<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER HIGH INCOME TRUST
"... Despite a difficult climate,
high-yield bonds performed relatively well. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
LARGEST HOLDINGS
10
PORTFOLIO OF
INVESTMENTS
20
FINANCIAL STATEMENTS
24
FINANCIAL HIGHLIGHTS
25
NOTES TO
FINANCIAL STATEMENTS
28
REPORT OF
INDEPENDENT AUDITORS
29
DESCRIPTION OF
DIVIDEND REINVESTMENT PLAN
31
SHAREHOLDERS' MEETING
AT A GLANCE
KEMPER HIGH INCOME TRUST TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
KEMPER HIGH
INCOME TRUST
- ---------------------------------------------------------
<S> <C>
BASED ON NAV -1.86%
- ---------------------------------------------------------
BASED ON MARKET PRICE -2.87%
- ---------------------------------------------------------
</TABLE>
KEMPER HIGH INCOME TRUST NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/99 11/30/98
- ---------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $7.89 $8.94
- ---------------------------------------------------------
MARKET PRICE $8.63 $9.88
- ---------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE
DIVIDEND INFORMATION FOR THE FUND AS OF NOVEMBER 30, 1999.
<TABLE>
<CAPTION>
KEMPER HIGH
INCOME TRUST
- ------------------------------------------------------
<S> <C>
ONE-YEAR INCOME: $0.924
- ------------------------------------------------------
NOVEMBER DIVIDEND: $0.081
- ------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 12.32%
- ------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 11.26%
- ------------------------------------------------------
</TABLE>
INVESTMENTS BY THE FUND IN LOWER QUALITY BONDS PRESENT GREATER RISK TO PRINCIPAL
AND INTEREST THAN INVESTMENTS ON HIGHER QUALITY BONDS.
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.
YIELDS AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
TERMS TO KNOW
AVERAGE ANNUAL TOTAL RETURN A fund's total return, which includes both price
changes and reinvestment of dividends, expressed as an annualized average.
FEDERAL FUNDS RATE The interest rate that 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 Bonds that are issued by companies often without long track
records of sales and earnings or with questionable credit strength and that pay
a higher yield to investors to help compensate for their greater risk of loss of
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 Debt securities issued by the U.S. Treasury, including 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
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 $290 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.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
Now, with the potential Y2K crisis seemingly averted, the question hanging
over the economy is whether the Federal Reserve Board will boost interest rates
to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. And unfortunately, all parties end. This one will, too. The questions
are when and how.
The "when" should be before the second half of the year. The Fed has already
raised interest rates three times, and is likely to raise them again on Feb. 2.
Fed officials said they left the rate at 5.5 percent in December mainly because
of "market uncertainties associated with the century-date change." But the Fed
expressed concern that "increases in demand" will foster "inflationary
imbalances" that could spark rate increases once the Y2K issue has been handled.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system (causing some stock indexes, as well as the
bond markets, to drop sharply in early January), the "how" is likely to be a
slow winding down, thanks to persistent low inflation.
Yes, some prices are higher: Filling up the SUV's gas tank definitely costs
more. But the rate of inflation for non-energy goods and services has actually
slowed during the past year. Although most analysts are worried that the
reprieve won't last -- assuming that higher commodity prices, a softer dollar
and the scarcity of skilled workers will show up as higher prices at the
checkout counter -- we'd turn that worry on its head. If inflation hasn't
accelerated after three years of over 4-percent gross domestic product (GDP)
growth and an unprecedented credit explosion, prices aren't likely to increase
if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
the Fed to raise the federal funds rate and the discount rate by one quarter of
a point (0.25%) each on Feb. 2. (More extreme possibilities bandied about by
bearish investors -- including a half-point rise or an emergency move before the
Fed's February meeting -- are unlikely.) We project that the result will be a
gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, the rowdiness of Y2K preparations and
celebration should be sufficient to show us that risks exist in today's markets
and remind us that we could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 5.50 4.80 5.90
Prime rate (2) 8.50 7.75 8.00 8.50
Inflation rate (3)* 2.60 2.30 1.50 2.00
The U.S. dollar (4) -0.7 -0.9 1.20 9.40
Capital goods orders (5)* 12.60 2.50 -0.6 6.40
Industrial production (5)* 3.30 2.90 3.50 6.90
Employment growth (6) 2.10 2.10 2.30 2.70
</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 11/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
one iota. As a result, we expect profits to be virtually flat in all of 2000 and
to decline as the economy slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is taking on is too much,
but warning bells should sound when debt grows by orders of magnitude faster
than necessary to fund economic activity. That happened in 1985 and 1986, when
excess credit created a commercial real estate bubble and funded dubious
leveraged buyouts with suspect junk bonds, and it's happening again now. Both
the commercial real estate and the high yield markets took years to recover.
Today, the sheer size of the excesses could make the "morning after" even more
painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
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 THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JANUARY 6, 2000, 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 IS LEAD PORTFOLIO MANAGER FOR THE FUND. WITH SCUDDER KEMPER
INVESTMENTS, INC. SINCE 1988, HE IS A MANAGING DIRECTOR AND THE LEAD PORTFOLIO
MANAGER FOR ALL KEMPER HIGH-YIELD OPEN-END BOND FUNDS. HE DIRECTS ALL TRADING
ACTIVITY FOR THE FUND.
[MCNAMARA PHOTO]
MICHAEL MCNAMARA IS A PORTFOLIO MANAGER FOR THE FUND. HE JOINED THE ORGANIZATION
IN 1972 AND IS A MANAGING DIRECTOR. HE IS ALSO A PORTFOLIO MANAGER OF KEMPER'S
OPEN-END HIGH-YIELD BOND FUNDS AND DIRECTS ALL FIXED-INCOME RESEARCH AT SCUDDER
KEMPER INVESTMENTS.
[DOYLE PHOTO]
DAN DOYLE IS A PORTFOLIO MANAGER FOR THE FUND. HE HAS BEEN INVOLVED WITH KEMPER
OPEN-END HIGH-YIELD FUNDS IN BOTH RESEARCH AND TRADING SINCE 1986 AND IS A
SENIOR TRADER FOR THE FUND.
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.
INTEREST RATES ROSE NEARLY UNABATED THROUGHOUT THE FISCAL YEAR, MAKING IT
DIFFICULT FOR BOND INVESTORS TO ACHIEVE POSITIVE TOTAL RETURNS. DESPITE A
DIFFICULT CLIMATE, HIGH-YIELD BONDS PERFORMED RELATIVELY WELL. IN THIS REPORT,
KEMPER HIGH INCOME TRUST'S MANAGEMENT TEAM DISCUSSES THE MARKET AND HOW THEY
POSITIONED THE FUND IN LIGHT OF THE CHALLENGING INVESTMENT ENVIRONMENT.
Q WHAT KIND OF YEAR DID THE BOND MARKETS HAVE OVERALL?
A It was a difficult 12-month period for bond investors, because they had to
fight the headwind of rising interest rates continuously. The bond market as a
whole, as measured by the Lehman Aggregate Bond index*, had a negative return of
0.04 percent for the 12-month period ended November 30, 1999. If you break out
the performance of different types of bonds, the returns varied widely.
Corporate bonds taken as a group eked out a 0.95 percent gain, according to the
Lehman Corporate Bond index*. Long-term government bonds fared worse, with the
Lehman Long-Term Government Bond index* down 7.52 percent.
