2007 500 346
Innova S De R.L., 12.875%, 2007 320 310
(b)International Cabletel Inc., 12.75%,
2005 4,360 3,564
NTL, 10.00%, 2007 300 314
Newsquest Capital, PLC, 11.00%, 2006 730 814
Salem Communications Corp., 9.50%, 2007 500 509
Sinclair Broadcasting Group, Inc.,
10.00%, 2003 3,240 3,519
Sullivan Broadcasting
10.25%, 2005 320 342
13.25%, 2006 630 837
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Telewest Communications, PLC, 11.00%,
2007 $5,490 $ 4,145
(b)Transwestern Holdings, 11.875%, 2008 250 144
Transwestern Publishing, 9.625%, 2007 320 325
(b)UIH Australia Pacific, Inc., 14.00%,
2006 710 462
----------------------------------------------------------------------
38,354
- -------------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--1.3% Allied Waste Industries
10.25%, 2006 460 503
(b) 11.30%, 2007 1,100 756
Outdoor Systems, Inc.
9.375%, 2006 280 295
8.875%, 2007 610 631
Universal Outdoor Holdings, Inc., 9.75%,
2006 580 650
----------------------------------------------------------------------
2,835
- -------------------------------------------------------------------------------------------------------------------
CHEMICALS AND AEP Industry, 9.875%, 2007 350 354
AGRICULTURE--5.2% Atlantis Group, Inc., 11.00%, 2003 1,605 1,621
Climachem Inc., 10.75%, 2007 300 305
Hines Horticulture, 11.75%, 2005 510 560
Huntsman Package
11.75%, 2004 1,790 2,005
9.50%, 2007 1,120 1,170
NL Industries Inc.
11.75%, 2003 860 948
(b) 13.00%, 2005 940 939
Terra Industries, Inc., 10.50%, 2005 1,600 1,712
Texas Petrochemicals, 11.125%, 2006 730 799
UCC Investors Holdings, Inc.
10.50%, 2002 720 810
11.00%, 2003 260 280
----------------------------------------------------------------------
11,503
- -------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--13.7% (b)Call-Net Enterprises Inc.
13.25%, 2004 1,270 1,158
9.27%, 2007 490 329
(b)Cellular, Inc., 11.75%, 2003 1,465 1,443
CommNet Cellular, 11.25%, 2005 580 661
(b)Communications Cellular, 13.125%, with
warrants, 2003 2,000 1,600
Dobson Communication Corp., 11.75%, 2007 1,200 1,245
Econophone, Inc., 13.50%, 2007 830 930
GCI Communications, 9.75%, 2007 920 945
HighwayMaster Communications, Inc.,
13.75%, 2005 470 474
(b)ICG Holdings, 13.50%, 2005 2,790 2,211
InterAmerica Communications, 14.00%, 2007 170 172
Intermedia Capital Partners, 11.25%, 2006 1,040 1,154
Intermedia Communications of Florida,
Inc.
(b) 12.50%, 2006 430 333
8.875%, 2007 300 300
(b) 12.50%, 2007 1,800 1,237
(b)Konology, 11.875%, 2007 350 184
MGC Communications, 13.00%, 2004 830 826
McLeod, Inc.
9.25%, 2007 560 566
(b) 10.50%, 2007 1,745 1,197
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metronet Communications
(b) 10.75%, 2007 $ 250 $ 145
12.00%, 2007 360 407
(b)Millicom International Cellular, S.A.,
13.50%, 2006 1,540 1,124
Netia Holdings
10.25%, 2007 135 128
(b) 11.25%, 2007 210 118
(b)Nextel Communications, 9.75%, 2007 2,190 1,237
Nextlink Communications, 12.50%, 2006 335 380
(b)PTC International Finance, B.V.,
10.00%, 2007 910 582
(b)PanAmSat, L.P., 11.375%, 2003 2,475 2,475
Primus Telecommunications Group, 11.75%,
with warrants, 2004 600 645
RCN Corp., 10.00%, 2007 350 350
Rogers Cantel
8.80%, 2007 330 329
9.375%, 2008 460 483
9.75%, 2016 1,265 1,341
(b)Telegroup, 10.50%, 2004 200 149
Telex Communications, 10.50%, 2007 200 197
Teligent, 11.50%, 2007 550 551
USA Mobile Communications, Inc. II
9.50%, 2004 530 517
14.00%, 2004 630 699
Vanguard Cellular Systems, 9.375%, 2006 260 272
Western Wireless
10.50%, 2006 340 364
10.50%, 2007 220 237
Winstar Equipment, 12.50%, 2004 810 885
---------------------------------------------------------------------
30,580
- ------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--4.8% American Standard, Inc.
