<PAGE> 1
[KEMPER FRONT COVER]
<PAGE> 2
TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
.........................................................
<S> <C> <C> <C> <C>
KEMPER MULTI-MARKET
INCOME TRUST 5.09% -3.92%
.........................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/98 11/30/97
......................................................
<S> <C> <C> <C> <C>
NET ASSET VALUE $10.97 $10.83
......................................................
MARKET PRICE $9.81 $10.63
......................................................
</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
differences in liquidity that may affect the volatility of your investment.
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MAY 31, 1998.
<TABLE>
<CAPTION>
KEMPER
MULTI-MARKET
INCOME TRUST
......................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.4050
......................................................
MAY DIVIDEND: $0.0675
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.38%
......................................................
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 8.26%
......................................................
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change in
net asset value/market price assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
GRAY MONDAY The name used to identify Monday, October 27, 1997. On that day the
Dow Jones Industrial average lost 554 points or 7 percent of its total value.
Gray Monday is a comparison to Black Monday, October 19, 1987, when the market
lost almost 23 percent of its total value.
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.
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income investment or portfolio. The longer the duration, the greater the
interest rate risk.
At A GLANCE
CONTENTS
3
ECONOMIC OVERVIEW
5
MANAGEMENT TEAM
6
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF
INVESTMENTS
18
FINANCIAL STATEMENTS
20
NOTES TO
FINANCIAL STATEMENTS
22
FINANCIAL HIGHLIGHTS
23
SHAREHOLDERS' MEETING
Terms To KNOW
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
[BAR GRAPH]
BEIMFORD PHOTO
J. Patrick Beimford, Jr., joined Scudder Kemper Investments, Inc. in 1976 and is
a managing director. He is also lead portfolio 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 managing director of Scudder Kemper Investments and
portfolio manager of Kemper Multi-Market Income Trust. He joined the company in
1993. Cessine received both a bachelor's and M.S. from the University of
Wisconsin.
JOHNS PHOTO
Gordon Johns joined Scudder Kemper Investments in 1988. He is a portfolio
manager of Kemper Multi-Market Income Trust. Johns graduated from Balliol
College, Oxford, with a bachelor's in law.
6
Management TEAM
MCNAMARA PHOTO
Mike McNamara has been with the organization since 1972 and is a managing
director and a portfolio manager of Kemper Multi-Market Income Trust. McNamara
graduated with a bachelor's in business administration from the University of
Missouri and earned an M.B.A. from Loyola University.
RESIS PHOTO
Harry Resis is a managing director of Scudder Kemper Investments. He joined the
company in 1988 and is a portfolio manager of Kemper Multi-Market Income Trust.
Resis received a bachelor's in finance from Michigan State 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.
7
MANAGEMENT Team
<PAGE> 6
THE SIX-MONTH REPORTING PERIOD -- DECEMBER 1, 1997 THROUGH MAY 31, 1998 -- WAS A
RELATIVELY CALM PERIOD AFTER A TUMULTUOUS MARKET DOWNTURN IN LATE OCTOBER 1997.
THE PORTFOLIO MANAGEMENT TEAM OF KEMPER MULTI-MARKET INCOME TRUST CONCENTRATED
ITS EFFORTS ON ADJUSTING THE PORTFOLIO COMPOSITION TO ENHANCE THE FUND'S
INCOME-EARNING POTENTIAL.
Q
HOW DID KEMPER MULTI-MARKET INCOME TRUST PERFORM DURING THE SEMIANNUAL
PERIOD?
A
Total return for the fund based on net asset value was 5.09 percent. In
market value, the fund slipped 3.92 percent during the period.
Q
WHAT CAN YOU TELL US ABOUT THE GLOBAL ECONOMY AND HOW IT AFFECTED THE
MARKETS IN WHICH THE FUND INVESTS?
A
As you probably recall, right before the start of the fiscal period there
was a severe economic crisis in Southeast Asia that triggered steep, but
temporary declines in world markets. Much of what occurred from December through
May was in some way linked to that dramatic, but brief downturn on October 27,
1997, now referred to as Gray Monday.
The theme during much of the six-month period was "flight-to-quality" buying.
We saw investors, still worried about the Asia crisis, favoring those
investments with high credit quality ratings, such as U.S. Treasuries and
mortgages. Even high yield investors tended to favor the most highly-rated high
yield bonds at some points. This quality-driven buying was especially prevalent
immediately after the market decline in November and December.
In response to this trend, Treasuries rallied in December, pushing the
benchmark 30-year Treasury yield to a low of 5.92 percent on December 31.
Remember a bond's yield and price are inversely related. As the yield of a bond
falls, its price rises. The decline of Treasury yields was positive for
government bond investors. As time progressed, investors' confidence improved,
lessening the degree of flight-to-quality buying.
Despite the trouble in Asia, the U.S. stock market continued to soar to new
highs. This, in turn, reinforced confidence in the high yield market, where
record levels of new issues were brought to market and gobbled up by investors.
Performance in the high yield market was positive throughout the period.
