<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 2000
KEMPER MULTI-MARKET
INCOME TRUST
"... Preserving capital was challenging as the
Treasury yield curve inverted and the
difference in interest rates between Treasuries
and high-yield corporate debt widened. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
MANAGEMENT TEAM
6
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF INVESTMENTS
20
FINANCIAL STATEMENTS
23
FINANCIAL HIGHLIGHTS
24
NOTES TO
FINANCIAL STATEMENTS
28
SHAREHOLDERS' MEETING
AT A GLANCE
KEMPER MULTI-MARKET INCOME TRUST TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 2000
<TABLE>
<S> <C> <C> <C>
.........................................................
BASED ON NET ASSET VALUE -1.72%
.........................................................
BASED ON MARKET PRICE 4.65%
.........................................................
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
5/31/00 11/30/99
.........................................................
<S> <C> <C> <C> <C>
NET ASSET VALUE $8.93 $9.72
.........................................................
MARKET PRICE $8.13 $8.31
.........................................................
</TABLE>
THE TRUST MAY INVEST IN LOWER-RATED AND NONRATED SECURITIES, WHICH PRESENT
GREATER RISK OF LOSS TO PRINCIPAL AND INTEREST THAN HIGHER-RATED SECURITIES, AND
IN FOREIGN SECURITIES, WHICH PRESENT SPECIAL RISK CONSIDERATIONS INCLUDING
FLUCTUATING FOREIGN EXCHANGE RATES, FOREIGN GOVERNMENT REGULATIONS AND DIFFERING
DEGREES OF LIQUIDITY.
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION FOR THE TRUST AS OF
MAY 31, 2000.
<TABLE>
<CAPTION>
KEMPER
MULTI-MARKET
INCOME TRUST
................................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME $0.5675
................................................................
MAY DIVIDEND $0.0775
................................................................
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE) 10.41%
................................................................
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET PRICE) 11.44%
................................................................
</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 GUARANTEE FUTURE RESULTS. MARKET PRICE, DISTRIBUTION
RATES, NET ASSET VALUE AND RETURNS ARE HISTORICAL AND WILL FLUCTUATE. ADDITIONAL
INFORMATION CONCERNING PERFORMANCE IS CONTAINED IN THE FINANCIAL HIGHLIGHTS
APPEARING AT THE END OF THIS REPORT.
TERMS TO KNOW
BASIS POINT The movement of interest rates or yields expressed in hundredths of
a percent. For example, an increase in yield from 5 percent to 6 percent is 100
basis points.
CREDIT SPREAD The difference in yields between higher-quality and lower-quality
bonds, typically comparing the same types of bonds. For example, if AAA-rated
corporate bonds yield 5 percent, and BBB-rated corporate bonds yield 6 percent,
the credit spread is 1 percent. When the spread becomes less because the higher
yield drops or the lower yield rises, the spread is said to narrow. When the
opposite occurs, the spread is said to widen.
DURATION The interest-rate sensitivity of a fixed-income investment or
portfolio, measured in years. The longer the duration, the greater the
portfolio's sensitivity to interest-rate fluctuations.
FEDERAL FUNDS RATE The interest rate that banks charge each other on overnight
loans. The Federal Reserve Board's Open Market Committee sets a target rate to
either make credit more easily available or tighten monetary policy in an
attempt to avoid economic imbalances such as high inflation.
INVERTED YIELD CURVE A market phenomenon in which intermediate-term bonds
(securities with two- to 10-year maturities) have higher income potential and
current yields than long-term bonds (securities with 10- to 30-year maturities).
Historically it has occurred during a period of rising short-term interest rates
and been viewed as an indicator of a future economic slowdown.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER,
When an irresistible force such as the ebullient U.S. economy meets an immovable
object, such as a determined Federal Reserve Board, the old song is right:
Something's gotta give. One possibility -- the economy could slow down as the
Fed has ordered. Or, if market volatility becomes true distress, the Fed could
back off, as it has in the past. A third possibility is that neither the Fed nor
the economy will give way until it's too late, which could lead to a recession.
Recent evidence suggests, however, that the economy probably will slow down as
ordered.
Before explaining why, perhaps it's best to start with a review of how
monetary policy works. Central bankers often sound like witch doctors reading
animal entrails, so it's understandable that many people are confused about
monetary policy. But monetary policy still works in the same way it always has.
First, it changes the price and availability of money. More subtly, it alters
people's perceptions about and confidence in the future, thereby adjusting their
willingness to take risks.
It's a bit early to tell how the Fed's monetary policy is working so far. The
policymakers only started raising interest rates about a year ago, and it takes
at least that long for higher rates to impact borrowers. There are two reasons.
First, interest rates on many existing loans are fixed. And, a family who has
just selected a dream house isn't going to walk away if mortgage rates rise a
notch. Similarly, a company that has just approved an expansion program won't
stop cold because the prime rate is higher. So it's foolish to think that
America's economy has become less interest-sensitive because the economy roared
through the first several months of this year. Americans are more in hock than
ever, so higher interest rates will hurt more than ever. The May dip in housing
starts and auto sales -- especially the higher priced, gas guzzling sport
utility vehicles -- is probably the first sign that higher rates are biting.
They will bite harder in coming months. We look for both housing starts and
vehicle sales to drop about 10 percent in 2001.
Confidence is harder to measure, but there are some early flutters of
weakness. It's true that consumers remain cheerily upbeat. But corporate bond
markets, the most sensitive barometer of business confidence and a vital source
of corporate funds, have been nervous. Investors are demanding a big premium
before they'll buy lower quality bonds, which means there's less new money for
companies to spend. Corporate bond issuance through mid-June was 35 percent
below the first five and a half months of 1999.
So far, companies have been able to get around the bond market stinginess by
turning to their bankers. Banks lent businesses 8 percent more from January
through May of this year than they did during the first five months of 1999. But
some banks are beginning to worry, too. Bank examiners have been questioning the
quality of loans and the level of reserves. In response, more bankers are
tightening lending standards and raising rates. This is a textbook case of how
tighter monetary policy eventually slows an economy.
Aren't bond market and banker concerns overdone? As long as the economy keeps
growing at 3 percent or so, won't that guarantee such good profits that paying
the bills will be a cinch? Not necessarily. Profits are far more cyclical than
economic growth. Earnings actually fell during 1998, even though the economy
continued to roll. That was a global crisis, when foreign earnings fell sharply.
But take a look at the last "soft landing" during 1995. Revenue growth dipped
and pricing power fell, squeezing profits. The same thing is likely to happen
again in the coming slowdown -- and this time, tight labor markets could make it
even tougher for companies to control costs quickly. Assuming growth is between
2.5 percent and 3 percent by the end of 2001, we believe year-over-year profit
comparisons will have turned slightly negative.
A profit slowdown when new lines of credit are hard to come by will take its
toll on capital spending. We expect growth in business outlays for buildings and
equipment to slip from over 12 percent this year to around 8 percent in 2001.
That's still quite robust, and the "high-tech imperative" is the reason why.
Executives believe that they have no option but to keep up with the
technological revolution that is transforming the world. The fact that high-tech
gear keeps getting cheaper year after year and also helps save on expensive
labor makes the decision to buy it easy. Indeed, unit sales of computers and
peripherals to businesses have sustained growth rates in excess of 40 percent
since 1995. And the rush is on to lay down the infrastructure for the next
generation of wireless communications. We estimate that the sector will see unit
growth of about 50 percent this year, double the growth in 1999. It's hard even
for superstars to sustain these stratospheric
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 (5/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.40 6.00 5.50 5.60
Prime rate (2) 9.50 8.50 7.75 8.50
Inflation rate (3)* 3.00 2.60 2.30 1.50
The U.S. dollar (4) 4.30 -0.70 -0.90 6.40
Capital goods orders (5)* 17.00 12.30 2.50 14.50
Industrial production (5)* 6.10 3.70 2.90 5.20
Employment growth (6) 2.60 2.20 2.30 2.60
</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 4/30/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
compound growth rates forever, and we do expect some moderation next year.
