<PAGE> 1
KEMPER
MULTI-MARKET INCOME TRUST
ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED NOVEMBER 30, 1996
"...Despite its early losses,
the fund rebounded and provided an
attractive total return."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
2
At a Glance
2
Terms to Know
3
Economic Overview
5
Management Team
6
Performance Update
8
Portfolio Statistics
10
Portfolio of Investments
17
Report of Independent Auditors
18
Financial Statements
20
Notes to Financial Statements
23
Financial Highlights
24
Description of Dividend Reinvestment Plan
AT A GLANCE
- ---------------------------------------------------------------------
TOTAL RETURNS
- ---------------------------------------------------------------------
For the year ended November 30, 1996
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- ---------------------------------------------------------------------
<S> <C> <C>
KEMPER MULTI-MARKET
INCOME TRUST 11.12% 9.14%
- ---------------------------------------------------------------------
</TABLE>
NET ASSET VALUE AND
MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/96 11/30/95
- ---------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $10.97 $10.90
- ---------------------------------------------------------------------
MARKET PRICE $10.625 $10.75
- ---------------------------------------------------------------------
</TABLE>
The fund may invest in lower-rated and non-rated securities, which present
greater risk of loss to principal and interest than higher rated securities, and
in foreign securities which present special risk considerations including
fluctuating foreign exchange rates, foreign government regulations and differing
degrees of liquidity.
- ---------------------------------------------------------------------
DIVIDEND REVIEW
- ---------------------------------------------------------------------
The following table shows per share dividend and yield information for the fund
as of November 30, 1996.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------
ONE-YEAR INCOME: $ 1.07
- ---------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.0825
- ---------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE: (BASED
ON NET ASSET VALUE) 9.02%
- ---------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE: (BASED
ON MARKET PRICE) 9.32%
- ---------------------------------------------------------------------
</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 value 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 section appearing at the end of this
report.
TERMS TO KNOW
- ---------------------------------------------------------------------
DURATION Duration is a measure of the interest rate sensitivity of a fixed-
income portfolio incorporating time-to-maturity and coupon size. The longer the
duration, the greater the interest rate risk.
HEDGING A strategy used to help protect an investment. Financial managers can
use any number of technical and nontechnical procedures to hedge or reduce the
possibility of a loss on an investment.
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 the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period. Total return may be based upon net asset value or
market price.
<PAGE> 3
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL
MUTUAL FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
As we begin a new year, it's remarkable how eventful 1996 was and yet,
economically, we are essentially where we were one year ago.
The fundamentals of the economy are remarkably similar. Long-term interest
rates are approximately 6.5% compared to the 6.5% to 7% range they were in
during the first half of 1996. We believe the economy is growing at a rate of
approximately 2.5%. Inflation continues to be well under control, at about 3.0%.
One significant difference between today and one year ago is that prices of
the stocks are on average up 20%. While price movements were more volatile in
1996 than in the past few years, the patient investor was amply rewarded. The
prime element sending the stock market higher was strong positive cash flows.
This liquidity in an environment of modestly increasing corporate profits and
relatively stable interest rates pushed stocks higher for most of the year.
This higher stock market has caused many market observers to worry. While
we cannot ignore what has happened, we find no reason to be bearish over the
long term. The environment is benign to favorable for financial assets. Given
steady interest rates, moderate economic growth and continued moderate corporate
earnings growth, there are few excesses in the system. In fact, real interest
rates are probably too high considering our outlook for inflation, and we may
see them decline over time.
Naturally, we cannot rule out the possibility of a market correction. But,
in our belief, the downside would appear to be limited to 5% to 8%, which is the
size of a typical correction based on historical data. As we have said in
previous outlooks, three elements tend to move the market:
- EARNINGS. We forecast corporate earnings to range between 0% and 5% on
average for the Standard & Poor's 500* in 1997 -- not as high as in
recent years but positive nonetheless.
- INTEREST RATES. Rates should remain stable, and short-term interest rates
may even decline.
- LIQUIDITY. Investors, through mutual funds, 401(k)s and qualified
contribution plans in particular, will continue to create strong demand
for securities.
In order to move the market more than would be expected in a typical
decline, one or more of these elements will have to turn negative in 1997, and,
while future market conditions cannot be predicted with certainty, we fail to
see what would materially change our outlook. Our outlook going forward is that
1997 should be a lot like 1996.
While the economy continued along a relatively consistent path, the United
States took some politically significant steps in 1996. First, of course,
President Bill Clinton and a Republican Congress were re-elected by the voters.
In the first few days after the general election, especially, investors
demonstrated their support for such a balance in our leadership. But of much
greater long-term significance is the expressed commitment by both parties to
balance the federal budget and address certain entitlement programs. The first
year after an election can be a fertile time to accomplish major initiatives,
and we are hopeful that progress can be made.
The future of the Social Security system, which many experts believe will
run out of money about 20 years from now, will be a subject in which you can
expect Zurich Kemper Investments, Inc. to play a leadership role. The possible
solutions for "fixing Social Security" are finite: raise Social Security taxes,
reduce benefits, raise the retirement age, change inflation assumptions or
pursue a higher rate of return on assets contributed by workers. We believe that
a bipartisan solution will be worked out, which will include giving individuals
the option of investing a portion of their Social Security contributions in an
account earmarked for them. This change is needed to return credibility to the
system, which many Americans have lost faith in.
