<PAGE> 1
KEMPER MULTI-MARKET
INCOME TRUST
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED MAY 31, 1996
"We enhanced performance primarily by reducing our exposure to the government
market and adding high yield and foreign currency bond investments."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
5
Management Team
6
Performance Update
8
Portfolio Statistics
10
Portfolio of
Investments
17
Financial Statements
19
Notes to
Financial Statements
22
Financial Highlights
At A Glance
- -------------------------------------------------
Total Returns
- -------------------------------------------------
For the six-month period ended May 31, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------
<S> <C> <C>
KEMPER MULTI-MARKET
INCOME TRUST 2.81% 5.42%
- -------------------------------------------------
</TABLE>
- -------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
5/31/96 11/30/95
- -------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $10.63 $10.90
- -------------------------------------------------
MARKET PRICE $10.75 $10.75
- -------------------------------------------------
</TABLE>
- -------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------
The following table shows per share dividend
information for the fund as of May 31, 1996.
<TABLE>
<S> <C>
- -------------------------------------------------
SIX-MONTH INCOME: $0.5725
- -------------------------------------------------
MAY DIVIDEND: $0.0825
- -------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 9.31%
- -------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 9.21%
- -------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of market price/net asset value on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change in
net asset value/market price assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
Terms To Know
BOND RALLY A sharp, short-lived rise in bond values after a period of either
little movement or falling values.
EMERGING MARKETS A developing or emerging country can be considered to be a
country that is in the initial stages of its industrial cycle. Developing or
"emerging" markets involve exposure to economic structures that are generally
less diverse and mature than in the United States and to political systems that
may be less stable.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for a specified period, assuming the
reinvestment of all dividends. It represents the aggregate percentage change in
the value of an investment in the fund over the period. Total returns may be
based upon net asset value or market price.
VOLATILITY The characteristic of an investment that causes it to rise or fall
sharply in price in a relatively short time period.
<PAGE> 3
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $78 BILLION IN ASSETS, INCLUDING $45 BILLION
IN RETAIL MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN
M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
The first six months of 1996 have provided a few surprises. As the year began,
most of us expected sluggish economic and corporate growth -- which the Federal
Reserve Board would address by reducing short-term interest rates. Yet, what we
experienced was stronger-than-anticipated economic growth, better corporate
earnings and rising interest rates. Although such surprises unsettled the bond
market, the stock market has followed a spectacular 1995 with strength so far
this year.
Where is the economy headed now? Its direction is even less predictable as we
draw nearer to the November elections. Half of the country's leading economists
are forecasting 3 percent growth while an equal number are looking for no better
than 1 percent growth. At Kemper Funds, we suspect that the economy is growing
at a subpar rate of 2 percent. Although commodity prices may suggest otherwise,
we think inflation is holding at less than 3 percent. We see no reason to expect
the Fed to reduce rates to stimulate growth but neither is it likely to raise
rates significantly to control growth. In an environment of stable or gently
rising rates, we would expect corporate earnings to grow at a rate of about 7 to
8 percent -- that's somewhat higher than we believed likely at the start of the
year.
Our forecast calls for a generally comfortable environment for investors. But
both the economy and the general direction of the markets are due for a
reversal. In July, the U.S. economy entered its 64th month of consecutive
growth. This is the longest expansion without a single quarter of negative
output growth since George Washington was president. Today's bull market started
in October 1990, which makes it one of the longest running bull markets in
history. By virtue of its length alone, the stock market is vulnerable to a
correction.
As expected, volatility has returned to the market this year. For example: The
stock market's performance on March 8, the date that a surprisingly strong
employment report was released, betrayed some level of investor skittishness.
But while the Standard & Poor's lost 3.1 percent that day, it quickly regained
the ground and moved higher.
CONSUMERS AND JOB SECURITY
The restructuring of corporate America, which is generally credited for its
improved profitability, has been an important influence on the consumer.
Economic growth is heavily dependent upon consumer spending which, in turn, is
a function of inflation, pay raises and fear of job loss. While the first two
have not been a recent concern, fear of losing one's job has dampened consumer
confidence.
Such anxiety in the workplace was the subject of a recent study by the
Council of Economic Advisors. According to that report, more than two-thirds
of the new jobs created in the United States in 1994 and 1995 paid better than
the average job. The report found that the rate at which jobs were eliminated
has risen slightly despite strong economic growth of recent years -- however, it
reported that the length of time most workers spent unemployed has declined.
The graph below tracks Bureau of Labor Statistics data that show the
recent relationship between number of jobs created versus the number of jobs
lost.
[LINE GRAPH]
<TABLE>
<CAPTION>
Jobs Created Jobs Lost
<S> <C> <C>
12/31/91 (300,000) 40,000
12/31/92 120,000 (30,000)
12/31/93 300,000 70,000
12/31/94 180,000 70,000
12/31/95 (80,000) (40,000)
3/31/96 490,000 (10,000)
</TABLE>
SOURCE: BUREAU OF LABOR STATISTICS
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
Economic activity is a key influence on investment performance and
shareholder decision-making. Periods of recession or boom, inflation or
deflation, credit expansion or credit crunch have a significant impact on
mutual fund performance.
The following are some significant economic guideposts and their investment
rationale that may help your investment decision-making. The 10-year Treasury
rate and the prime rate are prevailing interest rates. The other data report
year-to-year percentage changes.
<TABLE>
<CAPTION>
Now (5/31/96) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.74 5.71 6.17 7.10
Prime rate(2) 8.25 8.63 9.00 7.25
Inflation rate(3) 2.96 2.60 3.04 2.56
The U.S. dollar(4) 8.51 -2.58 -9.31 0.51
Capital
goods orders(5) 2.93 11.03 12.98 25.11
Industrial production(6) 3.26 1.08 2.80 6.61
Employment growth(7) 2.00 1.92 2.71 3.12
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years, infla-
tion has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters
and the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
Source: Economics Department, Zurich Kemper Investments, Inc.
Such ebb and flow is to be expected in investing, especially at this point in
the cycle. Attempting to "prepare" for a correction is futile, we believe. Those
whose caution caused them to excuse themselves from the market early this year,
for example, would have forgone its significant gain year to date.