Emerging market investments also gained momentum after suffering through some
of the steepest declines in October. These securities performed well through
most of the six-month period and, along with high yield bonds, were the two top-
performing income asset classes during the period, according to Salomon Brothers
Total Rate-of-Return Indices.
Political events, such as problems with Iraq and ongoing scandals in
Washington involving the President, stalled the markets at times but never had a
profound impact on investment performance. The Federal Reserve Board met to
discuss interest rates and decided to leave them unchanged. All in all, it was a
fairly stable six-month period, with relatively strong economic growth but no
real signs of a pick up in inflation. It was a good period for fixed-income
investments.
Q
WHAT TYPES OF ADJUSTMENTS DID YOU MAKE TO THE FUND?
A
The most significant move that we made was to eliminate the fund's
position in foreign currency bonds. The reason for this was two-fold. First, we
believed that the U.S. bond market had more potential to outperform foreign
bonds on an absolute level. Second, yields in many foreign markets were well
below yields achievable through U.S. investments.
When we had been invested in these types of bonds, we hedged them back to the
U.S. dollar to minimize currency risk, which in turn limited the income the fund
could earn. The move out of this sector was the right one for the fund. It
enabled us to invest assets in other sectors where we saw more opportunity to
enhance income-earning potential.
Q
DID YOU MAKE ANY OTHER SIGNIFICANT PORTFOLIO ADJUSTMENTS?
A
During the period, the market enjoyed robust economic growth with
relatively no inflationary pressures. We positioned the fund to take advantage
of this environment by increasing its position in high yield bonds and emerging
market investments. These adjustments enhanced the fund's income-earning
potential.
Ever increasing demand for high yield bonds fueled gains in the market as
corporate earnings continued to be strong. Record levels of supply kept pace
with demand and a great deal of new, lower-quality issues were consumed by the
8
Performance UPDATE
<PAGE> 7
market. We stayed away from many of these riskier issues, favoring higher
quality (generally B-rated) bonds, from fundamentally strong companies. Although
these higher-quality issues didn't necessarily offer the highest returns in the
short run, we felt they would withstand economic or market uncertainty and
provide strong returns in the long run.
Emerging market investments excelled during most of the period. We took
advantage of this performance by increasing our allocation to 11 percent on May
31, from 9 percent at the start of the period. Since there is more risk
associated with emerging market investments, they pay a higher rate of income.
This increased level of income should be beneficial for the fund's
income-earning potential, and we believe that the trade-off in risk vs. return
was appropriate. Additionally, we are now able to benefit from a larger pool of
emerging market investment talent, made possible through the recent alliance of
Zurich Kemper Investments, Inc. with Scudder Stevens & Clark, Inc. These
enhanced resources will help us identify a wider variety of investment options
in the emerging markets sector, which should be beneficial for the fund.
Q
HOW WAS THE INCREASED ALLOCATION TO HIGH YIELD BONDS AND EMERGING MARKET
INVESTMENTS FUNDED?
A
We funded these investments through our elimination of foreign currency
bonds and a reduction in Treasuries. Although we still see good value in
Treasuries, we felt that the additional income potential we could gain from the
other sectors, would more than offset the gains that might have been achieved by
maintaining a large allocation in Treasuries. On May 31, Treasuries represented
18 percent of the portfolio, down from 26 percent at the start of the period. We
plan to keep a fair representation of Treasuries in the portfolio as they play
an important role in maintaining a high overall credit-rating for the fund. They
offset some of the lower-quality high yield and emerging market investments in
the fund. This provides investors with the potential for high returns with lower
volatility.
Q
WHAT'S THE OUTLOOK FOR FIXED-INCOME MARKETS AND THE FUND IN PARTICULAR?
A
Our outlook is for economic growth to continue at a moderate pace. We
don't anticipate that inflationary pressures will gain momentum. Given that type
of environment, the bond markets and Kemper Multi-Market Income Trust should
enjoy good performance.
YEAR 2000 ISSUE
Like other registered investment companies and financial and business
organizations worldwide, the fund could be adversely affected if computer
systems on which the fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the fund's business and operations. The Manager has commenced a review of the
Year 2000 Issue as it may affect the fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
companies whose securities are held by the fund or on global markets or
economies generally.
Year 2000
9
PERFORMANCE Update
<PAGE> 8
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
<S> <C> <C> <C> <C>
HIGH YIELD CORPORATE BONDS 54% 47%
......................................................................................................
EMERGING MARKETS
(U.S.DOLLAR-DENOMINATED) 11 4
......................................................................................................
FOREIGN CURRENCY BONDS -- 5
......................................................................................................
HIGH GRADE CORPORATE BONDS 7 5
......................................................................................................
MORTGAGES 9 8
......................................................................................................
TREASURY NOTES AND BONDS 18 26
......................................................................................................
CASH AND EQUIVALENTS 1 5
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
<S> <C> <C> <C> <C>
AAA 26% 41%
......................................................................................................
AA 1 --
......................................................................................................
A 3 2
......................................................................................................
BBB 3 4
......................................................................................................
BB 18 9
......................................................................................................
B 45 41
......................................................................................................
