<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER
HIGH INCOME TRUST
"... Our largest sector weighting, media and
telecommunications, did very well in the rally. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
7
Portfolio Statistics
8
Largest Holdings
9
Portfolio of Investments
17
Financial Statements
19
Notes to Financial Statements
21
Financial Highlights
22
Shareholders' Meeting
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER HIGH INCOME TRUST
TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER HIGH INCOME TRUST 2.95% - 4.89%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
5/31/99 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $8.54 $8.94
- --------------------------------------------------------------------------------
MARKET PRICE $8.81 $9.88
- --------------------------------------------------------------------------------
</TABLE>
INVESTMENTS BY THE FUND IN LOWER QUALITY BONDS PRESENT GREATER RISK TO PRINCIPAL
AND INTEREST THAN INVESTMENTS IN HIGHER QUALITY BONDS.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MAY 31, 1999
<TABLE>
<CAPTION>
KEMPER HIGH
INCOME TRUST
- --------------------------------------------------------------------------------
<S> <C>
SIX-MONTHS INCOME $0.4525
- --------------------------------------------------------------------------------
MAY DIVIDEND $0.0775
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE) 10.89%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET PRICE) 10.56%
- --------------------------------------------------------------------------------
</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. MARKET PRICE,
NET ASSET VALUE, DISTRIBUTION RATES AND RETURNS ARE HISTORICAL AND WILL
FLUCTUATE AND DO NOT GUARANTEE FUTURE RESULTS. ADDITIONAL INFORMATION CONCERNING
PERFORMANCE IS CONTAINED IN THE FINANCIAL HIGHLIGHTS APPEARING AT THE END OF
THIS REPORT.
TERMS TO KNOW
BOND RALLY A sharp, short-lived rise in bond values after a period of either
little movement or falling values.
CYCLICAL ISSUES Bonds 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 noncyclical
industries such as food, insurance and drugs is normally not as directly
affected by economic changes.
EASE Occurs when the Federal Reserve Board of Governors changes monetary policy
by decreasing the federal funds rate.
FEDERAL FUNDS (Fed funds) Commercial banks are required to keep these funds on
deposit at the Federal Reserve Bank in their district. In order to meet these
reserve requirements, occasionally commercial banks need to borrow funds. These
funds are borrowed from banks that have an excess of the required amount on hand
in what is called the "Fed funds market." The interest rate on these loans is
called the "Fed funds rate" and is the key money market rate that influences all
other short-term rates.
FEDERAL FUNDS RATE The interest rate banks charge each other for overnight loans
that are needed to meet reserve requirements. Often considered the most
sensitive indicator of the direction of interest rates.
HIGH-YIELD BONDS 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. The bonds present greater risk to principal and income than higher
quality bonds.
U.S. TREASURIES These debt securities are issued by the U.S. Treasury and
include Treasury bills, Treasury bonds and Treasury notes. They are considered
the safest of all securities. Their safety rests in the power of the U.S.
government to obtain tax revenues to repay its obligations, and in its
historical record of always having done so.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A PH.D. IN ECONOMICS FROM NORTHEASTERN UNIVERSITY IN BOSTON, MASS.
HE IS A MEMBER OF BOTH THE BLUE CHIP ECONOMIC AND FINANCIAL SURVEYS, AND SERVES
ON THE POLICY ADVISORY COMMITTEES OF THE FEDERAL RESERVE BOARDS OF CHICAGO AND
CLEVELAND.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
As expected, the Federal Reserve Board raised its federal funds interest rate
(the rate at which banks lend to each other overnight) by one-fourth of a
percentage point in June. Although higher interest rates tend to have a
dampening effect on the market, investors rallied in response to this move. The
Dow Jones Industrial Average, which was down 50 points before the Fed's
statement on June 30, reversed course and ended the day at its highest closing
level in six weeks. The Dow went on to close at a record-setting high of 11,187
on July 7.
What led to the interest rate hike, and why does the market reaction suggest
that investors are happy about it?
It is generally recognized that a modest rate hike by the Fed may be effective
in slowing the economy sufficiently to suppress any simmering inflationary
pressures. Although the economy has been strong, there are concerns that it will
be unable to maintain its current rate of growth without prompting inflationary
pressures -- which is at the heart of the Fed's decision to raise interest
rates. The Fed is acting now to be proactive. In the past, Fed policy has been
reactive, which meant that the Fed tended to respond to inflation only when it
picked up. A rate hike now is intended to halt any future buildup in inflation.
Moreover, by hinting at an increase well in advance -- then by limiting the
increase to 25 basis points -- the Fed relieved worried investors and gave a
boost to the financial markets.
Despite the minor rate increase, the long-term economic situation appears to
be positive. The federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially for households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
This positive environment is exactly what sometimes poses risk for investors,
and is key to understanding recent volatility in the market. A strong economy
has the potential to feed inflation fears and drive up interest rates. Indeed,
recent market events illustrate the domino effect of investors reacting to
positive economic news, which they consider troubling at this point, more than
eight years into the economic expansion. Prior to its strong close in the second
quarter, the steady stream of positive economic news led to a sell-off in the
financial markets based on fears that the strong pace of economic growth would
eventually lead to higher inflation. The benchmark 30-year Treasury bond yield
rose, which pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggest continued growth as we move into the second half
of 1999. For example, the gross domestic product (GDP), the value of all goods
and services produced in the U.S., is expected to rise at an annual rate of 4
percent in the first half of 1999, following a tremendous fourth-quarter surge
of 6 percent. This is very much in line with what we've grown accustomed to over
the past year -- over the four quarters of 1998, the U.S. economy expanded by
4.3 percent. Some people aren't surprised at all by strong GDP growth that once
would have alarmed them. That's partially because we've grown accustomed to a
strong economy. But it's also because we've been able to absorb growth without
driving up inflation. That's important for investors. If prices had been rising
as the economy was growing, the Fed would have most likely raised short-term
interest rates earlier and more drastically, and that would have changed the
financial market outlook.