Several opportunities exist today for the careful investor. First, having
settled down some from a raucous 1995, the technology sector continues to enjoy
the product and market demand that make it the dominant sector of the 1990s.
Second, equity investors willing to look overseas may find opportunities in
countries whose economies today are at a point where the U.S. economy was in
1995. Our forecast assumes that strength in foreign markets could boost those
countries' currencies, which would weaken the value of the dollar.
We expect the fixed-income markets to continue to be sensitive to interest
rate and inflation news. However, for as long as economic growth is positive and
earnings are growing, we believe the high-yield market is one market segment
that has significant potential.
Finally, we look for political activity to have less and less bearing on the
markets' performance. Although they may continue to debate tax reform,
federal budget deficit reduction and health care reform, the incumbent
legislators are running out of time to take action before the November
elections. If there is any suspense by November, it is likely to be in whether
the Republicans can retain control of Congress. Their success would make a
balanced budget and tax reform likely agenda topics for 1997.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
ZURICH KEMPER INVESTMENTS, INC.
July 2, 1996
4
<PAGE> 5
MANAGEMENT TEAM
KEMPER MULTI-MARKET INCOME TRUST
PORTFOLIO MANAGEMENT TEAM
[BEIMFORD PHOTO]
J. PATRICK BEIMFORD, JR. JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1976
AND IS EXECUTIVE VICE PRESIDENT AND CHIEF INVESTMENT OFFICER FOR FIXED INCOME
INVESTMENTS. BEIMFORD IS ALSO A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF
KEMPER MULTI-MARKET INCOME TRUST. HE RECEIVED A BACHELOR OF SCIENCE AND
INDUSTRIAL MANAGEMENT DEGREE FROM PURDUE UNIVERSITY AND EARNED AN M.B.A. FROM
THE UNIVERSITY OF CHICAGO.
[CESSINE PHOTO]
ROBERT CESSINE IS A SENIOR VICE PRESIDENT OF ZKI AND A VICE PRESIDENT AND
PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME TRUST. HE JOINED THE COMPANY
IN 1993. CESSINE RECEIVED BOTH HIS B.S. AND M.S. FROM THE UNIVERSITY OF
WISCONSIN.
[JOHNS PHOTO]
GORDON JOHNS JOINED ZKI IN 1988 AND IS AN EXECUTIVE VICE PRESIDENT OF ZKI, THE
MANAGING DIRECTOR OF ZURICH INVESTMENT MANAGEMENT LIMITED, LONDON AND A VICE
PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME TRUST. JOHNS
GRADUATED FROM BALLIOL COLLEGE, OXFORD, WITH A B.A. IN LAW.
[MCNAMARA PHOTO]
MIKE MCNAMARA HAS BEEN WITH ZKI SINCE 1972 AND IS SENIOR VICE PRESIDENT OF ZKI
AND A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME
TRUST. MCNAMARA GRADUATED WITH A B.S. IN BUSINESS ADMINISTRATION FROM THE
UNIVERSITY OF MISSOURI AND EARNED AN M.B.A. FROM LOYOLA UNIVERSITY.
[RESIS PHOTO]
HARRY RESIS IS A SENIOR VICE PRESIDENT WITH ZKI. HE JOINED THE COMPANY IN 1988
AND IS A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME
TRUST. RESIS RECEIVED A B.A. IN FINANCE FROM MICHIGAN STATE UNIVERSITY.
[TRUTTER PHOTO]
JONATHAN TRUTTER HAS BEEN WITH ZKI SINCE 1989. HE IS A FIRST VICE PRESIDENT OF
ZKI AND A VICE PRESIDENT AND PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME
TRUST. TRUTTER RECEIVED A BACHELOR'S DEGREE WITH DUAL MAJORS IN EAST ASIAN
LANGUAGES AND INTERNATIONAL RELATIONS FROM THE UNIVERSITY OF SOUTHERN
CALIFORNIA. HE EARNED A MASTER'S OF MANAGEMENT DEGREE FROM KELLOGG GRADUATE
SCHOOL OF BUSINESS AT NORTHWESTERN UNIVERSITY.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGEMENT
TEAM ONLY THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER.
THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND
OTHER CONDITIONS.
5
<PAGE> 6
PERFORMANCE UPDATE
THE PORTFOLIO MANAGEMENT TEAM OF KEMPER MULTI-MARKET INCOME TRUST EXPLAINS ITS
BULLISHNESS ON THE ECONOMY AT THE START OF THE YEAR AND HOW A SHIFT IN INTEREST
RATES IMPACTED THE FUND'S PERFORMANCE AND ITS INVESTMENT STRATEGY.
Q. AT THE START OF THE FUND'S FISCAL YEAR, DECEMBER 1, 1995, INTEREST
RATES WERE FALLING, YET EARLY IN MID-JANUARY RATES BEGAN TO RISE AND CONTINUED
TO DO SO THROUGH THE END OF THE PERIOD, MAY 31, 1996. WHAT CAUSED THIS SHIFT
IN INTEREST RATE DIRECTION?
A. Rates reversed direction as expectations for the pace of economic
growth shifted. At the start of the fiscal year, in December 1995, bond
investors were optimistic about the market. It was expected that the economy
would continue to grow slowly, inflation would remain low, and that the Federal
Reserve Board (the Fed) would lower short-term interest rates. The market was
also hopeful, at that point, that the negotiations underway in Washington D.C.
would soon lead to a balanced budget agreement with a solid plan for reducing
the federal budget deficit. All of these events were positive for fixed-income
investments because they supported a slow-growth, benign inflation environment.
Economic growth continued to falter through the end of the year and the
market rallied as investors speculated that more interest rate reductions would
be forthcoming. The Federal Reserve Board moved in December 1995, and in January
1996, to lower interest rates. These cuts fueled higher market prices.
In February 1996, political and economic events caused investors to
re-evaluate whether the economy could continue on its slow growth, low inflation
path. Federal budget negotiations stalled, and an impasse developed which
effectively eliminated the chances for a balanced budget during the first
quarter of 1996. Additionally, columnist and presidential candidate Patrick
Buchanan's strong early showing in the Republican primaries caused concern as
the market viewed many of his proposals to be potentially inflationary.