OTHER 4 3
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
THE RATINGS OF STANDARD AND POOR'S CORPORATION (S&P) AND MOODY'S INVESTORS
SERVICES, INC. (MOODY'S) REPRESENT THEIR OPINIONS AS TO THE QUALITY OF
SECURITIES THAT THEY UNDERTAKE TO RATE. THE PERCENTAGE SHOWN REFLECTS THE HIGHER
OF MOODY'S OR S&P RATINGS. RATINGS ARE RELATIVE AND SUBJECTIVE AND NOT ABSOLUTE
STANDARDS OF QUALITY.
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
<S> <C> <C> <C> <C>
AVERAGE MATURITY 11.0 years 10.4 years
- -----------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
10
Portfolio STATISTICS
<PAGE> 9
KEMPER MULTI-MARKET INCOME TRUST
Portfolio of Investments at May 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS--25.5% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bonds
10.75%, 2005 $ 5,270 $ 6,835
13.875%, 2011 1,500 2,268
12.00%, 2013 3,500 5,158
13.25%, 2014 3,900 6,232
10.625%, 2015 7,615 11,539
6.125%, 2027 120 125
U.S. Treasury Notes
7.50%, 2005 460 507
5.625%, 2008 150 151
5.50%, 2008 260 258
U.S. Treasury Strip, zero coupon, 2019 20,000 5,895
Federal Home Loan Mortgage Corp.,
6.50%, 2023 6,664 6,664
Government National Mortgage Association,
6.50%, 2023-2028 10,521 10,495
----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $53,871) 56,127
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--13.3%
(PRINCIPAL AMOUNT (a)Republic of Argentina
IN U.S. DOLLARS) 11.375%, 2017 5,500 5,863
9.75%, 2027 1,000 928
Republic of Korea,
8.875%, 2008 5,000 4,700
(a)Federal Republic of Brazil,
10.125%, 2027 2,500 2,262
United Mexican States
11.375%, 2016 4,000 4,572
11.50%, 2026 2,100 2,444
Russia Ministry of Finance -- Global
Bond,
10.00%, 2007 2,500 2,225
Republic of Venezuela,
9.25%, 2027 7,500 6,293
----------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $30,021) 29,287
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--59.7%
ASSET BACKED Pacific Gas & Electric, 6.42%, 2008 200 203
SECURITIES--.2%
Southern California Edison Co.
6.22%, 2004 100 101
6.28%, 2005 50 50
----------------------------------------------------------------------------
354
- -----------------------------------------------------------------------------------------------------------------------
BROADCASTING, Affinity Group, Inc., 11.50%, 2003 315 332
CABLESYSTEMS AND
PUBLISHING--7.6%
American Banknote Corp., 11.25%, with
warrants, 2007 330 332
(b)American Lawyer, 12.25%, 2008 70 45
Busse Broadcasting, 11.625%, 2000 120 129
CSC Holdings, Inc.
7.875%, 2007 100 103
8.125%, 2009 340 356
10.50%, 2016 340 395
</TABLE>
11
PORTFOLIO OF Investments
<PAGE> 10
<TABLE>
<CAPTION>
(IN THOUSANDS)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Capstar Broadcasting
9.25%, 2007 $ 320 $ 330
(b) 12.75%, 2009 320 242
Century Communications Corp., 8.375%,
2007 200 202
Chancellor Media Corp., 8.125%, 2007 340 339
(b)Charter Communications, 14.00%, 2007 440 355
Comcast Cablevision, 8.50%, 2027 150 177
(b)Comcast UK Cable Partners, Ltd.,
11.20%, 2007 1,080 887
(b)DIVA Systems Corp., 12.625%, 2008 460 244
(b)Diamond Cable Communications, PLC
13.25%, 2004 525 492
11.75%, 2005 285 228
10.75%, 2007 325 232
Frontiervision
11.00%, 2006 330 366
(b) 11.875%, 2007 420 325
Granite Broadcasting Corp., 10.375%, 2005 590 620
Intermedia Capital Partners, 11.25%, 2006 380 425
(b)International Cabletel, Inc., 12.75%,
2005 730 641
Mediacom LLC, 8.50%, 2008 125 123
NTL, 10.00%, 2007 100 107
News America Holdings, Inc., 9.25%, 2013 240 289
Newsquest Capital, PLC, 11.00%, 2006 30 34
(b)PX Escrow Corp., 9.625%, 2006 465 331
SFX Entertainment, Inc., 9.125%, 2008 500 488
Salem Communications Corp., 9.50%, 2007 260 272
Sinclair Broadcasting Group, Inc.,
8.75%, 2007 240 244
Star Choice, 13.00%, with warrants, 2005 275 299
Sullivan Broadcasting, 10.25%, 2005 310 350
Tele-Communications, Inc., 9.80%, 2012 800 1,011
(b)TeleWest Communications, PLC,
11.00%, 2007 685 551
Time Warner, Inc., 9.15%, 2023 400 501
(b)Transwestern Holdings, 11.875%, 2008 1,160 771
Transwestern Publishing, 9.625%, 2007 2,360 2,449
(b)21st Century Telecom Group, Inc.,
12.25%, 2008 300 171
U.S. West Cap Funding
7.90%, 2027 250 291
7.95%, 2097 250 297
