KEMPER STRATEGIC MUNICIPAL INCOME TRUST, PRE 14A, 1995-06-20

KEMPER STRATEGIC MUNICIPAL INCOME TRUST
PRE 14A, 1995-06-20

Previous: GEOTEK COMMUNICATIONS INC, 424B3, 1995-06-20

Next: RJR NABISCO HOLDINGS CORP, S-4, 1995-06-20

<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant /X/

Filed by a party other than the registrant / /

Check the appropriate box:

/X/ Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

/ / Definitive proxy statement

/ / Definitive additional materials

/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
KEMPER STRATEGIC MUNICIPAL INCOME TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
KEMPER STRATEGIC MUNICIPAL INCOME TRUST
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

(5) Total fee paid:

- --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

- --------------------------------------------------------------------------------

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

- --------------------------------------------------------------------------------

(3) Filing party:

- --------------------------------------------------------------------------------

(4) Date filed:

- --------------------------------------------------------------------------------
<PAGE> 2

PRELIMINARY COPY --

IMPORTANT NEWS
FOR KEMPER CLOSED-END FUND SHAREHOLDERS

WHILE WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT,
HERE'S A BRIEF OVERVIEW OF MAJOR MATTERS TO BE VOTED UPON.

Q&A ABOUT THE ENCLOSED PROXY MATERIALS

<TABLE>
<S> <C>
Q. WHAT IS HAPPENING?

A. Kemper Corporation -- not your fund -- has agreed to be acquired
by an investor group led by Zurich Insurance Company through a
merger. Zurich is an internationally recognized market leader in
life and non-life insurance, financial services and reinsurance.
As part of the merger, your fund's investment manager, Kemper
Financial Services, Inc. (KFS), will be sold to a subsidiary of
Zurich. In order for KFS to serve as investment manager of your
fund after the merger, it is necessary for your fund to approve a
new investment management agreement.

The following pages elaborate on Zurich, the proposed new
investment management agreement and the fund board's evaluation
of Zurich's plans for KFS. A vote is also being sought on the
election of two additional board members and the selection of
independent auditors.

Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW INVESTMENT
MANAGEMENT AGREEMENT?

A. The Investment Company Act of 1940 requires a vote whenever there
is a change in control of an investment manager. Kemper
Corporation's merger with Zurich is such a change of control and
requires fund shareholder approval of a new investment management
agreement with your fund.

Q. WHAT HAPPENED WITH KEMPER CORPORATION'S INTENTION LAST YEAR TO
MERGE WITH CONSECO, INC.?

A. The agreement was terminated by mutual consent of Kemper and
Conseco.

Q. HOW WILL THE KEMPER/ZURICH MERGER AFFECT ME AS A FUND
SHAREHOLDER?

A. Your fund and your fund investment will not change. You will
still own the same shares in the same fund.

The terms of the new management agreement are the same as the
current management agreement. If the new investment management
agreement is approved, your fund shares will not change and the
advisory fees charged to your fund will not change.

Zurich has committed to provide all resources necessary to
provide your fund with top quality investment management and
shareholder services.
</TABLE>
<PAGE> 3

<TABLE>
<S> <C>
Q. WILL THE INVESTMENT ADVISORY FEES BE THE SAME?
A. Yes, the investment advisory fees paid by your fund will remain
the same.

Q. HOW DO THE BOARD MEMBERS OF MY FUND SUGGEST THAT I VOTE?
A. After careful consideration, the board members of your fund,
including the independent members, recommend that you vote "FOR"
all the items on the enclosed proxy card.

Q. WHO IS PAYING THE COST OF THE SHAREHOLDER MEETING AND THIS PROXY
SOLICITATION?
A. Kemper Corporation and Zurich Insurance Company -- not your
fund -- are paying all costs of the fund's shareholder meeting
and proxy solicitation.

Q. WHOM DO I CALL FOR MORE INFORMATION?
A. Please call Kemper Shareholder Services at 1-800-621-1048.
</TABLE>

ABOUT THE PROXY CARD

<TABLE>
<S> <C>
[KEMPER MUTUAL FUNDS LOGO] For Withhold For All
[FUND NAME] 1. To elect the following as directors: All All Except
[ACCOUNT NUMBER] / / / / / /
[SHARE COUNT] 01) James B. Akins, 02) Fred B. Renwick

--------------------------------------------------------------------------
[ADDRESSEE AND ADDRESS] To withhold authority to vote on any individual nominees(s), please print
the number(s) on the line above.

2. Ratify or reject the selection of For Against Abstain
/ / / / / /
Ernst & Young LLP as the Fund's
independent auditors for the current
fiscal year.

3A. Approve or disapprove a new investment. / / / / / /
Management agreement with Kemper
Financial Services, Inc. or its
successor on the same terms as the
current agreement.

3B. For GSP only, to approve or disapprove / / / / / /
a new sub-advisory agreement with BSN
Gastion de Patrinonios, S.A., S.G.C.
on the same terms as the current
agreement.

Approval of Item 3B is conditional upon approval of Item 3A for GSP.

Signature(s) (All registered owners of accounts shown to the left must
sign. If signing for a corporation, estate or trust, please indicate your
capacity or title.)
</TABLE>

X
- -------------------------------------------------------------------------------
Signature Date

THIS PROXY WILL BE VOTED AS SPECIFIED HERE BY YOU. IF NO SPECIFICATION IS
MADE, THE PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THIS PROXY.

PLEASE VOTE TODAY!

Because each fund must vote separately, you are being sent a proxy card for each
fund account that you have. Please vote all issues shown on each proxy card that
you receive.

Please vote on each issue using blue or black ink to mark an X in one of the
three boxes provided on each proxy card. On Item I (election of board members)
mark -- For All, Withhold All or For All Except. If you mark an X in the For All
Except box, you should print the number(s) relating to the individual(s) for
whom you wish to withhold authority. On all other Items mark -- For, Against or
Abstain. Then sign, date and return each of your proxy cards in the accompanying
postage-paid envelope. All registered owners of an account, as shown in the
address on the proxy card, must sign the proxy card. If you are signing for a
corporation, trust or estate, please indicate your title or position.

THANK YOU FOR MAILING YOUR PROXY CARD PROMPTLY!
<PAGE> 4

KEMPER CLOSED-END FUNDS

120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
TELEPHONE 1-800-621-1048

July 7, 1995

Dear Kemper Fund Shareholder:

As you read in the Questions and Answers (Q & A) on page 1, Kemper
Corporation has agreed to be acquired by an investor group led by Zurich
Insurance Company through a merger. Zurich is an internationally recognized
market leader in life and non-life insurance, financial services and
reinsurance. (More information about Zurich can be found inside the proxy
statement.)