Finally, in his testimony before Congress, Fed Chairman Alan Greenspan
intimated that the pace of economic growth was improving. This caused some
investors to conclude that another reduction in interest rates was not
imminent. These events prompted investors to sell, and interest rates rose.
However, the most dramatic rise in market rates during the period
occurred in early March, when the U.S. Department of Labor announced an
unanticipated and significant increase in employment growth. Many bond
investors saw this data as evidence that the economy was gaining more momentum
than previously anticipated. The news caused a sell-off in the market because
more rapid economic growth is associated with higher inflation, which erodes
the value of fixed-income investments. Rates continued to rise in March and
then stabilized in April.
Q. HOW WAS THE FUND'S PERFORMANCE IMPACTED BY THE SHIFT IN INTEREST RATES?
A. The shift in rates hurt the fund's performance somewhat, but we were
still able to outperform the average of our peers for the six-month period.
Here's how we adjusted the portfolio to compensate for the higher interest
rate environment.
In December and January, the fund performed quite well -- a result of
our relatively long duration. We anticipated that rates would fall so we had
extended duration beyond the average of our peers. Duration is a measurement of
a fund's sensitivity to interest rates. The longer the duration, the more
sensitive it is to interest rate changes. This means that as interest rates were
falling, the portfolio's longer duration enabled the fund to gain more than it
could have with a shorter duration.
We entered 1996 with a fairly long duration of 6.9 years. However,
mid-way through January we shortened duration as we did not believe that the
decline in interest rates could continue. We positioned the fund for a more
stable interest rate environment and by the end of February, duration was 6.1
years. Unfortunately, the fund's still longer than average duration hurt
returns in February as interest rates rose. By the end of March we had pulled
the fund's duration in to 4.1 years. In April, rates began to stabilize so we
increased duration slightly to a market neutral position -- or where most of
our peers were situated. We plan to maintain the fund's neutral duration until
the direction of rates becomes more clear.
Q. WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO REDUCE
DURATION?
A. We shortened duration and enhanced performance primarily by reducing
our exposure to the government market and adding high yield and foreign
currency bond investments.
6
<PAGE> 7
PERFORMANCE UPDATE
The most dramatic adjustment that we made was to reduce our holdings in
Treasuries to 4 percent on May 31, from 21 percent on November 30. As interest
rates fell, Treasuries offered a great deal of price appreciation potential. Our
heavy weighting in Treasuries in late 1995 enabled us to capture significant
price gains as interest rates dropped in December. However, as rates began to
rise, Treasuries became less appealing because they no longer offered the upside
for price appreciation. In January 1996, we began selling Treasuries to reduce
the fund's duration.
Q. WHAT WAS THE BENEFIT OF ADDING HIGH YIELD AND FOREIGN CURRENCY BONDS AS
INTEREST RATES BACKED-UP?
A. The benefit was that both the high yield and foreign currency sectors
performed well while other sectors struggled during a volatile period for the
broader bond market.
The reason? High yield bonds tend to be less negatively affected by a
stronger economy than other fixed-income securities. As we discussed, the rise
in interest rates was the outcome of stronger economic data. When the economy
grows, credit quality becomes less of a concern to investors in high yield
corporate bonds. A stronger economy assumes that more growth in corporate
earnings will occur. And solid earnings are essential for companies to continue
servicing their outstanding bond issues. Although we generally keep
approximately 25-30 percent of the fund invested in high yield bonds, we felt
that it made sense to increase this exposure as signs of growth surfaced. We
increased the weighting to 36 percent of investments on May 31. Our instinct was
correct and our high yield bond returns helped mitigate a portion of the losses
incurred by some of the fund's other sectors.
We were also optimistic about foreign currency bonds for two reasons.
First, foreign markets tend to follow a similar economic cycle as the U.S.
However, economic cycles abroad have historically tended to lag the U.S. As
such, we felt it was likely that foreign markets would begin to experience the
slow economic growth and declining interest rate environment that characterized
the U.S. in 1995. As witnessed by U.S. fixed-income returns in 1995, that type
of economy is positive for bond investments. The second reason was that in
December 1995, the fund began the use of limited hedging for the foreign
currency allocation. By hedging the foreign currencies back to the dollar, we
were able to reduce some of the currency risk involved with foreign non-dollar
investments. By May 31, approximately 71 percent of the foreign currency
allocation was hedged back to the dollar, which enabled the fund to participate
in the appreciation of the dollar against major European currencies.
Q. WHAT CAN YOU TELL US ABOUT THE OTHER SECTORS IN WHICH THE FUND INVESTS?
A. The two other sectors in which the fund invests are emerging markets and
high grade corporate bonds. At the end of the period, investments in these two
sectors accounted for about 10 percent of the portfolio. Emerging markets
performed particularly well during the period as the fundamental outlook for
these markets continued to improve. Although performance was strong, we kept
exposure to this sector between 5 and 8 percent of the portfolio because of the
historical volatility of this sector. The fund's high grade corporate sector
suffered as a result of its high correlation with the U.S. government market.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE YEAR?