However, high-tech orders continue to ratchet upwards, and the shortage in
semiconductors and other components has persisted long enough to cause major
players to announce huge capacity additions.
Another battle the Fed must win before it succeeds in slowing the economy is
bringing consumers to heel. Most families still feel better off than they were
last year and much richer than they were five years ago. That's a powerful
incentive to spend and enjoy. Indeed, total real consumption has been galloping
at a 5 percent rate or better since early 1998. But consumers are so important
to the economy that if they don't start spending less freely, there won't be a
slowdown. We expect the Fed to be successful and slow down shoppers in the
months ahead -- but the victory won't be an easy one. We expect at least one
more rate hike and a few more financial fireworks before consumers and the
economy hoist the white flag.
So what will the slowdown look like? During the spring, retail sales, housing
starts and job creation slowed, but strength in high tech orders and capital
equipment production probably will help keep the slowdown from becoming too
abrupt. We expect about 3.5 percent growth in the second half. That would still
produce a hearty 5 percent growth for full year 2000. During 2001, the full
impact of the Fed's recent tightening will probably rein growth in to just 3
percent.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF JUNE 29, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
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. HE IS A CHARTERED FINANCIAL ANALYST.
[CESSINE PHOTO]
ROBERT CESSINE IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND A
PORTFOLIO MANAGER OF KEMPER MULTI-MARKET INCOME TRUST. HE JOINED THE COMPANY IN
1993 AND IS A CHARTERED FINANCIAL ANALYST.
[RESIS PHOTO]
HARRY RESIS JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1988 AND IS A MANAGING
DIRECTOR AND A PORTFOLIO MANAGER FOR KEMPER MULTI-MARKET INCOME TRUST.
[VANDENBURG PHOTO]
RICHARD VANDENBERG, WITH MORE THAN 25 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE,
IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC. AND IS LEAD PORTFOLIO
MANAGER OF SCUDDER KEMPER'S FIXED-INCOME GOVERNMENT AND MORTGAGE FUNDS.
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
PRESERVING CAPITAL PROVED CHALLENGING AS DOMESTIC BONDS FACED A SUBSTANTIAL
TIGHTENING IN FEDERAL RESERVE MONETARY POLICY. EMERGING-MARKET BONDS PROVIDED
STRONG RETURNS SINCE NOVEMBER FOR INVESTORS WILLING TO ASSUME HIGHER RISKS.
Q HOW DID GLOBAL FIXED-INCOME MARKETS BEHAVE AND KEMPER MULTI-MARKET INCOME
TRUST PERFORM DURING THE FIRST HALF OF FISCAL YEAR 2000?
A The period between November 30, 1999, and May 31, 2000, was a challenging
time for fixed-income investors around the world. Emerging-market bonds were the
portfolio's bright spot, as returns from domestic high-yield bonds were weak. In
most established bond markets, returns for the first half of fiscal year 2000
were disappointing. For the trust, preserving capital was challenging as the
Federal Reserve tightened monetary policy.
The trust's return based on market price was an attractive 4.65 percent for
the six months ended May 31, 2000. However, total return based on net asset
value fell 1.72 percent. Because we were overweighted in high-yield bonds
compared with our unmanaged benchmark and our peers, we did not do as well as
either the Lehman Brothers Aggregate Bond index (which rose 1.38 percent for the
period) or the average fund in the Lipper general closed-end bond fund category
(which fell 0.87 percent).
Q HIGH-YIELD BONDS MADE UP 54 PERCENT OF THE PORTFOLIO AS OF MAY 31, 2000.
COULD YOU ELABORATE ON MARKET CONDITIONS IN THE HIGH-RISK DEBT MARKET SINCE
NOVEMBER?
A The returns from high-yield bonds were modest for the six months ended May
31, 2000. The total return of the unmanaged Merrill Lynch High Yield Master
index, a group of lower-rated bonds that vary in quality, was -2.28 percent for
the period. The price component of the index fell 6.59 percent. For many
high-yield investors, preserving capital was a challenge, as income did not
offset losses in principal value.
One reason for the high-yield market's weakness was anemic investor demand.
This past winter, the lure of potentially higher returns from equity
investments, particularly technology stocks, prompted some investors to
liquidate high-yield holdings and redeploy assets. As the U.S. economy enjoyed
solid growth, some investors behaved as if high-yield bonds faced the worst of
times. Ironically, in January, February, April and May, high-yield bonds
outperformed the unmanaged Standard & Poor's 500 stock index.
Q COULD YOU DESCRIBE HOW THE TRUST'S HIGH-YIELD BONDS WERE POSITIONED DURING
THE PERIOD?
A In a difficult environment, we believed success depended on not losing
sight of the fact that the underpinnings of the high-yield debt market were
sound. Since mid-1999, commodity prices have rebounded, helping many
"old-economy" companies meet debt payments. During the period, we focused on
larger, more liquid bond issues, and on companies with relatively solid cash
flow and proven management.
Since November 1999, the difference in yield, or spread, between 10-year
Treasuries and comparable-maturity high-yield bonds widened to 678 basis points
(6.78 percent). Given that 10-year Treasury bonds yielded 6.27 percent at the
end of May 2000, high-yield bonds offered double the yield of government bonds
for investors willing to assume additional risk. That's why we had a majority of
the trust's assets in the high-yield category.
Q WHAT HAS BEEN THE HISTORICAL EXPERIENCE OF THE HIGH-YIELD BOND MARKET
DURING PERIODS OF STOCK MARKET WEAKNESS?
A For seven times since October 1987, high-yield bonds outperformed the
Standard & Poor's 500 stock index (S&P 500)
HIGH YIELD BOND PERFORMANCE VS. S&P 500 INDEX
During months when the S&P 500 index declined by 5 percent 1987 to 2000
[LINE CHART]
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH YIELD MASTER
INDEX* S&P 500
------------------------------- -------
<S> <C> <C>
10/87 -2.67 -21.53
11/87 2.53 -8.24
1/90 -1.95 -6.71
8/90 -3.83 -9.03
8/97 -0.17 -5.60
8/98 -4.32 -14.45
1/00 -0.38 -5.02
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS AND MERRILL LYNCH
* THE MERRILL LYNCH HIGH YIELD MASTER INDEX II IS AN UNMANAGED GROUP OF LOWER
QUALITY BONDS THAT VARY IN MATURITY AND QUALITY.
6
<PAGE> 7
PERFORMANCE UPDATE
during months when the S&P 500 declined 5 percent or more. While we can't say
this pattern will continue, we believe that high-yield bonds deserve a place in
a well-balanced portfolio now more than ever. After five years of strong equity
market performance, many investors have portfolios that are heavily laden with
large-cap stocks. We think it would be a mistake for investors to overlook the
opportunity to maintain the diversification that this asset class offers.
Q HOW HAVE OTHER TYPES OF DOMESTIC BONDS FARED SINCE NOVEMBER?
A Strong economic growth prompted the Federal Reserve to raise its
short-term interest-rate target three times since November by a total of 100
basis points (1 percent) to 6.50 percent. This past winter, the government also
announced a buyback plan for 30-year Treasuries. These two events decreased the
attractiveness of most types of intermediate-term (two- to 10-year) bonds.
Prices of intermediate, investment-grade corporate bonds and other non-Treasury
debt such as mortgages generally fell. GNMA mortgages generally outperformed
FNMA mortgages for most of the period. Overall, the Lehman Brothers U.S. Agency
index rose 0.87 percent for the six months ended May 31, 2000.
Q YOU SAID THAT EMERGING-MARKET BONDS WERE THE PORTFOLIO'S BRIGHT SPOT. HOW
WELL HAVE THEY DONE AND WHY?