9.25%, 2016 250 260
(b) 10.50%, 2005 950 955
(b)Building Materials Corp. of America,
11.75%, 2004 3,205 2,996
Desa International, 9.875%, 2007 500 503
Falcon Building Products, Inc., 9.50%,
2007 490 502
Kevo, 10.375%, 2007 350 354
Nortek
9.875%, 2004 1,190 1,208
9.125%, 2007 900 905
Triangle Pacific Corp., 10.50%, 2003 2,185 2,300
Waxman Industries, Inc.
(b) 12.75%, 2004 300 270
(a) 55,106 warrants expiring 2004 128
Werner Holdings, 10.00%, 2007 450 459
---------------------------------------------------------------------
10,840
- ------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AFC Enterprises, Inc., 10.25%, 2007 1,050 1,100
AND SERVICES--11.3%
AMF Group
10.875%, 2006 1,470 1,606
(b) 12.00%, 2006 1,130 879
Ameriserve Inc., 8.875%, 2006 50 50
Avondale Mills, 10.25%, 2006 930 1,000
Cinemark USA, Inc., 9.625%, 2008 720 742
Coinmach Corp., 11.75%, 2005 2,620 2,908
(b)Crown Castle, 10.625%, 2007 1,500 915
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Doskocil Manufacturing Co., 10.125%, 2007 $ 530 $ 546
(b)Dr. Pepper Bottling Holdings, Inc.,
11.625%, 2003 1,335 1,385
Dyersburg Corp., 9.75%, 2007 380 393
FWT, Inc., 9.875%, 2007 350 351
Hedstrom Corp., 10.00%, 2007 270 271
Herff Jones, Inc., 11.00%, 2005 740 803
Hollywood Entertainment Corp., 10.625%,
2004 450 446
Kinder-Care Learning Centers, 9.50%, 2009 1,910 1,881
NBTY, Inc., 8.625%, 2007 610 598
Packard Bioscience, 9.375%, 2007 280 277
Petro Stopping Centers, 10.50%, 2007 1,290 1,358
Premier Parks, Inc., 12.00%, 2003 690 768
(b)Six Flags Theme Park, 12.25%, 2005 3,545 3,740
Sparkling Springs Water, 11.50%, 2007 180 183
Van De Kamps, Inc., 12.00%, 2005 660 734
West Point Stevens, Inc., 9.375%, 2005 1,680 1,756
Windy Hill Pet Food, 9.75%, 2007 490 505
-----------------------------------------------------------------------
25,195
- --------------------------------------------------------------------------------------------------------------------
DRUGS AND Dade International, Inc., 11.125%, 2006 770 852
HEALTHCARE--3.5% Genesis Eldercare, 9.00%, 2007 935 906
Graham-Field Health, 9.75%, 2007 370 386
Integrated Health Services, Inc.,
9.50%, 2007 700 710
MMI Companies, 11.25%, 2007 330 355
(b)Paragon Health, 10.50%, 2007 1,260 765
Tenet Healthcare
8.00%, 2005 540 542
10.125%, 2005 1,730 1,873
8.625%, 2007 440 448
Vencor, 8.625%, 2007 1,000 985
-----------------------------------------------------------------------
7,822
- --------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED AEI Holdings, 10.00%, 2007 350 355
SERVICES--7.1% Bellwether Exploration Co., 10.875%, 2007 735 796
Benton Oil & Gas Co.