We're sending this proxy statement to you because your vote is important to
the planned Kemper merger. Your fund's investment manager, Kemper Financial
Services, Inc. (KFS), is a subsidiary of Kemper Corporation. Because of the
Zurich/Kemper merger, it is necessary for your fund to approve a new investment
management agreement.

As you review these materials, please keep in mind that Kemper Corporation
and KFS -- NOT YOUR FUND -- are being acquired by Zurich. If the new investment
management agreement is approved, YOUR FUND SHARES WILL NOT CHANGE AND THE
ADVISORY FEES CHARGED TO YOUR FUND WILL NOT CHANGE. Further, you should continue
to receive the high quality investment management and shareholder services that
you have come to expect over the years.

Your Fund Board has approved the proposals and recommends them for your
approval. I encourage you to vote in favor of the proposals. PLEASE VOTE NOW TO
HELP SAVE THE COST OF ADDITIONAL SOLICITATIONS.

As always, we thank you for your confidence and support.

Sincerely,

[SIG]

Stephen B. Timbers
President
<PAGE> 5

KEMPER CLOSED-END FUNDS
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
TELEPHONE 1-800-294-4366
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 19, 1995 AND PROXY STATEMENT
July 7, 1995

To the Shareholders:

You are invited to attend a joint special meeting of shareholders of the
following Kemper Closed-End Funds (each a "Fund" and collectively the "Funds"):

Kemper High Income Trust ("KHI")
Kemper Intermediate Government Trust ("KGT")
Kemper Multi-Market Income Trust ("KMM")
Kemper Municipal Income Trust ("KTF")
Kemper Strategic Municipal Income Trust ("KSM")
The Growth Fund of Spain, Inc. ("GSP")
Kemper Strategic Income Fund ("KST")

The meeting will be held in Room 17L on the 17th floor at the offices of the
Funds, 120 South LaSalle Street, Chicago, Illinois on Tuesday, September 19,
1995 at 2:30 p.m., Chicago time, for the following purposes and to transact such
other business as may properly come before the meeting or any adjournment of the
meeting:

1. To elect two (2) additional Members to the Board of each Fund.

2. To ratify or reject the selection of Ernst & Young LLP as independent
auditors for the current fiscal year.

3A. To approve or disapprove a new investment management agreement with
Kemper Financial Services, Inc. or its successor on the same terms as
the current agreement.

3B. For GSP only, to approve or disapprove a new sub-advisory agreement
with BSN Gestion de Patrimonios, S.A., S.G.C. on the same terms as the
current agreement.

Approval of Item 3B is conditional upon approval of Item 3A for GSP.

The Board of each Fund has selected the close of business on June 23, 1995 as
the record date for the determination of shareholders of each Fund entitled to
notice of and to vote at the meeting. Shareholders are entitled to one vote for
each share held.
- --------------------------------------------------------------------------------

PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD. SIGN, DATE
AND RETURN IT IN THE ENVELOPE PROVIDED. TO SAVE THE COST OF ADDITIONAL
SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE> 6

The accompanying proxy is solicited by the Boards of Trustees, or Directors in
the case of GSP, (the "Boards") of the Funds for voting at the joint special
meeting of shareholders of the Funds to be held on Tuesday, September 19, 1995,
and at any and all adjournments thereof (the "Meeting"). This proxy statement
was first mailed to shareholders on or about July 7, 1995.

The shareholders of each Fund are being asked to vote on three items. The Board
of each Fund recommends an affirmative vote on all items. The vote required to
approve each item is described under the section of this proxy statement
entitled "Miscellaneous."

The following table indicates which shareholders are solicited with respect to
each Item:

<TABLE>
<CAPTION>
ITEM KHI KGT KMM KTF KSM GSP KST
---------------------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Elect Board Members... X X X X X X X
2. Ratify Selection of
Auditors.............. X X X X X X X
3A. Approval of New
Investment Management
Agreement............. X X X X X X X
3B. Approval of New Sub-
Advisory Agreement
with BSN Gestion de
Patrimonios,
S.A., G.S.C........... X
</TABLE>

The Board of each Fund has fixed the close of business on June 23, 1995 as the
record date for the determination of shareholders of each Fund entitled to
notice of and to vote at the Meeting. As of May 31, 1995, shares of the Funds
were issued and outstanding as follows:

<TABLE>
<CAPTION>
FUND SHARES
--------------------------------------- -------
<S> <C>
KHI....................................
KGT....................................
KTF
Common...............................
Preferred............................
KMM....................................
KSM....................................
GSP....................................
KST....................................
</TABLE>

KTF ONLY. Pursuant to the Agreement and Declaration of Trust of KTF, the Board
may authorize separate classes of shares of beneficial interest. The Board has
authorized and KTF has issued common shares of beneficial interest (the "Common
Shares") and preferred shares of beneficial interest, Series A through D (the
"Preferred Shares"). The Common Shares and the Preferred Shares have different
powers, rights, preferences and privileges, qualifications, limitations and
restrictions with respect to, among other things, dividends,

2
<PAGE> 7

liquidation, redemption and voting as more fully set forth in the Certificate of
Designation for Preferred Shares that established the Preferred Shares. The
Common Shares were first issued on October 20, 1988 and the Preferred Shares
were first issued on July 24, 1989. At the Meeting, the holders of the Common
Shares and the Preferred Shares will vote together as a single class.

ITEM 1. ELECTION OF MEMBERS TO THE BOARDS

At the meeting, two (2) additional Board Members are to be elected to the Board
of each Fund, increasing the size of each Board to eight (8) from six (6)
members. The two additional Board Member positions have been proposed in order
to meet the requirements of Section 15(f) of the Investment Company Act of 1940
described below under Item 3. It is intended that the proxies will be voted for
the election as Board Members of the nominees described below. Each Board Member
so elected will serve as a Board Member of the respective Fund until the next
meeting of shareholders, if any, called for the purpose of electing Board
Members (for GSP, of the class of which such person is a Member) and until the
election and qualification of a successor or until such Board Member sooner
dies, resigns or is removed as provided in the organizational documents of each
Fund. All the current Board Members, who are identified below, were elected to
the Boards at the 1995 annual joint meeting of shareholders except that Mr.
Tingleff was last elected as a GSP Board Member at the 1994 annual shareholders'
meeting and Messrs. Gottschalk, Timbers and Weithers were last GSP Board Members
at the 1993 annual shareholders' meeting. Messrs. Atkins and Renwick are
standing for election by each Fund's shareholders for the first time at the
Meeting.