What to do with Social Security is a debate that spans generations and
promises to occupy much attention in the coming years. As we hope to help
advance constructive debate, we'll be advocating partial privatization for this
federal program while maintaining a safety net for many low-wage earners and
providing a seamless transition for seniors near or in retirement.
3
<PAGE> 4
ECONOMIC OVERVIEW
- ------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- ------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-year
Treasury rate and the prime rate are prevailing interest rates. The other data
report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (12/31/96) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.30 6.87 5.65 7.78
PRIME RATE (2) 8.25 8.25 8.50 8.50
INFLATION RATE(3)* 3.19 2.75 2.60 2.61
THE U.S. DOLLAR (4) 4.36 8.55 -0.57 -5.29
CAPITAL GOODS ORDERS (5)* 2.69 1.85 13.09 3.68
INDUSTRIAL PRODUCTION (5)* 4.40 4.12 1.08 6.43
EMPLOYMENT GROWTH (6) 2.17 2.19 1.57 3.52
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflations has been as high as 6%. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of November 30, 1996.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
With this letter as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
January 9, 1997
*THE STANDARD & POOR'S 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
KEMPER MULTI-MARKET INCOME TRUST
PORTFOLIO MANAGEMENT TEAM
MANAGEMENT TEAM
[BEIMFORD PHOTO]
J. PATRICK BEIMFORD, JR. JOINED ZURICH KEMPER INVESTMENTS, INC. (ZKI) IN 1976.
HE IS EXECUTIVE VICE PRESIDENT AND CHIEF INVESTMENT OFFICER FOR FIXED INCOME
INVESTMENTS OF ZKI AND PORTFOLIO CO-MANAGER OF KEMPER MULTI-MARKET INCOME TRUST.
BEIMFORD 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 PORTFOLIO CO-MANAGER OF
KEMPER MULTI-MARKET INCOME TRUST. HE JOINED ZKI IN 1993. CESSINE RECEIVED BOTH
HIS B.S. AND M.S. FROM THE UNIVERSITY OF WISCONSIN.
[JOHNS PHOTO]
GORDON JOHNS JOINED ZURICH INVESTMENT MANAGEMENT LIMITED (ZIML), LONDON IN 1988
AND IS MANAGING DIRECTOR OF ZIML AND A 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 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 ZKI IN 1988 AND IS A
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 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
DURING THE FISCAL YEAR, THE PORTFOLIO MANAGEMENT TEAM MADE SIGNIFICANT CHANGES
TO THE PORTFOLIO'S DIVERSIFICATION AS WELL AS TO ITS FOREIGN CURRENCY BOND
INVESTMENT STRATEGY. BELOW, THE TEAM EXPLAINS HOW THESE ADJUSTMENTS ENABLED THE
FUND TO REBOUND FROM LOSSES EARLY IN THE YEAR WHILE REDUCING THE FUND'S LEVEL OF
RISK IN SOME CASES.
Q DURING THE FISCAL YEAR -- DECEMBER 1, 1995, THROUGH NOVEMBER 30, 1996 --
INTEREST RATES FELL DRAMATICALLY, ROSE FOR NEARLY HALF OF THE YEAR, STABILIZED,
THEN BEGAN TO DECLINE AGAIN. WHAT WAS BEHIND THIS VOLATILITY?
A Rates reversed direction as expectations about 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 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 1995, 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 year.
Additionally, 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.
The most dramatic rise in market rates 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 throughout the spring and then stabilized at higher levels
until September, when indicators began to show signs of slowing economic growth.
With inflation still under control, these signs of economic weakening convinced
the market that the Fed would not need to tighten interest rates in order to
keep inflation at bay. As a result of the market's optimism, yields began to
fall.
Q HOW WAS KEMPER MULTI-MARKET INCOME TRUST'S PERFORMANCE IMPACTED BY THE
INTEREST RATE VOLATILITY?
A We entered 1996 with a relatively long duration of 6.9 years. This
duration served the fund well during the first six weeks of the period as rates
fell precipitously. Remember, duration is a measurement of a fund's sensitivity
to interest rates. The longer the duration, the more sensitive the fund
generally is to interest rate changes.
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 at 6.1
years. Unfortunately, the strong employment release in early March caused the
market to trade down sharply, and the fund's still longer than average duration
hurt returns. By the end of March, we had pulled the fund's duration in to 4.1
years from 6.9 years at the start of January. As rates began to stabilize at
their higher levels we extended the fund's duration to a more market neutral
position. At the end of the period, duration was at 5.4 years.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE PORTFOLIO TO REDUCE DURATION?
A We shortened duration primarily by reducing our exposure to the government
market.
We reduced our holdings in Treasuries throughout most of the year. As
interest rates fell early in the fiscal year, Treasuries offered price
appreciation potential. And about 21 percent of the fund was invested in
Treasuries in late 1995, which enabled us to capture significant price gains as
interest rates dropped in December. However, as rates rose, Treasuries became
less appealing because they no longer provided potential for appreciation. In
January, we began selling Treasuries, which reduced the fund's duration. By June
30, Treasuries had been reduced to about 7 percent of the portfolio. The
proceeds from the sales of Treasuries and mortgage-backed securities were used,
in part, to increase exposure to high yield and foreign currency bonds, which
outperformed nearly all other fixed-income asset classes. During the last two
months of the year, when rates began to decline, we began to slightly increase
Treasury holdings.