However, we do see some vulnerability on the economic front. Trade is a weak
spot in the economy right now. Exports of U.S. goods and services dropped in the
first half of 1999, while imports soared. This reflects the fact that the U.S.
is one of the few countries financially fit enough to buy goods produced
elsewhere in the world. But for as long as less vibrant international economies
are unable to buy U.S. goods, the profitability of U.S. companies trying to
export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which has
already led to the European Central Bank lowering interest rates in order to
boost domestic spending. In many countries in Europe there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down, mortgage
payments are reduced and homeowners can spend money elsewhere. This has a huge
impact on consumer spending, and will help European equities over time.
Additionally, the situation in Japan remains unchanged. And, problems in the
emerging markets haven't had the negative impact many people expected -- both
the Mexican and Brazilian stock markets have actually risen in the past two
months.
But don't forget that international crises have the potential to affect the
U.S. markets dramatically. Although the Kosovo crisis seems to be waning, past
increases in military spending on Kosovo by the 11 European Monetary Union (EMU)
countries could force them to spend less in other areas, which could have
economic implications, including higher interest rates. That's because many
European countries (especially Italy) have small economies and
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 (6/30/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Ten Year Treasury Rate 5.90 4.81 5.65 6.69
Prime Rate 7.75 8.49 8.50 8.30
Inflation* 2.03 1.62 1.44 3.03
The U.S. Dollar* -2.4 4.31 4.88 8.58
Capital goods orders* 7.73 11.44 8.10 5.52
Industrial production * 1.72 3.58 5.05 5.86
Employment growth* 2.15 2.48 2.61 2.51
</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 MAY 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
little leeway in their budgets. Consequently, those countries financed unplanned
military expenditures by selling government bonds -- which, in Europe's small
bond market, typically raises interest rates. As an example, consider Italy,
which recently asked for more leeway on its deficit targets. When leeway was
granted, this led to a further sell-off in the eurodollar.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current U.S. economic situation and
behave as if no risk exists. But when you see the market soaring and are tempted
to jump in, note that the bull market grew to records on the strength of just a
few dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation these are
particularly older investors who are accustomed to inflation accompanying
growth. But again, sustained inflation seems unlikely, so a sharp slowdown is
not necessary. In the short term, we expect a modest economic slowdown but no
recession. The best approach now, as in any market, is to diversify and invest
for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF JUNE 9, 1999, AND MAY
NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR. HE IS LEAD PORTFOLIO MANAGER OF KEMPER HIGH INCOME TRUST AND HANDLES
ALL OF THE TRADING ACTIVITY FOR THE FUND.
[MCNAMARA PHOTO]
MICHAEL MCNAMARA JOINED THE ORGANIZATION IN 1972, AND IS A MANAGING DIRECTOR. HE
IS A PORTFOLIO MANAGER OF KEMPER HIGH INCOME TRUST AND DIRECTS ALL RESEARCH FOR
THE FUND.
[DOYLE PHOTO]
DAN DOYLE IS A FIRST VICE PRESIDENT OF SCUDDER KEMPER INVESTMENTS AND A
PORTFOLIO MANAGER OF KEMPER HIGH INCOME TRUST. HE IS ALSO A CHARTERED FINANCIAL
ANALYST.
THE HIGH-YIELD MARKET HIT A LOW POINT JUST PRIOR TO THE FUND'S REPORTING PERIOD.
SINCE THEN, THE MARKET HAS RALLIED NEARLY UNABATED, BENEFITING FROM A STRONG
ECONOMY, BENIGN INFLATION, BUT MORE IMPORTANTLY, CONFIDENCE RESULTING FROM A
SERIES OF FEDERAL RESERVE BOARD RATE CUTS IN THE FALL OF 1998. PORTFOLIO
MANAGERS HARRY RESIS AND MICHAEL MCNAMARA TAKE THIS OPPORTUNITY TO GIVE THEIR
INSIGHT TO THE HIGH-YIELD MARKET FROM DECEMBER 1, 1998, THROUGH MAY 31, 1999,
AND EXPLAIN HOW THEY MANAGED THE FUND TO OUTPERFORM ITS PEERS GROUP AVERAGE.
Q WHAT EVENTS INFLUENCED THE HIGH YIELD MARKET DURING THE FIRST HALF OF THE
FISCAL YEAR?
A There's a rather clear picture to paint for these six months because of
certain events that occurred just prior to the reporting period. We're talking
about the Federal Reserve Board (the Fed) cutting rates three times in the
second half of 1998 -- September 29, October 15 and November 17. The high-yield
market bottomed out with the October 15 easing (see Terms to Know), and rallied
nearly through April. In May, concern regarding potentially higher interest
rates resulted in some profit taking in the market, but overall, the six-month
period was positive for the high yield bond market and for the fund in
particular.
Q WHY WOULD THE FED'S RATE CUTS SPUR A BOND RALLY?
A When the Fed lowers the Federal Fund's rate (see Terms to Know), it is
making money less expensive to borrow. This affects business and consumers
similarly. For instance, a cut in the Fed funds rate typically trickles down to
lower mortgage rates, so more people are likely to purchase homes because
borrowing the money to do so is not as expensive. Similarly, corporations are
more likely to borrow money to expand their businesses. Both of these actions
have far-reaching effects on the economy. When you buy a new house, that helps
the housing business, which positively affects many other industries. A
corporation that expands its business employs more people or invests in new
buildings, technology and so forth, boosting those industries. The bottom line
is the simple act of cutting the borrowing rate, the Fed funds rate, can create
confidence in the markets.
Q HOW DOES THAT AFFECT THE HIGH-YIELD MARKET?