KTF ONLY. Holders of the Preferred Shares are entitled to elect two of the
Board Members. Messrs. Timbers and Kelsey were elected by holders of the
Preferred Shares. The four other current Board Members (Messrs. Gottschalk,
Mathis, Tingleff and Weithers) were elected by holders of the Common Shares and
the Preferred Shares, voting together as a single class. Messrs. Atkins and
Renwick are to be elected by holders of the Common Shares and the Preferred
Shares, voting together as a single class.

GSP ONLY. Pursuant to the organizational documents of GSP, the Board is divided
into three classes, each class having a term of three years. At the annual
meeting of shareholders in each year, the term of one class of Board Members
expires. Accordingly, only those Board Members in one class may be changed in
any one year, and it would require two years to change a majority of the Board.
This system of electing Board Members may have the effect of maintaining the
continuity of management and, thus, make it more difficult for the Fund's
shareholders to change the majority of Board Members. Pursuant to the Fund's
organizational documents, the number of Board Members shall be apportioned among
the classes so as to maintain the classes as nearly equal in number as possible.
Mr. Atkins has been nominated as a Class III Board Member for a term to expire
at the 1997 annual meeting and Mr. Renwick has been nominated as a Class I Board
Member for a term to expire at the 1998 annual meeting. The

3
<PAGE> 8

others listed below are not nominees and will continue as Board Members of GSP.
Messrs. Kelsey and Mathis are Class I Board Members, whose terms expire in 1998.
Messrs. Gottschalk, Timbers and Weithers are Class II Board Members, whose terms
expire in 1996. Mr. Tingleff is a Class III Board Member, whose term expires in
1997.

All the nominees listed below have consented to serve as Board Members of the
respective Funds, if elected. In case any nominee shall be unable or shall fail
to act as a Board Member by virtue of an unexpected occurrence, the proxies may
be voted for such other person(s) as shall be determined by the persons acting
under the proxies in their discretion.

BOARD MEMBER NOMINEES FOR EACH FUND

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME (DATE OF BIRTH) PRINCIPAL OWNED AS OF
OCCUPATION AND AFFILIATIONS MAY 31, 1995
- ------------------------------------------------------------------ --------------------
<S> <C>
James E. Akins (10/15/26) None
Consultant on International, Political, and Economic Affairs.
Fred B. Renwick (2/1/30) None
Professor of Finance, New York University, Stern School of
Business; Director, TIFF Investment Program Inc.; Director, The
Wartberg Home Foundation; Chairman, Investment Committee of
Morehouse College Board of Trustees; Director, American Bible
Society Investment Committee; previously member of the
Investment Committee of Atlanta University Board of Trustees;
previously Director of Board of Pensions Evangelical Lutheran
Church in America.
</TABLE>

CONTINUING BOARD MEMBERS OF EACH FUND

4
<PAGE> 9

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME (DATE OF BIRTH), PRINCIPAL YEAR FIRST BECAME A BOARD OWNED AS OF
OCCUPATION AND AFFILIATIONS MEMBER MAY 31, 1995
- ----------------------------------- ------------------------------ ------------
<S> <C> <C>
David B. Mathis* (4/13/38) 1995 -- All KST -- 667
Chairman, Chief Executive Officer
and Director, Kemper Corporation;
Director, Kemper Financial
Services, Inc. ("KFS"), Kemper
Financial Companies, Inc.
("KFC"), several other Kemper
Corporation subsidiaries and IMC
Global Inc.
Stephen B. Timbers* (8/8/44) 1993 -- All Funds except KST KMM -- 500
President, Chief Operating 1994 -- KST KSM -- 500
Officer and Director, Kemper
Corporation; Chairman, Chief
Executive Officer, Chief
Investment Officer and Director,
KFS; Director, KFC, Corporation
subsidiaries, Gillett Holdings,
Inc. and LTV Corporation
John B. Tingleff (5/4/35) 1991 -- All Funds except KST KHI -- 1,788
Retired; formerly, President, 1994 -- KST KGT -- 533
Tingleff & Associates (management KMM -- 1,019
consulting firm); formerly, KTF -- 500
Senior Vice President, KSM -- 500
Continental Illinois National GSP -- 1,006
Bank & Trust Company KST -- 330
John G. Weithers (8/8/33) 1993 -- All Funds except KST KHI -- 400
Retired; formerly, Chairman of 1994 -- KST KGT -- 400
the Board and Chief Executive KMM -- 200
Officer, Chicago Stock Exchange; KTF -- 200
Director, Federal Life Insurance KSM -- 300
Company; President of the Members GSP -- 300
of the Corporation and Trustee, KST -- 400
DePaul University
</TABLE>

- ---------------

* Interested persons of the Funds as defined in the Investment Company Act of
1940 ("1940 Act") because of their positions with KFS, the investment manager
of the Funds.

All Board Members, except Messrs. Mathis and Timbers, serve as Board Members of
10 Kemper funds. Mr. Mathis serves as a Board Member of 28 Kemper Funds and Mr.
Timbers serves as a Board Member and president of 31 Kemper Funds. Each nominee
has been nominated to serve as a Board Member of 10 Kemper Funds. A "Kemper
Fund" is an investment company for which KFS serves as investment manager. In
addition, each nominee and each current Board Member has been nominated to serve
as a Board Member of the Dreman Mutual Group, Inc. (an investment company for
which it is proposed that a subsidiary of KFS serve as investment manager).

Each Board has an audit and nominating committee that is composed of Messrs.
Gottschalk, Kelsey, Tingleff and Weithers. The committee of each Fund met once
during the fiscal year ended November 30, 1994. The committee makes
recommendations regarding the selection of independent auditors for each Fund,
confers with the independent auditors regarding each Fund's financial

5
<PAGE> 10

statements, the results of audits and related matters, seeks and reviews
nominees for Board membership and performs such other tasks as the respective
Board assigns. The committee also proposes the nominees for election by the
shareholders. Shareholders wishing to submit the name of a candidate for
consideration by the committee should submit their recommendations to the
secretary of the applicable Fund.