(b)United International Holdings, 10.75%,
2008 700 439
----------------------------------------------------------------------------
16,815
- -----------------------------------------------------------------------------------------------------------------------
BUSINESS Allied Waste Industries
SERVICES--1.0%
10.25%, 2006 180 197
(b) 11.30%, 2007 650 477
Corporate Express, Inc., 9.125%, 2004 220 232
General Binding Corp., 9.375%, 2008 170 171
Outdoor Systems
9.375%, 2006 600 633
8.875%, 2007 250 259
USA Waste Services, Inc., 7.00%, 2004 250 258
----------------------------------------------------------------------------
2,227
</TABLE>
12
Portfolio of INVESTMENTS
<PAGE> 11
PORTFOLIOS OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS AND Agriculture, Mining and Chemicals, Inc.,
AGRICULTURE--1.8% 10.75%, 2003 $ 200 $ 213
Atlantis Group, Inc., 11.00%, 2003 350 361
Hines Horticulture, 11.75%, 2005 680 748
Huntsman Corp., 9.50%, 2007 440 446
Huntsman Polymer Corp., 11.75%, 2004 555 611
(b)NL Industries, Inc., 13.00%, 2005 70 72
Octel Developments, PLC, 10.00%, 2006 130 133
Terra Industries, Inc., 10.50%, 2005 200 217
Texas Petrochemicals, 11.125%, 2006 590 643
UCC Investors Holdings, Inc., 10.50%,
2002 410 464
--------------------------------------------------------------------------
3,908
- -----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--10.5% American Cellular Corp., 10.625%, 2008 210 208
(b)Call-Net Enterprise, Inc.
13.25%, 2004 120 114
9.27%, 2007 300 210
Communication and Power Industry, Inc.,
12.00%, 2005 140 157
Dobson Communication, 11.75%, 2007 500 537
Econophone Inc., 13.50%, with warrants,
2007 650 760
Esprit Telecom, 11.50%, 2007 400 428
(b)Focal Communication Corp., 12.125%, 2008 350 213
GCI General Communication, 9.75%, 2007 445 464
(b)ICG Holdings, 13.50%, 2005 765 643
(b)ICG Services, Inc.
10.00%, 2008 320 202
9.875%, 2008 200 122
(b)IPC Information Systems, 10.875%, 2008 500 362
Interamerica Communication, 14.00%, 2007 100 100
Intermedia Communications of Florida,
Inc.
(b) 12.50%, 2006 170 139
(b) 11.25%, 2007 730 533
8.875%, with warrants, 2007 170 214
(b)KMC Telecom Holdings, Inc., 12.50%,
2008 650 390
Level 3 Communications, 9.125%, 2008 600 585
Long Distance International, 12.25%, 2008 300 303
MGC Communications, 13.00%, with
warrants, 2004 400 440
McLeod USA
(b) 10.50%, 2007 1,115 831
9.25%, 2007 250 260
Metronet Communication
12.00%, with warrants, 2007 150 183
(b) 10.75%, 2007 180 122
(b)Millicom International Cellular, S.A.,
13.50%, 2006 770 602
Netia Holdings
(b) 11.25%, 2007 180 125
10.25%, 2007 70 69
(b)Nextel Communications
9.75%, 2004 390 377
10.65%, 2007 855 567
9.75%, 2007 155 100
Nextlink Communications
12.50%, 2006 340 388
(b) 9.45%, 2008 240 146
9.00%, 2008 290 289
(b)PTC International Finance, 10.75%,
2007 2,530 1,752
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Performance Systems International, Inc.,
10.00%, 2005 $ 300 $ 304
(b)Pinnacle Holdings, 10.00%, 2008 500 322
Primus Telecommunications Group, 11.75%,
with warrants, 2004 250 275
RCN Corp., 10.00%, 2007 3,180 3,323
(b)SBA Communication, 12.00%, 2008 600 369
Satelites Mexicanos, S.A. de C.V.,
10.125%, 2004 160 160
Teligent, 11.50%, 2007 1,250 1,272
USA Mobile Communications, Inc. II,
14.00%, 2004 300 332
Vanguard Cellular Systems, 9.375%, 2006 350 367
Versatel Telecom, 13.25%, 2008 230 238
Viasystems, Inc., 9.75%, 2007 800 810
Viatel, Inc.
(b) 12.50%, 2008 310 189
11.25%, 2008 230 244
Winstar Equipment
12.50%, 2004 690 766
15.00%, 2007 310 391
11.00%, 2008 80 77
10.00%, 2008 200 194
Worldcom, Inc.
7.75%, 2007 150 163
7.75%, 2027 400 448
--------------------------------------------------------------------------
23,179
- -----------------------------------------------------------------------------------------------------------------------
CONSTRUCTION (b)American Standard, Inc., 10.50%, 2005 540 562
MATERIALS--1.9% Brand Scaffold Services, Inc., 10.25%,
2008 140 143
(b)Building Materials Corporation of
America, 11.75%, 2004 770 751
Desa International, 9.875%, 2007 1,250 1,247
Falcon Building, 9.50%, 2007 475 475
Nortek, Inc., 9.125%, 2007 680 693
Waxman Industries, Inc.