11.625%, 2003 1,185 1,304
9.375%, 2007 510 515
Clark Refining & Manufacturing,
8.875, 2007 370 370
Coda Energy, 10.50%, 2006 1,240 1,342
Dailey Petro Service, 9.75%, 2007 500 520
Escelsa, 10.00%, 2007 990 891
Flores & Rucks, Inc., 9.75%, 2006 330 353
Forcenergy Gas Exploration
9.50%, 2006 620 654
8.50%, 2007 460 462
Forman Petroleum, 13.50%, with
warrants, 2004 330 333
National Energy Corp., 10.75%, 2006 500 520
Pacalta Resources, Ltd., 10.75%, 2004 1,230 1,212
Parker Drilling Corp., 9.75%, 2006 910 978
Plains Resources, 10.25%, 2006 780 839
Rutherford-Moran Oil Corp.,
10.75%, 2004 380 384
Southwest Royal, 10.50%, 2004 315 312
Stone Energy Corp., 8.75%, 2007 410 409
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Meridian Corp., 10.375%, 2005 $1,335 $ 1,462
Vintage Petroleum
9.00%, 2005 860 890
8.625%, 2009 320 326
Wiser Oil Co., 9.50%, 2007 515 505
-----------------------------------------------------------------------
15,732
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES, Continental Homes Holding, 10.00%, 2006 490 518
HOME BUILDERS AND DVI, Inc., 9.875%, 2004 380 392
REAL ESTATE--4.3% Del Webb Corp., 9.75%, 2008 660 683
Emergent Group, 10.75%, 2004 330 324
Forecast Group, L.P., 11.375%, 2000 660 620
Fortress Group, 13.75%, 2003 710 793
Hovnanian Enterprises, 11.25%, 2002 1,568 1,641
Intertek Finance, 10.25%, 2006 520 546
Kaufman & Broad Home Corp.
7.75%, 2004 500 493
9.625%, 2006 680 709
New Millen Home Builders, 12.00%, 2004 130 129
Presley Companies, 12.50%, 2001 1,345 1,281
Southern Pacific Funding, 11.50%, 2004 475 471
UDC Homes, 12.50%, 2000 580 586
Williams Scotsman, 9.875%, 2007 370 385
-----------------------------------------------------------------------
9,571
- --------------------------------------------------------------------------------------------------------------------
HOTELS AND Eldorado Resorts, 10.50%, 2006 770 841
GAMING--2.7% Empress River Casino, 10.75%, 2002 1,025 1,099
Harvey's Casino Resorts, 10.625%, 2006 540 588
Players International, 10.875%, 2005 685 740
Trump Atlantic City, 11.25%, 2006 2,830 2,788
-----------------------------------------------------------------------
6,056
- --------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Aftermarket Technology, 12.00%, 2004 712 790
AND MINING--13.4% Airxcel Inc., 11.00%, 2007 480 491
Alvey Systems, 11.375%, 2003 300 318
Bar Technologies, 13.50%, with warrants,
2001 1,160 1,307
Centuar Mining, 11.00%, 2007 500 506
Collins & Aikman Corp., 11.50%, 2006 1,410 1,593
Crain Industries, Inc., 13.50%, 2005 1,000 1,132
Day International Group, Inc.,
11.125%, 2005 2,320 2,506
Delco Remy International, 10.625%, 2006 1,090 1,166
EV International, 11.00%, 2007 665 670
Euramax International, PLC, 11.25%, 2006 1,165 1,261
Foamex, L.P., 9.875%, 2007 1,265 1,290
GS Technologies
12.00%, 2004 310 343
12.25%, 2005 510 572
Hayes Wheels International, Inc.,
11.00%, 2006 1,340 1,487
IMO Industries, 11.75%, 2006 900 988
JPS Automotive Products Corp.,
11.125%, 2001 1,330 1,476
Johnstown American, 11.75%, 2005 430 468
Knoll, Inc., 10.875%, 2006 525 585
Koppers Industry, 9.875%, 2007 350 355
Motors and Gears, Inc., 10.75%, 2006 900 954
Neenah Corp., 11.125%, 2007 1,240 1,352
Oxford Automotive, Inc., 10.125%, 2007 250 261
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park-Ohio Industry, 9.25%, 2007 $ 550 $ 553
Renco Metals, 11.50%, 2003 305 325
Scovill Fastners, 11.25%, 2007 400 403
Spinnaker Industries, 10.75%, 2006 1,060 1,081
Thermadyne Industries, Inc.