Each Fund pays Board Members who are not "interested persons" of such Fund an
annual retainer fee, plus expenses, and an attendance fee for each Fund Board
meeting and committee meeting attended. As reflected above, the Board Members
currently serve as Board Members of various investment companies for which KFS
serves as investment manager. Board Members or officers who are "interested
persons" receive no compensation from such Fund. The Boards of KGT, KMM, KSM and
GSP met five times and the Boards of KHI, KTF and KST met six times during the
fiscal year ended November 30, 1994. Each then current Board Member attended 75%
or more of the respective meetings of the Board and the audit and nominating
committee (if a member thereof) held during the fiscal year ended November 30,
1994.

The table below shows, for each Board Member entitled to receive compensation
from the Funds, the aggregate compensation paid or accrued during each Fund's
fiscal year ended November 30, 1994 and the total compensation that Kemper Funds
paid to each Board Member during the calendar year 1994.

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
KEMPER
AGGREGATE COMPENSATION FROM FUND FUNDS PAID
------------------------------------------------------- TO BOARD
NAME OF BOARD MEMBERS KHI KGT KTF KMM KSM GSP KST MEMBERS(2)
- -------------------------------- ------ ----- ----- ----- ----- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur R. Gottschalk(1)......... $3,000 2,800 2,800 2,800 2,800 2,800 1,200 65,000
Frederick T. Kelsey(1).......... $3,000 2,800 2,800 2,800 2,800 2,600 1,200 66,800
John B. Tingleff................ $2,800 2,600 2,600 2,600 2,600 2,600 1,200 63,500
John G. Weithers................ $2,600 2,600 2,600 2,600 2,600 2,600 1,200 63,100
</TABLE>

- ---------------

(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Market Fund Money
Market Portfolio.

(2) Includes compensation for service on the boards of 10 Kemper Funds. Also
includes amounts for new portfolios estimated as if they had existed at the
beginning of the year.

FUND OFFICERS. Information about the executive officers of the Funds, with
their respective dates of birth and terms as Fund officers indicated, is set
forth below (other than information about Mr. Timbers, president of each Fund
since 3/2/95, which is reflected above).

J. Patrick Beimford, Jr. (5/25/50), vice president of KGT since 2/28/92, KTF
since 9/9/88, KSM since 2/14/89, KHI and KMM since 2/17/93 and KST since
4/14/94, is executive vice president and director of fixed income investments of
KFS.

Dale R. Burrow (10/16/56), vice president of KSM since 5/5/93, is first vice
president of KFS.

6
<PAGE> 11

Elizabeth A. Byrnes (2/8/57), vice president of KGT since 9/8/94, is first vice
president of KFS.

Robert S. Cessine (1/5/50), vice president of KMM since 5/4/95, is senior vice
president of KFS.

Philip J. Collora (11/15/45), vice president of each Fund except KST since
2/1/90 and KST since 3/2/90 and secretary of each Fund since 3/2/95, is senior
vice president and assistant secretary of KFS.

Jerome L. Duffy (6/29/36), treasurer of KHI and KGT since 5/28/87, KMM since
8/3/88, KTF and KSM since 8/3/88, GSP since 12/18/89 and KST since 3/2/90, is
senior vice president of KFS.

Dennis H. Ferro (6/20/45), vice president of GSP since 9/8/94, is executive vice
president of KFS since March 1994; prior thereto, president and chief investment
officer, Cigna International Investment Advisors, Ltd.

Gordon K. Johns (1/25/48), vice president of KMM since 5/4/95, is executive vice
president of KFS.

Michelle M. Keeley (4/24/64), vice president of KGT since 9/8/94, is first vice
president of KFS.

Michael A. McNamara (12/28/44), vice president of KHI since 2/21/91, and KMM and
KST since 5/4/95, is senior vice president of KFS.

Christopher J. Mier (8/11/56), vice president of KTF and KSM since 2/21/91, is
senior vice president of KFS.

John E. Peters (11/4/47), vice president of KHI and KGT since 1/17/89, KMM since
11/16/88, KTF since 9/9/88, KSM since 2/14/89, GSP since 12/18/89 and KST since
4/14/94, is senior executive vice president and a director of KFS and president
of Kemper Distributors, Inc.

Harry E. Resis, Jr. (11/24/45), vice president of KHI since 2/17/93 and KMM and
KST since 5/4/95, is senior vice president of KFS.

Paul F. Sloan (7/20/47), vice president of KGT, KMM and KST since 5/4/95, is
senior vice president of KFS.

Jonathan W. Trutter (11/29/57), vice president of KMM and KST since 5/4/95, is
first vice president of KFS.

Stephen R. Willson (7/11/53), vice president of KSM since 5/5/93, is first vice
president of KFS.

The officers of each Fund are elected by the Board of the Fund on an annual
basis to serve until their successors are elected and qualified.

SHAREHOLDINGS. As of May 31, 1995, the Board Members and officers of the Funds
as a group owned beneficially shares of KHI, shares of KGT,
shares of KMM, shares of KTF, shares of KSM, shares
of GSP and shares of KST, which, in each case, is less than 1% of the
outstanding shares of each Fund. As of May 31, 1995, no person is

7
<PAGE> 12

known to any Fund to have owned beneficially more than five percent of the
shares of such Fund.

Section 30(f) of the 1940 Act and Section 16(a) of the Securities Exchange Act
of 1934 require each Fund's officers and Board Members, investment manager,
affiliated persons of the investment manager and persons who own more than ten
percent of a registered class of the Funds' equity securities to file forms
reporting their affiliation with that Fund and reports of ownership and changes
in ownership of that Fund's shares with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange. These persons and entities are
required by SEC regulation to furnish the Funds with copies of all Section 16(a)
forms they file. Based upon a review of these forms furnished to each Fund, each
Fund believes that, during the fiscal year ended November 30, 1994, all Section
16(a) filing requirements applicable to that Fund's officers and Board Members,
investment manager and affiliated persons of the investment manager were
complied with, except that David B. Mathis, an affiliated person of the
investment manager and a Board Member of the Funds, inadvertently failed to file
initial reports of ownership for KHI, KGT, KMM, KTF, KSM and GSP after his
election as a director of the investment manager, which filings have since been
made; and except that James D. Boris, an affiliated person of the investment
manager, did not file in a timely manner reports relating to the purchase and
sale of 1,000 shares of KST.

