<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER
MULTI-MARKET INCOME TRUST
"...We actively managed the fund to take advantage
of sectors that we felt could help us meet the fund's
objective of earning high current income, but
with low volatility of principal. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
MANAGEMENT TEAM
6
PERFORMANCE UPDATE
7
YEAR 2000
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
18
REPORT OF INDEPENDENT AUDITORS
19
FINANCIAL STATEMENTS
21
NOTES TO FINANCIAL STATEMENTS
23
FINANCIAL HIGHLIGHTS
24
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
27
SHAREHOLDERS' MEETING
AT A GLANCE
- ---------------------------------------------------------
TOTAL RETURNS
FOR THE YEAR ENDED NOVEMBER 30, 1998
- ---------------------------------------------------------
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- ---------------------------------------------------------
<S> <C> <C>
KEMPER MULTI-MARKET
INCOME TRUST 3.77% (5.46)%
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- ---------------------------------------------------------
AS OF AS OF
11/30/98 11/30/97
- ---------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $10.42 $10.83
- ---------------------------------------------------------
MARKET PRICE $9.25 $10.63
- ---------------------------------------------------------
</TABLE>
- ---------------------------------------------------------
DIVIDEND REVIEW
- ---------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION
FOR THE FUND AS OF NOVEMBER 30, 1998.
<TABLE>
<CAPTION>
KEMPER
MULTI-MARKET
INCOME TRUST
- ---------------------------------------------------------
<S> <C>
ONE-YEAR INCOME: $ .8100
- ---------------------------------------------------------
NOVEMBER DIVIDEND: $ .0675
- ---------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 7.77%
- ---------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 8.76%
- ---------------------------------------------------------
</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, distribution
rates, net asset value and returns fluctuate. Additional information concerning
performance is contained in the Financial Highlights section appearing at the
end of this report.
The fund may invest in lower-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.
TERMS TO KNOW
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.
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.
FLIGHT-TO-QUALITY BUYING Is a term describing investors who increase their
allocation to U.S. Treasuries and other high quality securities from riskier
securities in time of global economic uncertainty.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND 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 $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1999 begins. After several months of generally
declining stock prices and extreme volatility, the U.S. stock market seems to
have rediscovered its resiliency. In the fourth quarter, the Standard & Poor's
500, an unmanaged index generally representative of the U.S. stock market,
bounced back into the 1200-point range, up approximately 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end. While financial volatility appears
to be continuing, the mood for investors definitely has improved.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited series of interest
rate reductions by the Federal Reserve Board. In September, the Fed reduced the
federal funds rate a modest quarter of a percentage point, however, this first
cut disappointed some investors who were expecting a more dramatic gesture. Two
weeks later, the Fed came back with an additional quarter of a percentage point
reduction. This was an unexpected cut that seemed to have a positive effect on
Wall Street. In November, a third rate cut of a quarter of a percentage point
also boosted investor confidence. Investors were further surprised by
better-than-expected corporate earnings reports early in the fourth quarter.
Finally, economic data regarding retail sales, employment and home sales
suggested continued economic growth and very little prospect of recession.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence remained fairly
high, although not quite as high as in 1997. The nation's budget surplus for
1998 came in at $60 billion, with another budget surplus expected for fiscal
1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of 3 percent for the second half of 1998 and is anticipated to hover around 2
percent to 2.5 percent for the first half of 1999. The consumer price index
(CPI) remains in a range of 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
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 (12/31/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 4.65 5.50 5.81 6.30
Prime rate(2) 7.75 8.50 8.50 8.25
Inflation rate(3)* 1.55 1.75 1.89 3.18
The U.S. dollar(4) -2.45 9.54 10.26 4.36
Capital goods orders(5)* 7.82 9.52 8.53 4.82
Industrial production(5)* 1.47 5.10 6.56 5.32
Employment growth(6)* 2.28 2.65 2.70 2.33
</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 November 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief -- but be on your toes in 1999. It's going to be an
interesting year as the EMU emerges, the race for the next presidency heats up
and the year 2000 approaches. And, remember: Investors don't like uncertainty,
be it economic or political. More trauma in the White House, continuing disputes
with Iraq or any other hints of crisis could prompt a downward spike in our
markets in the short run. In the long run, the keys to investment performance
remain moderate growth, low inflation and limited taxation and regulation.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. The opinions
and forecasts expressed are those of Dr. John E. Silvia as of January 4, 1999,
and may not actually come to pass. This information is subject to change. No
part of this material is intended as an investment recommendation.
4
<PAGE> 5
MANAGEMENT TEAM
KEMPER MULTI-MARKET INCOME TRUST
PORTFOLIO MANAGEMENT TEAM
[BEIMFORD PHOTO]
J. Patrick Beimford, Jr., joined Scudder Kemper Investments, Inc. in 1976 and is
a managing director and lead portfolio manager of Kemper Multi-Market Income
Trust. Beimford received a B.S. in industrial management 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 a B.S. and M.S. from the University of Wisconsin.
[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 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 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 B.A. in finance from Michigan State University.