* THE LEHMAN AGGREGATE BOND INDEX IS A TOTAL RETURN INDEX INCLUDING FIXED-RATE
DEBT ISSUES RATED INVESTMENT-GRADE OR BETTER. IN CONTAINS GOVERNMENT,
CORPORATE AND MORTGAGE SECURITIES AND IS GENERALLY CONSIDERED REPRESENTATIVE
OF THE MARKET FOR INVESTMENT-GRADE BONDS AS A WHOLE. THE LEHMAN CORPORATE BOND
INDEX IS AN INDEX BASED ON ALL PUBLICLY ISSUED INTERMEDIATE FIXED-RATE,
NON-CONVERTIBLE INVESTMENT GRADE DOMESTIC CORPORATE DEBT. THE LEHMAN BROTHERS
LONG-TERM GOVERNMENT BOND INDEX IS A TOTAL RETURN INDEX GENERALLY CONSIDERED
REPRESENTATIVE OF THE MARKET FOR TREASURIES AND GOVERNMENT AGENCY SECURITIES
WITH MATURITIES GREATER THAN TEN YEARS. INVESTORS CANNOT INVEST IN THE
INDICES.
Q HOW DID HIGH-YIELD BONDS PERFORM?
A High-yield bonds returned 1.36 percent, as measured by the Lehman High
Yield Bond index. While that certainly isn't a jaw-dropping return for a
12-month period, the high-yield market provided positive returns for income
investors despite a difficult environment.
* THE LEHMAN HIGH YIELD BOND INDEX IS A TOTAL RETURN INDEX CONSIDERED GENERALLY
REPRESENTATIVE OF THE MARKET FOR BONDS RATED BELOW INVESTMENT GRADE. INVESTORS
CANNOT INVEST IN THE INDEX.
Q WHAT WAS RESPONSIBLE FOR THE BOND MARKET'S DIFFICULTIES?
A In short, rising interest rates. Last November, when the fiscal year
began, U.S. Treasury yields were extremely low. That was because investors
worldwide were pouring money into the U.S. Treasury market. At that time, there
was grave uncertainty as to the health of Russian and Latin American economies,
and the viability of a recovery in Asia. At the same time, Europe was preparing
to convert to a single currency, the euro. So, for investors seeking a safe
harbor, U.S. Treasuries were about the only compelling choice. The resulting
demand drove Treasury prices up and yields down. At the end of November 1998,
the 30-year Treasury yielded just 5.21 percent.
That's when the Federal Reserve decided to step in. Concerned that faltering
worldwide economies could lead to a recession at home, the Fed cut interest
rates three times in the last quarter of 1998. It was a particularly
uncharacteristic move because the Fed normally cuts rates only when the U.S.
economy is
5
<PAGE> 6
PERFORMANCE UPDATE
slowing, which it wasn't. But rather than risk a worldwide recession, the Fed
decided to go ahead and lower rates. The idea was to use the engine of the U.S.
economy to power global growth and bolster confidence that Asian and Latin
American economies would rebound.
All this happened in the fall of last year. Since then, Asian economies have
shown signs of recovery, prompting assets to exit the U.S. Treasury market. More
important, economic growth in the United States began to trigger concerns about
inflation. When investors fear inflation, they demand higher yields to help
offset the erosion of their income. Thus, throughout 1999, interest rates have
staged an unflagging ascent. The 30-year Treasury rose from 5.21 percent on
November 30, 1998 to 6.11 percent a year later. That's a monumental move for a
T-bond, and the price decline that Treasuries suffered was indicative of the
difficulties that the bond market as a whole experienced.
Q WERE RISING RATES RESPONSIBLE FOR THE MEAGER RETURNS IN THE HIGH-YIELD
BOND MARKET?
A Eventually, it was one of the culprits. During the first half of the
fiscal year, the high-yield bond market was able to shrug off the effects of
rising rates. For the six-month period ended March 31, 1999, the Lehman High
Yield Bond index was up 4 percent. Thereafter, however, higher rates began to
affect the high-yield market's liquidity. Last year, the near-5 percent yield on
a T-bond made the 8-9 percent yield on high-yield bonds really attractive. But
as the T-bond yield rose, a lot of investors decided that a 6 percent yield on a
AAA-rated bond was pretty good, given the uncertain economic picture. So, demand
for high-yield bonds began to dwindle. Unfortunately, this coincided with a
heavy level of new issuance, which put still more pressure on high-yield bond
prices. As a result, high-yield bonds struggled through the last half of the
fiscal year, with the Lehman High Yield Bond index down 1.14 percent on a total
return basis for the last six months.
Q YOU SAID HIGHER INTEREST RATES WERE "ONE OF THE CULPRITS" BEHIND THE
HIGH-YIELD MARKET'S DIFFICULTIES. WHAT WERE THE OTHERS?
A One other significant factor affecting the market's liquidity was an
increase in defaults. That was a bit of a surprise, given that the economy was
growing so strongly. However, during the heady days of 1996 and 1997, a lot of
deals came to market that weren't of very high quality. The relatively weak
economy in 1998 and the volatility in 1999 started to take its toll on some of
these bonds, and the default rate began to climb as 1999 wore on.
Q WAS KEMPER HIGH INCOME TRUST AFFECTED BY THESE DEFAULTS?
A The defaults did not have a large impact. We've always been fairly
cautious compared with some other funds. We don't have a lot of emerging-market
debt, nor do we have a lot of paper rated below "single B." That can hurt us
when the market rallies strongly, but it helps protect us when the market is
punishing particularly suspect credits.
The defaults did cast a cloud over the market as a whole and spooked potential
buyers. So, even though the defaults haven't been a problem for the fund
specifically, they've kept pressure on prices in the market.
Q WHAT WERE YOUR STRATEGIES FOR MANAGING THE FUND DURING THE PERIOD?
A Given the volatility of the market, we just tried to look for the best
values. Earlier in the year, that meant emphasizing media and telecommunications
companies. 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 industries are those whose earnings
tend to rise quickly when the economy strengthens and fall quickly when the
economy weakens. Examples include housing, automobiles and paper companies.
Also, we began to cut back our holdings in health care companies because of a
negative outlook for Medicare and price declines among nursing home issuers.
As I said, we are typically relatively cautious investors. That was a good
thing at the beginning of the fiscal year when investors were concerned about
the U.S. economy and emerging markets were being hit hard. The fund's returns
for the year were below our peer group. The fund's return for the 12-month
period was -1.86 percent, versus the Lipper closed-end High Yield Fund
(Leveraged) Average return of 0.69 percent.
6
<PAGE> 7
PERFORMANCE UPDATE
Q THE AVERAGE COUPON FOR A HIGH-YIELD BOND RIGHT NOW IS NEARLY 12 PERCENT.
SO, IT LOOKS AS IF THE HIGH-YIELD MARKET'S TOTAL RETURN WILL BE SIGNIFICANTLY
LESS THAN THE COUPON. DO YOU EXPECT THIS TO CONTINUE?
A No, and there are several reasons why. First is historical. In 1998, the
high-yield market returned 0.97 percent, and so far in 1999, it's returned 2.33
percent, according to the Chase Securities Global High Yield index*.
Historically, when the high-yield market has gone through the doldrums, it has
typically come back strong. For example, in 1994, the Chase index returned -1.57
percent. The next year, it returned 19.56 percent. Certainly, there are no
guarantees this could repeat itself, but from this level, we think it's fair to
say that there's more upside potential than downside.
Second is liquidity. The market's liquidity has been constrained by a number
of one-time factors, such as the Russian debt crisis last year and Y2K concerns
this year. These events won't hinder the market forever.
Third is an outsized number of defaults. As I mentioned, several deals that
probably weren't a good idea in the first place are now being weeded out of the
market. The economy is growing well, and when this current cloud of defaults is
lifted, we believe investors will realize the attractive value offered by
high-yield bonds, and demand will increase.
When that might happen, no one can say. Currently, Y2K concerns and
uncertainty about what the Federal Reserve may do in the next couple of months
may act to keep a lid on prices.