(b) 12.75%, 2004 100 94
(c) 12,154 warrants expiring 2004 22
Werner Holdings, 10.00%, 2007 220 229
--------------------------------------------------------------------------
4,216
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AEP Industries, 9.875%, 2007 170 175
AND SERVICES--6.9% AFC Enterprises, 10.25%, 2007 780 828
AMF Bowling World
(b) 12.25%, 2006 98 79
10.875%, 2006 860 941
CEX Holdings, Inc., 9.625%, 2008 180 182
Cinemark USA, Inc., 9.625%, 2008 570 587
Coinmach Corp., 11.75%, 2005 1,035 1,154
(b)Crown Castle, 10.625%, 2007 1,000 675
Dimon, Inc., 8.875%, 2006 200 199
Doskocil Manufacturing Co., 10.125%, 2007 260 276
Dyersburg Corp., 9.75%, 2007 1,085 1,101
Grupo Azucarero Mexico, S.A. de C.V.,
11.50%, 2005 350 298
Hedstrom Corp., 10.00%, 2007 720 738
Herff Jones, Inc., 11.00%, 2005 290 319
IMPAC Group, Inc., 10.125%, 2008 470 471
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Imperial Home Decor Group, Inc., 11.00%,
2008 $ 200 $ 207
Kinder-Care Learning Centers, 9.50%, 2009 730 738
La Petite Academy, Inc., 10.00%, 2008 170 171
Mastellone Hermanos, 11.75%, 2008 350 357
NBTY, Inc., 8.625%, 2007 340 343
Outboard Marine, 10.75%, 2008 160 162
Park Ohio Industries, 9.25%, 2007 1,175 1,207
Perkins Family Restaurants, L.P.,
10.125%, 2007 170 180
Premier Parks, Inc., 12.00%, 2003 260 288
(b)Restaurant Co., 11.25%, 2008 330 198
Royal Caribbean, 8.25%, 2005 250 272
(b)Sealy Mattress, 10.875%, 2007 150 100
Sears Roebuck Acceptance Corp., 7.00%,
2007 500 522
(b)Six Flags Theme Park, 12.25%, 2005 1,000 1,135
(b)Spin Cycle, 12.75%, 2005 400 284
United Artists Theatre Co., 9.75%, 2008 440 440
Van De Kamps, Inc., 12.00%, 2005 500 558
--------------------------------------------------------------------------
15,185
- -----------------------------------------------------------------------------------------------------------------------
DRUGS AND Dade International, Inc., 11.125%, 2006 400 446
HEALTH CARE--2.3% Jackson Products, Inc., 9.50%, 2005 200 202
Magellan Health Services, 9.00%, 2008 800 790
Mediq Inc., 11.00%, 2008 240 244
Multicare Co., 9.00%, 2007 530 514
Paracelsus Healthcare, 10.00%, 2006 150 154
Paragon Health, 10.50%, 2007 2,850 1,874
(b)Tenet Healthcare, 8.625%, 2003 500 528
Vencor, 9.875%, 2005 310 312
--------------------------------------------------------------------------
5,064
- -----------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED AEI Holdings, 10.00%, 2007 245 246
SERVICES--3.8% Bellweather Exploration, 10.875%, 2007 500 526
Benton Oil & Gas Co.
11.625%, 2003 525 557
9.375%, 2007 160 156
Chesapeake Energy Corp., 9.625%, 2005 240 240
Clark USA, 8.875%, 2007 180 180
Coho Energy, Inc., 8.875%, 2007 180 169
Commonwealth Edison
7.375%, 2004 225 234
7.00%, 2005 50 52
Dailey International Inc., 9.50%, 2008 290 287
Denbury Management, 9.00%, 2008 70 69
Espirito Santos Centrais Electricas S.A.,
10.00%, 2007 580 518
Forcenergy Gas Exploration, 9.50%, 2006 580 586
GTE North Inc., 6.90%, 2008 450 470
Hyder, PLC, 6.875%, 2007 400 410
Mariner Energy, 10.50%, 2006 100 103
Michael Petroleum Corp., 11.50%, 2005 160 161
Northern Offshore ASA., 10.00%, 2005 370 374
Pacalta Resources, 10.75%, 2004 840 855
Parker Drilling Corp., 9.75%, 2006 100 105
Plains Resources, 10.25%, 2006 255 270
RAM Energy, 11.50%, 2008 150 150
Rutherford-Moran Oil Corp., 10.75%, 2004 190 203
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Seven Seas Petroleum Inc., 12.50%, 2005 $ 170 $ 172
Stone Energy Corp., 8.75%, 2007 390 390
United Meridian Corp., 10.375%, 2005 450 495
Yorkshire Power Finance, 6.496%, 2008 325 323
--------------------------------------------------------------------------
8,301
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES, Aegon N.V., 8.00%, 2006 500 551
HOMEBUILDERS AND BCH Cayman Islands, 7.70%, 2006 250 268
REAL ESTATE--4.8% Beazer Homes, 8.875%, 2008 125 122
Del Webb Corp.