[SALTZMAN PHOTO]
M. Isabel Saltzman, a managing director of Scudder Kemper Investments, Inc., is
the senior portfolio manager for the firm's Emerging Markets Bond Group and a
portfolio manager for Kemper Multi-Market Income Trust. Saltzman joined the
organization in 1990. She received a B.A. in political science and economics
from Tufts University and an M.I.A. degree from the School of International
Affairs, Columbia University.
[VANDENBERG PHOTO]
Richard Vandenberg joined Scudder Kemper Investments in March 1996, as managing
director of Scudder Kemper Investments and portfolio manager of Kemper
Multi-Market Income Trust. Vandenberg has more than 20 years of fixed-income
portfolio management experience. He received both a bachelor's degree and an
M.B.A. from the University of Wisconsin.
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 KEMPER MULTI-MARKET INCOME TRUST'S FISCAL YEAR -- DECEMBER 1, 1997
THROUGH NOVEMBER 30, 1998 -- THE VARIOUS BOND SECTORS ENJOYED PROMISING GAINS
BUT ALSO SUSTAINED DISCOURAGING LOSSES. THE FUND'S PORTFOLIO MANAGEMENT TEAM
MEMBERS EXPLAIN HOW THEY NAVIGATED THE MARKETS DURING THE YEAR.
Q BEFORE WE DISCUSS THE SPECIFICS OF KEMPER MULTI-MARKET INCOME TRUST, WOULD
YOU PLEASE HELP US UNDERSTAND THE ECONOMIC ENVIRONMENT IN WHICH THE FUND EXISTED
DURING ITS FISCAL YEAR?
A To understand the markets for the period beginning December 1, 1997, we'll
need to start actually with October 27, 1997, just a month before the fund's
reporting period began. That is the day, now referred to as "Gray Monday", that
severe declines were registered in world markets as a result of economic crisis
in Southeast Asia. The uncertainty in the markets drove many investors to U.S.
Treasuries and mortgage securities. This was called a "flight to quality."
Foreign bonds became very cheap, and even high-yield investors were opting for
the higher-rated of the below-investment-grade bonds.
The result of the flight to quality was a Treasury rally in December,
pushing the benchmark 30-year Treasury yield to new lows, which meant their
prices were at new highs since a bond's yield and price are inversely related.
For a period during the first part of 1998, confidence returned to the
markets and equities and emerging market investments returned to the spotlight.
Continued strong economic growth turned fears toward inflation and rising
interest rates. These fears were squashed, however, as it became clear Asia's
financial crisis was affecting the U.S. economy. For one, devalued currencies in
other parts of the world caused imported goods to sell for far below what
domestic manufacturers could charge. Also, domestic manufacturing slowed
somewhat due to decreased demand overseas of U.S. products, and the strike at
General Motors in the spring and early summer.
Uncertainty returned to the markets when economic problems in Russia and
Latin America came to the world's attention in August. The tottering of the
equity and bond markets moved the Federal Reserve Board to do something twice
within one month that it had not done since 1996 -- cut interest rates, by 0.25
percent September 29 and by the same amount October 16. The second cut finally
had the effect the Fed was looking for -- appeasing markets and showing
America's commitment to supporting economies worldwide. Global financial markets
rebounded with the second cut.
Q IN A YEAR THAT SAW SIGNIFICANT HIGHS AND LOWS IN THE SECURITIES MARKETS,
HOW DID KEMPER MULTI-MARKET INCOME TRUST PERFORM?
A The fund gained 3.77 percent for the one-year period ended November 30,
1998, versus its Lipper Analytical Services General Bond category average of
5.73 percent. We actively managed the fund to take advantage of sectors that we
felt could help us meet the fund's objective of earning high current income, but
with low volatility of principal.
Q WHAT WAS THE MOST SIGNIFICANT ADJUSTMENT YOU MADE TO THE FUND DURING THE
YEAR?
A We fine-tuned the portfolio but did not make any major changes. We believe
that from a long-term perspective (2-3 years), the fund is appropriately
positioned.
Q WHAT OTHER ADJUSTMENTS DID YOU MAKE TO THE FUND?
A We increased and decreased our position in Treasuries as the markets
reacted to global economic news. However, on balance, these were not major
adjustments.
Q WERE YOU DISAPPOINTED IN ANY SECTORS OR SPECIFIC ISSUES IN THE FUND'S
PORTFOLIO?
A With the market favoring higher-quality issues during much of the year,
our significant allocation to high-yield bonds hurt us in a few of the months.
But that wasn't the case every month; in fact, the fund's high-yield allocation
was beneficial several times during the year. The fundamentals of the high-
yield market were not at fault for the downturn in the high-yield market in
August, and we feel strongly that high-yield bonds add significant value to this
fund.
6
<PAGE> 7
PERFORMANCE UPDATE
The other sector that was somewhat disappointing was emerging markets.
While our emerging market bonds performed well for part of the year,
particularly the first quarter of 1998, they were hit hard by the global
economic concerns throughout the rest of the year. Again, we believe this sector
will rebound and do well within the next 2-3 years.
We kept a large portion of Kemper Multi-Market Income Trust allocated to
these two sectors, which contributed to the fund's underperformance.
Q WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
A Right now, we realize investors are paying increased attention to the
relatively safer bond market, and regardless of what happens in the stock
market, I think that will continue. Overall, we remain optimistic, cautiously
so, as we wait to see how international leaders resolve their economies'
problems.