A A stronger economy, one in which consumers have confidence, is a signal
for investors. It signals that the risk they are taking in investing in a
high-yield bond, as opposed to a government bond, may be less than it would be
if the economy were on shaky ground. The rally validated the belief that the
economy was not going into a recession. Investors tend to be willing to take on
more risk in such an environment, because with a strong economy, companies who
issue high yield bonds tend to do well and there is less fear that they will not
be able to cover their debts.
The strength of the economy also hurt the Treasury market, which in turn,
generally means an improvement in the other areas of the bond market, both
high-yield bonds and
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.
5
<PAGE> 6
PERFORMANCE UPDATE
investment-grade corporate bonds. You may recall that, last fall, the Treasury
market soared as investors worldwide sought safety and liquidity in U.S.
government bonds. This phenomenon is called a "flight-to-quality." During that
time, the high-yield market struggled while Treasuries staged a powerful rally.
For the past six months, we've witnessed the unwinding of the flight-to-quality
as our domestic economy has survived the global crises. Treasury prices have
dropped and their yields risen. In such an environment, high-yield bonds tend to
be attractive.
For the first five months of the fiscal year, the high yield market rose
steadily. In May, all fixed income markets -- high-yield and high grade,
domestic and foreign -- suffered a decline as the Federal Reserve changed its
stance from neutral to one predisposed toward tightening. The Fed's concern was
due to unwavering U.S. economic growth and an attendant fear that inflation
might be rekindled. But despite the setback, the high yield market remained
positive year-to-date. For example, the CSI Global High Yield Index* total
return was 2.91 percent for 1999 through May 31, while 10-year Treasuries** were
off 4.66 percent.
* CSI GLOBAL HIGH YIELD INDEX IS GENERALLY REPRESENTATIVE OF THE GLOBAL HIGH
YIELD MARKET AND INCLUDES THE EFFECTS OF REINVESTMENT OF DIVIDENDS AND
REFLECTS CUMULATIVE MONTHLY RETURNS. SOURCE IS CHASE SECURITIES INC.
** 10-YEAR TREASURIES GENERALLY REPRESENTATIVE OF THE RETURN FOR THE 10-YEAR
TREASURIES AND INCLUDES THE EFFECTS OF REINVESTMENT OF DIVIDENDS AND REFLECT
CUMULATIVE MONTHLY RETURNS. SOURCE IS TOWERSDATA SYSTEMS.
Q KEMPER HIGH INCOME TRUST'S TOTAL RETURN FOR THE REPORTING PERIOD NOVEMBER
30, 1998 THROUGH MAY 31, 1999, WAS 2.95 PERCENT (AT NET ASSET VALUE) AGAINST ITS
LIPPER PEER GROUP AVERAGE OF 2.62 PERCENT. TO WHAT DO YOU ATTRIBUTE THE
OUTPERFORMANCE?
A Our largest sector weighting, media and telecommunications, did very well
in the rally. Merger and acquisition activity among these companies spurred the
performance of this sector.
Another sector that did well was cyclicals, in which the fund has a heavy
weighting. Cyclical bonds are those within industries whose earnings tend to
rise quickly when the economy strengthens and fall quickly when the economy
weakens. Examples of cyclical industries are housing, automobiles and paper
companies. The performance of noncyclical industries such as food, insurance and
drugs is normally not as directly affected by economic changes.
We also began to cut back our holdings in health-care companies because of
a negative outlook for Medicare and price declines among nursing home issuers.
Q WHAT WERE THE DISAPPOINTMENTS DURING THE PERIOD?
A Overall, we were pleased with Kemper High Income Trust's performance and
the high-yield market. We did have one issuer, an energy company, file for
bankruptcy, but it did not have a major impact on the fund.
Q WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD SECTOR AND FOR KEMPER HIGH INCOME
TRUST?
A Our strategy remains the same. We continue to concentrate the fund in the
'B' rated issues, which we believe should provide a performance advantage over
BB-rated securities.
We'll continue to increase our paper and forest product holdings and
consumer durables as the outlook for these sectors is good considering the
strength of the economy. Meanwhile, we expect to keep our homebuilders weighting
equal to that of the high-yield industry.
In general, we're optimistic about the high-yield market. Inflation
continues to be benign, first quarter 1999 corporate earnings were strong, and
we expect that to continue.
6
<PAGE> 7
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 5/31/99 ON 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD BONDS 99% 96%
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 2
- --------------------------------------------------------------------------------
PREFERRED AND COMMON STOCK 1 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 5/31/99 ON 11/30/98
CORPORATE LONG-TERM FIXED INCOME
SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 5/31/99 ON 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
BBB 1% 1%
- --------------------------------------------------------------------------------
BB 12 11
- --------------------------------------------------------------------------------
B 71 77
- --------------------------------------------------------------------------------
BELOW B 10 10
- --------------------------------------------------------------------------------
NOT RATED 6 1
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 5/31/99 ON 11/30/98
THE RATINGS OF STANDARD AND POOR'S CORPORATION (S&P) AND MOODY'S INVESTORS
SERVICES, INC. (MOODY'S) REPRESENT THEIR OPINIONS AS TO THE QUALITY OF
SECURITIES THAT THEY UNDERTAKE TO RATE. THE PERCENTAGE SHOWN REFLECTS THE HIGHER
OF MOODY'S OR S&P RATINGS. PORTFOLIO COMPOSITION WILL CHANGE OVER TIME. RATINGS
ARE RELATIVE AND SUBJECTIVE AND NOT ABSOLUTE STANDARDS OF QUALITY.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 5/31/99 ON 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.1 years 7.9 years
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S FIVE LARGEST HOLDINGS*
Representing 8.8 percent of the fund's total corporate bonds on May 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
HOLDING PERCENT
- ------------------------------------------------------------------------
<S> <C> <C>
1. NL INDUSTRIES 2.2%
- ------------------------------------------------------------------------
2. TELEWEST COMMUNICATIONS 1.9%
- ------------------------------------------------------------------------
3. RIVERWOOD INTERNATIONAL 1.8%
- ------------------------------------------------------------------------
4. CONTINENTAL CABLEVISION 1.7%
- ------------------------------------------------------------------------
5. ICG HOLDINGS 1.2%
- ------------------------------------------------------------------------
</TABLE>
* The fund's holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER HIGH INCOME TRUST
PORTFOLIO OF INVESTMENTS AT MAY 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--99.0% PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC INDUSTRIES--15.0%
Allied Waste Industries, 7.625%, 2006 $ 530 $ 500
Atlantis Group, Inc., 11.00%, 2003 1,605 1,637
Bar Technologies, 13.50%, with warrants, 2001 1,160 1,213
Dimac Corp., 12.50%, 2008 1,420 994
Doman Industries, Ltd.