10.25%, 2002 792 823
10.75%, 2003 985 1,063
Venture Holdings, 9.50%, 2005 730 730
WCI Steel, Inc., 10.00%, 2004 1,140 1,180
Weirton Steel Corp., 11.375%, 2004 430 454
Wells Aluminum, 10.125%, 2005 710 751
Wheeling-Pitt Corp., 9.25%, 2007 700 693
--------------------------------------------------------------------------
29,927
- -----------------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS, BPC Holding Corp., 12.50%, 2006 620 679
AND CONTAINERS--8.4% BWAY Corp., 10.25%, 2007 680 741
Berry Plastics Corp., 12.25%, 2004 1,000 1,100
Doman Industry, 9.25%, 2007 430 428
Fonda Group, 9.50%, 2007 590 563
Gaylord Container Corp.
12.75%, 2005 1,300 1,407
9.75%, 2007 340 342
Maxxam Group, Inc.
11.25%, 2003 1,215 1,288
(b) 12.25%, 2003 770 762
National Fiberstock Corp., 11.625%, 2002 910 960
Pindo Finance, 10.75%, 2001 400 370
Printpack, Inc.
9.875%, 2004 270 285
10.625%, 2006 970 1,028
Riverwood International
10.25%, 2006 840 855
10.625%, 2007 815 846
10.875%, 2008 2,135 2,087
Specialty Paperboard, 9.375%, 2006 480 504
Stone Consolidated Corp.
9.875%, 2001 1,240 1,255
12.25%, 2002 150 156
11.50%, 2006 1,620 1,725
Tijiwi Kimia Finance Mauritius, Ltd.,
10.00%, 2004 350 320
U.S. Can Corp., 10.125%, 2006 950 1,002
--------------------------------------------------------------------------
18,703
- -----------------------------------------------------------------------------------------------------------------------
RETAILING--4.9% Ameriking, 10.75%, 2006 410 426
Cole National Group
9.875%, 2006 150 160
8.625%, 2007 600 597
(a)Color Tile, Inc., 10.75%, 2001 1,260 13
J. Crew
10.375%, 2007 630 621
(b) 8.125%, 2008 230 128
Finlay Fine Jewelry Corp., 10.625%, 2003 1,120 1,176
Flagstar Corp.