YEAR 2000
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
investment 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, such as problems with calculating
net asset value. The investment 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.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
ON 11/30/98 ON 11/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
HIGH-YIELD CORPORATE BONDS 58% 47%
- --------------------------------------------------------------------------
EMERGING MARKETS
(U.S. DOLLAR-DENOMINATED) 13 4
- --------------------------------------------------------------------------
FOREIGN CURRENCY BONDS 5 5
- --------------------------------------------------------------------------
HIGH-GRADE CORPORATE BONDS -- 5
- --------------------------------------------------------------------------
MORTGAGES 8 8
- --------------------------------------------------------------------------
TREASURY NOTES AND BONDS 13 26
- --------------------------------------------------------------------------
CASH AND EQUIVALENTS 3 5
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/98 ON 11/30/97
LONG-TERM FIXED INCOME SECURITIES RATINGS+
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 11/30/98 ON 11/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
AAA 27% 41%
- --------------------------------------------------------------------------
A -- 2
- --------------------------------------------------------------------------
BBB -- 4
- --------------------------------------------------------------------------
BB 17 9
- --------------------------------------------------------------------------
B 50 41
- --------------------------------------------------------------------------
OTHER 6 3
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/98 ON 11/30/97
+ 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 11/30/98 ON 11/30/97
- --------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 9.6 years 10.4 years
- --------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER MULTI-MARKET INCOME TRUST
Portfolio of Investments at November 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
U.S. GOVERNMENT OBLIGATIONS--21.2% AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Treasury Bonds
13.875%, 2011 $ 1,500 $ 2,327
12.00%, 2013 3,500 5,350
11.75%, 2014 4,230 6,587
13.25%, 2014 3,900 6,471
U.S. Treasury Strip, zero coupon, 2019 20,000 6,629
Federal Home Loan Mortgage Corp., 6.50%, 2023 6,105 6,166
Government National Mortgage Association,
6.50%, 2023-2024 6,141 6,210
8.00%, 2022-2024 4,501 4,692
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $41,596) 44,432
--------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--17.6%
(PRINCIPAL AMOUNT IN (a)Republic of Argentina
U.S. DOLLARS EXCEPT AS NOTED) 11.375%, 2017 6,750 6,818
9.75%, 2027 1,000 891
(a)Federal Republic of Brazil
9.375%, 2008 1,250 989
10.80%, 2008 2,000 1,715
10.125%, 2027 2,500 1,869
Republic of Germany,
3.518%, 2007 DEM14,000 9,383
Republic of Korea,
8.875%, 2008 6,250 6,125
Republic of Panama,
8.875%, 2027 3,750 3,534
United Mexican States
9.875%, 2007 1,250 1,252
11.375%, 2016 4,000 4,253
--------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $38,169) 36,829
--------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS--56.7%
AEROSPACE--.3% BE Aerospace, Inc., 9.50%, 2008 210 221
DeCrane Aircraft Holdings, Inc., 12.00%, 2008 270 273
Transdigm Inc., 10.375%, 2008 140 143
--------------------------------------------------------------------------------
637
- -----------------------------------------------------------------------------------------------------------------------------
BROADCASTING, Affinity Group, Inc., 11.50%, 2003 315 329
CABLESYSTEMS American Banknote Corp., 11.25%, with
AND PUBLISHING--6.6% warrants, 2007 330 215
(b)American Lawyer Media, Inc., 12.25%, 2008 70 44
CSC Holdings, Inc.
8.125%, 2009 340 362
10.50%, 2016 340 398
(b)Capstar Broadcasting Corp., 12.75%, 2009 670 553
Century Communications Corp., 8.375%, 2007 200 211
Chancellor Media Corp.
8.125%, 2007 240 240
9.00%, 2008 130 137
(b)Charter Communications, Inc., 14.00%, 2007 410 365
Charter Communications, L.P., 11.25%, 2006 150 164
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)Comcast UK Cable Partners Ltd., 11.20%,
2007 $ 1,080 $ 934
(b)DIVA Systems Corp., 12.625%, 2008 230 69
(b)Diamond Cable Communications, PLC, 13.25%,
2004 525 507
Falcon Holding Group, L.P.
8.375%, 2010 910 951
(b) 9.285%, 2010 300 209
Frontiervision
11.00%, 2006 330 370
(b) 11.875%, 2007 420 352
Interep National Radio Sales, Inc., 10.00%,
2008 270 275
Intermedia Capital Partners, 11.25%, 2006 380 424
Mediacom, LLC, 8.50%, 2008 125 128
NTL, Inc.
11.50%, 2008 710 781
(b) 12.375%, 2008 460 294
Newsquest Capital, PLC, 11.00%, 2006 30 33
(b)PX Escrow Corp., 9.625%, 2006 465 256
Price Communications, Inc., 9.125%, 2006 540 560
(b)Radio Unica Corp., 11.75%, 2006 360 191
Salem Communications Corp., 9.50%, 2007 260 272
Sinclair Broadcasting Group, Inc., 8.75%,
2007 240 241
Star Choice, 13.00%, with warrants, 2005 275 281
TeleWest Communications, PLC
(b) 11.00%, 2007 515 431
11.25%, 2008 360 409
(b)Transwestern Holdings, L.P., 11.875%, 2008 1,160 769
Transwestern Publishing, 9.625%, 2007 1,540 1,613
(b)21st Century Telecom Group, Inc., 12.25%,
with warrants, 2008 300 128
(b)United International Holdings, Inc.,
10.75%, 2008 700 403
---------------------------------------------------------------------------------
13,899
- ------------------------------------------------------------------------------------------------------------------------------
BUSINESS Allied Waste North American, Inc.