9.750%, 2008 740 748
9.375%, 2009 410 402
Falcon Holding Group L.P.
(b) 9.285%, 2010 440 277
8.375%, 2010 480 474
FINOVA Capital Corp., 9.125%, 2002 500 547
Firstar Bank Milwaukee, 6.25%, 2002 300 302
Fleet Financial Group, Inc.
8.125%, 2004 100 109
8.625%, 2007 425 487
Forecast Group, L.P., 11.375%, 2000 150 145
Fortress Group, 13.75%, 2003 640 723
Hovnanian Enterprises, 11.25%, 2002 226 234
Intertek Finance, 10.25%, 2006 680 719
Kevco, Inc., 10.375%, 2007 1,330 1,383
Lehman Brothers Holdings, 7.375%, 2007 500 528
Morgan Stanley Group, 6.875%, 2007 500 517
NationsBank Corp., 9.50%, 2004 550 638
Scotland International, 8.80%, 2004 200 224
Svenska Handelsbanken, 7.125%, 2049 175 179
UDC Homes, 12.50%, 2000 190 194
Williams Scotsman, 9.875%, 2007 700 728
--------------------------------------------------------------------------
10,499
- -----------------------------------------------------------------------------------------------------------------------
HOTELS AND Eldorado Resorts, 10.50%, 2006 540 593
GAMING--1.0% Empress River Casino, 10.75%, 2002 230 247
HMH Properties, 8.875%, 2007 50 56
Hard Rock Hotel, 9.25%, 2005 130 133
Harvey's Casino Resorts, 10.625%, 2006 690 769
Players International, 10.875%, 2005 220 240
Trump Atlantic City, 11.25%, 2006 95 94
--------------------------------------------------------------------------
2,132
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Accuride, 9.25%, 2008 350 349
AND MINING--7.8% Aftermarket Technology, 12.00%, 2004 240 265
Airxcel, 11.00%, 2007 440 465
Alvey Systems, 11.375%, 2003 230 247
Bar Technologies, 13.50%, 2001 550 591
Case Corp., 6.75%, 2007 500 511
Centaur Mining & Exploration, Ltd.,
11.00%, 2007 1,250 1,303
Collins & Aikman Corp., 11.50%, 2006 340 381
Day International Group, Inc., 11.125%,
2005 750 818
Doe Run Co.
12.00%, 2003 250 255
11.25%, 2005 120 122
E-P Acquisition, Inc., 9.375%, 2008 100 100
Earle M. Jorgensen Co., 9.50%, 2005 180 180
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Euramax International, PLC, 11.25%, 2006 $ 1,465 $ 1,590
Foamex, L.P.
13.50%, 2005 270 312
9.875%, 2007 155 167
GS Technologies
12.00%, 2004 90 98
12.25%, 2005 180 201
Great Central Mines LTD, 8.875%, 2008 200 199
Great Lakes Carbon Corp., 10.25%, 2008 160 162
(b)Grove Holdings LLC, 11.56%, 2009 100 59
Grove Investors, 14.50%, 2010 150 151
Grove Worldwide LLC, 9.25%, 2008 150 150
Hayes Wheels International, 9.125%, 2007 435 457
JPS Automotive Products Corp., 11.125%,
2001 150 167
Knoll, Inc., 10.875%, 2006 504 567
Lodestar Holdings, Inc., 11.50%, 2005 170 171
MMI Products, 11.25%, 2007 480 527
Metal Management, Inc., 10.00%, 2008 240 238
Metals USA, Inc., 8.625%, 2008 175 170
Motors and Gears, Inc., 10.75%, 2006 430 456
NSM Steel
12.00%, 2006 360 324
12.25%, 2008 460 423
Neenah Corp., 11.125%, 2007 710 781
Pillowtex Corp., 9.00%, 2007 150 157
Prestolite Electric, Inc., 9.625%, 2008 265 270
Renco Steel Holdings, 10.875%, 2005 270 275
Rental Service Corp., 9.00%, 2008 230 228
Scovill Fastners, 11.25%, 2007 230 237
Terex Corp., 8.875%, 2008 380 373
Venture Holdings, 9.50%, 2005 400 409
Wells Aluminum Corp., 10.125%, 2005 740 783
Wheeling-Pitt Corp., 9.250%, 2007 1,460 1,507
--------------------------------------------------------------------------
17,196
- -----------------------------------------------------------------------------------------------------------------------
PAPER, FOREST BPC Holding Corp., 12.50%, 2006 230 251
PRODUCTS AND CONTAINERS--4.7% Berry Plastics Corp., 12.25%, 2004 150 164
Doman Industries, Ltd., 9.25%, 2007 1,290 1,298
Fonda Group, 9.50%, 2007 935 907
Gaylord Container Corp.
9.75%, 2007 130 133
9.875%, 2008 1,000 1,005
Graham Packaging Co.