A. Well, the shift in interest rates was really our primary disappointment.
As mentioned before, the duration of the fund was long as rates backed-up and
the fund's performance suffered in February. We believe, however, that the
fund's shorter duration should help performance in the current interest rate
environment.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A. Our outlook for the market is cautiously optimistic. We believe that
rates will stabilize in the range of 6.75 percent to 7.50 percent. Inflation
should not be problematic. All indicators suggest that it will remain at trend
growth -- between 2.5 percent and 3 percent. We plan to manage the fund
defensively until the direction of the economy becomes more clear.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION
[PIE CHART]
<TABLE>
<CAPTION>
ON 5/31/96 ON 11/30/95
<S> <C> <C>
HIGH YIELD CORPORATE BONDS 36% 28%
- --------------------------------------------------------------------------
EMERGING MARKETS
(U.S. DOLLAR-DENOMINATED) 5 5
- --------------------------------------------------------------------------
FOREIGN CURRENCY BONDS 20 15
- --------------------------------------------------------------------------
HIGH GRADE CORPORATE BONDS 5 7
- --------------------------------------------------------------------------
MORTGAGES 11 9
- --------------------------------------------------------------------------
COMMON STOCK 7 10
- --------------------------------------------------------------------------
TREASURY NOTES AND BONDS 4 21
- --------------------------------------------------------------------------
CASH AND EQUIVALENTS 9 5
- --------------------------------------------------------------------------
OTHER 3 --
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
On 5/31/96 On 11/30/95
High yield corporate bonds
Emerging markets
(U.S. dollar-denominated)
Foreign currency bonds
High grade corporate bonds
Mortgages
Common stock
Treasury notes and bonds
Cash and equivalents
Other
- --------------------------------------------------------------------------------
8
<PAGE> 9
PORTFOLIO STATISTICS
LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 5/31/96 ON 11/30/95
<S> <C> <C>
AAA 49% 49%
- --------------------------------------------------------------------------
AA 3 2
- --------------------------------------------------------------------------
A 1 2
- --------------------------------------------------------------------------
BBB 4 7
- --------------------------------------------------------------------------
BB 15 13
- --------------------------------------------------------------------------
B 26 24
- --------------------------------------------------------------------------
OTHER 2 3
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
AAA
AA
A
BBB
BB
B
Other
On 5/31/96 On 11/30/95
- --------------------------------------------------------------------------------
The ratings of Standard and Poor's Corporation (S&P) and Moody's Investors
Services, Inc. (Moody's) represent their opinions as to the quality of
securities that they undertake to rate. The percentage shown reflects the higher
of Moody's or S&P ratings. Portfolio composition will change over time. Ratings
are relative and subjective and not absolute standards of quality.
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 5/31/96 ON 11/30/95
<S> <C> <C>
AVERAGE MATURITY 7.0 YEARS 11.9 YEARS
- -------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER MULTI-MARKET INCOME TRUST
PORTFOLIO OF INVESTMENTS AT MAY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
U.S. GOVERNMENT--29.9%
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes
8.875%, 1997 $ 5,000 $ 5,191
8.625%, 1997 3,000 3,091
8.875%, 1998 6,500 6,869
8.125%, 1998 17,000 17,523
U.S. Treasury Bonds
9.125%, 2009 6,100 6,884
12.00%, 2013 500 698
Federal National Mortgage Association
7.00%, 2026 11,000 10,488
6.50%, 2026 8,000 7,410
Government National Mortgage Association
7.50%, 2022-2024 2,755 2,694
7.00%, 2022-2024 2,838 2,700
-----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $63,799) 63,548
-----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
FOREIGN
GOVERNMENTS--25.3%
(PRINCIPAL AMOUNT IN LOCAL
CURRENCY, UNLESS OTHERWISE
INDICATED)
(d)Republic of Argentina
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
6.3125%, 2005 2,297 1,771
6.5625%, 2023 1,630 1,119
5.25%, 2023 3,050 1,647
Commonwealth of Australia
8.75%, 2001 1,725 1,386
9.50%, 2003 2,000 1,659
Federal Republic of Brazil
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
(d) 6.50%, 2006 1,200 929
8.00%, 2014, PIK 1,488 893
(d) 6.50%, 2024 1,700 1,158
(d) 4.25%, 2024 2,100 1,116
French Treasury
8.50%, 2000 37,000 7,942
8.50%, 2002 4,500 987
6.75%, 2003 7,500 1,497
8.50%, 2008 18,300 4,088
Government of Ireland
6.25%, 1999 1,145 1,803
6.25%, 2004 1,864 2,730
Government of the Netherlands
7.75%, 2000 3,500 2,247
8.25%, 2002 5,600 3,691
8.25%, 2007 3,900 2,584
Commonwealth of New Zealand
8.00%, 1998 1,000 666
6.50%, 2000 2,300 1,437
10.00%, 2002 2,950 2,086
(d)Republic of Poland
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
3.75%, 2014 1,100 828
United Kingdom
7.25%, 1998 1,600 2,502
9.50%, 2005 1,700 2,868
8.00%, 2013 1,500 2,251
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Mexican States,
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
(d) 6.3975%, 2019 $ 925 $ 727
6.25%, 2019 1,150 739
Banco Nacional De Comercio Exterior, 7.25%, 2004 675 546
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
-----------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $52,914) 53,897
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
CORPORATE OBLIGATIONS
AEROSPACE--1.4%
Airlines Pass Thru Class D, 10.875%, 2019 220 231
Fairchild Corporation, 12.00%, 2001 725 723
Howmet Inc., 10.00%, 2003 440 468
K & F Industries, Inc.
13.750%, 2001 771 796
11.875%, 2003 515 554
RHI Holdings, 11.875%, 1999 70 70
UNC, Inc., 11.00%, 2006 160 162
-----------------------------------------------------------------------------
3,004
- ---------------------------------------------------------------------------------------------------------------
BROADCASTING,
CABLESYSTEMS
AND PUBLISHING--9.6%
Adelphia Communications Corporation, 12.50%, 2002 150 154
Affinity Group, Inc., 11.50%, 2003 315 319
American Radio Systems, 9.00%, 2006 670 637
(b)Australis Media Corporation, 14.00%, 2003 180 113
(b)Bell Cablemedia PLC, 11.95%, 2004 620 445
Big Flower Press, Inc., 10.75%, 2003 346 346
CAI Wireless Systems, 12.25%, 2002 300 315
CF Cable TV, Inc., 11.625%, 2005 680 741
Cablevision Systems Corporation
9.25%, 2005 500 481
9.875%, 2013 210 202
10.50%, 2016 340 340
9.875%, 2023 90 84
Century Communications Corporation
9.50%, 2000 40 40
11.875%, 2003 170 181
9.50%, 2005 580 576
(b)Comcast UK Cable Partners Limited, 11.20%, 2007 1,420 841
Comcast Corporation
9.125%, 2006 1,020 984
9.50%, 2008 295 294
10.625%, 2012 110 117
Continental Cablevision, Inc., 9.50%, 2013 980 1,047
(b)CS Wireless, 11.37%, 2006 620 318
(b)Echostar Communications, 12.875%, 2004 750 566
EZ Communications, 9.75%, 2005 770 735
Granite Broadcasting Corp., 10.375%, 2005 590 579
(b)International Cabletel Incorporated
12.75%, 2005 810 532
11.50%, 2006 140 82
K-III Communications Inc, 8.50%, 2006 400 376
Katz Corporation, 12.75%, 2002 275 306
Neodata Services, 12.00%, 2003 430 434
News America Holdings, Inc., 9.25%, 2013 1,000 1,077
Newsquest Capital PLC, 11.00%, 2006 770 772
(b)People's Choice TV Unit, 13.125%, 2004 50 30
Rogers Cablesystems Limited
9.625%, 2002 210 210
10.00%, 2005 and 2007 330 331
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sinclair Broadcasting Group, Inc., 10.00%, 2003 $ 480 $ 467
Sullivan Broadcasting, 10.25%, 2005 310 297
Tele-Communications, Inc., 9.80%, 2012 300 320
Telewest Communications, 9.625%, 2006 395 389
(b)Telewest PLC, 11.00%, 2007 1,525 907
Time Warner Entertainment, 8.875%, 2012 500 527
Time Warner Inc., 9.125%, 2013 500 518
(b)UIH Australia Pacific, Inc., 14.00%, 2006 1,700 901
Univision TV, 11.75%, 2001 210 224
(b)Videotron Holdings PLC
11.125%, 2004 255 191
11.00%, 2005 250 165
Young Broadcasting Inc.