SERVICES--1.5%
10.25%, 2006 180 207
(b) 11.30%, 2007 650 539
CEX Holdings, Inc., 9.625%, 2008 180 173
DIMAC Corp., 12.50%, 2008 530 530
Intertek Finance, 10.25%, 2006 680 680
Outdoor Systems, Inc.
9.375%, 2006 600 648
8.875%, 2007 250 265
---------------------------------------------------------------------------------
3,042
- ------------------------------------------------------------------------------------------------------------------------------
CHEMICALS AND Agriculture, Mining and Chemicals, Inc.,
AGRICULTURE--1.6% 10.75%, 2003 270 274
Atlantis Group, Inc., 11.00%, 2003 350 355
Hines Horticulture, Inc., 11.75%, 2005 442 466
Huntsman Corp., 9.50%, 2007 440 440
Huntsman Polymers Corp., 11.75%, 2004 555 591
Terra Industries, Inc., 10.50%, 2005 200 205
Texas Petrochemicals Corp., 11.125%, 2006 590 596
UCC Investors Holdings, Inc., 10.50%, 2002 410 451
---------------------------------------------------------------------------------
3,378
- ------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--12.7% Allegiance Telecom, Inc.
(b) 11.75%, 2008 330 162
12.875%, 2008 480 480
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Cellular Corp., 10.50%, 2008 $ 250 $ 250
Birch Telecom, Inc., 14.00%, 2008 160 149
(b)Call-Net Enterprise, Inc.
13.25%, 2004 260 252
9.27%, 2007 300 199
8.94%, 2008 330 196
Comcast Cellular Holdings, Inc., 9.50%, 2007 60 64
(b)Communications Cellular, 13.125%, 2003 100 69
(b)Crown Castle International Corp., 10.625%,
2007 970 674
Dobson Communications Corp., 11.75%, 2007 500 520
Econophone, Inc.
13.50%, with warrants, 2007 180 195
(b) 11.00%, 2008 160 78
Esprit Telecom
11.50%, 2007 550 562
10.875%, 2008 200 199
GCI General Communications, 9.75%, 2007 315 306
(b)ICG Holdings, 13.50%, 2005 1,375 1,162
(b)IPC Information Systems, 10.875%, 2008 810 506
Impsat, S.A., 12.375%, 2008 480 401
Intermedia Communications of Florida, Inc.
(b) 12.50%, 2006 220 174
8.875%, with warrants, 2007 170 181
(b) 11.25%, 2007 730 513
(b)KMC Telecom Holdings, Inc., 12.50%, with
warrants, 2008 650 317
Level 3 Communications
9.125%, 2008 990 987
10.50%, 2008 530 317
Long Distance International, 12.25%, 2008 300 247
Metromedia Fiber Network, Inc.,
10.00%, 2008 380 392
MGC Communication,
13.00%, with warrants, 2004 400 271
McLeod, Inc.
9.25%, 2007 360 379
(b) 10.50%, 2007 965 741
9.50%, 2008 110 118
Metronet Communications
(b) 10.75%, 2007 180 119
12.00%, with warrants, 2007 150 166
(b) 9.95%, 2008 610 383
10.625%, 2008 350 374
(b)Millicom International Cellular, S.A.,
13.50%, 2006 770 541
Netia Holdings
10.25%, 2007 70 61
(b) 11.25%, 2007 180 108
(b)Nextel Communications
9.75%, 2004 680 666
9.75%, 2007 295 184
10.65%, 2007 495 325
9.95%, 2008 440 271
Nextlink Communications
12.50%, 2006 340 374
(b) 9.45%, 2008 240 142
10.75%, 2008 700 724
(b)PTC International Finance, B.V.,
10.75%, 2007 2,530 1,708
(b)Pinnacle Holdings, 10.00%, 2008 500 300
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primus Telecommunications Group
11.75%, with warrants, 2004 $ 350 $ 367
9.875%, 2008 50 47
PSINet, Inc.
10.00%, 2005 390 390
11.50%, 2008 380 403
RCN Corp.
10.00%, 2007 3,180 3,013
(b) 11.00%, 2008 220 117
Rogers Cantel
9.375%, 2008 40 42
9.75%, 2016 100 105
(b)SBA Communication, 12.00%, 2008 500 305
Satelites Mexicanos, S.A. de C.V., 10.125%,
2004 220 185
(b)Spectrasite Holdings, Inc., 12.00%, 2008 530 281
Teligent, Inc., 11.50%, 2007 1,250 1,194
(b)Triton Communications, 11.00%, 2008 610 284
USA Mobile Communications, Inc. II, 14.00%,
2004 410 410
US Xchange, LLC., 15.00%, 2008 260 272
Versatel Telecom, 13.25%, with warrants, 2008 350 355
Viatel, Inc.