A Investors are expecting that growth will pick up steam in emerging markets
in the coming months. Bonds in some countries such as Mexico have rallied since
November as rating services have upgraded certain government debt to
investment-grade. The trust benefited from this trend because we had made Mexico
one of the trust's largest emerging market holdings. Overall, the Lehman
Brothers Emerging Markets Bond index rose 7.50 percent for the six months ended
May 31, 2000. The index is an unmanaged group of higher-risk overseas debt
issued by governments and corporations in either U.S. dollars or local
currencies.
Q FINALLY, HOW ARE YOU POSITIONING THE PORTFOLIO FOR THE ROAD AHEAD?
A At some point, we believe there is potential for equity-like returns from
domestic high-yield securities and higher prices for most categories of U.S. and
overseas bonds. First, however, the Fed needs to be convinced that domestic
inflation will not become problematic. This would help alleviate the need for
emerging-market countries to raise interest rates to match the Fed and protect
the purchasing power of their currencies.
Although we think short-term bond market volatility may continue for the rest
of fiscal year 2000, some long-term positive trends are in place. A robust U.S.
economy and a recovering global economy are helping debtors meet their bond
obligations.
Given the current environment, we intend to remain somewhat defensive. We are
comfortable that this positioning can allow us to take advantage of increases in
income potential consistent with our efforts to preserve principal. For
investors seeking to reduce the volatility of an overall equity portfolio, we
think the trust could be an attractive alternative. Considering that the trust's
shares sold at a 15 percent discount to net asset value as of May 31, we think
the trust may offer capital appreciation potential should the discount narrow.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
ON 5/31/00 ON 11/30/99
<S> <C> <C> <C> <C>
HIGH-YIELD CORPORATE BONDS 54% 58%
.................................................................................
EMERGING MARKETS
.................................................................................
(U.S. DOLLAR-DENOMINATED) 31 27
.................................................................................
FOREIGN CURRENCY BONDS 3 3
.................................................................................
MORTGAGES 5 3
.................................................................................
TREASURY NOTES AND BONDS 1 3
.................................................................................
PREFERRED STOCK 1 1
.................................................................................
LONG-TERM MUNICIPALS 4 4
.................................................................................
CASH AND EQUIVALENTS 1 1
---------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
LONG-TERM FIXED-INCOME SECURITIES RATINGS(+)
<TABLE>
<CAPTION>
ON 5/31/00 ON 11/30/99
<S> <C> <C> <C> <C>
AAA 3% 9%
.................................................................................
BBB 13 5
.................................................................................
BB 18 20
.................................................................................
B 54 57
.................................................................................
OTHER 12 9
---------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
(+)THE RATINGS OF STANDARD & POOR'S CORPORATION (S&P) AND MOODY'S INVESTORS
SERVICE, INC. (MOODY'S) REPRESENT THEIR OPINIONS AS TO THE QUALITY OF SECURITIES
THAT THEY UNDERTAKE TO RATE. THE PERCENTAGE SHOWN REFLECTS THE HIGHER OF MOODY'S
OR S&P RATINGS. PORTFOLIO COMPOSITION WILL CHANGE OVER TIME. RATINGS ARE
RELATIVE AND SUBJECTIVE AND NOT ABSOLUTE STANDARDS OF QUALITY.
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 5/31/00 ON 11/30/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 8.7 years 9.8 years
--------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER MULTI-MARKET INCOME TRUST
Portfolio of Investments at May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS--0.8% PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Repurchase agreement with State Street Bank
and Trust Company, 6.370%, to be
repurchased at $581,103 on 06/01/2000(a) $ 581,000 $ 581,000
Sara Lee, 6.330%, 06/01/2000 1,000,000 1,000,000
------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $1,581,000) 1,581,000 1,581,000
------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS & AGENCIES--5.5%
U.S. Treasury Bond, 13.250%, 05/15/2014 1,000,000 1,438,280
Federal Home Loan Mortgage Corp. 6.500% with
various maturities to 08/01/2023 4,800,860 4,491,829
Government National Mortgage Association
Pass-thru: 6.500% with various maturities
to 05/15/2024 5,018,049 4,728,201
8.000% with various maturities to 11/05/2024 652,610 655,724
------------------------------------------------------------------------------------
TOTAL US GOVERNMENT OBLIGATIONS & AGENCIES
(Cost $11,509,818) 11,314,034
------------------------------------------------------------------------------------
FOREIGN BONDS--34.7%
Argentine Republic, 9.750%, 09/19/2027 1,000,000 756,250
Argentine Republic Global, 11.375%,
01/30/2071 6,750,000 5,838,750
Deutschland Republic, 6.000%, 01/04/2007 DEM 7,158,086 6,978,160
Federative Republic of Brazil, Eligible
Interest Floating Rate Bond, LIBOR plus
.8125%, 6.938%, 04/15/2006 2,557,500 2,263,387
Federative Republic of Brazil, "New" Money
Bond Floating Rate Bond, LIBOR plus .875%,
7.000% 04/15/2009 3,250,000 2,648,750
Federative Republic of Brazil Global Bond,
10.125% 05/15/2027 2,500,000 1,887,500
Federative Republic of Brazil, 11.625%,
04/15/2004 2,625,000 2,592,187
Government of Jamaica, 10.875%, 06/10/2005 1,000,000 970,000
Kappa Beheer BV, 10.625%, 07/15/2009 30,000 30,000
Kingdom of Morocco, Restructuring and
Consolidation Agreement, Tranche A,
Floating Rate Bond, LIBOR plus .8125%,
6.844%, 01/01/2009 3,031,579 2,675,368
Mexican United States, 9.875%, 01/15/2007 1,930,000 1,915,525
Petroleos Mexicanos S.A., 9.500%, 09/15/2027 2,500,000 2,225,000
Republic of Argentina, 11.000%, 12/04/2005 1,200,000 1,098,000
Republic of Bulgaria, Collateralized
Floating Rate Interest Reduction Bond,
"A", Step-up Coupon, 2.750%, 07/28/2012 1,650,000 1,109,625
Republic of Bulgaria, Floating Rate Bond,
LIBOR plus .8125%, 6.500%, 07/28/2011 8,000,000 5,940,000
Republic of Columbia, 8.625%, 04/01/2008 4,000,000 2,840,000
Republic of Panama, 8.875%, 09/30/2027 3,750,000 2,887,500
Republic of Peru, Past Due Interest Bond,
4.500% 03/07/2017 4,100,000 2,552,250
Republic of Philippines, 10.625%, 03/16/2025 2,500,000 2,075,000
Republic of South Africa, 9.125%, 05/19/2009 750,000 711,563
</TABLE>
The accompanying notes are an integral part of the financial statements. 9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Republic of Turkey:
12.000%, 12/15/2008 $ 1,900,000 $ 1,949,875
12.375%, 06/15/2009 3,800,000 3,933,000
Republic of Venezuela, Debt Conversion Bond,
Floating Rate Bond, Series DL, LIBOR plus
.875%, 7.000%, 12/18/2007 2,857,125 2,246,415
Russian Federation, 11.750%, 06/10/2003 900,000 788,625
Russian Ministry of Finance, 10.000%,
06/26/2007 2,000,000 1,380,000
United Mexican States:
10.375%, 02/17/2009 1,550,000 1,563,563
11.500%, 05/15/2026 1,750,000 1,962,188
United Mexican States Global Bond:
11.375%, 09/15/2016 4,700,000 5,064,250
9.875%, 02/01/2010 2,250,000 2,229,750
----------------------------------------------------------------------------------
TOTAL FOREIGN BOND
(Cost $77,177,330) 71,112,481
------------------------------------------------------------------------------------
CORPORATE BONDS--54.0%
CONSUMER
DISCRETIONARY--8.9%
AFC Enterprises, 10.250%, 05/15/2007 820,000 770,800
AMF Bowling, Inc:
10.875%, 06/15/2006 1,200,000 372,000
Step-up Coupon, 0% to 03/15/2001, 12.250%
to 03/15/2006 288,000 66,240
Advantica Restaurant Co., 11.250%,
01/15/2008 193,638 128,769
Avis Rent A Car, 11.000%, 05/01/2009 960,000 976,800
Avondale Mills, 10.250%, 05/01/2006 130,000 122,200
Boca Resorts, Inc., 9.875%, 04/15/2009 1,040,000 962,000
Cinemark USA, Inc., Series D, 9.625%,
08/01/2008 300,000 186,000
Eldorado Resorts, 10.500%, 08/15/2006 540,000 523,800
Finlay Enterprises, Inc., 9.000%, 05/01/2008 90,000 78,750
Finlay Fine Jewelry Co., 8.375%, 05/01/5008 100,000 88,500
Galey & Lord, Inc., 9.125%, 03/01/2008 300,000 147,000
Guitar Center Management, 11.000%,
07/01/2006 2,280,000 2,211,600
Harvey's Casino Resorts, 10.625%, 06/01/2006 800,000 810,000
Herff Jones, Inc., 11.000%, 08/15/2005 290,000 301,963
Hines Horticulture, Inc., 11.750%,
10/15/2005 1,442,000 1,445,605
Hollywood Entertainment Corp., Series B,
10.630%, 8/15/2004 500,000 427,500
Horseshoe Gaming Holdings, 8.625%,
05/15/2009 60,000 55,050
Horseshoe Gaming LLC, 9.375%, 06/15/2007 260,000 250,250
Imperial Home Decor Group, Inc., 11.000%,
03/15/2008* 150,000 1,500
International Game Technology, 8.375%,
05/15/2009 90,000 81,900
J. Crew Group:
Step-up Coupon, 0% to 10/15/2002, 13.125%
to 10/15/2008 210,000 113,400
10.375%, 10/15/2007 860,000 696,600
Krystal Inc., 10.250%, 10/01/2007 1,150,000 713,000
MGM Grand Inc, 9.750%, 06/01/2007 950,000 938,125
Mohegan Tribal Gaming Authority, 8.750%,
01/01/2009 1,000,000 930,000
National Vision Association, Ltd., 12.750%,
10/15/2005 2,380,000 809,200
</TABLE>
10 The accompanying notes are an integral part of the financial statements.
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Park Place Entertainment, Inc.:
7.875%, 12/15/2005 $ 150,000 $ 137,250
9.375%, 02/15/2007 530,000 516,750
Perkins Finance, L.P., 10.125%, 12/15/2007 290,000 272,600
Players International, 10.875%, 04/15/2005 250,000 259,375
Regal Cinemas, Inc.:
8.875%, 12/15/2010 340,000 127,500
9.500%, 06/01/2008 1,110,000 427,350
Restaurant Co., Step-up Coupon, 0% to
05/15/2002, 11.250% to 05/15/2008 450,000 261,000
Sealy Mattress Co., Step-up Coupon, 0% to
12/15/2002, 10.875% to 12/15/2007 320,000 224,000
Specialty Retailers, Inc.:
8.500%, 07/15/2005* 140,000 11,200
9.000%, 07/15/2007* 610,000 6,100
Station Casinos, Inc.:
9.750%, 04/15/2007 190,000 188,100
10.125%, 03/15/2006 1,490,000 1,504,900
------------------------------------------------------------------------------------
18,144,677
---------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--0.4%
Dyersburg Corp., 9.750%, 09/01/2007 1,085,000 271,250
Grove Worldwide LLC, 9.250%, 05/01/2008 380,000 148,200
Jafra Cosmetics International, Inc.,
11.750%, 05/01/2008 510,000 489,600
------------------------------------------------------------------------------------
909,050
---------------------------------------------------------------------------------------------------------------------------
HEALTH--0.4%
Dade International, Inc., 11.125%,
05/01/2006 380,000 245,100
MEDIQ, Inc., 11.000%, 06/01/2008 100,000 10,000
Magellan Health Services, Inc., 9.000%,
02/15/2008 670,000 227,800
Mariner Post-Acute Network, Inc.:
Step-up Coupon, 0% to 11/01/2002, 10.500%
to 11/01/2007 2,950,000 14,750
10.500%, 08/01/2006 440,000 387,200
Vencor, Inc., 9.875%, 05/01/2005* 240,000 33,600
------------------------------------------------------------------------------------
918,450
---------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--12.6%
Allegiance Telecom, Inc., 12.875%,
05/15/2008 1,050,000 1,123,500
Call-Net Enterprises, Inc.:
Step-up Coupon 0% to 08/15/2002, 9.270% to
08/15/2007 110,000 44,000
Step-up Coupon, 0% to 05/15/2004, 10.800%
to 05/15/2009 150,000 48,000
Step-up Coupon, 0% to 08/15/2003, 170,000 56,100
9.375%, 05/15/2009 150,000 87,000
Century Communications Corp., 8.375%,
12/15/2007 200,000 172,000
Comunicacion Cellular, S.A., Step-up Coupon,
0% to 09/29/2000, 14.125% to 03/01/2005 100,000 63,000
Crown Castle International Corp.,
Step-up Coupon, 0% to 11/15/2002, 10.625% to
11/15/2007 460,000 324,300
Step-up Coupon, 0% to 08/01/2004, 11.250% to
08/01/2011 330,000 196,350
Dolphin Telecom PLC, Zero coupon, 05/15/2009 500,000 165,000
Esprit Telecom Group, PLC:
10.875%, 06/15/2008 200,000 152,000
11.500%, 12/15/2007 550,000 429,000
9.875%, 02/15/2005 230,000 156,400
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
He Hermes Europe Railtel BV, 11.500%,
08/15/2007 $ 80,000 $ 64,800
ICG Holdings, Inc., Step-up Coupon, 0% to
09/15/2000, 13.500% to 09/15/2005 1,285,000 1,233,600
IPC Communications, Inc., Step-up Coupon, 0%
to 11/01/2001, 10.875% to 05/01/2008 1,610,000 1,400,700
Impsat Corp., 12.375%, 06/15/2008 440,000 352,000
Intermedia Communications of Florida, Inc.:
Step-up Coupon, 0% to 05/15/2001, 12.500%
to 05/15/2006 290,000 269,700
Step-up Coupon, 0% to 07/15/2002, 11.250%
to 07/15/2007 700,000 519,750
KMC Telecom Holdings, Inc.,
Step-up Coupon, 0% to 02/15/2003, 12.500%
to 02/15/2008 1,060,000 498,200
13.500%, 05/15/2009 840,000 730,800
Level 3 Communications Inc.:
11.250%, 03/15/2010 340,000 323,000
9.125%, 05/01/2008 780,000 672,750
MGC Communications, 13.000%, 10/01/2004 1,420,000 1,480,350
McLeod USA, Inc.:
Step-up Coupon, 0% to 03/01/2002, 10.500%
to 03/01/2007 1,045,000 825,550
9.250%, 07/15/2007 360,000 339,300
9.500%, 11/01/2008 110,000 104,500
MetroNet Communications Corp.:
Step-up Coupon, 0% to 11/01/2002, 10.750%
to 11/01/2007 220,000 183,700
Step-up Coupon, 0% to 06/15/2003, 9.950%
to 06/15/2008 490,000 379,138
10.625%, 11/01/2008 350,000 375,813
12.000%, 08/15/2007 150,000 166,125
Metromedia Fiber Network, Inc.:
10.000%, 11/15/2008 880,000 827,200
10.000%, 12/15/2009 260,000 245,700
Millicom International Cellular, S.A.,
Step-up coupon to 06/01/2001, 13.500% to
06/01/2006 900,000 751,500
Netia Holdings, 10.250%, 11/01/2007 690,000 583,050
Nextel Communications, Inc.:
Step-up Coupon, 0% to 09/15/2002, 10.650%
to 09/15/2007 495,000 368,775
9.375%, 11/15/2009 1,115,000 1,048,100
Nextlink Communications, Inc.:
Step-up Coupon, 0% to 04/15/2003, 9.450%
to 04/15/2008 240,000 142,800