But longer-term, we're encouraged by the environment created by a worldwide
economic expansion, inflation that remains low from a historical standpoint, and
a slackening supply of Treasury bonds. All these factors indicate to us that
high-yield bonds currently offer a terrific value. We believe that the smart
investors are the ones who are content to wait for liquidity to return to the
market, and collect a hefty coupon in the process.
* THE CHASE SECURITIES GLOBAL HIGH YIELD INDEX IS A TOTAL RETURN INDEX
CONSIDERED GENERALLY REPRESENTATIVE OF THE MARKET FOR U.S. AND DOLLAR
DENOMINATED FOREIGN HIGH YIELD DEBT. INVESTORS CANNOT INVEST IN THE INDEX.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 11/30/99 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]
CORPORATE LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 11/30/99 ON 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
BBB 1% 1%
- --------------------------------------------------------------------------------
BB 14 11
- --------------------------------------------------------------------------------
B 74 77
- --------------------------------------------------------------------------------
BELOW B 9 10
- --------------------------------------------------------------------------------
NOT RATED 2 1
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
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 11/30/99 ON 11/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 6.3 years 7.9 years
- --------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
8
<PAGE> 9
LARGEST HOLDINGS
THE FUND'S FIVE LARGEST HOLDINGS
Representing 10 percent of the fund's total net assets on November 30, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
HOLDINGS PERCENT
- ------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------
1. NL INDUSTRIES 2.3%
- ------------------------------------------------------------------------
2. NEXTEL COMMUNICATIONS 2.1%
- ------------------------------------------------------------------------
3. TELEWEST COMMUNICATIONS 2.0%
- ------------------------------------------------------------------------
4. RIVERWOOD INTERNATIONAL 1.9%
- ------------------------------------------------------------------------
5. CHARTER COMMUNICATIONS HOLDINGS 1.7%
- ------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER HIGH INCOME TRUST
Portfolio of Investments at November 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--98.7% PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER DISCRETIONARY--15.1%
AFC Enterprises, 10.25%, 05/15/2007 $ 3,250 $ 3,217
AMF Bowling Worldwide, Inc., Step-up Coupon,
0% to 03/15/2001, 12.25% to 03/15/2006 2,882 1,268
AMF Bowling, Inc, 10.875%, 03/15/2006 870 461
Advantica Restaurant Co., 11.25%, 01/15/2008 3,266 2,531
Avis Rent A Car, 11.00%, 05/01/2009 1,470 1,540
Avondale Mills, 10.25%, 05/01/2006 1,840 1,564
Boca Resorts, Inc., 9.88%, 04/15/2009 2,470 2,359
Cinemark USA, Inc., 8.50%, 08/01/2008 230 200
Cinemark USA, Inc., Series D, 9.625%,
08/01/2008 100 94
Circus Circus Enterprises, Inc., 9.25%,
12/01/2005 540 547
Cole National Group, Inc., 9.875%,
12/31/2006 1,000 770
Corporate Express, Inc., 4.50%, 07/01/2000 1,350 1,360
Eldorado Resorts, 10.50%, 08/15/2006 770 785
Finlay Enterprises, Inc., 9.00%, 05/01/2008 330 289
Finlay Fine Jewelry Co., 8.375%, 05/01/2008 550 498
Galey & Lord, Inc., 9.125%, 03/01/2008 1,580 363
Guitar Center Management, 11.00%, 07/01/2006 800 784
Harvey's Casino Resorts, 10.625%, 06/01/2006 680 699
Hedstrom Corp., 10.00%, 06/01/2007 330 49
Herff Jones, Inc., 11.00%, 08/15/2005 740 785
Hines Horticulture, Inc., 11.75%, 10/15/2005 1,494 1,520
Hollywood Entertainment Corp., 10.625%,
08/15/2004 730 664
Hollywood Entertainment Corp., Series B,
10.63%, 08/15/2004 2,000 1,820
Horseshoe Gaming Holdings, 8.625%,
05/15/2009 190 183
Horseshoe Gaming Holdings, 9.375%,
06/15/2007 240 238
Imax Corp., Senior Note, 7.875%, 12/01/2005 320 302
Imperial Home Decor Group, Inc., 11.00%,
03/15/2008* 680 68
International Game Technology, 8.38%,
05/15/2009 900 871
Iron Age Holdings Corp., Step-up Coupon,
0% to 05/01/2003, 12.125% to 05/01/2009 310 90
Iron Age Holdings Corp., 9.875%, 05/01/2008 410 307
J. Crew Group, Step-up Coupon, 0% to
10/15/2002, 13.125% to 10/15/2008 2,749 1,265
J. Crew Group, 10.375%, 10/15/2007 1,030 865
Krystal Inc., 10.25%, 10/01/2007 2,720 2,693
Mohegan Tribal Gaming Authority, 8.125%,
01/01/2006 500 488
Mohegan Tribal Gaming Authority, 8.75%,
01/01/2009 2,340 2,305
National Vision Association, Ltd., 12.75%,
10/15/2005 2,640 1,003
Park Place Entertainment, Inc., 7.875%,
12/15/2005 210 200
Perkins Finance, L.P., 10.125%, 12/15/2007 2,680 2,720
Phillips-Van Heusen Corp., 9.50%, 05/01/2008 10 9
Pillowtex Corp., 9.00%, 12/15/2007 60 22
Pillowtex Corp., 10.00%, 11/15/2006 40 14
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Players International, 10.875%, 04/15/2005 $ 795 $ 835
Regal Cinemas, Inc.,
8.875%, 12/15/2010 200 154
9.50%, 06/01/2008 830 674
Restaurant Co., Step-up Coupon, 0% to
05/15/2003, 11.25% to 05/15/2008 820 484
Sealy Mattress Co., Step-up Coupon, 0% to
12/15/2002, 10.875% to 12/15/2007 680 476
Specialty Retailers, Inc., 8.50%, 07/15/2005 290 209
Specialty Retailers, Inc., 9.00%, 07/15/2007 1,340 764
Station Casinos, Inc., 9.75%, 04/15/2007 380 388
Station Casinos, Inc., 10.125%, 03/15/2006 1,400 1,442
-----------------------------------------------------------------------------
43,236
- ------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--.5%
Dyersburg Corp., 9.75%, 09/01/2007 790 316
Jafra Cosmetics International, Inc., 11.75%,
05/01/2008 850 782
Pathmark Stores, Inc., 9.625%, 05/01/2003 305 290
-----------------------------------------------------------------------------
1,388
- ------------------------------------------------------------------------------------------------------------------------
HEALTH--1.8%
ALARIS Medical Systems, Inc., Step-up
Coupon, 0% to 08/01/2003, 11.125% to
08/01/2008 590 245
Abbey Healthcare Group, Inc., 9.50%,
11/01/2002 2,120 2,072
Dade International, Inc., 11.125%, 05/01/06 770 781
MEDIQ, Inc., 11.00%, 06/01/2008 430 142
Magellan Health Services, Inc., 9.00%,
02/15/2008 840 664
Mariner Post-Acute Network, Inc., Step-up
Coupon, 0% to 11/07/2002, 10.50% to
11/01/2007 2,520 38
Mariner Post-Acute Network, Inc., 10.50%,
08/01/2006 1,100 1,034
Vencor, Inc., 9.875%, 05/01/2005* 530 101
-----------------------------------------------------------------------------
5,077
- ------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--24.6%