11.25%, 2008 230 229
(b) 12.50%, 2008 480 274
Winstar Communications, 15.00%, 2007 130 128
Winstar Equipment, 12.50%, 2004 60 63
Winstar Equipment II Corp., 12.50%, 2004 630 655
---------------------------------------------------------------------------------
26,626
- ------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION (b)Building Materials Corporation of America,
MATERIALS--2.5% 11.75%, 2004 180 183
Congoleum Corp., 8.625%, 2008 270 267
Desa International, 9.875%, 2007 1,250 1,000
(b)Falcon Building Products, Inc.,
9.50%, 2007 485 427
10.50%, 2007 30 16
Imperial Home Decor Group, Inc.,
11.00%, 2008 240 218
Kevco, 10.375%, 2007 1,450 1,356
MMI Products, Inc., 11.25%, 2007 580 635
Nortek, Inc.
9.125%, 2007 680 704
8.875%, 2008 130 133
(b)Waxman Industries, Inc., 12.75%, 2004 100 44
Werner Holdings, 10.00%, 2007 220 218
---------------------------------------------------------------------------------
5,201
- ------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS AFC Enterprises, 10.25%, 2007 780 811
AND SERVICES--5.8%
AMF Bowling World
10.875%, 2006 610 525
(b) 12.25%, 2006 108 66
Cinemark USA, Inc., 9.625%, 2008 570 597
Clearview Cinema Group, Inc., 10.875%, 2008 240 284
Coinmach Corp., 11.75%, 2005 1,035 1,131
Doskocil Manufacturing Co., 10.125%, 2007 300 282
Dyersburg Corp, 9.750%, 2007 1,085 1,004
Galey & Lord, 9.125%, 2008 230 212
Grupo Azucarero Mexico, S.A. de C.V., 11.50%,
2005 180 72
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hedstrom Corp., 10.00%, 2007 $ 850 $ 731
Herff Jones, Inc., 11.00%, 2005 290 313
Jafra Cosmetics International, Inc.,
11.75%, 2008 360 328
Kinder-Care Learning Centers, 9.50%, 2009 630 630
Mastellone Hermanos, 11.75%, 2008 370 314
La Petite Academy, Inc., 10.00%, 2008 290 291
Nine West Group, 9.00%, 2007 120 115
NBTY, Inc., 8.625%, 2007 190 186
Perkins Family Restaurant, 10.125%, 2007 190 202
Pillowtex Corp., 9.00%, 2007 150 156
Premier Parks, Inc., 12.00%, 2003 260 283
Regal Cinemas, 9.50%, 2008 460 481
(b)Restaurant Co., 11.25%, 2008 350 175
SFX Entertainment, Inc., 9.125%, 2008 890 893
Sealy Mattress
9.875%, 2007 60 56
(b) 10.875%, 2007 290 174
Six Flags Theme Park, 12.25%, 2005 950 1,054
(b)Spin Cycle, 12.75%, 2005 530 249
United Artists Theatre Co., 9.75%, 2008 480 472
--------------------------------------------------------------------------------
12,087
- -----------------------------------------------------------------------------------------------------------------------------
DRUGS AND Abbey Healthcare Group, Inc., 9.50%, 2002 110 102
HEALTH CARE--2.0%
(b)ALARIS Medical Systems, Inc., 11.125%,
2008 280 152
Dade International, Inc., 11.125%, 2006 400 440
Magellan Health Services, 9.00%, 2008 800 744
(b)Mariner Post-Acute Network, Inc.,
10.50%, 2007 2,950 1,416
Mediq, Inc., 11.00%, 2008 240 226
National Vision Associates, 12.75%, 2005 390 411
Paracelsus Healthcare, 10.00%, 2006 270 246
Vencor, 9.875%, 2005 430 383
--------------------------------------------------------------------------------
4,120
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY AND RELATED Bellweather Exploration Co., 10.875%, 2007 540 535
SERVICES--2.3%
Benton Oil & Gas Co.
11.625%, 2003 445 254
9.375%, 2007 90 40
Clark USA, 8.875%, 2007 60 55
Chesapeake Energy Corp., 9.125%, 2006 100 88
Continental Resources, Inc., 10.25%, 2008 400 342
Forcenergy Gas Exploration
9.50%, 2006 500 450
8.50%, 2007 235 200
GulfMark Offshore, Inc., 8.75%, 2008 210 205
Mariner Energy, 10.50%, 2006 440 411
Ocean Energy, 10.375%, 2005 180 194
Pacalta Resources, Ltd., 10.75%, 2004 840 714
Parker Drilling Corp., 9.75%, 2006 260 250
Pen Holdings, Inc., 9.875%, 2008 330 313
RAM Energy, 11.50%, 2008 150 109
Rutherford-Moran Oil Corp., 10.75%, 2004 190 150
Seven Seas Petroleum, Inc., 12.50%, 2005 170 119
Stone Energy Corp., 8.75%, 2007 390 394
--------------------------------------------------------------------------------
4,823
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES, Beazer Homes, 8.875%, 2008 $ 125 $ 121
HOMEBUILDERS AND
REAL ESTATE--1.0%
Del Webb Corp.