10.75%, 2001 520 535
10.875%, 2002 310 320
Guitar Center Management, 11.00%, 2006 280 311
HMH Properties
9.50%, 2005 840 882
8.875%, 2007 440 453
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OR PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Krystal Co., 10.25%, 2007 $ 30 $ 30
Nine West, 9.00%, 2007 430 418
Pamida Holdings, 11.75%, 2003 1,070 1,094
Pathmark Stores
12.625%, 2002 1,070 1,089
9.625%, 2003 60 59
Riddell Sports, Inc., 10.50%, 2007 560 577
Specialty Retailers
8.50%, 2005 190 193
9.00%, 2007 340 346
Travelcenters America, 10.25%, 2007 1,320 1,379
-----------------------------------------------------------------------
10,807
- --------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.8% Communication and Power Industry, Inc.,
12.00%, 2005 600 671
L-3 Communication Corp., 10.375%, 2007 330 356
Viasystems, Inc., 9.75%, 2007 800 826
-----------------------------------------------------------------------
1,853
- --------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.5% TFM, S.A. de C.V., 10.25%, 2007 960 965
(b)Transtar Holdings, L.P., 13.375%, 2003 2,580 2,270
-----------------------------------------------------------------------
3,235
-----------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--102.3%
(Cost: $218,159) 227,926
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED Benedek Unit, PIK, preferred with
STOCKS--1.3% warrants 10,000shs. 643
(a)Capital Pacific Holdings 3,634 4
Clark USA, PIK, preferred 1,500 158
Crown American Realty Trust, preferred 11,000 581
(a)Echostar Communications Corp. 5,825 104
Empire Gas Corp. 1,794 9
Foamex International 950 27
(a)Gaylord Container Corp. 13,125 89
Gulf States Steel 1,500 8
(a)Intelcom Group, Inc. 4,950 69
Intermedia Communications of Florida,
Inc. 1,500 112
Sinclair Capital, preferred 9,500 1,050
(a)Sullivan Broadcasting 10,080 101
-----------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost: $2,388) 2,955
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yields--5.66% to 5.75%
INSTRUMENTS--2.0% Due--December, 1997
(Cost: $4,491) $4,500 4,491
-----------------------------------------------------------------------
TOTAL INVESTMENTS--107.6%
(Cost: $229,487) 239,812
-----------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(7.6%) (16,893)
-----------------------------------------------------------------------
NET ASSETS--100% $222,919
-----------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
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.
"PIK" denotes that interest or dividends are paid in kind.
Based on the cost of investments of $229,487,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation was $12,859,000, the
gross unrealized depreciation was $2,534,000 and the net unrealized appreciation
on investments was $10,325,000
See accompanying Notes to Financial Statements.
16
<PAGE> 17
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, 1997, and 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 the financial highlights for each of the fiscal years since 1993.
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, 1997, 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, 1997, 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 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $229,487) $239,812
- ------------------------------------------------------------------------
Receivable for:
Interest 4,510
- ------------------------------------------------------------------------
Investments sold 1,391
- ------------------------------------------------------------------------
TOTAL ASSETS 245,713
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 975
- ------------------------------------------------------------------------
Note payable 20,000
- ------------------------------------------------------------------------
Payable for:
Investments purchased 1,388
- ------------------------------------------------------------------------
Management fee 157
- ------------------------------------------------------------------------
Interest 226
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 36
- ------------------------------------------------------------------------
Trustees' fees 12
- ------------------------------------------------------------------------
Total liabilities 22,794
- ------------------------------------------------------------------------
NET ASSETS $222,919
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $252,478
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (43,106)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 10,325
- ------------------------------------------------------------------------
Undistributed net investment income 3,222
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $222,919
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($222,919 / 23,613 shares outstanding) $9.44
- ------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest $24,896
- -----------------------------------------------------------------------
Dividends 83
- -----------------------------------------------------------------------
Total investment income 24,979
- -----------------------------------------------------------------------
Expenses:
Management fee 1,862
- -----------------------------------------------------------------------
Interest expense 1,210
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 200
- -----------------------------------------------------------------------
Professional fees 50
- -----------------------------------------------------------------------
Reports to shareholders 43
- -----------------------------------------------------------------------
Trustees' fees and other 61
- -----------------------------------------------------------------------
Total expenses 3,426
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 21,553
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized loss on sales of investments (169)
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 5,298
- -----------------------------------------------------------------------
Net gain on investments 5,129
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,682
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 21,553 21,345
- -------------------------------------------------------------------------------------------
Net realized gain (loss) (169) 1,842
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation 5,298 8,404
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,682 31,591
- -------------------------------------------------------------------------------------------
Distribution from net investment income (21,255) (20,992)
- -------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(285 shares and 370 shares, respectively) 2,843 3,548
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 8,270 14,147
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 214,649 200,502
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$3,222 and $2,938, respectively) $222,919 214,649
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE> 20
NOTE 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. 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, 1997, amounting to approximately
$40,844,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 1998 through 2006.