8.75%, 2004 230 161
9.25%, 2007 280 185
Euramax International, PLC, 11.25%, 2006 955 993
Gaylord Container Corp.
9.75%, 2007 2,480 2,405
9.875%, 2008 1,620 1,426
Golden Northeast Aluminum, Inc., 12.00%, 2006 1,700 1,751
GS Technologies
12.00%, 2004 1,670 1,503
12.25%, 2005 1,430 1,287
Hines Horticulture, Inc., 11.75%, 2005 1,494 1,595
Huntsman Polymer Corp., 11.75%, 2004 2,030 2,152
Metal Management, Inc., 10.00%, 2008 560 442
Millar Western Forest Products, Ltd.,
9.875%, 2008 485 461
MMI Products, Inc., 11.25%, 2007 655 681
Neenah Corp., 11.125%, 2007 670 665
NL Industries, Inc., 11.75%, 2003 6,380 6,731
Pen Holdings, Inc., 9.875%, 2008 180 185
Plainwell, Inc., 11.00%, 2008 590 472
Renco Metals, Inc., 11.50%, 2003 2,030 2,132
Renco Steel Holdings Co., 10.875%, 2005 1,420 1,285
Riverwood International Corp.
10.25%, 2006 400 404
10.625%, 2007 725 747
10.875%, 2008 4,305 4,197
Spinnaker Industries, 10.75%, 2006 1,060 784
Stone Container Corp.
10.75%, 2002 1,000 1,030
12.25%, 2002 550 553
Tembec Industries, Inc., 8.625%, 2009 350 351
Terra Industries, Inc.
10.75%, 2003 440 440
10.50%, 2005 1,610 1,602
Texas Petrochemicals Corp., 11.125%, 2006 900 819
UCC Investors Holdings, Inc., 10.50%, 2002 720 778
United Rentals, Inc., 9.25%, 2009 2,720 2,734
Wells Aluminum Corp., 10.125%, 2005 800 788
------------------------------------------------------------------------------
46,083
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--11.2%
AEP Industries, Inc., 9.875%, 2007 350 352
American Standard Companies, Inc.,
9.25%, 2016 222 229
Axiohm Transaction Solutions, Inc., 9.75%,
2007 370 327
BE Aerospace, Inc., 9.50%, 2008 410 424
Berry Plastics Corp., 12.25%, 2004 2,900 3,059
BPC Holdings Corp., 12.50%, 2006 620 651
Building Materials Corp., 8.00%, 2008 1,040 988
Congoleum Corp., 8.625%, 2008 600 576
Consumers International, 10.25%, 2005 2,420 2,493
Day International Group, Inc., 11.125%, 2005 2,020 2,151
DeCrane Aircraft Holdings, Inc., 12.00%, 2008 1,640 1,673
Desa International, 9.875%, 2007 700 546
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eagle-Picher Holdings, Inc., 9.375%, 2008 $ 1,750 $ 1,684
Fairchild Corp., 10.75%, 2009 1,630 1,622
Falcon Building Products, Inc.
9.50%, 2007 2,595 2,465
(b) 10.50%, 2007 70 45
Foamex, L.P., 13.50%, with warrants, 2005 1,000 952
Fonda Group, 9.50%, 2007 1,130 983
Graham Packaging Co.
8.75%, 2008 30 30
(b) 10.75%, 2009 2,050 1,435
(b) Grove Holdings, L.L.C., 11.625%, 2009 200 77
Grove Investors, PIK, 14.50%, 2010 404 266
IMPAC Group, Inc., 10.125%, 2008 840 819
Integrated Electrical Services, Inc., 9.375%,
2009 1,380 1,387
Kevco, Inc., 10.375%, 2007 690 469
Knoll, Inc., 10.875%, 2006 945 1,040
L-3 Communications Corp., 10.375%, 2007 330 350
Nortek, Inc.
9.875%, 2004 1,190 1,214
9.125%, 2007 640 646
8.875%, 2008 280 280
Printpack, Inc.
9.875%, 2004 160 162
10.625%, 2006 1,020 989
(b) SF Holdings Group, Inc., 12.75%, 2008 900 324
Terex Corp., 8.875%, 2008 1,500 1,455
Transdigm, Inc., 10.375%, 2008 420 416
U.S. Can Corp., 10.125%, 2006 1,250 1,313
Werner Holdings, Inc., 10.00%, 2007 570 574
-----------------------------------------------------------------------------
34,466
- ------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--22.5%
Allegiance Telecom, Inc.
(b) 11.75%, 2008 1,920 1,171
12.875%, 2008 1,020 1,102
American Cellular Corp., 10.50%, 2008 1,520 1,573
Call-Net Enterprises
(b) 9.275%, 2007 490 304
(b) 8.94%, 2008 700 385
9.375%, 2009 430 408
(b) 10.80%, 2009 510 280
Centennial Cellular, 10.75%, 2008 270 281
ComCast Cellular, 9.50%, 2007 590 658
(b) Communications Cellular, zero coupon, with
warrants, 2005 2,100 1,526
Crown Castle International Corp.