9.75%, 2008 740 734
9.375%, 2009 290 281
Forecast Group, L.P., 11.375%, 2000 150 142
Fortress Group, 13.75%, 2003 640 678
Hovnanian Enterprises
11.25%, 2002 46 47
9.75%, 2005 70 68
----------------------------------------------------------------------------------
2,071
- -------------------------------------------------------------------------------------------------------------------------------
HOTELS AND Eldorado Resorts, 10.50%, 2006 540 562
GAMING--1.4%
Empress River Casino, 10.75%, 2002 230 246
HMH Properties, 7.875%, 2008 500 487
Hard Rock Hotel, 9.25%, 2005 80 80
Harvey's Casino Resorts, 10.625%, 2006 690 750
Players International, 10.875%, 2005 250 268
Station Casinos, Inc.
10.125%, 2006 200 211
9.75%, 2007 190 199
Trump Atlantic City, 11.25%, 2006 95 85
----------------------------------------------------------------------------------
2,888
- -------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS Accuride Corp., 9.25%, 2008 310 317
AND MINING--5.6%
Aftermarket Technology, 12.00%, 2004 230 241
Alvey Systems, 11.375%, 2003 160 156
Axiohm Transaction Solutions, Inc.,
9.75%, 2007 275 260
Bar Technologies, 13.50%, 2001 550 588
Day International Group, Inc, 11.125%, 2005 750 802
Eagle-Picher Holdings, Inc., 9.375%, 2008 1,020 964
Earle M. Jorgensen Co., 9.50%, 2005 130 121
Euramax International, PLC, 11.25%, 2006 1,465 1,458
Foamex, L.P.
13.50%, 2005 270 313
9.875%, 2007 155 167
GS Technologies
12.00%, 2004 90 64
12.25%, 2005 180 126
(b)Grove Holdings LLC, 11.625%, 2009 100 47
Grove Investors, PIK, 14.50%, 2010 161 135
Grove Worldwide LLC, 9.25%, 2008 70 66
JPS Automotive Products Corp., 11.125%, 2001 150 157
Jackson Products, Inc., 9.50%, 2005 200 198
Knoll, Inc., 10.875%, 2006 504 557
Metal Management, Inc., 10.00%, 2008 240 108
Metal USA, Inc., 8.625%, 2008 175 166
Motors and Gears, Inc., 10.75%, 2006 430 443
Neenah Corp., 11.125%, 2007 520 541
Prestolite Electric, Inc., 9.625%, 2008 265 260
Renco Steel Holdings, 10.875%, 2005 260 239
Scovill Fasteners, 11.25%, 2007 230 205
Spinnaker Industries, Inc., 10.75%, 2006 1,880 1,598
Terex Corp., 8.875%, 2008 420 420
Venture Holdings, 9.50%, 2005 310 308
Wells Aluminum Corp., 10.125%, 2005 740 699
----------------------------------------------------------------------------------
11,724
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER, FOREST AEP Industries Inc., 9.875%, 2007 $ 170 $ 170
PRODUCTS AND BPC Holding Corp., 12.50%, 2006 230 236
CONTAINERS--3.6% Berry Plastics Corp., 12.25%, 2004 150 156
Doman Industries, Ltd.
8.75%, 2004 360 305
9.25%, 2007 860 722
Fonda Group, 9.50%, 2007 935 781
Gaylord Container Corp.
9.75%, 2007 130 122
9.875%, 2008 1,200 900
Graham Packaging Co.
8.75%, 2008 180 182
(b) 10.75%, 2009 160 109
IMPAC Group, Inc., 10.125%, 2008 600 594
Millar Western Forest Products, Ltd.,
9.875%, 2008 495 406
Norampac, 9.50%, 2008 420 434
Pindo Deli Finance Mauritius, Ltd., 10.75%,
2007 20 12
Plainwell, Inc., 11.00%, 2008 335 281
Printpack, Inc.
9.875%, 2004 50 52
10.625%, 2006 290 302
Repap Enterprises, Inc., 9.00%, 2004 80 79
Riverwood International
10.25%, 2006 130 132
10.625%, 2007 815 770
10.875%, 2008 160 162
(b)SF Holdings Group, Inc., 12.75%, 2008 300 105
Stone Container Corp.
12.25%, 2002 40 40
11.50%, 2006 275 302
US Can Corp., 10.125%, 2006 260 272
--------------------------------------------------------------------------------
7,626
- -----------------------------------------------------------------------------------------------------------------------------
RETAILING--3.4% Advantica Restaurant Co., 11.25%, 2008 1,194 1,217
Agrilink Foods, 11.875%, 2008 120 125
Ameriking, 10.75%, 2006 590 617
Carrols Corp., 9.50%, 2008 330 335
Cole National Group
9.875%, 2006 290 305
8.625%, 2007 80 79
Finlay Enterprises, Inc., 9.00%, 2008 150 132
Finlay Fine Jewelry Corp., 8.375%, 2008 40 38
Guitar Center Management, 11.00%, 2006 87 92
Iron Age Holdings, Corp.