ITEM 2. SELECTION OF INDEPENDENT AUDITORS

A majority of the members of each Fund's Board who are not "interested" persons
of the Fund has selected Ernst & Young LLP, independent auditors, to audit the
books and records of the Fund for the current fiscal year. This firm has served
in this capacity for each Fund since it was organized and has no direct or
indirect financial interest in a Fund except as independent auditors. The
selection of Ernst & Young LLP as independent auditors of each Fund is being
submitted to the shareholders for ratification. A representative of Ernst &
Young LLP is expected to be present at the Meeting and will be available to
respond to any appropriate questions raised at the Meeting and may make a
statement.

BOARD RECOMMENDATION

The Board of each Fund recommends that shareholders vote FOR the ratification of
the selection of independent auditors.

ITEMS 3A. AND 3B. NEW INVESTMENT MANAGEMENT AGREEMENT AND, FOR GSP ONLY, NEW
SUB-ADVISORY AGREEMENT

INTRODUCTION

Kemper Financial Services, Inc. ("KFS") is the investment adviser and manager
for each Fund. The indirect parent of KFS, which is Kemper Corporation
("Kemper"), has entered into an Agreement and Plan of Merger dated as of

8
<PAGE> 13

May 15, 1995 (the "Merger Agreement"), with Zurich Insurance Company ("Zurich"),
Insurance Partners, L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P.
("IP Bermuda" and, together with IP, "Insurance Partners") and ZIP Acquisition
Corp. ("ZIP"), whereby ZIP will be merged with and into Kemper and Kemper will
continue as the surviving corporation (the "Kemper merger"). In connection with
the Kemper merger, Kemper has agreed to sell KFS to KFS Acquisition Corp. ("New
KFS"), a wholly-owned, indirect subsidiary of Zurich, by merging KFS into New
KFS, and with New KFS continuing as the surviving corporation (the "KFS Sale").
Upon consummation of the KFS Sale, it is anticipated that New KFS will change
its name to "Kemper Financial Services, Inc." The terms of the KFS Sale are set
forth in a separate Agreement and Plan of Merger among Kemper, KFS, KFC and New
KFS dated May 15, 1995 (the "KFS Merger Agreement"). It is currently
contemplated that the KFS Sale will occur immediately before or immediately
after the Kemper merger, although it is possible that the KFS Sale could be
deferred until a later date. (The Kemper merger and related KFS Sale are
hereinafter referred to together as the "Merger").

Consummation of the Merger would constitute an "assignment," as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"), of each Fund's
current investment management agreement with KFS. As required by the 1940 Act,
each current investment management agreement provides for its automatic
termination in the event of its assignment. In anticipation of the Merger, a new
investment management agreement between each Fund and KFS or its successor
("management agreement") is being proposed for approval by shareholders of each
Fund. A copy of the form of the new management agreement is attached hereto as
Exhibit A. THE NEW MANAGEMENT AGREEMENT IS ON THE SAME TERMS AS THE CURRENT
MANAGEMENT AGREEMENT.

BOARD RECOMMENDATION

The Board of each Fund met on May 4, 1995, June 2, 1995 and June 20, 1995 to
consider the Merger and its anticipated effects upon KFS and the investment
management and other services provided to the Funds by KFS and its affiliates.
On June 20, 1995 the Board of each Fund, including a majority of the Board
Members who are not parties to such agreement or interested persons of any such
party, voted to approve the new management agreement and to recommend it to
shareholders for their approval.

For information about each Board's deliberations and the reasons for its
recommendation, please see "Board Evaluation" near the end of this Item 3.

The Board of each Fund recommends that shareholders vote FOR approval of the new
management agreement.

INVESTMENT MANAGEMENT AGREEMENT

Each current and new management agreement provides that the Fund's investment
manager will act as investment adviser, manage the Fund's investments,
administer its business affairs, furnish offices, necessary facilities and
equipment,

9
<PAGE> 14

provide clerical, bookkeeping and administrative services, provide shareholder
and information services and permit any of its officers or employees to serve
without compensation as Board Members or officers of the Fund if duly elected to
such positions. Under each management agreement, the Fund agrees to assume and
pay the charges and expenses of its operations including, by way of example, the
compensation of the Board Members other than those affiliated with the
investment manager, charges and expenses of independent auditors, of legal
counsel, of any transfer or dividend disbursing agent, of any registrar of the
Fund and of the custodian (including fees for safekeeping of securities), all
costs of acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Fund, costs of share certificates, membership dues
in the Investment Company Institute or any similar organization, reports and
notices to shareholders, other like miscellaneous expenses and all taxes and
fees to federal, state or other governmental agencies. KFS from time to time, at
its own expense, for KHI, KMM, KGT, GSP and KST, uses the services of Kemper
Investment Management Company Limited ("KIMCO"), 1 Fleet Place, London EC4M 7RQ,
a wholly owned subsidiary of KFS, with respect to foreign investments for each
Fund that makes foreign investments, including analysis, research, execution and
trading services. It is expected that the investment manager would continue to
use KIMCO (or its successor) after consummation of the Merger. In addition, for
KGT only, KFS makes payments from its own funds to PaineWebber Incorporated for
consultation concerning repurchases of and tender offers for the Fund's shares,
and for statistical and factual information concerning the Fund's market
performance and general economic and interest rate conditions in the United
States and foreign nations. PaineWebber Incorporated has no responsibility as to
KGT's investments.

For the services and facilities furnished, each Fund pays KFS an investment
management fee, payable monthly, at the respective annual rate shown below,
based upon average weekly net assets. The management fees for KHI, KGT, KMM, GSP
and KST are higher than those charged by most other investment companies.
Exhibit C reflects the management fees paid by each Fund to KFS for the fiscal
year ended November 30, 1994.

<TABLE>
<CAPTION>
FUND MANAGEMENT FEE
- ------------------------------------------------------ --------------
<S> <C>
KHI................................................... 0.85 of 1%
KGT................................................... 0.80 of 1%
KTF................................................... 0.55 of 1%
KMM................................................... 0.85 of 1%
KSM................................................... 0.60 of 1%
GSP................................................... 1.00 of 1%
KST................................................... 0.85 of 1%
</TABLE>

Each management agreement provides that the Fund's investment manager shall not
be liable for any error of judgment or of law, or for any loss suffered by the
Fund in connection with the matters to which the management agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund's investment manager in the performance of

10
<PAGE> 15

its obligations and duties or by reason of its reckless disregard of its
obligations and duties under the management agreement.