11.75%, 2004 50 53
9.00%, 2006 840 756
------------------------------------------------------------------------------
20,320
- ---------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES--.5%
Allied Waste Industries, 12.00%, 2004 190 207
Corporate Express Inc., 9.125%, 2004 220 217
Monarch Marking Systems, 12.50%, 2003 250 267
Outdoor Systems, Inc., 10.75%, 2003 350 357
------------------------------------------------------------------------------
1,048
- ---------------------------------------------------------------------------------------------------------------
CHEMICALS AND
AGRICULTURAL
PRODUCTS--1.6%
Agriculture, Mining and Chemicals Inc., 10.75%,
2003 200 214
Arcadian Partners, L.P., 10.75%, 2005 405 437
Atlantis Group, Inc., 11.00%, 2003 350 332
G-I Holdings Inc., zero coupon, 1998 700 564
Pioneer Americas Acquisition Corp., 13.375%, 2005 290 309
Polymer Group Inc., 12.25%, 2002 310 336
Rexene Corporation, 11.75%, 2004 555 586
Terra Industries, 10.50%, 2005 190 202
UCC Investors Holdings, Inc., 10.50%, 2002 410 436
------------------------------------------------------------------------------
3,416
- ---------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--4.5%
(b)Arch Communications Group, 10.875%, 2008 340 191
(b)Call-Net Enterprises Inc., 13.25%, 2004 290 214
(a)(b)Celcaribe S.A., 13.50%, 2004 250 255
(b)Cellular, Inc., 11.75%, 2003 150 123
(b)Charter Communications, 14.00%, 2007 440 246
Commnet Cellular, 11.25%, 2005 100 107
(b)Intelcom Group, Inc., 13.50%, with warrants,
2005 320 205
Intermedia Communications of Florida, Inc.,
13.50%, with warrants, 2005 300 344
(b)MFS Communications Co., 8.875%, 2006 1,555 972
(b)Millicom International Cellular S.A., 13.50%,
2006 410 217
Mobilemedia Communications, 9.375%, 2007 820 771
Nextlink Communications, 12.50%, 2006 370 375
Paging Network, Inc.
11.75%, 2002 710 772
10.125%, 2007 500 513
(b)PanAmSat, L.P., 11.375%, 2003 700 602
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rogers Cantel
11.125%, 2002 $ 885 $ 938
9.75%, 2016 400 397
(b)Shared Technologies, 12.25%, 2006 230 175
360 Communications, 7.50%, 2006 750 705
USA Mobile Communications, Inc. II, 14.00%, 2004 520 605
Vanguard Cellular Systems, 9.375%, 2006 790 775
------------------------------------------------------------------------------
9,502
- ---------------------------------------------------------------------------------------------------------------
CONSTRUCTION
MATERIALS--1.1%
American Standard Inc.
10.875%, 1999 300 319
11.375%, 2004 60 65
(b) 10.50%, 2005 540 464
(b)Building Materials Corporation of America,
11.75%, 2004 770 576
Nortek, Inc., 9.875%, 2004 500 471
Triangle Pacific Corp., 10.50%, 2003 495 512
------------------------------------------------------------------------------
2,407
- ---------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS
AND SERVICES--2.5%
AMF Group, 10.875%, 2006 770 764
Avondale Mills, 10.25%, 2006 220 217
Brunos, 10.50%, 2005 175 173
Cinemark USA, Inc., 12.00%, 2002 84 91
Coinmach Corporation, 11.75%, 2005 540 564
Dimon, Inc., 8.875%, 2006 500 506
(b)Dr. Pepper Bottling Holdings, Inc., 11.625%,
2003 370 315
Foodbrands America, 10.75%, 2006 160 163
Herff Jones, Inc., 11.00%, 2005 170 179
Premier Parks Inc., 12.00%, 2003 180 193
(b)Six Flags Theme Park, 12.25%, 2005 700 593
Van De Kamps, Inc., 12.00%, 2005 170 181
West Point Stevens, Inc., 9.375%, 2005 1,505 1,464
------------------------------------------------------------------------------
5,403
- ---------------------------------------------------------------------------------------------------------------
DRUGS AND
HEALTH CARE--1.4%
Dade International Inc., 11.125%, 2006 300 312
Magellan Health Services, 11.25%, 2004 290 318
Ornda Healthcorporation
12.25%, 2002 285 309
11.375%, 2004 250 278
Tenet Healthcare
9.625%, 2002 140 149
8.625%, 2003 1,250 1,263
10.125%, 2005 380 402
------------------------------------------------------------------------------
3,031
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY AND
RELATED SERVICES--3.2%
Benton Oil & Gas Co., 11.625%, 2003 $ 1,025 $ 1,057
Chesapeake Energy Corporation, 10.50%, 2002 120 125
Clark USA Inc., 10.875%, 2005 770 803
Cliffs Drilling Co., 10.25%, 2003 280 281
Coda Energy, 10.50%, 2006 220 220
Empire Gas Corporation, 7.00%, with warrants, 2004 200 176
Ferrellgas Partners, L.P., 9.375%, 2006 300 292
Gulf Canada Resources Limited
9.25%, 2004 250 249
9.625%, 2005 160 162
Nuevo Energy Co., 9.50%, 2006 150 149
Oryx Energy Co., 8.00%, 2003 1,000 979
Parker and Parsley Petroleum, 8.25%, 2007 1,000 1,021
Plains Resources, 10.25%, 2006 150 151
Santa Fe Energy Resources, 11.00%, 2004 100 108
United Meridian Corp., 10.375%, 2005 770 796
Vintage Petroleum, 9.00%, 2005 310 296
------------------------------------------------------------------------------
6,865
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES,
HOME BUILDERS AND
REAL ESTATE--2.4%
Bangkok Bank, 7.25%, 2005 1,500 1,432
Chelsea GCA Realty, 7.75%, 2001 660 639
Continental Homes Holding, 10.00%, 2006 300 294
Forecast Group L.P., 11.375%, 2000 70 46
Fortress Group, 13.75%, 2003 210 217
Hovnanian Kent, 11.25%, 2002 226 210
J.M. Peters Company, 12.75%, 2002 150 141
Presley Companies, 12.50%, 2001 435 420
Salomon, Inc., 7.50%, 2003 1,250 1,226
Societe Generale NY, 7.40%, 2006 500 496
------------------------------------------------------------------------------
5,121