(b) 10.625%, 2007 3,000 2,055
9.00%, 2011 1,000 977
Dobson Communication Corp., 11.75%, 2007 1,010 1,060
(b) Dolphin Telecom, Inc., 14.00%, 2009 2,000 980
(b) Econophone, Inc., 11.00%, with warrants, 2008 350 257
Esprit Telecom Group, PLC
11.50%, 2007 2,020 2,161
10.875%, 2008 430 452
Global Crossing Holdings, Ltd., 9.625%, 2008 410 449
Global Telesystems Group, 9.875%, 2005 500 484
(b) ICG Holdings, Inc., 13.50%, with warrants,
2005 4,160 3,781
Impsat Corp., 12.375%, 2008 1,945 1,692
Intermedia Capital Partners, 11.25%, 2006 1,040 1,160
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermedia Communications of Florida, Inc.
(b) 12.50%, 2006 $ 1,220 $ 1,016
8.875%, with warrants, 2007 300 428
(b) 11.25%, 2007 1,720 1,238
KMC Telecom Holdings, Inc.
(b) 12.50%, with warrants, 2008 1,870 1,005
13.50%, 2009 510 510
Level 3 Communications, Inc.
9.125%, 2008 1,500 1,463
(b) 10.50%, 2008 2,750 1,636
Long Distance International, Inc.,
12.25%, with warrants, 2008 700 387
McLeod USA, Inc.
9.25%, 2007 710 706
(b) 10.50%, 2007 1,705 1,304
9.50%, 2008 230 232
Metronet Communications
(b) 10.75%, 2007 410 328
12.00%, with warrants, 2007 360 428
(b) 9.95%, 2008 850 631
10.625%, 2008 700 800
MGC Communications, 13.00%, 2004 1,530 1,377
(b) Millicom International Cellular, S.A.,
13.50%, 2006 3,740 2,805
Netia Holdings
10.25%, 2007 2,135 1,922
(b) 11.25%, 2007 2,440 1,562
(b) Nextel Communications, Inc.
9.75%, 2004 1,610 1,646
9.75%, 2007 550 369
10.65%, 2007 1,050 735
9.95%, 2008 1,445 954
Nextlink Communications, Inc.
12.50%, 2006 1,100 1,177
(b) 9.45%, 2008 530 307
10.75%, 2008 670 670
(b) 12.25%, 2009 2,300 1,271
(b) Pinnacle Holdings, Inc., 10.375%, 2008 300 179
Price Communications Wireless, Inc.,
9.125%, 2006 790 816
Primus Telecommunications Group, Inc.
11.75%, with warrants, 2004 860 888
9.875%, 2008 100 96
11.25%, 2009 340 348
(b) PTC International Finance, 10.75%, 2007 1,670 1,236
RCN Corp.
10.00%, 2007 550 550
(b) 11.00%, 2008 470 284
Rogers Cantel Mobile Communications, Inc.
9.375%, 2008 520 546
9.75%, 2016 1,305 1,458
(b) SBA Communications Corp., 12.00%, 2008 760 452
(b) Spectrasite Holdings, Inc.
12.00%, 2008 2,200 1,386
11.25%, 2009 540 316
Tele1 Europe, PLC, 13.00%, 2009 1,000 1,000
(b) Telecorp, Inc., 11.625%, 2009 360 185
Teligent, Inc.
11.50%, 2007 1,050 1,019
(b) 11.50%, 2008 1,175 676
(b) Tritel PCS, Inc., 12.75%, 2009 2,660 1,350
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) Triton Communications, L.L.C., 11.00%, 2008 $ 4,280 $ 2,568
U.S. Xchange, L.L.C., 15.00%, 2008 600 618
USA Mobile Communications Holdings, Inc.,
14.00%, 2004 770 770
Versatel Telecom, 13.25%, with warrants, 2008 760 844
Viatel, Inc.
11.25%, 2008 500 501
(b) 12.50%, 2008 1,020 622
Winstar Equipment II, 12.50%, 2004 520 525
-------------------------------------------------------------------------------
69,336
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--16.5%
(b) American Lawyer Media, Inc., 12.25%, 2008 2,890 1,907
AMF Bowling Worlwide, Inc.
10.875%, 2006 870 722
(b) 12.25%, 2006 2,882 1,844
Avondale Mills, 10.25%, 2006 1,720 1,737
Budget Group, 9.125%, 2006 480 461
Cinemark USA, Inc.
8.50%, 2008 230 222
9.625%, 2008 820 824
Circus Circus Enterprises, Inc., 9.25%, 2005 540 549
Coinmach Corp., 11.75%, 2005 2,740 3,014
Cole National Group, Inc., 9.875%, 2006 330 330
(a) Color Tile, Inc. 10.75%, 2001 1,260 13
Corporate Express, Inc., 4.50%, 2000 1,260 1,134
Delco Remy International, 10.625%, 2006 930 988
Del Webb Corp., 9.75%, 2008 460 446
Dyersburg Corp., 9.75%, 2007 790 387
Eldorado Resorts, 10.50%, 2006 770 799
Finlay Enterprises, Inc., 9.00%, 2008 330 315
Finlay Fine Jewelry Corp., 8.375%, 2008 550 536
Florida Panthers Holdings, 9.875%, 2009 1,310 1,274
Forecast Group, L.P., 11.375%, 2000 820 812
Fortress Group, 13.75%, 2003 710 600
Galey & Lord, Inc., 9.125%, 2008 1,570 1,005
Guitar Center Management, 11.00%, 2006 280 293
Harvey's Casino Resorts, 10.625%, 2006 680 711
Hayes Wheels International, Inc., 11.00%,
2006 1,340 1,461
Hovnanian Enterprises
11.25%, 2002 288 293
9.75%, 2005 2,140 2,086
9.125%, 2009 650 634
Imax Corp., 7.875%, 2005 320 307
Imperial Home Decor Group, Inc., 11.00%, 2008 770 624
Iron Age Corp.