Q HIGH YIELD BOND PERFORMANCE HAS RECEIVED A LOT OF ATTENTION IN THE PRESS
RECENTLY. WHAT HAS BEEN BEHIND THE SECTOR'S NOTABLE PERFORMANCE?
A The growing U.S. economy continued to drive strong high yield bond returns
during the fiscal year. That's because stronger economic growth fueled corporate
earnings, which enabled most companies to meet the interest payments on their
outstanding bond issues. The strong stock market was also positive for high
yield bonds. It facilitated an increased number of initial public offerings by
high yield issuers, which enabled many issuers to pay down their debt. In
addition, defaults within the high yield market were virtually non-existent
during the period.
Q WHAT ABOUT FOREIGN CURRENCY BONDS?
A We were bullish on foreign currency bonds for two reasons. First, foreign
markets tend to follow a similar economic cycle in the U.S. However, economic
cycles abroad have historically tended to lag the U.S. As such, we felt that
foreign markets would probably 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 tends to be
positive for bond investments. The second reason was that in December 1995, the
fund began to hedge the foreign currency allocation. By hedging the foreign
currencies back to the dollar, we reduced some of the currency risk involved
with foreign non-dollar investments. By April, approximately 70 percent of the
foreign currency allocation was hedged back to the dollar, which helped to
insulate the fund from the appreciation of the dollar that occurred against most
major European currencies.
Q HOW DO YOU MANAGE THE FOREIGN CURRENCY BOND SELECTION PROCESS?
A During the year we made a significant adjustment in our foreign currency
investment strategy. Historically, we've managed the foreign currency allocation
by investing in a handful of markets with the potential to outperform. While
this approach was generally beneficial, we felt we could get comparable returns
through broader diversification, while reducing the risk level of our forecasts.
By October 31, 1996, we owned foreign currency bonds from about 20 countries as
compared to our previous average of four or five countries. This increased level
of diversification has helped us to achieve our objective of reduced volatility
with competitive returns.
Q WHAT CAN YOU TELL US ABOUT THE OTHER SECTORS IN WHICH THE FUND INVESTS?
A Two other sectors in which the fund invests are emerging markets and high
grade corporate bonds. Emerging markets performed particularly well during the
period as the fundamental outlook for these markets continued to improve. We
maintained exposure between 5 and 8 percent of the portfolio because of the
historical volatility of this sector. The fund's high grade corporate sector has
been underweighted due to the historically tight spreads that existed.
During the year, we eliminated the fund's investment in other closed-end
funds. We had initially purchased shares of these funds at relatively deep
discounts. As time
7
<PAGE> 8
PORTFOLIO STATISTICS
PERFORMANCE UPDATE
went by, the discounts had diminished. We believed that we could generate better
returns for the fund by unbundling our investment in the multi-sector closed-end
funds and investing in the actual asset classes individually.
Q WERE THERE ANY DISAPPOINTMENTS DURING THE YEAR?
A Well, the unexpected shift in interest rates during the first part of the
year 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.
Despite its early losses, the fund rebounded and provided an attractive
total return. On a net asset value basis, the fund returned 11.12 percent,
outperforming the 9.84 percent average return of its Lipper Analytical Services,
Inc. peer group. In market price, the fund gained 9.14 percent. This slower gain
in market price reflected a 3 percent discount to net asset value.
Q WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A Our outlook for the market is optimistic. We expect that long-term rates
will remain within a range of between 6 to 7 percent. For rates to move to the
low end of that range, some credible progress would need to be made by the
President and Congress in agreeing to reduce the federal budget deficit. Any
progress on the budget would of course be very beneficial for the bond market.
If rates move higher, it would probably be the result of inflationary concerns,
which would upset the market. We believe the current environment is definitely a
positive one for the overall bond market and Kemper Multi-Market Income Trust.
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD CORPORATE BONDS 35% 28%
- --------------------------------------------------------------------------------
EMERGING MARKETS (U.S. DOLLAR-DENOMINATED) 7 5
- --------------------------------------------------------------------------------
FOREIGN CURRENCY BONDS 25 15
- --------------------------------------------------------------------------------
HIGH GRADE CORPORATE BONDS 1 7
- --------------------------------------------------------------------------------
MORTGAGES 12 9
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK 0 10
- --------------------------------------------------------------------------------
TREASURY NOTES AND BONDS 13 21
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 7 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/96 ON 11/30/95
* Portfolio composition is subject to change.