Step-up Coupon, 0% to 06/01/2004, 12.250%
to 06/01/2009 500,000 287,500
10.750%, 11/15/2008 470,000 451,200
12.500%, 04/15/2006 640,000 646,400
PTC International Finance, Step-up Coupon,
0% to 07/01/2002, 10.750% to 07/01/2007 2,010,000 1,386,900
Price Communications Wireless, 9.125%,
12/15/2006 440,000 435,600
Primus Telecommunications Group:
11.250%, 01/15/2009 120,000 97,200
11.750%, 08/01/2004 420,000 357,000
12.750%, 10/15/2009 950,000 807,500
Rogers Cantel, 9.750%, 06/01/2016 100,000 105,750
SBA Communications Corp., Step-up Coupon, 0%
to 03/01/2003, 12.000% to 03/01/2008 980,000 646,800
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Telecorp PCS, Inc., Step-up-Coupon, 0% to
4/15/2004, 11.625% to 4/15/2009 $ 300,000 $ 195,000
Teligent, Inc., 11.500%, 12/01/2007 560,000 422,800
Tritel PCS Inc., Step-up Coupon, 0% to
5/1/2004, 12.750% to 5/15/2009 440,000 292,600
Triton Communications, L.L.C., Step-up
Coupon, 0% to 05/01/2003, 11.000% to
05/01/2008 1,510,000 1,090,975
U.S. Xchange, L.L.C., 15.000%, 07/01/2008 260,000 283,400
USA Mobile Communications Holdings, Inc.,
14.000%, 11/01/2004 190,000 159,600
United Pan-Europe Communications, 10.875%,
11/01/2007 420,000 357,000
Versatel Telecom:
11.875%, 07/15/2009 100,000 93,000
13.250%, 05/15/2008 350,000 339,500
Viatel, Inc.:
Step-up Coupon, 0% to 04/15/2003, 12.500%
to 04/15/2008 480,000 240,000
11.250%, 04/15/2008 30,000 23,100
11.500%, 03/15/2009 109,000 86,110
------------------------------------------------------------------------------------
25,708,486
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL--3.0%
Banco Nacional de Desenvolvimiento Economico
e Social, 10.300%, 06/16/2008 4,250,000 3,830,312
HMH Properties, 7.875%, 08/01/2008 900,000 767,250
Intertek Finance, PLC, 10.250%, 11/01/2006 720,000 597,600
Spectrasite Holdings, Inc.:
Step-up Coupon, 0% to 4/15/2004, 11.250%
to 04/15/2009 410,000 219,350
Step-up Coupon, 0% to 7/15/2003, 12.000%
to 0715/2008 640,000 403,200
10.750%, 03/15/2010 310,000 302,250
------------------------------------------------------------------------------------
6,119,962
---------------------------------------------------------------------------------------------------------------------------
MEDIA--7.2%
AMFM, Inc.:
Step-up Coupon, 0% to 02/01/2002, 12.750%
to 02/01/2009 670,000 599,650
9.000%, 10/01/2008 130,000 131,950
Adelphia Communications Corp.:
7.875%, 05/01/2009 60,000 48,750
9.375%, 11/15/2009 320,000 291,200
American Lawyer Media, Inc., Step-up Coupon,
0% to 12/15/2002, 12.250% to 12/15/2008 350,000 222,250
Avalon Cable Holdings LLC, Step-up coupon,
0% to 12/01/03, 11.875% to 12/01/2008 440,000 270,600
CSC Holdings, Inc.:
8.125%, 8/15/2009 340,000 316,200
9.250%, 11/01/2005 40,000 39,500
10.500%, 05/15/2016 340,000 353,600
Chancellor Media Corp., 8.125%, 12/15/2007 240,000 240,000
Charter Communication Holdings LLC:
8.250%, 04/01/2007 1,000,000 845,000
10.000%, 04/01/2009 410,000 376,175
Set-up Coupon, 0% to 4/1/2004, 9.920% to
4/1/2011 350,000 182,000
Comcast UK Cable Partners, Ltd., Step-up
Coupon 0% to 11/15/2000, 11.2000% to
11/15/2007 1,080,000 1,009,800
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Diamond Cable Communications, PLC, 13.250%,
09/30/2004 $ 525,000 $ 557,812
Echostar DBS Corp.:
9.250%, 02/01/2006 350,000 329,000
9.375%, 02/01/2009 530,000 498,200
Frontiervision Holdings, LP, Step-up Coupon,
0% to 09/15/2001, 11.875% to 09/15/2007 420,000 359,100
Frontiervision LP, 11.000%, 10/15/2006 330,000 330,825
Interep National Radio Sales, Inc., 10.000%,
07/01/2008 340,000 302,600
NTL Communications Corp., Step-up Coupon 0%
to 10/01/2003, 12.375% to 10/01/2008 1,230,000 787,200
NTL, Inc., 11.500%, 10/01/2008 820,000 824,100
Outdoor Systems, Inc.:
8.875%, 06/15/2007 250,000 251,875
9.375%, 10/15/2006 600,000 610,500
Renaissance Media Group, Step-up Coupon, 0%
to 04/15/2003, 10.000% to 04/15/2008 320,000 202,400
SFX Entertainment, Inc.:
9.125%, 02/1/2008 440,000 438,900
9.125%, 12/01/2008 400,000 399,000
Sinclair Broadcasting Group, Inc., 8.750%,
12/15/2007 220,000 182,600
Star Choice Communications, Inc., 13.000%,
12/15/2005 275,000 276,375
TeleWest Communications, PLC:
Step-up Coupon, 0% to 10/01/2000, 11.000%
to 10/01/2007 515,000 484,100
9.625%, 10/01/2006 60,000 57,300
11.250%, 11/01/2008 360,000 360,000
Transwestern Publishing:
Step-up Coupon, 0% to 11/15/2002, 11.875%
to 11/15/2008 1,160,000 841,000
9.625%, 11/15/2007 1,540,000 1,478,400
United International Holdings, Step-up
Coupon, 0% to 02/15/2003, 10.750% to
02/15/2008 460,000 271,400
------------------------------------------------------------------------------------
14,769,362
---------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--2.7%
Allied Waste Industries, 7.625%, 01/01/2006 100,000 86,000
Coinmach Corp., 11.750%, 11/15/2005 2,615,000 2,405,800
ImPac Group, Inc., 10.125%, 03/15/2008 680,000 714,000
Integrated Electrical Services, Inc.,
9.375%, 02/01/2009 270,000 211,275
Kindercare Learning Centers, Inc., 9.500%,
02/15/2009 950,000 855,000
La Petite Academy, Inc., 10.000%, 5/15/2008 840,000 453,600
Spincycle, Inc., Step-up Coupon, 0% to
05/01/2001, 12.750% to 05/01/2005 530,000 159,000
Verio, Inc.:
10.625%, 11/15/2009 390,000 429,000
11.250%, 12/01/2008 180,000 199,800
------------------------------------------------------------------------------------
5,513,475
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
DURABLES--0.7%
Airxcel, 11.000%, 11/15/2007 $ 750,000 $ 611,250
DeCrane Aircraft Holdings, Inc., 12.000%,
09/30/2008 310,000 274,350
Fairchild Corp., 10.750%, 04/15/2009 160,000 105,600
United Rentals, Inc.:
9.000%, 04/01/2009 50,000 41,000
9.250%, 01/15/2009 500,000 417,500
------------------------------------------------------------------------------------
1,449,700
---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--8.4%
Agriculture, Mining and Chemicals, Inc.,
10.750%, 09/30/2003 660,000 462,000
Atlantis Group, Inc., 11.000%, 02/15/2003 350,000 350,000
BPC Holdings Corp., 12.500%, 06/15/2006 245,000 198,450
Berry Plastics Corp., 12.250%, 04/15/2004 150,000 141,000
Consolidated Container Capital, Inc.,