21st Century Telecom Group, Inc., Step-up
Coupon, 0% to 02/15/2003, 12.25% to
02/15/2008 2,614 1,202
Allegiance Telecom, Inc., Step-up Coupon, 0%
to 02/15/2003, 11.75% to 02/15/2008 1,920 1,344
Allegiance Telecom, Inc., 12.875%,
05/15/2008 1,170 1,305
American Cellular Corp., 10.50%, 05/15/2008 1,520 1,672
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 08/15/2002, 9.27% to 08/15/2007 490 284
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 05/15/2004, 10.80% to 05/15/2009 510 250
Call-Net Enterprises, Inc., Step-up Coupon,
0% to 8/15/2003, 8.94% to 08/15/2008 700 357
Call-Net Enterprises, Inc., 9.375%,
05/15/2009 430 363
Century Communications Corp., 8.375%,
12/15/2007 350 326
Communicacion Cellular, S.A., Step-up
Coupon, 0% to 09/29/2000, 14.125% to
03/01/2005 2,100 1,155
Crown Castle International Corp., Step-up
Coupon, 0% to 11/15/2002, 10.625% to
11/15/2007 3,000 2,220
Crown Castle International Corp., 9.50%,
08/01/2011 1,000 990
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dobson Communication Corp., 11.75%,
04/15/2007 $ 1,010 $ 1,121
Dolphin Telecom, PLC, Step-up Coupon, 0% to
05/15/2004, 14.00% to 05/15/2009 2,000 900
Econophone, Inc., Step-up Coupon, 0% to
02/01/2003, 11.00% to 02/15/2008 350 238
Esprit Telecom Group, PLC, 10.875%,
06/15/2008 430 428
Esprit Telecom Group, PLC, 11.50%,
12/15/2007 2,020 2,035
Global Telesystems Group, 9.875%, 02/15/2005 1,370 1,260
ICG Holdings, Inc., Step-up Coupon, 0% to
09/15/2000, 13.50% to 09/15/2005 3,660 3,148
IPC Communications, Inc., Step-up Coupon, 0%
to 11/01/2001, 10.875% to 05/01/2008 1,610 1,191
Impsat Corp., 12.375%, 06/15/2008 1,945 1,634
Intermedia Communications of Florida, Inc.,
Step-up Coupon, 0% to 05/15/2001, 12.50%
to 05/15/2006 1,220 1,052
Intermedia Communications of Florida, Inc.,
Step-up Coupon, 0% to 07/15/2002, 11.25%
to 07/15/2007 1,720 1,260
KMC Telecom Holdings, Inc., Step-up Coupon,
0% to 02/15/2003, 12.50% to 02/15/2008 2,010 1,045
KMC Telecom Holdings, Inc., 13.50%,
05/15/2009 990 960
Level 3 Communications, Inc., Step-up
Coupon, 0% to 12/01/2003, 10.50% to
12/01/2008 2,750 1,671
Level 3 Communications, Inc., 9.125%,
05/01/08 1,500 1,416
Long Distance Direct Holdings, Inc., 12.25%,
04/15/2008 700 371
MGC Communications, 13.00%, 10/01/2004 1,530 1,499
McLeod USA, Inc., Step-up Coupon, 0% to
03/01/2002, 10.50% to 03/01/2007 1,705 1,373
McLeod USA, Inc., 9.25%, 07/15/2007 710 712
McLeod USA, Inc., 9.50%, 11/01/2008 230 232
MetroNet Communications Corp., Step-up
Coupon, 0% to 06/15/2003, 9.95% to
06/15/2008 1,190 934
MetroNet Communications Corp., Step-up
Coupon, 0% to 11/01/2002, 10.75% to
11/01/2007 410 338
MetroNet Communications Corp., 10.625%,
11/01/2008 700 798
MetroNet Communications Corp., 12.00%,
08/15/2007 360 416
Metromedia Fiber Network, Inc., 10.00%,
12/15/2009 650 657
Netia Holdings, Step-up Coupon, 0% to
11/01/2001, 11.25% to 11/01/2007 2,440 1,525
Netia Holdings, 10.25%, 11/01/2007 2,135 1,815
Nextel Communications, Inc., Step-up Coupon,
0% to 02/15/2003, 9.75% to 02/15/2008 1,445 1,022
Nextel Communications, Inc., Step-up Coupon,
0% to 09/15/2002, 10.65% to 09/15/2007 1,050 790
Nextel Communications, Inc., Step-up Coupon,
0% to 10/31/2002, 9.75% to 10/31/2007 550 396
Nextel Communications, Inc., Step-up Coupon,
0% to 2/15/99, 9.75% to 08/15/2004 3,010 3,115
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nextlink Communications, Inc., Step-up
Coupon, 0% to 04/15/2003, 9.45% to
04/15/2008 $ 530 $ 331
Nextlink Communications, Inc., Step-up
Coupon, 0% to 06/01/2004, 12.25% to
06/01/2009 2,300 1,386
Nextlink Communications, Inc., 10.75%,
11/15/2008 670 683
Nextlink Communications, Inc., 12.50%,
04/15/2006 1,100 1,169
PTC International Finance, Step-up Coupon,
0% to 07/01/2002, 10.75% to 07/01/2007 1,330 878
PTC International Finance, 11.25%,
12/01/2009 240 238
Pinnacle Holdings, Inc., Step-up Coupon, 0%
to 03/15/2003, 10.00% to 03/15/2008 300 186
Price Communications Wireless, 9.125%,
12/15/2006 630 643
Primus Telecommunications Group, 11.25%,
01/15/2009 240 226
Primus Telecommunications Group, 11.75%,
08/01/2004 960 946
Primus Telecommunications Group, 12.75%,
10/15/2009 1,100 1,100
RCN Corp., Step-up Coupon, 0% to 07/01/2003,
11.00% to 07/01/2008 470 304
RCN Corp., 10.00%, 10/15/2007 50 50
Rogers Cantel, 9.75%, 06/01/2016 1,305 1,478
SBA Communications Corp., Step-up Coupon, 0%
to 03/01/2003, 12.00% to 03/01/2008 760 437
Telecorp PCS, Inc., Step-up Coupon, 0% to
04/01/2004, 11.625% to 04/15/2009 370 239
Teligent, Inc., Step-up Coupon, 0% to
03/01/2003, 11.50% to 03/01/2008 1,175 667
Teligent, Inc., 11.50%, 12/01/2007 1,290 1,238
TriTel Pcs, Inc., Step-up Coupon, 0% to
05/15/2004, 12.75% to 05/15/2009 3,080 1,979
Triton Communications, L.L.C., Step-up
Coupon, 0% to 05/01/2003, 11.00% to
05/01/2008 4,280 3,050
U.S. Xchange, L.L.C., 15.00%, 07/01/2008 600 558
USA Mobile Communications Holdings, Inc.,
14.00%, 11/01/2004 690 614
United Pan-Europe Communications, 10.875%,
11/01/2007 500 520
United Pan-Europe Communications, Step-up
Coupon, 0% to 11/01/2004, 13.375%,
11/01/2009 1,120 633
Versatel Telecom, 11.875%, 07/15/2009 280 280
Versatel Telecom, 13.25%, 05/15/2008 500 525
Versatel Telecom, 13.25%, 05/15/2008 260 273
Viatel, Inc., Step-up Coupon, 0% to
04/15/2003, 12.50% to 04/15/2008 1,020 635
Viatel, Inc., 11.25%, 04/15/2008 220 218
Voicestream Wireless Corp., 10.375%,
11/15/2009 1,520 1,573
Winstar Equipment II, 12.50%, 03/15/2004 520 541
-----------------------------------------------------------------------------
70,418
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL--2.4%
Carlyle High Yield Partners, 12.24%,
05/31/2007 $ 2,000 $ 1,990
HMH Properties, 7.875%, 08/01/2008 1,520 1,368
Intertek Finance, PLC, 10.25%, 11/01/2006 1,520 1,440
Kappa Beheer BV, 10.625%, 07/15/2009 550 572
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 07/15/2003, 12.00% to 07/15/2008 2,200 1,276
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 4/15/2004, 11.25% to 04/15/2009 540 281
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 4/15/2004, 11.25% to 04/15/2009 40 21
Spectrasite Holdings, Inc., Step-up Coupon,
0% to 7/15/2003, 12.00% to 07/15/2008 100 58
-----------------------------------------------------------------------------
7,006
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--16.9%
AMFM, Inc., Step-up Coupon, 0% to
02/01/2002, 12.75% to 02/01/2009 1,880 1,654
AMFM, Inc., 8.00%, 11/01/2008 940 948
AMFM, Inc., 9.00%, 10/01/2008 280 293
Adelphia Communications Corp., 7.875%,