8
<PAGE> 9
PORTFOLIO STATISTICS
LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 11/30/96 ON 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 54% 49%
- --------------------------------------------------------------------------------
AA 2 2
- --------------------------------------------------------------------------------
A 4 2
- --------------------------------------------------------------------------------
BBB -- 7
- --------------------------------------------------------------------------------
BB 14 13
- --------------------------------------------------------------------------------
B 24 24
- --------------------------------------------------------------------------------
OTHER 2 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/96 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 11/30/96 ON 11/30/95
- -------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 9.4 YEARS 11.9 YEARS
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER MULTI-MARKET INCOME TRUST
PORTFOLIO OF INVESTMENTS AT NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT
OBLIGATIONS--39.6%
U.S. Treasury Notes
8.875%, 1997 $ 3,000 $ 3,094
8.125%, 1998 12,500 12,875
8.875%, 1998 10,000 10,598
9.25%, 1998 6,000 6,354
U.S. Treasury Bonds
9.125%, 2009 6,100 7,179
13.875%, 2011 1,500 2,320
10.375%, 2012 10,155 13,419
12.00%, 2013 3,500 5,141
Government National Mortgage Association
7.50%, 2024-2026 12,690 12,879
8.00%, 2027 4,000 4,116
Federal National Mortgage Association
7.00%, 2026 4,000 3,970
7.50%, 2026 5,000 5,048
-------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $85,989) 86,993
-------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--32.1%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Principal amount in local (a)Republic of Argentina
currency, (PRINCIPAL AMOUNT IN U.S. DOLLARS)
unless otherwise indicated) 6.3125%, 2005 2,274 1,956
5.25%, 2023 3,050 1,953
6.5625%, 2023 1,630 1,238
Commonwealth of Australia
9.75%, 2002 550 503
10.00%, 2006 715 693
Republic of Austria,
5.875%, 2000 10,200 991
Kingdom of Belgium,
9.00%, 2003 83,107 3,158
Federal Republic of Brazil
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
(a) 6.50%, 2006 2,350 2,036
(a) 6.50%, 2024 3,300 2,513
Government of Canada,
7.50%, 2003 4,925 4,034
Kingdom of Denmark,
8.00%, 2001 10,326 1,940
Republic of Finland,
10.00%, 2001 1,000 262
French Treasury
8.50%, 2000 15,000 3,257
8.50%, 2002 10,158 2,291
6.75%, 2003 1,900 398
8.50%, 2008 7,500 1,766
German Bundesrepublic,
8.25%, 2001 15,361 11,507
Government of Ireland,
9.25%, 2003 226 446
Italian Treasury,
10.50%, 2000 10,675,000 7,881
United Mexican States
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
11.375%, 2016 770 795
(a) 6.3975%, 2019 1,825 1,544
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Banco Nacional De Comercio Exterior,
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
7.25%, 2004 $ 675 $ 593
Government of the Netherlands,
7.00%, 2003 5,940 3,793
Commonwealth of New Zealand,
10.00%, 2002 242 199
Kingdom of Norway,
9.50%, 2002 1,650 306
(a)Republic of Poland,
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
3.75%, 2014 1,100 950
Republic of Portugal,
8.75%, 2001 41,980 294
Russia Ministry, 9.25%, 2001
(PRINCIPAL AMOUNT IN U.S. DOLLARS) 1,085 1,082
Kingdom of Spain,
11.30%, 2002 312,700 2,922
Kingdom of Sweden
13.00%, 2001 2,400 455
10.25%, 2003 8,600 1,531
United Kingdom,
8.50%, 2005 3,652 6,580
(a)Republic of Venezuela,
(PRINCIPAL AMOUNT IN U.S. DOLLARS)
6.625%, 2007 750 646
---------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $66,861) 70,513
---------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--36.1%
- -----------------------------------------------------------------------------------------------------------
AEROSPACE--1.4% Airplanes Pass Through Trust, 10.875%, 2019 220 243
Fairchild Corporation, 12.00%, 2001 725 727
Howmet Inc., 10.00%, 2003 440 482
K & F Industries, Inc.
11.875%, 2003 515 554
10.375%, 2004 240 252
RHI Holdings, 11.875%, 1999 70 70
UNC, Inc., 11.00%, 2006 760 809
---------------------------------------------------------------------------
3,137
- ------------------------------------------------------------------------------------------------------------
BROADCASTING, CABLESYSTEMS Adelphia Communications Corporation, 12.50%, 2002 120 121
AND PUBLISHING--6.0%
Affinity Group, Inc., 11.50%, 2003 315 330
American Radio System, 9.00%, 2006 670 657