- ---------------------------------------------------------------------------------------------------------------
HOTEL AND GAMING--3.2%
Bally's Park Place Funding, Inc., 9.25%, 2004 1,685 1,702
Empress River Casino, 10.75%, 2002 400 417
Harvey's Casino Resorts, 10.625%, 2006 130 131
La Quinta Motor Inns, 7.25%, 2004 1,000 948
Majestic Star Casino, 12.75%, 2003 60 63
MGM Grand Hotel Finance Corporation, 12.00%, 2002 1,000 1,095
Players International, 10.875%, 2005 770 790
Station Casinos Inc., 10.125%, 2006 1,020 1,002
Trump Atlantic City, 11.25%, 2006 700 702
------------------------------------------------------------------------------
6,850
- ---------------------------------------------------------------------------------------------------------------
MANUFACTURING
AND METALS--3.9%
Aftermarket Technology, 12.00%, 2004 320 343
Alvey Systems, 11.375%, 2003 175 180
Bluebird Body Company, 11.75%, 2002 410 424
Crain Industries, Inc., 13.50%, 2005 220 231
Day International Group, 11.125%, 2005 460 474
Essex Group, Incorporated, 10.00%, 2003 305 308
Fairfield Manufacturing Company, 11.375%, 2001 180 184
(b)Foamex - JPS Automotive L.P., 14.00%, with
warrants, 2004 330 231
Foamex L.P.
9.50%, 2000 1,160 1,154
11.25%, 2002 200 207
Great Dane Holdings, Inc., 12.75%, 2001 200 193
GS Technologies
12.00%, 2004 160 165
12.25%, 2005 260 269
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IMO Industries, 11.75%, 2006 $ 190 $ 197
Jordan Industries, 10.375%, 2003 400 376
JPS Automotive Products Corporation, 11.125%, 2001 150 154
Knoll Inc., 10.875%, 2006 230 235
Newflo Corporation, 13.25%, 2002 300 323
NS Group, Inc., 13.50%, 2003 210 202
Pace Industries, Inc., 10.625%, 2002 235 266
Penda Industries Inc., 10.75%, 2004 185 170
Thermadyne Industries, Inc.
10.25%, 2002 165 169
10.75%, 2003 600 612
USX Corporation, 9.125%, 2013 1,000 1,081
------------------------------------------------------------------------------
8,148
- ---------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS
AND CONTAINERS--2.5%
Berry Plastics Corporation, 12.25%,
with warrants, 2004 150 163
Container Corporation of America, 11.25%, 2004 460 476
Crown Paper, 11.00%, 2005 440 417
Florida Coast Paper Company, 12.75%, 2003 160 164
Four M Corporation, 12.00%, 2006 160 163
Gaylord Container Corporation, 12.75%, 2005 510 537
Maxxam Group, Inc.
(b) 12.25%, 2003 90 68
11.25%, 2003 340 338
Owens-Illinois
11.00%, 2003 758 822
9.95%, 2004 25 26
9.75%, 2004 775 789
Repap New Brunswick, Inc., 10.625%, 2005 445 414
Riverwood International Corp.
10.25%, 2006 140 139
10.875%, 2008 530 523
Sweetheart Cup Company, Inc., 10.50%, 2003 235 231
------------------------------------------------------------------------------
5,270
- ---------------------------------------------------------------------------------------------------------------
RETAILING--2.2%
Dominick's Finer Foods, 10.875%, 2005 770 816
Federated Department Stores, Inc., 10.00%, 2001 1,000 1,065
Finlay Fine Jewelry Corporation, 10.625%, 2003 255 258
P&C Food Markets, Inc., 11.50%, 2001 240 242
Pathmark Stores, Inc., 11.625%, 2002 770 783
Penn Traffic Company
10.375%, 2004 30 29
11.50%, 2006 960 970
Ralph's Grocery Company, 10.45%, 2004 440 425
Smith's Food & Drug Centers, 11.25%, 1997 20 20
------------------------------------------------------------------------------
4,608
- ---------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.6%
Communication and Power Industry, Inc., 12.00%,
2005 140 148
Computervision Corporation 11.375%, 1999 1,090 1,132
------------------------------------------------------------------------------
1,280
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--.7%
Delta Airlines, 9.875%, 2008 $ 472 $ 524
(b)Transtar Holdings, L.P., 13.375%, 2003 200 146
United Airlines, 9.56%, 2018 750 821
-----------------------------------------------------------------------------
1,491
-----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--41.3%
(Cost: $87,407) 87,764
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BEA Strategic Income Fund 100,000 shs. $ 875
(c)Echostar Communications 4,487 155
Franklin Principle Maturity Trust 200,000 1,525
Global Government Plus Fund 298,600 2,259
Global Total Return Fund 375,000 3,109
(c)Grand Union Company 17,408 115
MFS Charter Income Trust 544,900 5,177
MFS Government Market Income Trust 151,000 982
MFS Intermediate Income Trust 25,000 169
MFS Multi-Market Income Trust 104,100 703
Putnam Master International Income Trust 100,000 738
Putnam Premier Income Trust 313,500 2,390
Strategic Global Income Fund 50,000 575
Templeton Global Income Fund 200,000 1,375
(c)Thrifty Payless Inc. 5,320 23
(c)Walter Industries, Inc. 9,053 115
(a)Waxman Industries, Inc., warrants 12,154 36
-----------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS--9.6%
(Cost: $20,552) 20,321
-----------------------------------------------------------------------------
TOTAL INVESTMENTS--106.1%
(Cost: $224,672) 225,530
-----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(6.1)% (12,897)
-----------------------------------------------------------------------------
NET ASSETS--100% $212,633
-----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The following securities may require registration under the Securities Act
of 1933 or an exemption therefrom in order to effect sale in the ordinary
course of business; they were valued at cost on the dates of acquisition.