Each management agreement may be terminated for such Fund without penalty upon
sixty (60) days written notice by either party, or by a majority vote of the
outstanding shares of the Fund, and automatically terminates in the event of its
assignment.

The new management agreement for each Fund will be dated as of the date of the
consummation of the Kemper merger. The Kemper merger is expected to occur in the
fourth quarter of 1995, but in no event later than February 28, 1996. The new
management agreement will continue in effect for an initial term ending on the
date to which the current management agreement had previously been continued
prior to the Kemper merger and may continue thereafter from year to year if
specifically approved at least annually by vote of "a majority of the
outstanding voting securities" of such Fund, as defined under the 1940 Act, or
by the Board, and, in either event, the vote of a majority of the Board Members
who are not parties to the agreement or interested persons of any such party,
cast in person at a meeting called for such purpose.

KFS has acted as investment adviser and manager for each Fund since it commenced
public offering of its shares as shown below. Also shown is the date of each
current management agreement, the date when the current management agreement was
last approved by the Board and the shareholders of each Fund, and the date to
which the current management agreement continues. Except for KST, the purpose of
the last submission of the current management agreement to shareholders was to
approve an amendment to the agreement. For KST, the current management agreement
was last submitted to shareholders for approval by KFS as sole shareholder prior
to public offering of KST. In the case of GSP, the current management agreement
was last submitted to shareholders for consideration of an amendment on May 10,
1994, which amendment was not approved.

<TABLE>
<CAPTION>
COMMENCEMENT APPROVAL OF CURRENT CURRENT
OF DATE OF AGREEMENT BY AGREEMENT
INVESTMENT CURRENT -------------------------- CONTINUED BY
FUND OPERATIONS AGREEMENT BOARD SHAREHOLDERS(A) BOARD TO
- ------------- ------------ --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
KHI.......... 04/21/88 05/10/94 03/02/95 05/10/94 04/01/96
KGT.......... 07/21/88 05/10/94 03/02/95 05/10/94 04/01/96
KTF.......... 10/20/88 05/10/94 03/02/95 05/10/94 04/01/96
KMM.......... 01/23/89 05/10/94 03/02/95 05/10/94 04/01/96
KSM.......... 03/22/89 05/10/94 03/02/95 05/10/94 04/01/96
GSP.......... 02/14/90 02/14/90 03/02/95 05/05/93 04/01/96
KST.......... 04/29/94 04/29/94 03/02/95 04/28/94(b) 04/01/96
</TABLE>

- ---------------
(a) On September 9, 1994, the Boards approved new investment management
agreements with KFS in anticipation of the termination of the current
agreements because of a proposed merger involving Kemper and Conseco, Inc.
(the "Conseco/Kemper Merger"). As with the Merger, consummation of the
Conseco/Kemper Merger would have constituted an "assignment" and, therefore,
a termination of each management agreement. In anticipation of the
Conseco/Kemper Merger and in order to assure that KFS could continue to
serve as investment manager to the Funds, new agreements were approved by
the Boards and submitted to shareholders for

11
<PAGE> 16

approval. By agreement of Kemper and Conseco, Inc., the Conseco/Kemper
Merger did not occur, and, therefore, the new agreements were not voted upon
by shareholders.

(b) Approved by KFS as sole shareholder prior to public offering.

GSP Only. KFS uses the investment management services of BSN Gestion de
Patrimonios, S.A., S.G.C. ("Spanish Adviser") with respect to investments in
Spanish securities pursuant to the subadvisory agreement between KFS and the
Spanish Adviser described below. The current sub-advisory agreement is dated
February 14, 1990, was last approved by shareholders on May 5, 1993, was last
approved for continuation by the Board on March 2, 1995 and will continue,
unless replaced or otherwise terminated, until April 1, 1996. The current sub-
advisory agreement was last submitted to shareholders for consideration of an
amendment on May 10, 1994, which amendment was not approved.

The Spanish Adviser is a 90% owned subsidiary of Banco Santander de Negocios,
which is wholly owned by Banco Santander. KFS owns 10% of the Spanish Adviser.
Banco Santander, together with its subsidiaries and associated companies, is
engaged principally in commercial and retail banking operations in Spain and
other countries.

Under the terms of the sub-advisory agreement between KFS and the Spanish
Adviser with respect to GSP, the Spanish Adviser will provide such investment
advice, research and assistance as KFS may request with respect to investments
by GSP in Spanish securities. For its services, the Spanish Adviser receives
from KFS a monthly fee at the annual rate of .35% of the Fund's average weekly
net assets. The Spanish Adviser has agreed to pay the fees and expenses of any
officer, Board Member or employee of the Fund affiliated with the Spanish
Adviser, except that the Fund shall bear the travel expenses of directors,
officers or employees of the Spanish Adviser or any of its affiliates to the
extent that such expenses relate to attendance as a Board Member at meetings of
the Board. During the fiscal year ended November 30, 1994, KFS incurred fees of
$748,000 to the Spanish Adviser.

The Spanish Adviser has an advisory committee, comprised of representatives from
KFS and its affiliates and two representatives from the Spanish Adviser. The
advisory committee meets periodically to advise KFS regarding investments in
Spanish securities and the Spanish securities markets and reports directly to
KFS. Currently, the advisory committee is composed of Messrs. Gordon K. Johns
and Dennis H. Ferro of KFS and its affiliates and Messrs. Eduardo Suarez
Alvarez-Novoa and Gonzalo Milans del Bosch of the Spanish Adviser.

The sub-advisory agreement provides that the Spanish Adviser shall not be liable
for any error of judgment or of law or for any loss suffered by the Fund in
connection with the matters to which the sub-advisory agreement relates, except
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Spanish Adviser in the performance of its obligations and duties or
by reason of its reckless disregard of its obligations and duties under the sub-
advisory agreement.

12
<PAGE> 17

The sub-advisory agreement may be terminated without penalty upon sixty (60)
days written notice by either party. The sub-advisory agreement will
automatically terminate in the event of the termination of the management
agreement or in the event of its assignment.

The new sub-advisory agreement will be dated as of the date of the consummation
of the Kemper merger and will continue in effect for an initial term ending on
the date to which the current sub-advisory agreement had previously been
continued prior to the Kemper merger, and may continue thereafter from year to
year if such continuance is specifically approved at least annually by vote of a
"majority of the outstanding voting securities" of GSP, as defined under the
1940 Act, or the Board, including, in either event, the vote of a majority of
Board Members who are not parties to the agreement or interested persons of any
such party, cast in person at a meeting called for such purpose.