9.875%, 2008 160 147
(b) 12.125%, 2009 140 71
(b)J. Crew Group, Inc., 13.125%, 2008 910 428
J. Crew Operating Corp., 10.375%, 2007 400 356
Krystal Co., 10.25%, 2007 230 236
NE Restaurant Company Inc., 10.75%, 2008 150 154
Pamida Holdings, 11.75%, 2003 100 98
Pathmark Stores, 9.625%, 2003 250 250
Petro Stopping Centers, 10.50%, 2007 820 857
Phillips-Van Heusen Corp., 9.50%, 2008 350 352
Riddell Sports, Inc., 10.50%, 2007 805 765
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Retailers
8.50%, 2005 $ 450 $ 405
9.00%, 2007 120 106
------------------------------------------------------------------------------------
7,165
- ---------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--.4% Communication and Power Industry, Inc.,
12.00%, 2005 140 147
Viasystems, Inc., 9.75%, 2007 800 776
------------------------------------------------------------------------------------
923
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.5% Airxcel, 11.00%, 2007 540 535
Canadian Airlines Corp., 10.00%, 2005 250 212
TFM, S.A. de C.V., 10.25%, 2007 1,330 1,197
Trans World Airlines, Inc., 11.375%, 2006 220 156
(b)Transtar Holdings, L.P., 13.375%, 2003 200 186
TravelCenters America, Inc., 10.25%, 2007 860 864
------------------------------------------------------------------------------------
3,150
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER--4.5% Riverside Group
7.00%, 2008 3,817 3,817
7.437%, 2008 6,183 5,597
------------------------------------------------------------------------------------
9,414
------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost: $123,506) 118,774
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON AND PREFERRED (c)Capital Pacific Holdings 1,185shs. 1
STOCKS--.9% Clark USA, PIK, preferred 1,110 95
Crown American Realty, preferred 6,240 306
Dobson Communication, PIK, preferred 216 200
Eagle-Picher Holdings, Inc., preferred 40 202
(c)Foamex International, warrants 330 7
Global Crossing, PIK, preferred 3,000 300
(c)Intelcom Group, Inc. 1,056 13
Nextel, PIK, preferred 201 185
SF Holdings Group, Inc., PIK, preferred 10 67
(c)SF Holdings Group, Inc. 970 2
Sinclair Capital, preferred 3,600 389
21st Century Telecom Group, Inc., PIK,
preferred 62 43
Viatel, Inc., PIK, preferred 356 21
------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost: $1,909) 1,831
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
MONEY MARKET Yield--5.27% to 5.38%
INSTRUMENTS--3.3% Due--December 1998
(Cost: $6,992) $ 7,000 6,992
------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.7%
(Cost: $212,172) 208,858
------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.3% 631
------------------------------------------------------------------------------------
NET ASSETS--100% $ 209,489
------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Variable rate security. Rate shown is the effective rate on November 30,
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 $212,183,000 for federal income tax purposes
at November 30, 1998, the gross unrealized appreciation was $5,541,000, the
gross unrealized depreciation was $8,865,000 and the net unrealized depreciation
on investments was $3,324,000.
See accompanying Notes to Financial Statements.
17
<PAGE> 18
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, 1998, 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 1994.
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, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Multi-Market Income Trust at November 30, 1998, 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 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1999
18
<PAGE> 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998
(IN THOUSANDS)
<TABLE>
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $212,172) $208,858
- ------------------------------------------------------------------------
Cash 6,103
- ------------------------------------------------------------------------
Receivable for:
Investments sold 1,769
- ------------------------------------------------------------------------
Interest 3,840
- ------------------------------------------------------------------------
TOTAL ASSETS 220,570
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------
Payable for:
Investments purchased 9,530
- ------------------------------------------------------------------------
Dividends 1,356
- ------------------------------------------------------------------------
Management fee 146
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 34
- ------------------------------------------------------------------------
Trustees' fees 15
- ------------------------------------------------------------------------
Total liabilities 11,081
- ------------------------------------------------------------------------
NET ASSETS $209,489
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------
Paid-in capital $220,433
- ------------------------------------------------------------------------
Accumulated net realized loss on sales of investments and
foreign currency transactions (8,373)
- ------------------------------------------------------------------------
Net unrealized depreciation on investments and assets and
liabilities in foreign currencies (3,314)
- ------------------------------------------------------------------------
Undistributed net investment income 743
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $209,489
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($209,489 / 20,090 shares outstanding) $10.42
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1998
(IN THOUSANDS)
<TABLE>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
<S> <C>
Interest $19,759
- -----------------------------------------------------------------------
Dividends 108
- -----------------------------------------------------------------------
Total investment income 19,867
- -----------------------------------------------------------------------
Expenses:
Management fee 1,831
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 130
- -----------------------------------------------------------------------
Professional fees 42
- -----------------------------------------------------------------------
Reports to shareholders 81
- -----------------------------------------------------------------------
Trustees' fees and other 24
- -----------------------------------------------------------------------
Total expenses 2,108
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 17,759
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized loss on sales of investments and foreign
currency transactions (1,501)
- -----------------------------------------------------------------------
Change in net unrealized depreciation on investments (8,004)
- -----------------------------------------------------------------------
Net loss on investments (9,505)
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,254
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
- -------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 17,759 16,466
- -------------------------------------------------------------------------------------------
Net realized gain (loss) (1,501) 1,297
- -------------------------------------------------------------------------------------------
Change in net unrealized depreciation (8,004) (2,739)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,254 15,024
- -------------------------------------------------------------------------------------------
Distribution from net investment income (16,273) (17,871)
- -------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(38 shares in 1997) -- 416
- -------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (8,019) (2,431)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of year 217,508 219,939
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income
of $743 in 1998) $209,489 217,508
- -------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF FUND. Kemper Multi-Market Income
Trust is registered under the Investment Company
Act of 1940 as a diversified, closed-end management
investment company.
SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities are valued by
pricing agents approved by the officers of the
fund, which quotations reflect broker/dealer
supplied valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the most recent bid
quotation supplied by a bona fide market maker
shall be used. Forward foreign currency contracts
are valued at the prevailing forward exchange rates
of the underlying currencies on that day. All other
securities are valued at their fair market value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. 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
rates of exchange are 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 rates 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 (loss) on investments, as
appropriate.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Dividend income is recorded on
the ex-dividend date, and interest income is
recorded on the accrual basis. Interest income
includes discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
FEDERAL INCOME TAXES. The fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable income to its shareholders.
Accordingly, the fund paid no federal income taxes
and no federal income tax provision was required.
At November 30, 1998, the fund had a tax basis net
loss carryforward of approximately $7,987,000,
which may be applied against any realized net
taxable gains of each succeeding year until fully
utilized or it will expire during the period 2002
through 2006.
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.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of .85%
of average weekly net assets. The fund incurred a
management fee of $1,831,000 for the year ended
November 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, the fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of the fund has
approved a new investment management agreement with
Scudder Kemper, which is substantially identical to
the former investment management agreement, except
for the dates of execution and termination.
Shareholders approved the new investment management
agreement through a proxy solicitation that
concluded in mid-December.
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 $24,000
for the year ended November 30, 1998.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the fund are also officers or directors of
Scudder Kemper. For the year ended November 30,
1998, the fund made no payments to its officers and
incurred trustees' fees of $23,000 to independent
trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1998, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $315,957
Proceeds from sales 312,871
22
<PAGE> 23
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.83 10.97 10.90 10.35 11.29
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .88 .82 .87 .96 .96
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.48) (.07) .27 .60 (.97)
- --------------------------------------------------------------------------------------------------------
Total from investment operations .40 .75 1.14 1.56 (.01)
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .81 .89 1.07 1.01 .76
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .17
- --------------------------------------------------------------------------------------------------------
Total dividends .81 .89 1.07 1.01 .93
- --------------------------------------------------------------------------------------------------------
Net asset value per share, end of year $10.42 10.83 10.97 10.90 10.35
- --------------------------------------------------------------------------------------------------------
Market value per share, end of year $ 9.25 10.63 10.63 10.75 9.38
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN
- --------------------------------------------------------------------------------------------------------
Based on net asset value 3.77% 7.20 11.12 15.90 (.07)
- --------------------------------------------------------------------------------------------------------
Based on market value (5.46)% 8.72 9.14 26.92 (6.48)
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .98% 1.01 .99 1.02 1.03
- --------------------------------------------------------------------------------------------------------
Net investment income 8.25% 7.61 8.06 9.13 8.80
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $209,489 217,508 219,939 217,183 206,220
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 118% 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.
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
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on October 22, 1998, for Kemper
Multi-Market Income Trust. Shareholders were asked to vote on four separate
issues: election of members to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors, approval of expansion of borrowing authority,
and elimination of investment restrictions and policies related to illiquid and
restricted securities. The following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Atkins 12,267,749 963,639
Arthur R. Gottschalk 12,339,515 891,874
Frederick T. Kelsey 12,357,800 873,589
Thomas W. Littauer 12,276,718 954,670
Daniel Pierce 12,285,764 945,624
Fred B. Renwick 12,277,198 954,191
John B. Tingleff 12,367,702 863,687
John G. Weithers 12,368,936 862,453
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
12,428,944 460,926 341,519
</TABLE>
3) Approval of the expansion of borrowing authority. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
9,378,195 1,311,739 741,889
</TABLE>
4) Elimination of investment restrictions and policies related to illiquid and
restricted securities. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
8,918,824 1,669,858 843,142
</TABLE>
27
<PAGE> 28
TRUSTEES & OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA HARRY E. RESIS, JR.
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK RICHARD L. VANDENBERG
Trustee JOHN R. HEBBLE Vice President
Treasurer
FREDERICK T. KELSEY LINDA J. WONDRACK
Trustee J. PATRICK BEIMFORD, JR. Vice President
Vice President
THOMAS W. LITTAUER MAUREEN E. KANE
Trustee and Vice President ROBERT S. CESSINE Assistant Secretary
Vice President
FRED B. RENWICK CAROLINE PEARSON
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
JOHN B. TINGLEFF ELIZABETH C. WERTH
Trustee MICHAEL A. MCNAMARA Assistant Secretary
Vice President
JOHN G. WEITHERS BRENDA LYONS
Trustee ROBERT C. PECK, JR. Assistant Treasurer
Vice President
</TABLE>
- -------------------------------------------------------------------------------
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 Avenue
Kansas City, MO 64105
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
[RECYCLED LOGO]
Printed on recycled paper.
Long-term investing in a short term world(sm)
KGSF - 2 (1/26/99) 1064330
Printed in the U.S.A. [KEMPER FUNDS LOGO]