(b)Bell Cablemedia PLC
11.95%, 2004 590 504
11.875%, 2005 30 24
Big Flower Press, Inc., 10.75%, 2003 346 363
CAI Wireless Systems, 12.25%, 2002 300 246
Cablevision Systems Corporation
9.25%, 2005 500 487
9.875%, 2013 210 205
10.50%, 2016 280 284
9.875%, 2023 90 86
Century Communications Corporation, 11.875%, 2003 220 235
(b)Charter Communications, 14.00%, 2007 440 247
(b)Comcast UK Cable Partners Limited, 11.20%, 2007 1,080 745
Comcast Corporation, 9.125%, 2006 190 193
(b)CS Wireless, 11.375%, 2006 620 242
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Echostar Communications, 12.875%, 2004 $ 590 $ 488
Frontiervision, 11.00%, 2006 290 288
Granite Broadcasting Corp., 10.375%, 2005 590 601
Intermedia Capital Partners, 11.25%, 2006 380 386
(b)International Cabletel Incorporated
12.75%, 2005 810 575
11.50%, 2006 140 90
K-III Communications, 8.50%, 2006 400 386
Multicanal Participacoes, 12.625%, 2004 260 280
Neodata Services, 12.00%, 2003 430 447
Netsat Servicos, 12.75%, 2004 200 210
(b)People's Choice TV Unit, 13.125%, 2004 50 21
Rogers Communications, 10.875%, 2004 1,000 1,054
Sinclair Broadcasting Group, Inc., 10.00%, 2003 480 487
Sullivan Broadcasting, 10.25%, 2005 310 313
TeleWest Communications PLC
9.625%, 2006 395 405
(b) 11.00%, 2007 935 631
(b)UIH Australia Pacific, Inc., 14.00%, 2006 1,540 816
Univision TV, 11.75%, 2001 210 221
(b)Videotron Holdings PLC
11.125%, 2004 255 217
11.00%, 2005 250 196
Young Broadcasting Inc., 11.75%, 2004 50 54
---------------------------------------------------------------------------
13,135
- ------------------------------------------------------------------------------------------------------------
CHEMICALS AND Agriculture, Mining and Chemicals, Inc., 10.75%,
AGRICULTURE--1.8% 2003 200 214
Allied Waste, 10.25%, 2006 180 184
Arcadian Partners, L.P., 10.75%, 2005 405 448
Atlantis Group, Inc., 11.00%, 2003 350 359
Hines Horticulture, 11.75%, 2005 680 716
NL Industries, 11.75%, 2003 200 206
Pioneer Americas Acquisition Corporation, 13.375%,
2005 290 326
Polymer Group Inc., 12.25%, 2002 207 225
Rexene Corporation, 11.75%, 2004 555 627
Terra Industries Inc., 10.50%, 2005 190 206
UCC Investors Holdings, Inc., 10.50%, 2002 410 441
---------------------------------------------------------------------------
3,952
- ------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.3% (b)Brooks Fiber, 11.875%, 2006 500 317
(b)Call-Net Enterprise, Inc., 13.25%, 2004 290 234
(b)Cellular, Inc., 11.75%, 2003 150 135
CommNet Cellular, 11.25%, 2005 100 106
(b)ICG Holdings, 13.50%, 2005 520 363
Impsat Corp., 12.125%, 2003 270 284
Intermedia Communications of Florida Inc.,
13.50%, 2005, with warrants expiring 2000 440 521
(b)Millicom International Cellular S.A., 13.50%,
2006 570 351
Nextlink Communications, 12.50%, 2006 120 127
Paging Network, Inc.
11.75%, 2002 490 528
10.125%, 2007 455 458
(b)PanAmSat, L.P., 11.375%, 2003 450 413
Rogers Cantel
11.125%, 2002 885 934
9.375%, 2008 160 168
9.75%, 2016 160 167
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Shared Technology, 12.25%, 2006 $ 230 $ 187
USA Mobile Communications, Inc. II, 14.00%, 2004 520 585
Vanguard Cellular Systems, 9.375%, 2006 790 792
Western Wireless, 10.50%, 2006 480 496
---------------------------------------------------------------------------
7,166
- ------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--1.0% American Standard Inc.
11.375%, 2004 60 65
10.50%, 2005 540 504
(b)Building Materials Corporation of America,
11.75%, 2004 770 662
Nortek, Inc., 9.875%, 2004 500 503
Triangle Pacific Corporation, 10.50%, 2003 495 530
---------------------------------------------------------------------------
2,264
- ------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AMF Group
AND SERVICES--3.0% 10.875%, 2006 860 904
(b) 12.25%, 2006 160 102
Avondale Mills, 10.25%, 2006 420 434
Cinemark USA, Inc., 9.625%, 2008 320 324
Dimon, Inc., 8.875%, 2006 750 787
(b)Dr. Pepper Bottling Holdings, Inc., 11.625%,
2003 370 340
Herff Jones, Inc., 11.00%, 2005 170 183
Pillowtex Corporation, 10.00%, 2006 170 174
Premier Parks Inc., 12.00%, 2003 500 545
(b)Six Flags Theme Park, 12.25%, 2005 850 784
Van De Kamps, Inc., 12.00%, 2005 400 437
West Point Stevens Inc., 9.375%, 2005 1,505 1,546
---------------------------------------------------------------------------
6,560
- ------------------------------------------------------------------------------------------------------------