INFORMATION CONCERNING ZURICH AND THE MERGER

The following information concerning Zurich and the Merger has been provided to
the Funds by Zurich.

Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of the Zurich Insurance
Group. Zurich and the Zurich Insurance Group provide an extensive range of
insurance products and services, while having branch offices and subsidiaries in
more than 40 countries throughout the world. Zurich Insurance Group is
particularly strong in the insurance of international companies and
organizations. Over the past few years, Zurich's global presence, particularly
in the United States, has been strengthened by means of selective acquisitions.
IP and IP Bermuda are parallel investment partnerships established to
participate jointly in acquisitions, recapitalizations, demutualizations and
other structured transactions in the insurance industry. (IP and IP Bermuda are
together referred to as "Insurance Partners"). Insurance Partners was formed by
Centre Reinsurance Holdings Limited (a subsidiary of Zurich), Keystone, Inc.
(formerly the Robert M. Bass Group, Inc.) and The Chase Manhattan Corporation.
IP is located at 201 Main Street, Fort Worth, TX 76102 and IP Bermuda is located
at 41 Cedar Avenue, Hamilton HM-EX, Bermuda. ZIP is a newly-formed
majority-owned subsidiary of Zurich. ZIP is approximately 80% owned by Zurich
Holding Company of America, Inc. (which, in turn, is a wholly-owned subsidiary
of Zurich) and 13.274% and 6.726% owned by IP and IP Bermuda, respectively. ZIP
is located at 1400 American Lane, Schaumburg, IL 60196. New KFS is a
newly-formed wholly-owned subsidiary of Zurich Holding Company of America, Inc.
Prior to consummation of the Merger, New KFS will be registered as an investment
adviser under the Investment Advisers Act of 1940. New KFS, a Delaware
corporation, and Zurich Holding Company of America, Inc., a Delaware
corporation, are both located at 1400 American Lane, Schaumburg, IL 60196.

13
<PAGE> 18

Under the Merger Agreement, ZIP will merge with and into Kemper, with Kemper as
the surviving corporation. Each share of Kemper common stock will be converted
in the Kemper merger into the right to receive $49.50 cash, for an aggregate
acquisition price of approximately $2.1 billion. The closing of the Kemper
merger will take place on the third business day after all the closing
conditions are satisfied. It is expected that the Kemper merger will close in
the fourth quarter of 1995. However, ZIP may elect to delay the closing of the
Kemper merger to a later date (not later than January 4, 1996). It is currently
contemplated that contemporaneously with the Kemper merger closing (either
immediately before or immediately after) Kemper will sell KFS to Zurich by
merging KFS with and into New KFS. It is possible, however, that the Kemper
merger could be consummated, but that the KFS Sale could be deferred until a
later date (not later than January 4, 1996). Immediately prior to the KFS Sale,
KFS will cause those of its wholly-owned subsidiaries designated by Zurich to be
merged with and into, direct or indirect, wholly-owned subsidiaries of New KFS.
Upon consummation of the KFS Sale, it is anticipated that New KFS will change
its name to "Kemper Financial Services, Inc." The consideration for the KFS Sale
is $900 million although, at the election of Zurich, it may be increased to $1
billion.

It is further contemplated that prior to the Merger: (1) an employee stock
ownership plan will acquire from KFC approximately 55% of the voting common
stock of a new corporation ("Newco") formed to acquire Kemper's securities
brokerage segment, principally Kemper Securities, Inc. ("KSI"); (2) non-voting
common stock representing an approximately 1% equity interest in Newco will be
distributed to the management of KSI; and (3) the balance of Newco's voting
common stock will be distributed to the holders of Kemper common stock (the "KSI
ESOP Sale").

It is further contemplated that prior to the Merger: (1) KFS will attempt to
sell State Street Boston Corporation stock owned by KFS (estimated value of $97
million as of , 1995) and that the net cash proceeds from such
sale will be transferred from KFS to Kemper (if, upon consummation of the
Merger, KFS has not sold all such State Street Boston Corporation stock, KFS
will transfer any remaining such stock to Kemper); (2) KFS will transfer $50
million in cash to Kemper; (3) KFS will transfer to Kemper the proceeds of its
sale of Supervised Services Company (approximately $23 million); and (4) at the
written request of ZIP, KFS or any of its subsidiaries will dividend or
otherwise transfer cash to Kemper in such amounts as ZIP may reasonably request.

To confirm and clarify certain contractual relationships between Kemper and
Lumbermens Mutual Casualty Company ("Lumbermens") prior to, as a result of and
following the Merger, Lumbermens, Zurich, Insurance Partners, ZIP, Kemper and
KFS entered into a letter agreement dated May 15, 1995 (the "Lumbermens
Agreement"). The Lumbermens Agreement, among other things, (1) permits the
continued use of the "Kemper" name by Kemper and KFS (or its successor) and (2)
obligates New KFS to reimburse Lumbermens for certain amounts that may be due to
Lumbermens by Kemper, if Kemper has not paid such amounts. As of March 31, 1995,
the total potential liability was $35.2 million.

14
<PAGE> 19

The Lumbermens Agreement provides, to the extent permitted by law, that
Lumbermens intends to continue to engage KFS (or its successor), or its
subsidiaries, for at least three years to provide investment management services
for not less than 80% of the investment assets of Lumbermens (excluding benefit
plan assets held in trust) managed by KFS or its subsidiaries as of May 15,
1995. In connection therewith, the Lumbermens Agreement permits Lumbermens, and
Lumbermens intends, contemporaneously with the KFS Sale to invest in New KFS an
aggregate amount of up to $100 million or such lesser amount as is necessary to
purchase (1) either 9.9% of the shares of common stock of New KFS or an amount
of convertible preferred stock of New KFS that is convertible into 9.9% of the
shares of New KFS and (2) pro rata with Zurich, all other equity and debt
securities purchased from New KFS by Zurich. In the event of such investment,
Lumbermens will receive representation on the Board of Directors of New KFS that
is proportionate to Lumbermens' equity interest in New KFS; but in any event, at
least one individual designated by Lumbermens will be elected to the Board of
Directors of New KFS. It is currently contemplated that Lumbermens would
designate Mr. David B. Mathis for election to the Board of Directors of New KFS
(see "Other Information -- KFS"). The address of Lumbermens is: One Kemper
Drive, Long Grove, Illinois 60049. If the percentage of Lumbermens' investment
assets managed by New KFS drops below 50% of Lumbermens' investment assets
(excluding benefit plan assets held in trust), then Zurich or New KFS may
purchase Lumbermens investment in New KFS at fair market value. On the seventh
anniversary of the closing of the KFS Sale, Lumbermens will have the right to
demand that all its shares of New KFS be registered under the Securities Act of
1933.