9.875%, 2008 350 256
(b) 12.125%, 2009 310 87
J. Crew Group, Inc.
10.375%, 2007 1,375 1,365
(b) 13.50%, 2008 1,490 894
Kindercare Learning Centers, Inc., 9.50%,
2009 1,440 1,472
La Petite Academy, Inc., 10.00%, 2008 2,160 2,117
Mohegan Tribal Gaming Authority, 8.75%, 2009 2,520 2,520
Motors and Gears, Inc., 10.75%, 2006 480 485
National Vision Association, Ltd., 12.75%,
2005 2,340 2,434
Nine West Group, Inc., 9.00%, 2007 280 311
Pamida Holdings Corp., 11.75%, 2003 1,290 1,342
Phillips-Van Heusen Corp., 9.50%, 2008 220 220
Players International, Inc., 10.875%, 2005 795 839
Premier Parks, Inc., 12.00%, 2003 690 740
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regal Cinemas, Inc.
9.50%, 2008 $ 820 $ 779
8.875%, 2010 200 183
Ryland Group, Inc., 8.25%, 2008 640 614
Six Flags Entertainment Corp., 12.25%, 2005 3,245 3,626
Specialty Retailers, Inc.
8.50%, 2005 290 197
9.00%, 2007 1,210 702
(b) Spincycle, Inc., 12.75%, 2005 1,110 400
Station Casinos, Inc.
10.125%, 2006 1,400 1,442
9.75%, 2007 380 388
Toll Corp., 8.125%, 2009 240 233
United Artists Theatre Circuit, Inc., 9.75%,
2008 60 48
Vail Resorts, Inc., 8.75%, 2009 410 400
Venture Holdings Corp., 11.00%, 2007 250 254
-------------------------------------------------------------------------------
50,676
- --------------------------------------------------------------------------------------------------------------------------
CONSUMER
NON-CYCLICALS--7.7%
Abbey Healthcare Group, Inc., 9.50%, 2002 2,120 2,120
Advantica Restaurant Group, Inc., 11.25%,
2008 3,616 3,580
AFC Enterprises, Inc., 10.25%, 2007 2,250 2,306
Agrilink Foods, Inc., 11.875%, 2008 1,280 1,325
(b) ALARIS Medical Systems, Inc., 11.125%, 2008 590 342
Ameriking, Inc., 10.75%, 2006 510 525
Carrols Corp., 9.50%, 2008 690 677
Dade International, Inc., 11.125%, 2006 770 801
Doskocil Manufacturing Co., 10.125%, 2007 440 242
Hedstrom Corp., 10.00%, 2007 420 376
Herff Jones, Inc., 11.00%, 2005 740 799
Jafra Cosmetics International, Inc., 11.75%,
2008 650 559
Krystal, Inc., 10.25%, 2007 2,720 2,849
Magellan Health Services, Inc., 9.00%, 2008 840 706
(b) Mariner Post-Acute Network, Inc., 10.50%,
2007 2,520 479
Mastellone Hermonos, S.A., 11.75%, 2008 1,560 1,170
MEDIQ, Inc., 11.00%, 2008 430 370
Pathmark Stores Inc., 9.625%, 2003 305 313
Perkins Family Restaurants, L.P., 10.125%,
2007 2,680 2,814
(b) Restaurant Co., 11.25%, 2008 770 493
Sealy Mattress Co.
9.875%, 2007 210 205
(b) 10.875%, 2007 680 442
(a) Vencor, Inc., 9.875%, 2005 530 76
-------------------------------------------------------------------------------
23,569
- --------------------------------------------------------------------------------------------------------------------------
ENERGY--3.4%
Benton Oil & Gas Co., 11.625%, 2003 995 687
Continental Resources, Inc., 10.25%, 2008 840 626
Gulfmark Offshore, Inc., 8.75%, 2008 390 365
Key Energy Services, 14.00%, 2009 420 423
Mariner Energy, Inc., 10.50%, 2006 1,100 957
Ocean Energy, Inc.
10.375%, 2005 575 607
9.75%, 2006 180 185
Pacalta Resources, Ltd., 10.75%, 2004 1,510 1,767
Pride International, Inc., 10.00%, 2009 470 472
R&B Falcon Finance Corp.
11.00%, 2006 350 352
9.50%, 2008 1,840 1,638
RAM Energy, Inc., 11.50%, 2008 300 156
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stone Energy Corp.
11.50%, 2006 $ 1,300 $ 1,401
8.75%, 2007 810 794
-------------------------------------------------------------------------------
10,430
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL--1.6%
Carlyle High Yield Partners, 12.24%, 2007 2,000 2,000
HMH Properties, Inc., 7.875%, 2008 1,520 1,406
Intertek Finance, PLC, 10.25%, 2006 1,520 1,474
-------------------------------------------------------------------------------
4,880
- --------------------------------------------------------------------------------------------------------------------------
MEDIA--17.0%
Adelphia Communications Corp., 7.875%, 2009 330 313
American Radio Systems Corp., 9.00%, 2006 680 728
(b) Australis Holdings
14.00%, 2000 116 88
(a) 15.00%, with warrants, 2002 2,750 42
Avalon Cable Holdings, Inc.
9.375%, 2008 140 143
(b) 11.875%, 2008 910 610
Big Flower Press Holdings, Inc., 8.875%, 2007 1,400 1,372
Bresnan Communications Co., L.P.
8.00%, 2009 170 168
(b) 9.25%, 2009 350 229
(b) Capstar Broadcasting Corp., 12.75%, 2009 1,880 1,579
Century Communications Corp., 8.375%, 2007 350 350
Chancellor Media Corp.
8.125%, 2007 810 794
8.00%, 2008 940 931
9.00%, 2008 280 288
Charter Communication Holdings, L.L.C.