DRUGS AND Dade International Inc., 11.125%, 2006 400 431
HEALTH CARE--1.5%
Genesis Health Venture, 9.25%, 2006 230 235
Magellan Health Services, 11.25%, 2004 290 322
Ornda Healthcorporation
12.25%, 2002 285 305
11.375%, 2004 230 263
Tenet Healthcare
8.625%, 2003 1,000 1,068
10.125%, 2005 390 430
Unison Healthcare, 12.25%, 2006 180 182
---------------------------------------------------------------------------
3,236
- ------------------------------------------------------------------------------------------------------------
ENERGY AND Benton Oil & Gas Co., 11.625%, 2003 225 248
RELATED SERVICES--2.7%
Chesapeake Energy Corporation, 10.50%, 2002 120 131
Clark USA Inc., 10.875%, 2005 230 238
Coda Energy, 10.50%, 2006 290 307
Empire Gas Corporation, 7.00%,
with warrants, 2004 200 171
Ferrellgas Partners, L.P., 9.375%, 2006 300 302
Flores & Rucks, 13.50%, 2004 180 213
Forcenergy, 9.50%, 2006 170 178
Gulf Canada Resources Limited
9.25%, 2004 200 212
9.625%, 2005 210 229
8.35%, 2006 1,000 1,066
Oryx Energy Co., 8.375%, 2004 1,000 1,052
Parker Drilling, 9.75%, 2006 170 176
Sante Fe Energy Resources, Inc., 11.00%, 2004 100 110
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Meridian Corp., 10.375%, 2005 $ 770 $ 841
Vintage Petroleum, 9.00%, 2005 410 422
---------------------------------------------------------------------------
5,896
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES, Aames Financial, 9.125%, 2003 20 21
HOME BUILDERS
AND REAL ESTATE--1.3%
Chelsea GCA Realty, 7.75%, 2001 660 678
Forecast Group, 11.375%, 2000 80 70
Hovnanian Kent, 11.25%, 2002 226 227
Intertek Finance, 10.25%, 2006 200 206
J.M. Peters Company, 12.75%, 2002 150 143
Kaufman & Broad Home Corp., 9.625%, 2006 280 280
Ryland Group, 10.50%, 2006 765 792
Toll Brothers Inc., 8.75%, 2006 320 320
---------------------------------------------------------------------------
2,737
- ------------------------------------------------------------------------------------------------------------
LODGING AND GAMING--2.8% Bally's Park Place Funding, Inc., 9.25%, 2004 1,685 1,857
Eldorado Resorts, 10.50%, 2006 500 527
Empress River Casino, 10.75%, 2002 400 430
Harvey's Casino Resorts, 10.625%, 2006 530 567
MGM Grand Hotel Finance Corporation, 12.00%, 2002 1,000 1,076
Players International, 10.875%, 2005 470 465
Station Casinos Inc., 10.125%, 2006 620 611
Trump Atlantic City, 11.25%, 2006 700 672
---------------------------------------------------------------------------
6,205
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Aftermarket Technology, 12.00%, 2004 320 355
AND MINING--4.8%
Alvey Systems, 11.375%, 2003 475 495
Collins & Aikman Corporation, 11.50%, 2006 590 631
Crain Industries, Inc., 13.50%, 2005 220 247
Day International Group, Inc., 11.125%, 2005 860 912
Delco Remy International, 10.625%, 2006 400 418
Essex Group Incorporated, 10.00%, 2003 305 316
Euramax International PLC, 11.25%, 2006 350 359
Fairfield Manufacturing Company, 11.375%, 2001 180 187
(b)Foamex - JPS Automotive L.P., 14.00%,
with warrants, 2004 330 267
Foamex L.P.
9.50%, 2000 1,160 1,177
11.25%, 2002 200 210
Great Dane Holding Company, 12.75%, 2001 200 200
GS Technologies
12.00%, 2004 160 166
12.25%, 2005 260 272
Hayes Wheels Intl., 11.00%, 2006 165 177
IMO Industries, 11.75%, 2006 465 439
Jordan Industries, 10.375%, 2003 400 387
JPS Automotive Products Corporation, 11.125%, 2001 150 156
Knoll Inc., 10.875%, 2006 730 796
Motors and Gears, 10.75%, 2006 350 358
Newflo Corporation, 13.25%, 2002 300 332
Penda Industries Inc., 10.75%, 2004 135 125
Spinnaker Industries, 10.75%, 2006 160 164
Thermadyne Industries, Inc.
10.25%, 2002 165 171
10.75%, 2003 600 620
WCI Steel, 10.00%, 2004 500 505
Weirton Steel Corp., 11.375%, 2004 210 207
---------------------------------------------------------------------------
10,649
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER, FOREST PRODUCTS Berry Plastics Corporation, 12.25%, 2004 $ 150 $ 165
AND CONTAINERS--3.0%
BPC Holding Corp., 12.50%, 2006 230 244
Container Corporation of America, 11.25%, 2004 150 161
Crown Paper, 11.00%, 2005 645 595
Florida Coast Paper, 12.75%, 2003 110 116
Four M Corporation, 12.00%, 2006 420 434
Gaylord Container Corporation, 12.75%, 2005 370 405
Maxxam Group, Inc.
11.25%, 2003 500 515
(b) 12.25%, 2003 90 75
National Fiberstock, 11.625%, 2002 420 439
Owens-Illinois, Inc.
11.00%, 2003 758 839
9.75%, 2004 775 806
9.95%, 2004 25 26
Printpack Inc.