9.25%, 2008 160 162
8.75%, 2008 150 151
(b) 10.75%, 2009 160 100
Maxxam Group, Inc.
(b) 12.25%, 2003 90 94
11.25%, 2003 500 528
Millar Western Forest Products Ltd.,
9.875%, 2008 170 170
National Fiberstock Corp., 11.625%, 2002 450 479
Norampac, 9.50%, 2008 420 430
Pindo Deli Finance Mauritius, Ltd.,
10.75%, 2007 20 14
Plainwell, Inc., 11.00%, 2008 240 243
Printpack, Inc.
9.875%, 2004 50 53
10.625%, 2006 290 310
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repap Enterprises Inc., 9.00%, 2004 $ 160 $ 162
Riverwood International
10.25%, 2006 230 237
10.625%, 2007 120 126
10.875%, 2008 695 707
(b)SF Holdings Group, Inc., 12.75%, 2008 300 161
Spinnaker Industries, 10.75%, 2006 1,880 1,955
Stone Container Corp.
12.25%, 2002 40 41
11.50%, 2006 275 308
U.S. Can Corp., 10.125%, 2006 260 270
--------------------------------------------------------------------------
10,459
- -----------------------------------------------------------------------------------------------------------------------
RETAILING--3.7% Advantica Restaurant Co., 11.25%, 2008 864 911
Ameriking, 10.75%, 2006 490 529
Cole National Group
9.875%, 2006 170 183
8.625%, 2007 80 81
Federated Department Stores, Inc.,
10.00%, 2001 600 657
Finlay Enterprises, 9.00%, 2008 150 150
Galey & Lord, 9.125%, 2008 220 218
Guitar Center Management, 11.00%, 2006 87 96
Iron Age Holdings, Corp.
9.875%, 2008 160 160
(b) 12.125%, 2009 140 79
J. Crew
10.375%, 2007 400 388
(b) 13.12%, 2008 830 473
Jafra Cosmetics International, Inc.,
11.75%, 2008 300 300
Krystal Co., 10.25%, 2007 230 236
Nine West Group, 9.00%, 2007 170 166
Pathmark Stores, 9.625%, 2003 440 448
Petro Stopping Centers, 10.50%, 2007 820 881
Phillips Van-Heusen, 9.50%, 2008 240 240
Riddell Sports, 10.50%, 2007 815 839
Specialty Retailers
8.50%, 2005 60 62
9.00%, 2007 120 124
TravelCenters America, Inc., 10.25%, 2007 970 1,021
--------------------------------------------------------------------------
8,242
- -----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.1% Axiohm Transaction Solutions, Inc.,
9.75%, 2007 175 177
--------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION--1.6% Canadian Airlines Corp., 10.00%, 2005 $ 250 $ 254
Continental Airlines
7.75%, 2014 285 305
6.90%, 2018 250 254
Delta Air Lines, 9.875%, 2008 445 512
Lockheed Martin, 7.70%, 2008 500 548
TFM, S.A. de CV, 10.25%, 2007 1,330 1,337
Trans World Airlines, Inc., 11.375%, 2006 220 220
(b)Transtar Holdings, L.P., 13.375%, 2003 200 185
----------------------------------------------------------------------------
3,615
----------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $127,527) 131,569
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
COMMON AND
PREFERRED STOCKS--.7% (c)Capital Pacific Holdings 1,185shs. 1
(c)Clark USA, PIK, preferred 1,058 112
Crown American Realty, preferred 4,650 249
(c)Dobson Communication, PIK, preferred 123 131
(c)Eagle-Picher Holdings 40 231
(c)Empire Gas Corp., warrants 552 3
(c)Foamex International, warrants 330 7
(c)Intelcom Group, Inc. 1,056 20
(c)Nextel, PIK, preferred 180 184
(c)Nextlink Communication, convertible
preferred 600 28
(c)SF Holdings, PIK, preferred 10 91
Sinclair Capital, preferred 3,600 398
(c)21st Century Telecom Group, Inc.,
preferred 60 66
----------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost: $1,415) 1,521
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--.9% Yield--5.58%
Due--June 1998
(Cost: $1,996) $2,000 1,996
----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.1%
(Cost: $214,830) 220,500
----------------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(.1)% (119)
----------------------------------------------------------------------------
NET ASSETS--100% $ 220,381
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Variable rate security. Rate shown is the effective rate on May 31, 1998 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.
PIK denotes that interest or dividend is paid in kind.
Based on the cost of investments of $214,830,000 for federal income tax purposes
at May 31, 1998, the gross unrealized appreciation was $6,841,000, the gross
unrealized depreciation was $1,171,000 and the net unrealized appreciation on
investments was $5,670,000.
See accompanying Notes to Financial Statements.