05/01/2009 170 155
Adelphia Communications Corp., 8.375%,
11/15/2009 890 888
American Lawyer Media, Inc., Step-up Coupon,
0% to 12/15/2002, 12.25% to 12/15/2008 3,330 2,131
Australis Holdings, Step-up Coupon 0% to
11/01/2000, 15.00% to 11/01/2002* 2,750 28
Australis Holdings, Zero coupon, 11/01/2000* 85 66
Avalon Cable Holdings LLC, Step-up coupon,
0% to 12/01/03, 11.875% to 12/01/2008 910 596
Big Flower Press, 8.875%, 07/01/2007 1,400 1,428
CSC Holdings, Inc., 7.875%, 12/15/2007 100 99
CSC Holdings, Inc., 8.125%, 07/15/2009 185 185
CSC Holdings, Inc., 8.125%, 08/15/2009 450 452
CSC Holdings, Inc., 9.25%, 11/01/2005 250 256
CSC Holdings, Inc., 9.875%, 02/15/2013 840 876
CSC Holdings, Inc., 10.50%, 05/15/2016 1,140 1,237
Chancellor Media Corp., 8.125%, 12/15/2007 810 814
Charter Communication Holdings LLC, Step-up
Coupon, 0% to 04/01/2004, 9.92% to
04/01/2011 3,520 2,121
Charter Communication Holdings LLC, 8.25%,
04/01/2007 2,840 2,680
Comcast Corp., 9.125%, 10/15/2006 820 838
Comcast UK Cable Partners, Ltd., Step-up
Coupon 0% to 11/15/2000, 11.20% to
11/15/2007 3,510 3,247
Diamond Cable Communications, PLC, 13.25%,
09/30/2004 1,115 1,196
Diva Systems Corp., Step-up Coupon, 0% to
03/01/2003, 12.625% to 03/01/2008 650 172
Echostar DBS Corp., 9.25%, 02/01/2006 660 660
Echostar DBS Corp., 9.375%, 02/01/2009 2,300 2,300
Frontiervision, 11.00%, 10/15/2006 840 899
Frontiervision, Step-up Coupon, 0% to
09/15/2001, 11.875% to 09/15/2007 880 763
Interep National Radio Sales, Inc., 10.00%,
07/01/2008 680 663
Metromedia Fiber Network, Inc., 10.00%,
11/15/2008 800 808
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Millicom International Cellular, S.A.,
Step-up Coupon, 0% to 06/01/2001, 13.50%
to 06/01/2006 $ 3,740 $ 2,973
NTL Communications Corp., Step-up Coupon 0%
to 10/01/2003, 12.375% to 10/01/2008 720 493
NTL, Inc., Step-up Coupon, 0% to 02/01/2001,
10.50% to 02/01/2006 320 288
NTL, Inc., 11.50%, 10/01/2008 2,130 2,300
Outdoor Systems, Inc., 8.875%, 06/15/2007 530 546
Outdoor Systems, Inc., 9.375%, 10/15/2006 760 794
Panavision, Inc., Step-up Coupon, 0% to
02/01/2002, 9.625% to 02/01/2006 880 431
Radio Unica Corp., Step-up Coupon, 0% to
08/01/2002, 11.75% to 08/01/2006 770 502
Renaissance Media Group, Step-up Coupon, 0%
to 04/15/2003, 10.00% to 04/15/2008 1,360 938
SFX Entertainment, Inc., 9.125%, 02/01/2008 860 811
SFX Entertainment, Inc., 9.125%, 12/01/2008 830 782
Sinclair Broadcasting Group, Inc., 8.75%,
12/15/2007 1,420 1,314
Star Choice Communications, Inc., 13.00%,
12/15/2005 400 398
TeleWest Communications, PLC, Step-up
Coupon, 0% to 04/15/2004, 9.25% to
04/15/2009 90 57
TeleWest Communications, PLC, Step-up
Coupon, 0% to 10/01/2000, 11.00% to
10/01/2007 4,290 3,958
TeleWest Communications, PLC, 11.25%,
11/01/2008 1,570 1,711
Transwestern Publishing, Step-up Coupon, 0%
to 11/15/2002, 11.875% to 11/15/2008 250 179
Transwestern Publishing, 9.625%, 11/15/2007 500 485
United International Holdings, Step-up
Coupon, 0% to 02/15/2003, 10.75% to
02/15/2008 1,480 925
-----------------------------------------------------------------------------
48,338
- ------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--4.2%
Allied Waste Industries, 7.625%, 01/01/2006 530 481
Buhrmann US, Inc., 12.25%, 11/01/2009 2,020 2,061
Coinmach Corp., 11.75%, 11/15/2005 2,740 2,822
Color Tile, Inc., 10.75%, 12/15/2001 1,260 13
ImPac Group, Inc., 10.125%, 03/15/2008 840 764
Integrated Electrical Services, Inc.,
9.375%, 02/01/2009 1,380 1,352
Kindercare Learning Centers, Inc., 9.50%,
02/15/2009 1,520 1,455
La Petite Academy, Inc., 10.00%, 05/15/2008 2,080 1,539
Spincycle, Inc., Step-up Coupon, 0% to
05/01/2001, 12.750% to 05/01/2005 1,110 167
Verio, Inc., 10.625%, 11/15/2009 970 985
Verio, Inc., 11.25%, 12/01/2008 480 499
-----------------------------------------------------------------------------
12,138
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DURABLES--2.7%
Accuride Corp., 9.25%, 02/01/2008 $ 420 $ 380
Airxcel, 11.00%, 11/15/2007 930 911
DeCrane Aircraft Holdings, Inc., 12.00%,
09/30/2008 1,440 1,325
Fairchild Corp., 10.75%, 04/15/2009 1,480 1,258
Transdigm, Inc., 10.375%, 12/01/2008 1,420 1,274
United Rentals, Inc., 9.25%, 01/15/2009 2,720 2,550
-----------------------------------------------------------------------------
7,698
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--17.4%
Agriculture, Mining and Chemicals, Inc.,
10.75%, 09/30/2003 680 422
American Standard Companies, Inc., 9.25%,
12/01/2016 449 449
Atlantis Group, Inc., 11.00%, 02/15/2003 1,605 1,605
BPC Holdings Corp., 12.50%, 06/15/2006 620 570
Berry Plastics Corp., 12.25%, 04/15/2004 2,900 2,943
Consolidated Container Capital, Inc.,
10.125%, 07/15/2009 340 346
Consumers International, 10.25%, 04/01/2005 2,420 1,912
Day International Group, Inc., 11.125%,
06/01/2005 2,020 2,060
Delco Remy International, 10.625%,
08/01/2006 930 939
Eagle-Picher Holdings, Inc., 9.375%,
03/01/2008 1,750 1,518
Foamex, L.P., 13.50%, 08/15/2005 910 864
Fonda Group, 9.50%, 03/01/2007 1,330 1,111
GS Technologies, 12.00%, 09/01/2004 1,670 969
GS Technologies, 12.25%, 10/01/2005 1,430 786
Gaylord Container Corp., 9.75%, 06/15/2007 2,280 2,172
Gaylord Container Corp., 9.875%, 02/15/2008 2,200 1,919
Graham Packaging Co., Step-up Coupon, 0% to
01/15/2003, 10.75% to 01/15/2009 2,050 1,373
Graham Packaging Co., 8.75%, 01/15/2008 30 29
Grove Holdings LLC, Step-up Coupon, 0% to
05/01/2003, 11.625% to 05/01/2009 170 17
Grove Investors, PIK, 14.50%, 05/01/2010 434 35
Hayes Wheels International, Inc., 11.00%,
07/15/2006 1,340 1,404
Huntsman Package, 11.75%, 12/01/2004 2,030 2,060
Knoll, Inc., 10.875%, 03/15/2006 945 945
Millar Western Forest Products, Ltd.,
9.875%, 05/15/2008 295 294
Motors and Gears, Inc., 10.75%, 11/15/2006 480 463
NL Industries, Inc., Senior Note, 11.75%,
10/15/2003 6,380 6,571
Neenah Corp., Series B, 11.125%, 05/01/2007 130 120
Neenah Corp., Series D, 11.125%, 05/01/2007 540 500
Plainwell, Inc., 11.00%, 03/01/2008 590 342
Printpack, Inc., 9.875%, 08/15/2004 210 208
Printpack, Inc., 10.625%, 08/15/2006 1,020 949
Riverwood International Corp., 10.25%,
04/01/2006 470 481
Riverwood International Corp., 10.625%,
08/01/2007 595 620
Riverwood International Corp., 10.875%,
04/01/2008 4,265 4,265
SF Holdings Group, Inc., Step-up Coupon, 0%
to 03/15/2003, 12.75% to 03/15/2008 1,330 592
Spinnaker Industries, 10.75%, 10/15/2006 1,270 975
Stone Container Corp., 10.75%, 10/01/2002 1,000 1,030
Stone Container Corp., 11.50%, 08/15/2006 920 980
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stone Container Corp., 12.25%, 04/01/2002 $ 550 $ 551