9.875%, 2004 50 52
10.625%, 2006 160 168
Riverwood International
10.25%, 2006 140 135
10.875%, 2008 690 624
Specialty Paperboard, 9.375%, 2006 215 218
Stone Container Corporation
11.50%, 2006 140 144
11.875%, 2016 270 284
U.S. Can Corp., 10.125%, 2006 150 157
---------------------------------------------------------------------------
6,602
- ------------------------------------------------------------------------------------------------------------
RETAILING--1.7% Ameriking, 10.75%, 2006 100 102
Brunos, 10.50%, 2005 585 608
Cole National Group, 9.875%, 2006 300 304
Dominick's Finer Foods, 10.875%, 2005 210 233
Federated Department Stores, Inc., 10.00%, 2001 1,000 1,101
Finlay Fine Jewelry Corporation, 10.625%, 2003 655 681
Guitar Center Management, 11.00%, 2006 130 137
Pathmark Stores, Inc., 11.625%, 2002 635 658
---------------------------------------------------------------------------
3,824
- ------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--1.8% Coinmach Corporation, 11.75%, 2005 530 572
Communication and Power Industry, Inc.,
12.00%, 2005 140 153
Computervision Corporation, 11.375%, 1999 1,090 1,142
Corporate Express Inc., 9.125%, 2004 220 222
Delta Air Lines, 9.875%, 2008 461 528
Monarch Marking Systems, 12.50%, 2003 250 279
(b)Transtar Holdings, L.P., 13.375%, 2003 200 156
United Airlines, 9.56%, 2018 750 863
---------------------------------------------------------------------------
3,915
---------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $76,439) $ 79,278
---------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS--.1% NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(c)Echostar Communications 4,487shs. $ 121
(c)Grand Union Company 13,908 80
(c)Intelcom Group, Inc., warrants 1,056 14
(c)Thrifty Payless Inc. 1,596 41
(c)Waxman Industries, Inc., warrants 12,154 24
---------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $778) 280
---------------------------------------------------------------------------
TOTAL INVESTMENTS--107.8%
(Cost: $230,067) 237,064
---------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(7.8%) (17,125)
---------------------------------------------------------------------------
NET ASSETS--100% $219,939
---------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Variable rate security. Rate shown is effective rate on November 30, 1996
and date shown represents the final maturity of the obligation.
(b) Deferred interest obligation; currently zero coupon under the terms of the
initial offering.
(c) Non-income producing security.
Based on the cost of investments of $230,067,000 for federal income tax purposes
at November 30, 1996, the gross unrealized appreciation was $8,456,000, the
gross unrealized depreciation was $1,459,000 and the net unrealized appreciation
of investments was $6,997,000.
See accompanying Notes to Financial Statements.
16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER MULTI-MARKET INCOME TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Multi-Market Income Trust as
of November 30, 1996, the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the fiscal periods since 1992.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Kemper Multi-Market Income Trust at November 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the fiscal periods since 1992, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 17, 1997
17
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value
(Cost: $230,067) $237,064
- -------------------------------------------------------------------------------------------------------
Cash 921
- -------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 729
- -------------------------------------------------------------------------------------------------------
Interest and dividends 5,125
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS 243,839
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Payable for:
Investments purchased 23,691
- -------------------------------------------------------------------------------------------------------
Management fee 155
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 37
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 17
- -------------------------------------------------------------------------------------------------------
Total liabilities 23,900
- -------------------------------------------------------------------------------------------------------
NET ASSETS $219,939
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Paid-in capital $220,403
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on sales of investments and foreign currency transactions (8,124)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and assets and liabilities in foreign currencies 7,429
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income 231
- -------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $219,939
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($219,939 / 20,052 shares outstanding) $10.97
- -------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest $ 18,091
- -------------------------------------------------------------------------------------------------------
Dividends 1,383
- -------------------------------------------------------------------------------------------------------
Total investment income 19,474
- -------------------------------------------------------------------------------------------------------
Expenses:
Management fee 1,828
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 151
- -------------------------------------------------------------------------------------------------------
Professional fees 41
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 44
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 69
- -------------------------------------------------------------------------------------------------------
Total expenses 2,133
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 17,341
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments and foreign currency transactions 2,508
- -------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 56
- -------------------------------------------------------------------------------------------------------
Net realized gain 2,564
- -------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments and assets and liabilities in foreign
currencies 2,929
- -------------------------------------------------------------------------------------------------------
Net gain on investments 5,493
- -------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,834
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 17,341 19,165
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) 2,564 (2,719)
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation 2,929 14,650
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,834 31,096
- ---------------------------------------------------------------------------------------------------------
Distribution from net investment income (21,361) (20,133)
- ---------------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends (119 shares
in 1996) 1,283 --
- ---------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 2,756 10,963
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Beginning of year 217,183 206,220
- ---------------------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment
income of $231 and $5,499, respectively) $ 219,939 217,183
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. The Fund is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
INVESTMENT VALUATION. Investments are stated at
value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Portfolio securities that are
traded on a domestic securities exchange are valued
at the last sale price on the exchange where
primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio
securities that are primarily traded on foreign
securities exchanges are generally valued at the
preceding closing values of such securities on
their respective exchanges where primarily traded.
Securities not so traded are valued at the last
current bid quotation if market quotations are
available. Exchange traded financial futures and
options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded options are valued based upon prices
provided by market makers. 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
required to segregate cash or other liquid assets
equal to the value of the securities purchased. At
November 30, 1996 the Fund had $23,155,000
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
in purchase commitments outstanding (11% 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 and therefore no
federal income tax provision is required. The
accumulated net realized loss on sales of
investments for federal income tax purposes at
November 30, 1996, amounting to approximately
$7,736,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2003.
DIVIDEND TO SHAREHOLDERS. The Fund declares and
pays dividends on 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), and pays a management fee at an annual rate
of .85% of average weekly net assets. The Fund
incurred a management fee of $1,828,000 for the
year ended November 30, 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 $31,000
for the year ended November 30, 1996.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of ZKI.
During the year ended November 30, 1996, the Fund
made no direct payments to its officers and
incurred trustees' fees of $24,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1996, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $738,706
Proceeds from sales 712,693
- --------------------------------------------------------------------------------
4 FINANCIAL FUTURES
CONTRACTS The Fund has entered into exchange traded financial
futures contracts to take advantage of anticipated
market conditions and bears the risk that arises
from entering into these contracts.