8.25%, 2007 1,780 1,735
(b) 9.92%, 2011 2,270 1,402
Comcast Corp., 9.125%, 2006 820 857
(b) Comcast UK Cable Partners, Ltd., 11.20%, 2007 3,510 3,150
Continental Cablevision, Inc., 11.00%, 2007 5,000 5,275
CSC Holdings, Inc.
9.25%, 2005 250 264
7.875%, 2007 100 102
8.125%, 2009 450 468
10.50%, 2016 1,140 1,320
9.875%, 2013 840 920
(b) Diamond Cable Communications, PLC,
13.25%, 2004 1,115 1,160
(b) Diva Systems Corp., 12.625%, with warrants,
2008 1,200 403
EchoStar DBS Corp.
9.25%, 2006 660 665
9.375%, 2009 2,300 2,317
EZ Communications, Inc., 9.75%, 2005 380 410
Falcon Holding Group, L.P.
8.375%, 2010 300 299
(b) 9.285%, 2010 500 349
Frontiervision Capital Corp.
11.00%, 2006 840 932
(b) 11.875%, 2007 880 763
Interep National Radio Sales, Inc., 10.00%,
2008 520 534
Mediacom, L.L.C., 8.50%, 2008 250 242
Metromedia Fiber Network, Inc., 10.00%, 2008 800 826
NTL, Inc.
11.50%, 2008 2,450 2,695
(b) 12.375%, 2008 720 481
Ono Financial, PLC, 13.00%, 2009 1,380 1,366
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outdoor Systems, Inc.
9.375%, 2006 $ 760 $ 827
8.875%, 2007 530 563
(b) PX Escrow, 9.625%, 2006 880 537
(b) Radio Unica Corp., 11.75%, 2006 770 447
Salem Communications Corp., 9.50%, 2007 500 518
SFX Entertainment, Inc., 9.125%, 2008 1,690 1,643
Sinclair Broadcasting Group, Inc., 8.75%,
2007 1,620 1,584
Star Choice, 13.00%, with warrants, 2005 400 434
TeleWest Communications, PLC
(b) 11.00%, 2007 4,290 3,797
11.25%, 2008 1,570 1,778
(b) 9.25%, 2009 90 59
Transwestern Publishing Co., L.L.C.
9.625%, 2007 500 513
(b) 11.875%, 2008 250 180
(b) 21st Century Telecommunications, Inc.,
12.25%, with warrants, 2008 2,614 1,204
(b) United International Holdings, Inc.,
10.75%, 2008 2,600 1,690
-------------------------------------------------------------------------------
52,344
- --------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.6%
Cherokee International Corp., 10.50%, 2009 1,170 1,170
(b) IPC Information Systems, 10.875%, 2008 1,610 1,179
PSINet, Inc.
10.00%, 2005 650 649
11.50%, 2008 950 998
Viasystems, Inc., 9.75%, 2007 970 849
-------------------------------------------------------------------------------
4,845
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.5%
Accuride Corp., 9.25%, 2008 420 412
Airxcel, 11.00%, 2007 590 574
Petro Stopping Centers, 10.50%, 2007 1,490 1,586
TFM, S.A. de C.V., 10.25%, 2007 710 632
Trans World Airlines, Inc., 11.375%, 2006 520 261
(b) Transtar Holdings, Inc., 13.375%, 2003 3,030 3,000
Travelcenters America, 10.25%, 2007 1,220 1,244
-------------------------------------------------------------------------------
7,709
-------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--99.0%
(Cost: $314,557) 304,338
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCK--1.0%
(a) Benedek Communications Corp., warrants 5,000shs. 10
(a) Capital Pacific Holdings, warrants 3,634 2
Clark USA, PIK, preferred 1,766 115
Crown American Realty Trust, preferred 15,500 745
Dobson Communications, PIK, preferred 200 180
(a) Gaylord Container Corp 9,825 82
(a) MGC Communications, Inc 4,474 123
Nextel Communications, PIK, preferred 533 533
(a) SF Holdings Group, Inc 1,800 5
Sinclair Capital, preferred 9,500 1,009
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) 21st Century Telecommunications Group, Inc.,
preferred 141 $ 73
Viatel, Inc., preferred 6,197 279
(a) Waxman Industries, Inc., warrants 55,106 3
-------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK--1.0%
(Cost: $3,037) 3,159
-------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $317,594) $307,497
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security. In the case of a bond, generally denotes that
the issuer has defaulted on the payment of principal or interest or has
filed for bankruptcy.
(b) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
PIK denotes that interest or dividend is paid in kind.
Based on the cost of investments of $317,594,000 for federal income tax purposes
at May 31, 1999, the gross unrealized appreciation was $7,303,000, the gross
unrealized depreciation was $17,400,000 and the net unrealized depreciation on
investments was $10,097,000.
See accompanying Notes to Financial Statements.