Terex Corp., 8.875%, 04/01/2008 840 794
Terex Corp., Series D, 8.875%, 04/01/2008 660 624
Terra Industries, Inc., 10.50%, 06/15/2005 1,050 651
Texas Petrochemicals, 11.125%, 07/01/2006 900 783
U.S. Can Corp., 10.125%, 10/15/2006 1,250 1,275
Venture Holdings, 11.00%, 06/01/2007 130 125
-----------------------------------------------------------------------------
49,641
- ------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.2%
Cherokee International Corp., 10.50%,
05/01/2009 70 61
PSINet, Inc., 10.00%, 02/15/2005 240 239
PSINet, Inc., 11.00%, 08/01/2009 1,650 1,683
PSINet, Inc., 11.50%, 11/01/2008 770 801
Viasystems, Inc., 9.75%, 06/01/2007 970 543
-----------------------------------------------------------------------------
3,327
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--3.1%
Benton Oil & Gas Co., 11.625%, 05/01/2003 685 486
Continental Resources, Inc., 10.25%,
08/01/2008 990 827
Gulfmark Offshore, Inc., 8.75%, 06/01/2008 390 355
Key Energy Services, Inc., 14.00%,
01/15/2009 420 458
Ocean Energy, Inc., 8.875%, 07/15/2007 1,020 1,028
Ocean Energy, Inc., 9.75%, 10/01/2006 1,950 2,125
Ocean Energy, Inc., 10.375%, 10/15/2005 845 913
Pen Holdings, Inc., 9.875%, 06/15/2008 110 104
Pride International, Inc., 10.00%,
06/01/2009 470 479
R&B Falcon Corp., 9.50%, 12/15/2008 1,290 1,283
R&B Falcon Corp., 11.00%, 03/15/2006 260 279
RAM Energy, 11.50%, 02/15/2008 300 135
Stone Energy Corp., 8.75%, 09/15/2007 540 535
-----------------------------------------------------------------------------
9,007
- ------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--2.4%
Euramax International, PLC, 11.25%,
10/01/2006 955 964
MMI Products, Inc., 11.25%, 04/15/2007 1,355 1,396
Metal Management, Inc., 10.00%, 05/15/2008 960 701
Metals USA, Inc., 8.625%, 02/15/2008 400 368
Renco Steel Holdings Co., Series B, 10.875%,
02/01/2005 1,420 1,179
Republic Tech International, 13.75%,
07/15/2009 1,920 1,344
Wells Aluminum Corp., 10.125%, 06/01/2005 800 770
-----------------------------------------------------------------------------
6,722
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSTRUCTION--4.1%
Building Materials Corp., 8.00%, 12/01/2008 $ 1,040 $ 949
Congoleum Corp., 8.625%, 08/01/2008 710 623
Del Webb Corp., 9.75%, 01/15/2008 460 423
Dimac Corp., 12.50%, 10/01/2008 1,420 639
Forecast Group, L.P., 11.375%, 12/15/2000 820 814
Fortress Group, 13.75%, 05/15/2003 710 353
Hovnanian Enterprises, Inc., 9.125%,
05/01/2009 650 611
Hovnanian Enterprises, Inc., 9.75%,
06/01/2005 2,140 2,033
Kevco, Inc., 10.375%, 12/01/2007 690 186
Nortek, Inc., 9.125%, 09/01/2007 640 624
Nortek, Inc., 9.875%, 03/01/2004 2,190 2,163
Nortek, Inc., Series A, 8.875%, 08/01/2008 280 267
Ryland Group, Inc., 8.25%, 04/01/2008 640 569
Standard Pacific Corp., 8.00%, 02/15/2008 190 169
Standard Pacific Corp., 8.50%, 04/01/2009 290 267
Toll Corp., 8.00%, 05/01/2009 100 92
Toll Corp., 7.75%, 09/15/2007 150 136
Toll Corp., 8.75%, 11/15/2006 130 126
U.S. Home Corp., 8.875%, 02/15/2009 760 673
-----------------------------------------------------------------------------
11,717
- ------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.3%
Petro Stopping Centers, 10.50%, 02/01/2007 1,490 1,378
TFM, S.A. de C.V., 10.25%, 06/15/2007 710 650
Trans World Airlines, Inc., 11.375%,
03/01/2006 520 223
Transtar Holdings, Inc., Step-up Coupon, 0%
to 12/15/99, 13.375% to 12/15/2003 3,030 3,060
Travelcenters America, 10.25%, 04/01/2007 1,220 1,196
-----------------------------------------------------------------------------
6,507
-----------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $310,996) 282,220
-----------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--.9% NUMBER OF SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--.3%
Dobson Communications, PIK, preferred 212 220
21st Century Telecom Group, Inc., preferred 149 74
Nextel Communications, Inc., PIK, preferred 562 562
-----------------------------------------------------------------------------
856
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--.2%
Crown American Realty Trust, preferred 15,500 605
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--.3%
Sinclair Capital, preferred 9,500 945
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--.1%
Clark USA, PIK, preferred 1,867 65
-----------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $2,799) 2,471
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OTHER--.4% NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMUNICATIONS--.4% 21st Century Telecom Group, Inc., Warrants* 120 $ 12
Benedek Communications Corp., Warrants* 5,000 10
Communicacion Cellular, S.A., Warrants* 2,000 100
Econophone, Inc., Warrants* 830 125
Intelcom Group, Inc., Warrants* 4,950 89
Intermedia Communications of Florida, Inc.,
Warrants* 1,500 150
KMC Telecom Holdings, Inc., Warrants* 1,240 5
Long Distance Direct Holdings, Inc.,
Warrants* 700 1
MGC Communications* 4,474 176
MetroNet Communications Corp., Warrants* 360 31
Primus Telecommunications Group, Warrants* 600 18
Tele1 Europe BV, Warrants* 1,000 85
Versatel Telecom, Warrants* 760 220
-----------------------------------------------------------------------------
1,022
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL--.0% Ono Finance PLC, Warrants* 1,380 83
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
MEDIA--.0% Diva Systems Corp., Warrants* 1,950 16
Star Choice Communications, Inc., Warrants* 9,264 23
UIH Australia Pacific, Inc., Warrants* 710 21
-----------------------------------------------------------------------------
60
- ------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--.0% Gaylord Container Corp.* 9,825 61
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
ENERGY--.0% Key Energy Services, Inc., Warrants* 420 11
-----------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--.0% Bar Technologies, Warrants* 880 18
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--.0% Waxman Industries, Inc., Warrants* 55,106 1
Capital Pacific Holdings, Warrants* 3,634 2
-----------------------------------------------------------------------------
3
-----------------------------------------------------------------------------
TOTAL OTHER
(Cost $480) 1,258
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $314,275) (a) $285,949
-----------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
-------------------------------------------------------------------------------
* 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.