At the time the Fund enters into a futures
contract, it is required to segregate liquid assets
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and its broker as the market value
of the futures contract fluctuates. At November 30,
1996, the market value of assets segregated by the
Fund
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
was $12,425,000 for the following financial futures
contracts entered into by the Fund (in thousands):
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN AT
TYPE POSITION AMOUNT MONTH 11/30/96
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Bond Long 1$1,651 December '96 $87
</TABLE>
- --------------------------------------------------------------------------------
5 FORWARD FOREIGN
CURRENCY CONTRACTS In order to help protect itself 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 November 30, 1996,
the Fund had the following forward foreign currency
contracts outstanding with settlement dates in
December, 1996 (in thousands):
<TABLE>
<CAPTION>
FOREIGN CURRENCY CONTRACT AMOUNT UNREALIZED GAIN(LOSS)
TO BE DELIVERED IN U.S. DOLLARS AT 11/30/96
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
1,085 Australian Dollars $ 883 $ (30)
-----------------------------------------------------------------------------------
7,524 Austrian Shillings 696 16
-----------------------------------------------------------------------------------
71,764 Belgium Francs 2,267 50
-----------------------------------------------------------------------------------
2,905 British Pounds 4,880 (75)
-----------------------------------------------------------------------------------
3,664 Canadian Dollars 2,721 34
-----------------------------------------------------------------------------------
8,292 Danish Kroner 1,409 27
-----------------------------------------------------------------------------------
4,736 Dutch Guilders 2,749 59
-----------------------------------------------------------------------------------
850 Finnish Markka 184 3
-----------------------------------------------------------------------------------
27,611 French Francs 5,291 137
-----------------------------------------------------------------------------------
12,249 German Marks 7,976 165
-----------------------------------------------------------------------------------
187 Irish Punts 314 (4)
-----------------------------------------------------------------------------------
8,130,194 Italian Lira 5,366 (11)
-----------------------------------------------------------------------------------
193 New Zealand Dollars 137 (1)
-----------------------------------------------------------------------------------
1,342 Norwegian Kroner 208 4
-----------------------------------------------------------------------------------
35,667 Portugese Escudos 230 4
-----------------------------------------------------------------------------------
252,011 Spanish Pesetas 1,945 41
-----------------------------------------------------------------------------------
9,802 Swedish Kroner 1,461 13
-----------------------------------------------------------------------------------
NET UNREALIZED GAIN $ 432
-----------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $10.90 10.35 11.29 10.88 10.36
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .87 .96 .96 1.04 1.13
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .27 .60 (.97) .45 .48
- -------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.56 (.01) 1.49 1.61
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income 1.07 1.01 .76 1.08 1.09
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .17 -- --
- -------------------------------------------------------------------------------------------------------
Total dividends 1.07 1.01 .93 1.08 1.09
- -------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $10.97 10.90 10.35 11.29 10.88
- -------------------------------------------------------------------------------------------------------
Market value per share, end of year $10.63 10.75 9.38 11.00 10.38
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN
Based on net asset value 11.12% 15.90 (.07) 14.29 16.03
- -------------------------------------------------------------------------------------------------------
Based on market value 9.14% 26.92 (6.48) 16.83 16.26
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .99% 1.02 1.03 .97 .99
- -------------------------------------------------------------------------------------------------------
Net investment income 8.06% 9.13 8.80 9.43 10.33
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $219,939 217,183 206,220 225,055 215,428
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 310% 271 253 240 101
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the year. Total return based on market value reflects changes
in market value. Each figure includes reinvestment of dividends. These figures
will differ depending upon the level of any discount from or premium to net
asset value at which the Fund's shares trade during the year.
23
<PAGE> 24
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment Plan (the "Plan") which is
available to you as a shareholder of KEMPER
MULTI-MARKET 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. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distribution."
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
4 ADDITIONAL
INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
24
<PAGE> 25
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 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.
- --------------------------------------------------------------------------------
6 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 7 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.
- --------------------------------------------------------------------------------
7 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.
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.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participants 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.
- --------------------------------------------------------------------------------
10 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.
- --------------------------------------------------------------------------------
11 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.
25
<PAGE> 26
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
12 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 11 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
13 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.
26
<PAGE> 27
NOTES
27
<PAGE> 28
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR. PHILIP J. COLLORA
President and Trustee Vice President Vice President
Secretary
JAMES E. AKINS ROBERT S. CESSINE JEROME L. DUFFY
Trustee Vice President Treasurer
ARTHUR R. GOTTSCHALK CHARLES R. MANZONI, JR
Trustee Vice President
FREDERICK T. KELSEY MICHAEL A. MCNAMARA
Trustee Vice President
DOMINIQUE P. MORAX JOHN E. NEAL
Trustee Vice President
FRED B. RENWICK HARRY E. RESIS, JR
Trustee Vice President
JOHN B. TINGLEFF JONATHAN W. TRUTTER
Trustee Vice President
JOHN G. WEITHERS RICHARD L. VANDENBERG
Trustee 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
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
222 South Riverside Plaza Chicago, IL 60606
http://www.kemper.com
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KMMIT - 2 (1/97) 1027570
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