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.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS
WITH AFFILIATES INVESTMENT MANAGER COMBINATION. Zurich Insurance
Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the name
of the Fund's shareholder service agent was changed
to Kemper Service Company (KSvC).
MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper and pays a management
fee at an annual rate of .85% of average weekly net
assets. The Fund incurred a management fee of
$1,862,000 for the year ended November 30, 1997.
SHAREHOLDERS SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
service fees of $43,000 for the year ended November
30, 1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1997, the Fund made no payments to its officers and
incurred trustees' fees of $22,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $251,259
Proceeds from sales 249,340
- --------------------------------------------------------------------------------
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% (6.15% at
November 30, 1997) which is payable quarterly. The
loan amount and rate are reset periodically under a
credit facility which is available until June 30,
1999.
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $9.20 8.73 8.33 9.45 8.70
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .91 .91 .91 .88 .99
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .23 .46 .39 (1.10) .71
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.37 1.30 (.22) 1.70
- ------------------------------------------------------------------------------------------------------------
Distribution from net investment income .90 .90 .90 .90 .95
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of year $9.44 9.20 8.73 8.33 9.45
- ------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $10.19 10.00 9.50 8.38 9.13
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN
- ------------------------------------------------------------------------------------------------------------
Based on net asset value 12.99% 16.56 16.30 (2.55) 20.62
- ------------------------------------------------------------------------------------------------------------
Based on market value 11.98% 16.12 25.81 1.47 11.00
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Expenses 1.56% 1.59 1.52 1.64 1.82
- ------------------------------------------------------------------------------------------------------------
Net investment income 9.84% 10.33 10.64 9.91 11.08
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $222,919 214,649 200,502 188,294 211,194
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 74 85 83 98
- ------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of year (in thousands) $ 20,000 20,000 20,000 20,000 20,000
- ------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 of debt $ 12,100 11,700 11,000 10,400 11,600
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the year. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends.
These figures will differ depending upon the level of any discount from or
premium to net asset value at which the Fund's shares trade during the
year.
22
<PAGE> 23
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.
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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
23
<PAGE> 24
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
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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.
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6 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
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7 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 8 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
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8 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions
as well as from voluntary cash contributions. With
respect to purchases from voluntary cash
contributions, UMB will charge a pro rata share of
the brokerage commissions. Brokerage charges for
purchasing small amounts of Shares for individual
Accounts through the Plan can be expected to be
less than the usual brokerage charges for such
transactions, as UMB will be purchasing Shares for
all participants in blocks and prorating the lower
commission thus attainable.
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9 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraphs 5 and 13
hereof. However, the Fund reserves the right to
amend the Plan in the future to include a service
charge.
24
<PAGE> 25
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
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10 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
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11 SHARES NOT HELD IN
SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
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12 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
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13 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 12 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
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.
25
<PAGE> 26
NOTES
26
<PAGE> 27
NOTES
27
<PAGE> 28
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS DANIEL PIERCE KATHRYN L. QUIRK
Trustee Chairman of the Board Vice President
ARTHUR R. GOTTSCHALK MARK S. CASADY HARRY E. RESIS, JR.
Trustee President Vice President
FREDERICK T. KELSEY PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President, Vice President
Secretary and Treasurer
DANIEL PIERCE JERARD K. HARTMAN JOHN R. HEBBLE
Trustee Vice President Assistant Treasurer
FRED B. RENWICK THOMAS W. LITTAUER MAUREEN E. KANE
Trustee Vice President Assistant Secretary
JOHN B. TINGLEFF ANN M. MCCREARY CAROLINE PEARSON
Trustee Vice President Assistant Secretary
EDMOND D. VILLANI MICHAEL A. MCNAMARA ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
JOHN G. WEITHERS ROBERT C. PECK, JR.
Trustee Vice President
- ---------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- ---------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419066
Kansas City, MO 64141
- ---------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
- ---------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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KHIT - 2 (1/98) 1042050
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