(a) The cost for federal income tax purposes was $314,665. At November 30,
1999, net unrealized depreciation for all securities based on tax cost was
$28,716. This consists of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$4,593 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $33,309.
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments in securities, at value (Cost $314,275) $285,949
- ------------------------------------------------------------------------
Receivable for investments sold 805
- ------------------------------------------------------------------------
Dividends receivable 28
- ------------------------------------------------------------------------
Interest receivable 6,112
- ------------------------------------------------------------------------
Other assets 9
- ------------------------------------------------------------------------
TOTAL ASSETS 292,903
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Due to custodian bank 204
- ------------------------------------------------------------------------
Notes payable 55,000
- ------------------------------------------------------------------------
Interest payable 159
- ------------------------------------------------------------------------
Accrued management fee 143
- ------------------------------------------------------------------------
Other accrued expenses 67
- ------------------------------------------------------------------------
TOTAL LIABILITIES 55,573
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $237,330
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income $ 2,264
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investment securities (28,326)
- ------------------------------------------------------------------------
Accumulated net realized gain (loss) (29,057)
- ------------------------------------------------------------------------
Paid-in capital 292,449
- ------------------------------------------------------------------------
NET ASSETS, AT VALUE $237,330
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($237,330 / 30,079 outstanding shares of beneficial
interest, $.01 par value) $7.89
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------
Dividends $ 294
- ------------------------------------------------------------------------
Interest 31,344
- ------------------------------------------------------------------------
TOTAL INCOME 31,638
- ------------------------------------------------------------------------
Expenses:
Management fee 1,993
- ------------------------------------------------------------------------
Services to shareholders 93
- ------------------------------------------------------------------------
Custodian fees 30
- ------------------------------------------------------------------------
Auditing 43
- ------------------------------------------------------------------------
Legal 364
- ------------------------------------------------------------------------
Trustees' fees and expenses 26
- ------------------------------------------------------------------------
Reports to shareholders 277
- ------------------------------------------------------------------------
Registration fees 22
- ------------------------------------------------------------------------
Interest expense 2,441
- ------------------------------------------------------------------------
Other 141
- ------------------------------------------------------------------------
Total expenses, before expense reductions 5,430
- ------------------------------------------------------------------------
Expense reductions (14)
- ------------------------------------------------------------------------
Total expenses, after expense reductions 5,416
- ------------------------------------------------------------------------
NET INVESTMENT INCOME 26,222
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (3,995)
- ------------------------------------------------------------------------
Futures 13
- ------------------------------------------------------------------------
(3,982)
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (22,749)
- ------------------------------------------------------------------------
Net gain (loss) on investment transactions (26,731)
- ------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (509)
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------
Net investment income $ 26,222 $ 22,052
- --------------------------------------------------------------------------------------------
Net realized gain (loss) (3,982) 3,290
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transactions during the period (22,749) (15,902)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (509) 9,440
- --------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (25,466) (21,509)
- --------------------------------------------------------------------------------------------
Fund share transactions:
Net proceeds of shares issued in connection with the Funds'
rights offering, net of broker and dealer manager fees of
$1,832 47,017 --
- --------------------------------------------------------------------------------------------
Reinvestment of distributions 2,393 3,045
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 49,410 3,045
- --------------------------------------------------------------------------------------------
Increase (decrease) in net assets 23,435 (9,024)
- --------------------------------------------------------------------------------------------
Net assets at beginning of period 213,895 222,919
- --------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of
$2,264 and $1,521, respectively) $237,330 $213,895
- --------------------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 23,919 23,613
- --------------------------------------------------------------------------------------------
Shares issued in connection with Fund's rights offering 5,885 --
- --------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of dividends 275 306
- --------------------------------------------------------------------------------------------
Net increase in Fund shares 6,160 306
- --------------------------------------------------------------------------------------------
Shares outstanding at end of period 30,079 23,919
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 23
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
Year ended November 30, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- -------------------------------------------------------------------------
Investment income received $ 21,984
- -------------------------------------------------------------------------
Payment of operating expenses (5,409)
- -------------------------------------------------------------------------
Payment of interest expenses 115
- -------------------------------------------------------------------------
Proceeds from sales and maturities of investments 134,010
- -------------------------------------------------------------------------
Purchases of investments (209,342)
- -------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (58,642)
- -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- -------------------------------------------------------------------------
Subscriptions from Fund share activity 47,017
- -------------------------------------------------------------------------
Distributions paid (net of reinvestment of dividends) (23,073)
- -------------------------------------------------------------------------
Net increase of loan principal 35,000
- -------------------------------------------------------------------------
Cash provided by financing activities 58,944
- -------------------------------------------------------------------------
Increase in cash 302
- -------------------------------------------------------------------------
Cash at beginning of period (506)
- -------------------------------------------------------------------------
CASH OVERDRAFT AT END OF PERIOD $ (204)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
RECONCILIATION OF NET DECREASE IN NET ASSETS USED IN OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES
- -------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (509)
- -------------------------------------------------------------------------
Net increase in investments (57,172)
- -------------------------------------------------------------------------
Increase in dividend and interest receivable (1,420)
- -------------------------------------------------------------------------
Decrease in receivable for investments sold 4,818
- -------------------------------------------------------------------------
Increase in interest payable 115
- -------------------------------------------------------------------------
Decrease in payable for investments purchased (4,472)
- -------------------------------------------------------------------------
Decrease in accrued expenses and payables (2)
- -------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES $ (58,642)
- -------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
FINANCIAL HIGHLIGHTS
The following includes selected data for a share outstanding throughout each
period and other performance information derived from the financial statements
and market price data.
<TABLE>
<CAPTION>
----------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $8.94 9.44 9.20 8.73 8.33
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .95(a) .92 .91 .91 .91
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.96) (.52) .23 .46 .39
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .40 1.14 1.37 1.30
- -------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (.92) (.90) (.90) (.90) (.90)
- -------------------------------------------------------------------------------------------------------------------
Dilution resulting from the rights offering at market value
(b) (.12) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $7.89 8.94 9.44 9.20 8.73
- -------------------------------------------------------------------------------------------------------------------
Market value, end of year $8.63 9.88 10.19 10.00 9.50
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN
- -------------------------------------------------------------------------------------------------------------------
Based on net asset value (%) (1.86)(b) 4.38 12.99 16.56 16.30
- -------------------------------------------------------------------------------------------------------------------
Based on market value (%) (2.87)(b) 6.50 11.98 16.12 25.81
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 237,330 213,895 222,919 214,649 200,502
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses excluding interest expense (%) 1.28 .99 1.01 1.00 1.18
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.32 1.55 1.56 1.59 1.52
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.32 1.55 1.56 1.59 1.52
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 11.21 10.01 9.84 10.33 10.64
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 45 83 79 74 85
- -------------------------------------------------------------------------------------------------------------------
Total debt outstanding at end of year ($ thousands) 55,000 20,000 20,000 20,000 20,000
- -------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 of debt $ 5,315 11,700 12,100 11,700 11,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestments 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.
(a) Based on monthly average shares outstanding during the period.