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $317,594) $307,497
- ------------------------------------------------------------------------
Receivable for:
Investments sold 1,082
- ------------------------------------------------------------------------
Fund shares sold 1
- ------------------------------------------------------------------------
Interest 6,500
- ------------------------------------------------------------------------
TOTAL ASSETS 315,080
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 292
- ------------------------------------------------------------------------
Notes payable 55,000
- ------------------------------------------------------------------------
Payable for:
Investments purchased 3,705
- ------------------------------------------------------------------------
Interest 267
- ------------------------------------------------------------------------
Management fee 131
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 14
- ------------------------------------------------------------------------
Trustees' fees and other 240
- ------------------------------------------------------------------------
Total liabilities 59,649
- ------------------------------------------------------------------------
NET ASSETS $255,431
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $305,730
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (42,093)
- ------------------------------------------------------------------------
Net unrealized depreciation on investments (10,097)
- ------------------------------------------------------------------------
Undistributed net investment income 1,891
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $255,431
- ------------------------------------------------------------------------
NET ASSET PER SHARE, $.01 PAR VALUE
($255,431 / 29,905 shares outstanding) $8.54
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $13,985
- -----------------------------------------------------------------------
Dividends 118
- -----------------------------------------------------------------------
Total investment income 14,103
- -----------------------------------------------------------------------
Expenses:
Management fee 910
- -----------------------------------------------------------------------
Interest expense 779
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 240
- -----------------------------------------------------------------------
Professional fees 128
- -----------------------------------------------------------------------
Reports to shareholders 145
- -----------------------------------------------------------------------
Registration fee 99
- -----------------------------------------------------------------------
Trustees' fees and other 115
- -----------------------------------------------------------------------
Total expenses 2,416
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 11,687
- -----------------------------------------------------------------------
- ------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized loss on sales of investments (2,277)
- -----------------------------------------------------------------------
Change in net unrealized depreciation on investments (4,520)
- -----------------------------------------------------------------------
Net loss on investments (6,797)
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,890
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended May 31, 1999 (unaudited) and for the year ended
November 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 11,687 22,052
- ----------------------------------------------------------------------------------------
Net realized gain (loss) (2,277) 3,290
- ----------------------------------------------------------------------------------------
Change in net unrealized depreciation (4,520) (15,902)
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,890 9,440
- ----------------------------------------------------------------------------------------
Distribution from net investment income (11,317) (21,509)
- ----------------------------------------------------------------------------------------
Fund share transactions:
Net proceeds of shares issued in connection with the
fund's rights offering, net of broker and dealer manager fees
of $982 and expenditures and operating costs of $500 47,016 --
- ----------------------------------------------------------------------------------------
Reinvestment of distributions 947 3,045
- ----------------------------------------------------------------------------------------
Net increase in net assets from fund share transactions 47,963 3,045
- ----------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 41,536 (9,024)
- ----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------
Beginning of period 213,895 222,919
- ----------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $1,891 and $1,521, respectively) $255,431 213,895
- ----------------------------------------------------------------------------------------
INCREASE IN FUND SHARES
- ----------------------------------------------------------------------------------------
Shares outstanding at beginning of period 23,919shs. 23,613
- ----------------------------------------------------------------------------------------
Shares issued in connection with the fund's rights
offering 5,885 --
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 101 306
- ----------------------------------------------------------------------------------------
Net increase in fund shares 5,986 306
- ----------------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF PERIOD 29,905 23,919
- ----------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. Kemper High Income Trust, a
Massachusetts business trust, is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities are valued by
pricing agents approved by the officers of the
fund, which quotations reflect broker/dealer-
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. All other securities are valued at
their fair market value as determined in good faith
by the Valuation Committee of the Board of
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. 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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At November 30, 1998, the fund had a tax basis net
loss carryforward of approximately $32,646,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 1999
through 2005.
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.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .85%
of average weekly net assets. The fund incurred a
management fee of $910,000 for the six months ended
May 31, 1999.
SHAREHOLDER SERVICES 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 services fees of $18,000
for the six months ended May 31, 1999.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the six months ended May 31,
1999, the fund made no payments to its officers and
incurred trustees' fees of $23,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $143,407
Proceeds from sales 57,890
- --------------------------------------------------------------------------------
4 NOTES PAYABLE The notes payable represents loans of $55,000,000
from Bank of America which were outstanding
throughout the period. The notes bear interest at
the London Interbank Offered Rate plus .275% (5.37%
to 5.45% at May 31, 1999) which is payable
quarterly. The loan amounts and rates are reset
periodically under a credit facility which is
available until July 14, 1999.
20
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, --------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.94 9.44 9.20 8.73 8.33
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .41 .92 .91 .91 .91
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.24)a (.52) .23 .46 .39
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .40 1.14 1.37 1.30
- ----------------------------------------------------------------------------------------------------------------------
Distribution from net investment income .45 .90 .90 .90 .90
- ----------------------------------------------------------------------------------------------------------------------
Dilution resulting from the rights offering at
market value (.12) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.54 8.94 9.44 9.20 8.73
- ----------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $8.81 9.88 10.19 10.00 9.50
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Based on net asset value 2.95% 4.38 12.99 16.56 16.30
- ----------------------------------------------------------------------------------------------------------------------
Based on market value (4.89)% 6.50 11.98 16.12 25.81
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------------------
Expenses 2.25% 1.55 1.56 1.59 1.52
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 10.87% 10.01 9.84 10.33 10.64
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $255,431 213,895 222,919 214,649 200,502
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 41% 83 79 74 85
- ----------------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of period (in
thousands) $ 55,000 20,000 20,000 20,000 20,000
- ----------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 of debt $ 5,600 11,700 12,100 11,700 11,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Due to the timing of the rights offering, the amount reported is not
proportional to the aggregate value reported in the Statement of Changes in Net
Assets.
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. Data for the
period ended May 31, 1999 is unaudited.
21
<PAGE> 22
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper High
Income Trust shareholders were asked to vote on a new investment management
agreement with Scudder Kemper Investments, Inc. This item was approved. Below
are the results:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
19,299,279 279,560 362,605
</TABLE>
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY
Trustee President
JAMES R. EDGAR PHILIP J. COLLORA
Trustee Vice President and
Secretary
ARTHUR R. GOTTSCHALK
Trustee JOHN R. HEBBLE
Treasurer
FREDERICK T. KELSEY
Trustee ANN M. MCCREARY
Vice President
THOMAS W. LITTAUER
Trustee and Vice President MICHAEL A. MCNAMARA
Vice President
FRED B. RENWICK
Trustee ROBERT C. PECK, JR.
Vice President
JOHN G. WEITHERS
Trustee KATHRYN L. QUIRK
Vice President
HARRY E. RESIS, JR.
Vice President
LINDA J. WONDRACK
Vice President
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
BRENDA LYONS
Assistant Treasurer
- -------------------------------------------------------------------------------
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 STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
- -------------------------------------------------------------------------------
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KHIT - 3 (7/23/99) 1080080