10.125%, 07/15/2009 190,000 186,200
Consumers International, 10.250%, 04/01/2005 760,000 433,200
Day International Group, Inc., 11.125%,
06/01/2005 750,000 750,000
Eagle-Picher Holdings, Inc., 9.375%,
03/01/2008 1,070,000 901,475
Foamex, L.P., 13.500%, 08/15/2005 250,000 215,000
Fonda Group, 9.500%, 03/01/2007 1,380,000 1,079,850
GS Technologies:
12.000%, 09/01/2004 250,000 100,000
12.250%, 10/01/2005 1,610,000 644,000
Gaylord Container Corp.:
9.750%, 06/15/2007 710,000 603,500
9.875%, 02/15/2008 215,000 159,100
Graham Packaging Co.: 160,000 89,600
Step-up Coupon, 0% to 01/15/2003, 10.750% to
01/15/2009 180,000 152,100
8.750%, 01/15/2008 100,000 8,000
Grove Holdings LLC:
Step-up Coupon, 0% to 05/01/2003, 11.625% to
05/01/2009
14.500%, 05/01/2010 199,224 7,969
Huntsman Package, 11.750%, 12/01/2004 655,000 661,550
Kappa Beheer BV, 10.625%, 07/15/2009 2,500,000 2,409,555
Knoll, Inc., 10.875%, 03/15/2006 404,000 412,080
Millar Western Forest Products, Ltd.,
9.875%, 05/15/2008 295,000 280,250
Motors and Gears, Inc., 10.750%, 11/15/2006 230,000 220,800
Neenah Corp., 11.125%, 05/01/2007 220,000 167,200
Plainwell, Inc., 11.000%, 03/01/2008 335,000 94,638
Printpack, Inc.:
9.875%, 08/15/2004 40,000 37,600
10.625%, 08/15/2006 290,000 268,250
Riverwood International Corp.:
10.250%, 04/01/2006 150,000 145,500
10.625%, 08/01/2007 140,000 137,200
10.875%, 04/01/2008 2,165,000 2,013,450
SF Holdings Group, Inc., Step-up Coupon, 0%
to 03/15/2003, 12.750% to 03/15/2008 720,000 381,600
Stone Container Corp.:
11.500%, 08/15/2006 195,000 202,800
12.250%, 04/10/2002 40,000 40,050
Tenneco Automotive, Inc., 11.625%,
10/15/2009 2,170,000 2,018,100
Terex Corp.,
8.875%, 04/01/2008 530,000 477,000
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Terra Industries, Inc., 10.500%, 06/15/2005 $ 130,000 $ 91,000
Texas Petrochemicals, 11.125%, 07/01/2006 470,000 385,400
U.S. Can Corp., 10.125%, 10/15/2006 260,000 260,000
------------------------------------------------------------------------------------
17,185,467
---------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--0.6%
PSINet, Inc.:
10.000%, 02/15/2005 170,000 149,600
11.000%, 08/01/2009 540,000 469,800
11.500%, 11/01/2008 370,000 334,850
Panavision Inc., Step-up Coupon, 0% to
02/01/2002, 9.625% to 02/01/2006 465,000 186,000
------------------------------------------------------------------------------------
1,140,250
---------------------------------------------------------------------------------------------------------------------------
ENERGY--1.1%
Benton Oil & Gas Co., 11.625%, 05/01/2003 115,000 74,750
Continental Resources, Inc., 10.250%,
08/01/2008 710,000 631,900
Key Energy Services, Inc., 14.000%,
01/15/2009 150,000 162,000
Pen Holdings, Inc., 9.875%, 06/15/2008 170,000 139,400
Pride International, Inc., 10.000%,
06/01/2009 360,000 363,600
R&B Falcon Corp.:
9.500%, 12/15/2008 60,000 58,800
11.000%, 03/15/2006 590,000 625,400
Stone Energy Corp., 8.750%, 09/15/2007 260,000 245,700
------------------------------------------------------------------------------------
2,301,550
---------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--1.5%
Euramax International, PLC, 11.250%,
10/01/2006 1,325,000 1,272,000
MMI Products, Inc., 11.250%, 04/15/2007 880,000 864,600
Metal Management, Inc., 10.000%, 05/15/2008 460,000 308,200
Metals USA, Inc., 8.625%, 02/15/2008 375,000 333,750
Renco Steel Holdings Co., Series B, 10.875%,
02/01/2005 290,000 237,800
Republic Technologies International,
13.750%, 07/15/2009 730,000 91,250
------------------------------------------------------------------------------------
3,107,600
---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--2.2%
Congoleum Corp., 8.625%, 08/01/2008 1,580,000 1,042,800
Del Webb Corp., 9.750%, 01/15/2008 670,000 557,775
Dimac Corp., 12.500%, 10/01/2008* 1,030,000 10,300
Forecast Group, L.P.:
11.375%, 12/15/2000 150,000 150,000
13.750%, 05/15/2003 640,000 358,400
Hovnanian Enterprises, Inc.:
9.125%, 05/01/2009 100,000 86,750
9.750%, 06/01/2005 130,000 115,375
Lennar Corp:
9.950%, 05/01/2010 290,000 275,500
7.625%, 03/01/2009 300,000 252,000
Nortek, Inc.:
9.125%, 09/01/2007 680,000 625,600
9.875%, 03/01/2004 360,000 339,300
Series A, 8.875%, 08/01/2008 130,000 117,000
Standard Pacific Corp.:
8.000%, 02/15/2008 100,000 87,500
8.500%, 04/01/2009 200,000 171,500
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT(B) VALUE
<S> <C> <C> <C> <C> <C>
Toll Corp.:
8.000%, 05/01/2009 $ 140,000 $ 123,200
8.125%, 02/01/2009 100,000 87,500
7.750%, 09/15/2007 80,000 70,800
8.750%, 11/15/2006 50,000 47,250
------------------------------------------------------------------------------------
4,518,550
---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.9%
Petro Stopping Centers, 10.500%, 02/01/2007 820,000 725,700
TFM, S.A. de C.V., 10.250%, 06/15/2007 2,445,000 2,078,250
Transtar Holdings, Inc., Step-up Coupon, 0%
to 12/15/1999, 13.375% to 12/15/2003 200,000 198,000
Travelcenters America, 10.250%, 04/01/2007 900,000 850,500
------------------------------------------------------------------------------------
3,852,450
---------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
Azurix Corp:
10.750%, 02/15/2010 3,260,000 2,868,800
10.375%, 02/15/2007 210,000 186,900
------------------------------------------------------------------------------------
3,055,700
---------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--0.9%
FairPoint Communications, Inc., 12.500%,
05/01/2010 470,000 472,350
Global Crossing, 9.500%, 11/15/2009 880,000 828,300
PTC International Finance II Poltel,
11.250%, 12/01/2009 100,000 100,000
Voicestream Wire, 10.375%, 11/15/2009 460,000 471,500
------------------------------------------------------------------------------------
1,872,150
------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $131,178,467) 110,566,879
------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--4.2%
Riverside Loan Trust II, 7.437%, 07/16/2008
(Cost $10,000,000) 10,000,000 8,658,150
------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS*--0.1% NUMBER OF SHARES
COMMUNICATIONS--0.1%
TELEPHONE/COMMUNICATIONS
World Access, Inc.