(b) During the year ended November 30, 1999, the fund issued 5,885,381 shares in
connection with a rights offering of the Fund's shares. Without the effect
of the dilution, total return for the net asset value and the market value
would have been .51 and -1.50, respectively.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper High Income Trust (the "Fund") is registered
under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a closed-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, whose 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. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the period, the Fund
purchased interest rate futures to manage the
duration of the portfolio.
Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the Fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction,
the Fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the Fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
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, 1999, the fund had a net tax basis
capital loss carryforward of approximately
$28,584,000 which may be applied against any
realized net taxable gains of each succeeding year
until fully utilized or until November 30, 2000
($10,248,000), November 30, 2002 ($8,767,000),
November 30, 2003 ($5,908,000), November 30, 2005
($152,000) and November 30, 2007 ($3,509,000), the
expiration dates, which ever occurs first. In
addition, from November 1, 1999 through November
30, 1999 the fund incurred approximately $83,000 of
net realized capital losses. As permitted by tax
regulations, the fund intends to defer these losses
and treat them as arising in the fiscal year ended
November 30, 2000.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made monthly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
STATEMENT OF CASH FLOWS. Information of financial
transactions which have been settled through the
receipt and disbursement of cash is presented in
the Statement of Cash Flows. The cash amount shown
in the statement of cash flows is the amount
reported as due to custodian bank in the Fund's
Statement of Assets and Liabilities and represents
the cash position in its custodian bank at
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
November 30, 1999. Significant non-cash activity
from market discount accretion has been excluded
from the Statement of Cash Flows.
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.
RIGHTS OFFERING. During the year ended November 30,
1999, the Fund issued 5,885,381 shares in
connection with the rights offering of the Fund's
shares. Shareholders of record on March 23, 1999
were issued one transferable right for each share
owned. The rights entitled shareholders the
opportunity to purchase one share of common stock
for each three rights held at a subscription price
of $8.30 per share. Rights offering costs were
approximately $500,000 and broker and dealer
manager fees were $1,831,825. The net asset value
per share of the Fund's common shareholders was
reduced by approximately $.12 per shares as a
result of the share issuance.
- --------------------------------------------------------------------------------
2
INVESTMENT
TRANSACTIONS For the year ended November 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $204,888
Proceeds from sales 129,192
- --------------------------------------------------------------------------------
3
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 $1,993,000 for the year ended
November 30, 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 $36,000
for the year ended November 30, 1999.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the year ended November 30,
1999, the Fund made no payments to its officers and
incurred trustees' fees of $26,000 to independent
trustees.
- --------------------------------------------------------------------------------
4
NOTES PAYABLE The notes payable represents loans of $55,000,000
from Bank of America and State Street Bank and
Trust Company at November 30, 1999. The notes bear
interest at the London Interbank Offered Rate plus
.45% (6.49% at November 30, 1999) which is payable
quarterly. The loan amounts and rates are reset
periodically under a credit facility which is
available until April 1, 2002. The weighted average
outstanding daily balance of all loans (based on
the number of days the loans were outstanding)
during the period ended November 30, 1999 was
$50,117,500 with a weighted average interest rate
of 5.72%.
- --------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into an arrangement with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees were reduced by $14,000,
under this arrangement.
27
<PAGE> 28
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, 1999, 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 cash flows for the year then ended, and the financial highlights for each of
the fiscal periods since 1995. 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 auditing standards generally
accepted in the United States. 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, 1999, by correspondence with the custodian. 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, 1999, 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, its cash flows for the year then ended and the financial
highlights for each of the fiscal periods since 1995, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
January 21, 2000
28
<PAGE> 29
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment and Cash Purchase Plan (the
"Plan") which is available to you as a shareholder
of KEMPER HIGH INCOME TRUST (the "Fund"). If you
wish to participate and your shares are held in
your own name, simply contact Kemper Service
Company, whose address and phone number are
provided in Paragraph 4 for the appropriate form.
If your shares are held in the name of a brokerage
firm, bank, or other nominee, you must instruct
that nominee to re-register your shares in your
name so that you may participate in the Plan,
unless your nominee has made the Plan available on
shares held by them. Shareholders who so elect will
be deemed to have appointed United Missouri Bank,
n.a. ("UMB") as their agent and as agent for the
fund under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the fund registered in the participant's name on
the books of the fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account; and (c) voluntary cash
contributions made pursuant to Paragraph 5 hereof.
Sources described in clauses (a) and (b) of the
preceding sentence are hereinafter called
"Distributions."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS
HELD IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
All cash contributions to a participant's Account
made pursuant to Paragraph 5 hereof will be
invested in Shares purchased in the open market.
- --------------------------------------------------------------------------------
4 ADDITIONAL
INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 219066
Kansas City, Missouri 64121-6066
1-800-294-4366
29
<PAGE> 30
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 VOLUNTARY CASH
CONTRIBUTIONS A participant may from time to time make voluntary
cash contributions to his Account by sending to
Agent a check or money order, payable to Agent, in
a minimum amount of $100 with appropriate
accompanying instructions. (No more than $500 may
be contributed per month.) Agent will inform UMB of
the total funds available for the purchase of
Shares and UMB will use the funds to purchase
additional Shares for the participant's account the
earlier of: (a) when it next purchases Shares as a
result of a Distribution or (b) on or shortly after
the first day of each month and in no event more
than thirty days after such date except when
temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of
Federal securities laws. Cash contributions
received more than fifteen calendar days or less
than five calendar days prior to a Payment Date
will be returned uninvested. Interest will not be
paid on any uninvested cash contributions.
Participants making voluntary cash investments will
be charged a $.75 service fee for each such
investment and will be responsible for their pro
rata brokerage commissions.
- --------------------------------------------------------------------------------
6 ADJUSTMENT OF
PURCHASE PRICE The fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
7 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 8 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
8 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions
as well as from voluntary cash contributions. With
respect to purchases from voluntary cash
contributions, UMB will charge a pro rata share of
the brokerage commissions. Brokerage charges for
purchasing small amounts of Shares for individual
Accounts through the Plan can be expected to be
less than the usual brokerage charges for such
transactions, as UMB will be purchasing Shares for
all participants in blocks and prorating the lower
commission thus attainable.
- --------------------------------------------------------------------------------
9 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraphs 5 and 13
hereof. However, the fund reserves the right to
amend the Plan in the future to include a service
charge.
30
<PAGE> 31
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
10 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
11 SHARES NOT HELD IN
SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
12 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
- --------------------------------------------------------------------------------
13 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 12 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will modify 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.
31
<PAGE> 32
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on July 14, 1999, for Kemper High
Income Trust. Shareholders were asked to vote on two separate issues: election
of members to the Board of Trustees, and ratification of Ernst & Young LLP as
independent auditors. The following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 25,667,580 605,023
James R. Edgar 25,721,770 550,833
Arthur R. Gottschalk 25,752,529 520,074
Frederick T. Kelsey 25,814,493 458,110
Thomas W. Littauer 25,821,079 451,524
Fred B. Renwick 25,848,557 424,046
John G. Weithers 25,855,621 416,982
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
25,876,177 124,657 271,768
</TABLE>
32
<PAGE> 33
NOTES
33
<PAGE> 34
NOTES
34
<PAGE> 35
NOTES
35
<PAGE> 36
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY HARRY E. RESIS, JR.
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
THOMAS W. LITTAUER BRENDA LYONS
Trustee and Vice President MICHAEL A. MCNAMARA Assistant Treasurer
Vice President
FRED B. RENWICK
Trustee ROBERT C. PECK, JR.
Vice President
JOHN G. WEITHERS
Trustee KATHRYN L. QUIRK
Vice President
................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
................................................................................
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 219066
Kansas City, MO 64121
................................................................................
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
................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
[KEMPER FUNDS LOGO]
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