19
<PAGE> 18
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
Investments, at value
(Cost: $214,830) $220,500
- ------------------------------------------------------------------------
Receivable for:
Investments sold 6,730
- ------------------------------------------------------------------------
Interest 4,058
- ------------------------------------------------------------------------
TOTAL ASSETS 231,288
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Cash overdraft 889
- ------------------------------------------------------------------------
Payable for:
Investments purchased 9,831
- ------------------------------------------------------------------------
Management fee 156
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 26
- ------------------------------------------------------------------------
Trustees' fees and other 5
- ------------------------------------------------------------------------
Total liabilities 10,907
- ------------------------------------------------------------------------
NET ASSETS $220,381
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $220,819
- ------------------------------------------------------------------------
Accumulated net realized loss on sales of investments and
foreign currency transactions (6,452)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 5,670
- ------------------------------------------------------------------------
Undistributed net investment income 344
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $220,381
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($220,381 divided by 20,090 shares outstanding) $10.97
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest $ 9,897
- -----------------------------------------------------------------------
Dividends 55
- -----------------------------------------------------------------------
Total investment income 9,952
- -----------------------------------------------------------------------
Expenses:
Management fee 939
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 62
- -----------------------------------------------------------------------
Professional fees 27
- -----------------------------------------------------------------------
Reports to shareholders 40
- -----------------------------------------------------------------------
Trustees' fees and other 17
- -----------------------------------------------------------------------
Total expenses 1,085
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 8,867
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 1,163
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 980
- -----------------------------------------------------------------------
Net gain on investments 2,143
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,010
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
- ----------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 8,867 16,466
- ----------------------------------------------------------------------------------------------------
Net realized gain 1,163 1,297
- ----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 980 (2,739)
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,010 15,024
- ----------------------------------------------------------------------------------------------------
Distribution from net investment income (8,137) (17,871)
- ----------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(38 shares in 1997) -- 416
- ----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,873 (2,431)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Beginning of period 217,508 219,939
- ----------------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed net investment income
of $344 in 1998) $220,381 217,508
- ----------------------------------------------------------------------------------------------------
</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.
FOREIGN CURRENCY TRANSLATION. The books and records
of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
rates of exchange. Purchases and sales of
investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions. The Fund includes that portion of the
results of operations resulting from changes in
foreign exchange rates with net realized and
unrealized gain (loss) 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 and includes discount
amortization on fixed income 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
May 31, 1998, the Fund had $3,976,000 in purchase
commitments outstanding (1.8% 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, 1998. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1998, amounting to
approximately
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
$5,301,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2003.
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 Scudder Kemper Investments, Inc.
(Scudder Kemper), and pays a management fee at an
annual rate of .85% of average weekly net assets.
The Fund incurred a management fee of $939,000 for
the six months ended May 31, 1998.
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 $12,000
for the six months ended May 31, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended May 31,
1998, the Fund made no direct payments to its
officers and incurred trustees' fees of $13,000 to
independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the six months ended May 31, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $197,358
Proceeds from sales 189,484
21
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -----------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.83 10.97 10.90 10.35 11.29
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .44 .82 .87 .96 .96
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .11 (.07) .27 .60 (.97)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations .55 .75 1.14 1.56 (.01)
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .41 .89 1.07 1.01 .76
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .17
- ----------------------------------------------------------------------------------------------------------
Total dividends .41 .89 1.07 1.01 .93
- ----------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $10.97 10.83 10.97 10.90 10.35
- ----------------------------------------------------------------------------------------------------------
Market value per share, end of period $9.81 10.63 10.63 10.75 9.38
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Based on net asset value 5.09% 7.20 11.12 15.90 (.07)
- ----------------------------------------------------------------------------------------------------------
Based on market value (3.92)% 8.72 9.14 26.92 (6.48)
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------------------
Expenses .97% 1.01 .99 1.02 1.03
- ----------------------------------------------------------------------------------------------------------
Net investment income 8.03% 7.61 8.06 9.13 8.80
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $220,381 217,508 219,939 217,183 206,220
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 134% 304 310 271 253
- ----------------------------------------------------------------------------------------------------------
</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. Data for the
period ended May 31, 1998 is unaudited.
22
<PAGE> 23
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Multi-Market Income Trust shareholders were asked to vote on
three separate issues: election of the two members to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors, and approval of a new
investment management agreement with Scudder Kemper Investments, Inc. The
following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Daniel Pierce 16,868,014 268,506
Edmond D. Villani 16,876,558 259,962
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
16,892,798 87,784 155,939
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
15,858,240 149,827 341,064 787,390
</TABLE>
23
<PAGE> 24
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY MICHAEL A. MCNAMARA
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA ROBERT C. PECK, JR.
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK KATHRYN L. QUIRK
Trustee JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY HARRY E. RESIS, JR.
Trustee J. PATRICK BEIMFORD, JR. Vice President
Vice President
FRED B. RENWICK RICHARD L. VANDENBERG
Trustee ROBERT S. CESSINE Vice President
Vice President
JOHN B. TINGLEFF LINDA J. WONDRACK
Trustee JERARD K. HARTMAN Vice President
Vice President
EDMOND D. VILLANI MAUREEN E. KANE
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
JOHN G. WEITHERS CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
ELIZABETH C. WERTH
Assistant Secretary
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419066
Kansas City, MO 64141-6066
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KMMIT - 3 (7/98) 1050200