(Cost $320,711) 200 192,000
------------------------------------------------------------------------------------
PREFERRED STOCKS--0.5%
COMMUNICATIONS--0.1%
CELLULAR TELEPHONE--.01%
Dobson Communications, PIK* 256 261,339
------------------------------------------------------------------------------------
TELEPHONE/ COMMUNICATIONS--0.0%
Nextel Communications, Inc., PIK* 10 9,150
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL--0.1%
REAL ESTATE
Crown American Realty Trust 6,240 224,640
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
MEDIA--0.2%
BROADCASTING & ENTERTAINMENT
Sinclair Capital* 3,600 327,600
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.1%
CONTAINERS & PAPER--0.0%
SF Holdings Group, Inc., PIK* 10 46,530
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
MACHINERY/ COMPONENTS--0.1%
Eagle-Picher Holdings, Inc.* 40 $ 100,000
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
ENERGY--0.0%
OIL & GAS PRODUCTION
Clark USA, PIK* 1,110 19,980
------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $1,361,704) 989,239
------------------------------------------------------------------------------------
COMMON STOCKS*--0.1%
COMMUNICATIONS--0.1%
TELEPHONE/COMMUNICATIONS
AT&T Canada Inc. 514 20,046
ICG Communications, Inc. 1,056 19,866
Tele1 Europe Holding AB--ADR 8,806 101,269
------------------------------------------------------------------------------------
141,181
---------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.0%
CONTAINERS & PAPER
SF Holdings Group, Inc. 181 2
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--0.0%
MISCELLANEOUS
RCN Corporation 600 13,838
------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $193,889) 155,021
------------------------------------------------------------------------------------
RIGHTS & WARRANTS*--0.1%
COMMUNICATIONS--0.1%
TELEPHONE/COMMUNICATIONS
Econophone Inc. 370 46,250
Intermedia Communications of Florida, Inc. 300 48,000
KMC Telecom Holdings, Inc. 650 4,550
Primus Telecommunications Group 250 8,125
Star Choice Communications 6,369 29,457
------------------------------------------------------------------------------------
136,382
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL--0.0%
OTHER FINANCIAL COMPANIES
Ono Finance PLC 140 21,000
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
SERVICE INDUSTRIES--0.0%
MISCELLANEOUS CONSUMER
Spincycle, Inc. 530 5
------------------------------------------------------------------------------------
PRINTING/PUBLISHING
American Banknote Corp. 330 3
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
DURABLES--0.0%
AEROSPACE
Decrane Holdings Co. 350 0
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
ENERGY--0.0%
OIL/GAS TRANSMISSION
Empire Gas Corp. 552 55
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
METALS & MINERALS--0.0%
STEEL & METALS
Republic Technologies International 730 7
------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION--0.0%
BUILDING MATERIALS
Waxman Industries, Inc. 12,154 121
------------------------------------------------------------------------------------
HOMEBUILDING
Capital Pacific Holdings 1,185 592
------------------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
<S> <C> <C> <C> <C> <C>
OTHER--0.0%
United Mexican States, Collateralized Par
Bond (Detachable Oil Priced Indexed Value
Recovery Rights), Series A, 6.250%,
06/30/2003 1,000 $ 0
------------------------------------------------------------------------------------
TOTAL RIGHTS & WARRANTS
(Cost $63,879) 158,165
------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $233,386,798)(c) $204,726,969
------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
* Non-income producing security. In the case of a bond, generally denotes the
issuer has defaulted on the payment of principal or interest or has filed for
bankruptcy.
(a) Repurchase agreement is fully collateralized by U.S. Treasury or Government
agency securities.
(b) Principal amount stated in U.S. dollars unless otherwise noted.
(c) The cost for federal income tax purposes was $233,386,798. At May 31, 2000,
the net unrealized depreciation for all securities based on tax cost was
$28,659,829. This consists of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$2,247,189 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value of $30,907,018.
CURRENCY ABBREVIATION
DEM Deutsche Mark
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
As of May 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $233,386,798) $204,726,969
----------------------------------------------------------------------------
Receivable for investments sold 485,525
----------------------------------------------------------------------------
Dividend receivable 10,463
----------------------------------------------------------------------------
Interest receivable 4,939,364
----------------------------------------------------------------------------
Unrealized appreciation on forward currency exchange
contracts 316,108
----------------------------------------------------------------------------
Other assets 8,000
----------------------------------------------------------------------------
TOTAL ASSETS 210,486,429
----------------------------------------------------------------------------
LIABILITIES
Due to custodian 204,917
----------------------------------------------------------------------------
Payable for investments purchased 101,993
----------------------------------------------------------------------------
Notes payable 30,000,000
----------------------------------------------------------------------------
Interest payable 432,566
----------------------------------------------------------------------------
Accrued management fee 132,924
----------------------------------------------------------------------------
Other accrued expenses 112,416
----------------------------------------------------------------------------
Total liabilities 30,984,816
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $179,501,613
----------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 3,492,338
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments (28,659,829)
----------------------------------------------------------------------------
Foreign currency related transactions 309,346
----------------------------------------------------------------------------
Accumulated net realized gain (loss) (14,308,706)
----------------------------------------------------------------------------
Paid-in capital 218,668,464
----------------------------------------------------------------------------
NET ASSETS, AT VALUE $179,501,613
----------------------------------------------------------------------------
NET ASSET VALUE
Net asset value per share
($179,501,613 / 20,090,000 shares of beneficial interest,
$.01 par value, unlimited number of shares authorized) $8.93
----------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 2000
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 12,043,125
----------------------------------------------------------------------------
Dividends 220,344
----------------------------------------------------------------------------
Total income 12,263,469
----------------------------------------------------------------------------
Expenses:
Management fee 803,869
----------------------------------------------------------------------------
Services to shareholders 38,862
----------------------------------------------------------------------------
Custodian fees 6,497
----------------------------------------------------------------------------
Auditing 50,904
----------------------------------------------------------------------------
Legal 20,313
----------------------------------------------------------------------------
Trustees' fees and expenses 11,529
----------------------------------------------------------------------------
Reports to shareholders 50,893
----------------------------------------------------------------------------
Interest expense 1,029,040
----------------------------------------------------------------------------
Other 49,816
----------------------------------------------------------------------------
Total expenses, before expense reductions 2,061,723
----------------------------------------------------------------------------
Expense reductions (3,993)
----------------------------------------------------------------------------
Total expenses, after expense reductions 2,057,730
----------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 10,205,739
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (4,407,831)
----------------------------------------------------------------------------
Foreign currency related transactions (25,923)
----------------------------------------------------------------------------
(4,433,754)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on:
Investments (10,419,465)
----------------------------------------------------------------------------
Foreign currency related transactions 225,034
----------------------------------------------------------------------------
(10,194,431)
----------------------------------------------------------------------------
Net gain (loss) on investment transactions (14,628,185)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (4,422,446)
----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 10,205,739 20,502,594
----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (4,433,754) (2,596,718)
----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investment transactions (10,194,431) (14,842,052)
----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (4,422,446) 3,063,824
----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (11,401,422) (17,227,876)
----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (15,823,868) (14,164,052)
----------------------------------------------------------------------------------------------------
Net assets at beginning of period 195,325,481 209,489,533
----------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $3,492,338 and $4,688,021,
respectively) $179,501,613 195,325,481
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
Six months ended May 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Investment income received $ 10,337,348
----------------------------------------------------------------------------
Payment of operating expenses (1,666,856)
----------------------------------------------------------------------------
Proceeds from sales and maturities of investments 33,691,430
----------------------------------------------------------------------------
Purchases of investments (31,165,418)
----------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 11,196,505
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid (net of reinvestment of dividends) (11,401,422)
----------------------------------------------------------------------------
Cash used by financing activities (11,401,422)
----------------------------------------------------------------------------
Decrease in cash (204,917)
----------------------------------------------------------------------------
Cash at beginning of period --
----------------------------------------------------------------------------
CASH AT END OF PERIOD $ (204,917)
----------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ (4,422,446)
----------------------------------------------------------------------------
Net decrease in cost of investments 14,964,649
----------------------------------------------------------------------------
Decrease in dividends and interest receivable 288,257
----------------------------------------------------------------------------
Decrease in receivable for investments sold 87,761
----------------------------------------------------------------------------
Increase in other assets (8,000)
----------------------------------------------------------------------------
Increase in payable for investments purchased 101,993
----------------------------------------------------------------------------
Change in appreciation/depreciation on forward currency
contracts (206,584)
----------------------------------------------------------------------------
Increase in interest payable 346,049
----------------------------------------------------------------------------
Increase in accrued expenses and payables 44,825
----------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES $ 11,196,505
----------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
MAY 31, YEARS ENDED NOVEMBER 30
----------- -----------------------------------------------
2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.72 10.42 10.83 10.97 10.90 10.35
-------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .51(a) 1.02(a) .88 .82 .87 .96
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.73) (.86) (.48) (.07) .27 .60
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.22) .16 .40 .75 1.14 1.56
-------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.57) (.86) (.81) (.89) (1.07) (1.01)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.93 9.72 10.42 10.83 10.97 10.90
-------------------------------------------------------------------------------------------------------------------------
Market value, end of period $ 8.13 8.31 9.25 10.63 10.63 10.75
TOTAL RETURN
Based on net asset value (%) (1.72)* 2.48 3.77 7.20 11.12 15.90
-------------------------------------------------------------------------------------------------------------------------
Based on market value (%) 4.65* (1.27) (5.46) 8.72 9.14 26.92
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) 180 195 209 218 220 217
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses excluding interest expense (%) 1.08** 1.09 .98 1.01 .99 1.02
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 2.16** 1.65 .98 1.01 .99 1.02
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 2.16** 1.65 .98 1.01 .99 1.02
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 10.69** 10.16 8.25 7.61 8.06 9.13
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 30** 51 118 304 310 271
-------------------------------------------------------------------------------------------------------------------------
Total debt outstanding end of year ($ thousands) 30,000 30,000 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 of debt $5,983 7,510 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. Total return based on market value reflects
changes in market value. Each figure includes reinvestments of dividends. These
figures will differ depending upon the level of any discount or premium to net
asset value at which the Fund's shares trade during the period.