These securities are valued at fair value as determined in good faith by the
Board of Trustees of the Fund. There were no market quotations available for
unrestricted securities of the same class on the dates of acquisition. At
May 31, 1996, the value of the Fund's restricted securities was $291,000
which represented .14% of net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
DATE OF NUMBER OF UNIT
SECURITY DESCRIPTION ACQUISITION SHARES COST
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Celcaribe, S.A., 13.50%, 2004 May 1994 $250,000 $80.13
-------------------------------------------------------------------------------------------
Waxman Industries, Inc., warrants June 1994 12,154 shs. 2.00
-------------------------------------------------------------------------------------------
</TABLE>
(b) Deferred interest obligations; currently zero coupon under the terms of the
initial offering.
(c) Non-income producing securities.
(d) Variable rate securities. Rates shown are effective rates on May 31, 1996.
The dates shown represent the final maturity of the obligations.
"PIK" denotes that all or a portion of interest or dividends are paid in kind.
Based on the cost of investments of $224,672,000, for federal income tax
purposes at May 31, 1996, the gross unrealized appreciation was $5,002,000, the
gross unrealized depreciation was $4,144,000 and the net unrealized appreciation
of investments was $858,000.
See accompanying Notes to Financial Statements
16
<PAGE> 17
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $224,672) $225,530
- -------------------------------------------------------------------------------------------------------
Cash 81
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 2,700
- -------------------------------------------------------------------------------------------------------
Interest and dividends 4,011
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 232,322
- -------------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Investments purchased 19,476
- -------------------------------------------------------------------------------------------------------
Management fee 151
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 48
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 14
- -------------------------------------------------------------------------------------------------------
Total liabilities 19,689
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 20,004 SHARES OUTSTANDING, $.01 PAR VALUE,
EQUIVALENT TO $10.63 PER SHARE $212,633
- -------------------------------------------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $218,316
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on sales of investments and foreign currency transactions (8,906)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 809
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,414
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $212,633
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ($212,633 / 20,004 shares outstanding) $10.63
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1996
(IN THOUSANDS)
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest $ 8,294
- --------------------------------------------------------------------------------------------------------
Dividends 1,118
- --------------------------------------------------------------------------------------------------------
Total investment income 9,412
- --------------------------------------------------------------------------------------------------------
Expenses:
Management fee 917
- --------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 67
- --------------------------------------------------------------------------------------------------------
Professional fees 27
- --------------------------------------------------------------------------------------------------------
Reports to shareholders 19
- --------------------------------------------------------------------------------------------------------
Trustees' fees and other 38
- --------------------------------------------------------------------------------------------------------
Total expenses 1,068
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,344
- --------------------------------------------------------------------------------------------------------
</TABLE>
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized gain on sales of investments (including options purchased) and foreign currency
transactions 905
- --------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 563
- --------------------------------------------------------------------------------------------------------
Net realized gain 1,468
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and assets and liabilities in foreign
currencies (3,691)
- --------------------------------------------------------------------------------------------------------
Net loss on investments (2,223)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,121
- --------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
1996 1995
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 8,344 19,165
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,468 (2,719)
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation (3,691) 14,650
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,121 31,096
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (11,429) (20,133)
- ---------------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(71 shares in 1996) 758 --
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,550) 10,963
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of period 217,183 206,220
- ---------------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income of
$2,414 and $5,499, respectively) $212,633 217,183
- ---------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT ACCOUNTING
POLICIES DESCRIPTION OF FUND. The Fund is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
INVESTMENT VALUATION. Investments are stated at
value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Portfolio securities that are
traded on a domestic securities exchange are valued
at the last sale price on the exchange where
primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio
securities that are primarily traded on foreign
securities exchanges are generally valued at the
preceding closing values of such securities on
their respective exchanges where primarily traded.
Securities not so traded are valued at the last
current bid quotation if market quotations are
available. Exchange traded options are valued at
the last sale price unless there is no sale price,
in which event prices provided by market makers are
used. Over-the-counter traded options are valued
based upon prices provided by market makers.
Financial futures and options thereon are valued at
the settlement price established each day by the
board of trade or exchange on which they are
traded. Forward foreign currency contracts are
valued at the forward rates prevailing on the day
of valuation. Other securities and assets are
valued at fair value as determined in good faith by
the Board of Trustees.
CURRENCY TRANSLATION. The books and records of the
Fund are maintained in U.S. dollars. All assets and
liabilities initially expressed in foreign currency
values are converted into U.S. dollar values at the
mean between the bid and offered quotations of such
currencies against U.S. dollars as last quoted by a
recognized dealer. If such quotations are not
readily available, the rate of exchange is
determined in good faith by the Board of Trustees.
Income and expenses and purchases and sales of
investments are translated into U.S. dollars at the
rate of exchange prevailing on the respective dates
of such transactions. The Fund includes that
portion of the results of operations resulting from
changes in foreign exchange rates with net realized
and unrealized gain on investments, as appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Dividend income is recorded on the
ex-dividend date, and interest income is recorded
on the accrual basis. Interest income includes
discount amortization on all fixed income
securities and premium amortization on
mortgage-backed securities. Realized gains and
losses from investment transactions are reported on
an identified cost basis.