(a) Based on monthly average shares outstanding during the period.
* Not annualized.
** Annualized.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Multi-Market Income Trust (the "Fund") is
registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end,
diversified management investment company organized
as a Massachusetts business trust.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities which are
traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are
not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used.
Money market instruments purchased with an original
maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. 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
exchange rates at period end. 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.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A
forward foreign currency exchange contract (forward
contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a
negotiated rate. During the period, the Fund
utilized forward contracts as a hedge against
changes in the exchange rates relating to foreign
currency denominated assets.
Forward contracts are valued at the prevailing
forward exchange rate of the underlying currencies
and unrealized gain/loss is recorded daily. Sales
and purchases of forward contracts having the same
settlement date and broker are offset and any gain
(loss) is realized on the date of offset;
otherwise, gain (loss) is realized on settlement
date. Realized and unrealized gains and losses
which represent the difference between the value of
a forward contract to buy and a forward contract to
sell are included in net realized and unrealized
gain (loss) from foreign currency related
transactions.
Certain risks may arise upon entering into forward
contracts from the potential inability of
counterparties to meet the terms of their
contracts. Additionally, when utilizing forward
contracts to hedge, the Fund gives up the
opportunity to profit from favorable exchange rate
movements during the term of the contract.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
At November 30, 1999, the Fund had a net tax basis
capital loss carryforward of approximately
$9,486,000 which may be applied against any
realized net taxable capital gains of each
succeeding year until fully utilized or until
November 30, 2002 ($1,987,000), November 30, 2003
($5,253,000), and November 30, 2007 ($2,246,000),
the expiration dates, which ever occurs first. In
addition, from November 1, 1999 through November
30, 1999 the Fund incurred approximately $202,000
of net realized capital losses. As permitted by tax
regulations, the Fund intends to defer these losses
and treat them as arising in the fiscal year ended
November 30, 2000.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made monthly.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis.
All discounts are accreted for both tax and
financial reporting purposes.
STATEMENT OF CASH FLOWS. Information of financial
transactions which have been settled through the
receipt and disbursement of cash is presented in
the Statement of Cash Flows. The cash amount shown
in the Statement of Cash Flows is the amount
reported as cash in the Fund's Statement of Assets
and Liabilities and represents the cash position in
its custodian bank at May 31, 2000. Significant
non-cash activity from market discount accretion
has been excluded from the Statement of Cash Flows.
OTHER CONSIDERATIONS. The Fund invests a
substantial portion of its assets in high yield
bonds. These bonds ordinarily are in the lower
rating categories of recognized rating agencies or
are non rated, and thus involve more risk than
higher rated bonds.
--------------------------------------------------------------------------------
2 INVESTMENT
TRANSACTIONS For the six months ended May 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
Purchases $31,217,295
Proceeds from sales 34,399,599
--------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a monthly investment
management fee of 1/12 of the annual rate of 0.85%
of average weekly net assets. The Fund incurred a
management fee of $803,869 for the six months ended
May 31, 2000.
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, 2000.
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,
2000, the Fund made no payments to its officers and
incurred trustees' fees of $11,529 to independent
trustees.
--------------------------------------------------------------------------------
4 NOTE PAYABLE The note payable represents a $30,000,000 loan from
Bank of America and State Street Bank and Trust
Company at May 31, 2000. The note bears interest at
the Eurodollar Rate plus 0.45% (6.04% at May 31,
2000) which is payable quarterly. The loan amount
and rate are reset periodically under a credit
facility which is available until April 1, 2002.
The weighted average outstanding daily balance of
all loans (based on the number of days the loans
were outstanding) during the period ended May 31,
2000 was $30,000,000 with a weighted average
interest rate of 6.63%.
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the six
months ended May 31, 2000, the Fund's custodian and
transfer agent fees were reduced by $3,324 and
$669, respectively, under these arrangements.
--------------------------------------------------------------------------------
6 COMMITMENTS As of May 31, 2000, the Fund had entered into the
following forward currency exchange contracts
resulting in net unrealized appreciation of
$316,108.
<TABLE>
<CAPTION>
CONTRACTS IN EXCHANGE SETTLEMENT NET UNREALIZED
TO DELIVER FOR DATE APPRECIATION
------------------------------------------------------------------------------
<S> <C> <C> <C>
EUR 2,500,000 US$ 2,663,625 7/24/2000 $316,108
</TABLE>
27
<PAGE> 28
SHAREHOLDERS' MEETING
ANNUAL SHAREHOLDERS' MEETING
An annual shareholders' meeting was held on May 25, 2000, for Kemper
Multi-Market Income Trust. Shareholders were asked to vote on two separate
issues: election of members to the Board of Trustees, and ratification of Ernst
& Young LLP as independent auditors. The following are the results for each
issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James E. Akins 18,141,405 373,581
Linda C. Coughlin 18,155,160 359,826
James R. Edgar 18,149,049 365,937
Arthur R. Gottschalk 18,185,861 329,125
Frederick T. Kelsey 18,201,982 313,004
Thomas W. Littauer 18,182,169 332,817
Fred B. Renwick 18,150,848 364,138
John G. Weithers 18,213,033 301,953
</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>
18,261,473 84,414 169,099
</TABLE>
28
<PAGE> 29
NOTES
29
<PAGE> 30
NOTES
30
<PAGE> 31
NOTES
31
<PAGE> 32
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS
Trustee MARK S. CASADY KATHRYN L. QUIRK
President Vice President
LINDA C. COUGHLIN
Trustee PHILIP J. COLLORA LINDA J. WONDRACK
Vice President and Vice President
JAMES R. EDGAR Secretary
Trustee MAUREEN E. KANE
JOHN R. HEBBLE Assistant Secretary
ARTHUR R. GOTTSCHALK Treasurer
Trustee CAROLINE PEARSON
J. PATRICK BEIMFORD, JR. Assistant Secretary
FREDERICK T. KELSEY Vice President
Trustee BRENDA LYONS
ANN M. MCCREARY Assistant Treasurer
THOMAS W. LITTAUER Vice President
Trustee and
Vice President ROBERT C. PECK, JR.
Vice President
FRED B. RENWICK
Trustee
JOHN G. WEITHERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219066
Kansas City, MO 64121-6066
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
</TABLE>
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
KMMIT - (7/25/00) 1116490
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