The Fund may purchase securities with delivery or
payment to occur at a later date. At the time the
Fund enters into a commitment to purchase a
security, the transaction is recorded and the value
of the security is reflected in the net asset
value. The value of the security may vary with
market fluctuations. No interest accrues to the
Fund until payment takes place. At the time the
Fund enters into this type of transaction it is
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
required to segregate cash or other liquid assets
equal to the value of the securities purchased. At
May 31, 1996 the Fund had $17,888,000 in purchase
commitments outstanding (8% of net assets) with a
corresponding amount of assets segregated.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended May 31, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1996, amounting to
approximately $9,168,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 through
2004.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.), and pays a management fee at an annual rate
of .85% of average weekly net assets. The Fund
incurred a management fee of $917,000 for the six
months ended May 31, 1996.
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 $16,000
for the six months ended May 31, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the six months ended May 31, 1996, the Fund
made no direct payments to its officers and
incurred trustees' fees of $12,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $347,473
Proceeds from sales 324,547
- --------------------------------------------------------------------------------
4 FINANCIAL
FUTURES CONTRACTS The Fund has entered into exchange traded financial
futures contracts in order to help protect it from
anticipated market conditions and, as such, bears
the risk that arises from owning these contracts.
At the time the Fund enters into a futures
contract, it is required to make a margin deposit
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market value
of the futures contract changes. At May 31, 1996,
the market value of assets segregated at the
custodian to cover margin requirements was
$1,577,000. The Fund also had liquid securities
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
in its portfolio sufficient to cover the following
short futures positions open at May 31, 1996:
<TABLE>
<CAPTION>
EXPIRATION GAIN AT
TYPE FACE AMOUNT MONTH 5/31/96
------------------------------- ----------- ------------- --------
<S> <C> <C> <C>
U.S. Treasury Securities $15,408,000 June '96 $ 64,000
5,985,000 September '96 13,000
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
FORWARD FOREIGN
CURRENCY CONTRACTS In order to protect it from a decline in the value
of particular foreign currencies against the U.S.
Dollar, the Fund has entered into forward contracts
to deliver foreign currency in exchange for U.S.
Dollars as described below. The Fund bears the
market risk that arises from changes in foreign
exchange rates, and accordingly, the unrealized
gain (loss) on these contracts is reflected in the
accompanying financial statements. The Fund also
bears the credit risk if the counterparty fails to
perform under the contract. At May 31, 1996, the
Fund's outstanding forward foreign currency
contracts are as follows (in thousands):
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT SETTLEMENT UNREALIZED GAIN (LOSS)
TO BE DELIVERED IN U.S. DOLLARS DATE AT 5/31/96
------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
4,280 British Pounds $ 6,625 July '96 $ (171)
------------------------------------------------------------------------------------------
15,000 Dutch Guilders 8,819 August '96 (59)
------------------------------------------------------------------------------------------
75,700 French Francs 14,654 July '96 181
------------------------------------------------------------------------------------------
Net unrealized loss $ (49)
------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.90 10.35 11.29 10.88 10.36
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .42 .96 .96 1.04 1.13
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.12) .60 (.97) .45 .48
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .30 1.56 (.01) 1.49 1.61
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .57 1.01 .76 1.08 1.09
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .17 -- --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .57 1.01 .93 1.08 1.09
- --------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $10.63 10.90 10.35 11.29 10.88
- --------------------------------------------------------------------------------------------------------------------
Market value per share, end of period $10.75 10.75 9.38 11.00 10.38
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED):
- --------------------------------------------------------------------------------------------------------------------
Based on net asset value 2.81% 15.90 (.07) 14.29 16.03
- --------------------------------------------------------------------------------------------------------------------
Based on market value 5.42 27.11 (6.39) 16.82 16.35
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
- --------------------------------------------------------------------------------------------------------------------
Expenses .99% 1.02 1.03 .97 .99
- --------------------------------------------------------------------------------------------------------------------
Net investment income 7.74 9.13 8.80 9.43 10.33
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $212,633 217,183 206,220 225,055 215,428
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 294% 271 253 240 101
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends. These
figures will differ depending upon the level of any discount from or premium to
net asset value at which the Fund's shares trade during the period.
22
<PAGE> 23
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
On May 29, 1996, an annual shareholders' meeting was held. Kemper Multi-Market
Income Trust shareholders were asked to vote on two separate issues: re-election
of the eight members to the Board of Trustees and ratification of Ernst & Young
LLP as independent auditors. We are pleased to report that all nominees were
elected and the selection of Ernst & Young LLP as the fund's auditors was
ratified. Following are the results for each issue:
1) Re-election of Trustees:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 16,350,465 235,521
Arthur R. Gottschalk 16,393,589 192,397
Frederick T. Kelsey 16,398,564 187,422
Dominique P. Morax 16,362,075 223,911
Fred B. Renwick 16,357,099 228,887
Stephen B. Timbers 16,410,175 175,811
John B. Tingleff 16,410,175 175,811
John G. Weithers 16,406,857 179,129
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
16,289,645 93,953 202,387
</TABLE>
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS JOHN E. NEAL PHILIP J. COLLORA
President and Trustee Vice President Vice President
JAMES E. AKINS and Secretary
Trustee JOHN E. PETERS
Vice President CHARLES F. CUSTER
ARTHUR R. GOTTSCHALK Vice President and
Trustee J. PATRICK BEIMFORD, JR. Assistant Secretary
Vice President
FREDERICK T. KELSEY JEROME L. DUFFY
Trustee ROBERT S. CESSINE Treasurer
Vice President
DOMINIQUE P. MORAX
Trustee GORDON K. JOHNS
Vice President
FRED B. RENWICK
Trustee MICHAEL A. MCNAMARA
Vice President
JOHN B. TINGLEFF
Trustee HARRY E. RESIS, JR.
Vice President
JOHN G. WEITHERS
Trustee JONATHAN W. TRUTTER
Vice President
RICHARD L. VANDENBERG
Vice President
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141-6066
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
120 South LaSalle Street
Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
KEMPER LOGO
1018240
KMMIT - 3 (7/96) Printed in the U.S.A.