Zurich has informed the Funds that as of May 31, 1995, no stockholder of Zurich,
either individually or as a "group" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended), is known to beneficially own more
than 10% of the outstanding shares of Zurich's voting securities. KFS informed
the Funds that, as of May 31, 1995, KFS shared power to vote and dispose of
shares of Zurich (approximately % of the shares outstanding),
which were held by various non-investment company clients of KFS.

The common stockholders of Kemper will be voting on the Kemper merger. The
Merger is subject to various conditions such as governmental and insurance
regulatory approvals and filings and consummation of the KSI ESOP Sale. Neither
the Kemper merger nor the KFS Sale is subject to financing, although each may
involve financing. Zurich has guaranteed the obligations of ZIP and Insurance
Partners to consummate the Kemper merger and has guaranteed the obligations of
New KFS to consummate the KFS Sale.

It is a condition to the closing of the Merger that all directors and officers
of Kemper and its subsidiaries (including KFS), whose resignations have been
requested by ZIP, not less than ten days prior to the closing, shall have
resigned or been removed from office, effective as of the closing. No such
resignations have been requested nor are currently contemplated for KFS and its
subsidiaries.

15
<PAGE> 20

The Merger Agreement also provides as a condition to the closing of the Merger
that the shareholders of registered investment companies for which Kemper or any
subsidiary acts as investment adviser or sub-adviser (the "KFS Advised Funds")
representing at least 90% of the total net assets of the KFS Advised Funds as of
April 30, 1995 shall have approved the new management agreements (the "90%
condition"). At that date, net assets of the KFS Advised Funds totalled
approximately $ billion. If, for example, a "majority" (as defined under
"Miscellaneous") of the shares of each of enough KFS Advised Funds to total at
least $ billion (90% of $ billion) were voted to approve new management
agreements, then the 90% condition would be satisfied. If the shareholders of a
particular Fund do not approve the new management agreement, Kemper, Zurich and
Insurance Partners nevertheless intend to proceed with the Merger (assuming all
conditions precedent have been satisfied or waived, including the 90%
condition). In that event, the Board of such Fund would take such action as it
deemed to be in the best interests of its shareholders, including, if necessary,
seeking exemptive relief from the SEC so that KFS (or its successor) could
provide investment management services to the Fund on an interim basis. If the
Merger is not consummated for any reason, then the current management agreement
with each Fund will continue.

BOARD EVALUATION

On April 10, 1995, the Board of each Fund was informed that Kemper had entered
into an agreement in principle with an investor group led by Zurich pursuant to
which Kemper would be acquired by the investor group in a merger transaction and
KFS would be sold. Thereafter, each Board was given Zurich financial reports and
other information regarding Zurich. In addition, counsel to the Funds and the
independent trustees prepared and distributed an analysis of the Boards'
fiduciary obligations. At a special meeting on May 4, 1995, the Board members
discussed the initial information provided about Zurich and reviewed their
fiduciary obligations. Zurich senior management personnel, who were present by
invitation, presented a review of matters including Zurich's history, strategy
and general plans. There was extended discussion of, and questioning about,
Zurich's plans for KFS and the Funds, some of which were to be addressed in
definitive merger documents (which had not yet been executed). Each Board agreed
at that time to hold another special meeting for further consideration of the
Merger and its effect on the Funds. Prior to that meeting, and from time to time
thereafter, each Board received a variety of materials concerning Zurich and the
Merger. The definitive merger documents were signed on May 15, 1995 and the
special Board meeting was held on June 2, 1995. There was further discussion of,
and questioning about, the terms of the Merger and Zurich's plans for New KFS
and the Funds, including the financial aspects of the Merger and proforma
financial statements of New KFS. As a result of their investigation and
consideration of the Merger and the new management agreements, at its meeting on
June 20, 1995, the Board of each Fund voted to approve the new management
agreement and to recommend it to the shareholders of the Fund for their
approval.

16
<PAGE> 21

During its deliberations, each Board used outside assistance in its analysis of
financial and other aspects of the Merger to help evaluate the potential effects
upon KFS and the Funds. Throughout the review process the independent trustees
of each Board had the assistance of legal counsel.

Each Board obtained from KFS and Zurich information regarding the respective
organizations, the Merger, and the future plans of the parties. Included in the
information furnished to and discussed with the Boards were financial statements
and other representations of financial condition of Zurich and certain of its
subsidiaries, independent reports and analyses regarding Zurich and pro forma
financial statements of New KFS giving effect to the Merger. The New KFS pro
forma financial statements reflected anticipated borrowings by New KFS of $650
million, the sale of State Street Boston Corporation stock holdings and transfer
of the proceeds thereof, the $50 million dividend to Kemper and the sale of
Supervised Services Company and transfer of the proceeds thereof.

In connection with their deliberations, the Boards of the Funds obtained certain
assurances from Zurich, including the following:

- - Zurich looks upon New KFS as a core business in a core strategic market and
expects it to be an important part of Zurich's global asset management
strategy. With that focus, Zurich will devote to New KFS and its affairs all
attention and resources that are necessary to provide for each Fund top
quality investment management, shareholder, administrative and product
distribution services.

- - The Merger will not result in any change in any Fund's investment objectives
or policies.

- - The Merger is not expected to result in any adverse change in the investment
management or operations of the Funds, or the investment personnel managing
such Funds; Zurich neither plans nor proposes to make any material change in
the composition of senior management or personnel of KFS, except to fill
certain open positions; and Zurich neither plans nor proposes to make any
adverse change in the manner in which investment advisory services are
rendered to each Fund.

- - Zurich is committed to the continuance, without interruption, of services of
the type and quality currently provided by KFS and its subsidiaries, or
superior thereto.

- - Zurich plans to maintain or enhance the KFS facilities and organization.

- - The KFS senior management and the Boards will be involved in decisions
materially affecting the KFS organization as it relates to the Funds.

- - In order to retain and attract key personnel, Zurich intends for New KFS to
maintain overall compensation and performance incentive policies and practices
at market levels or better.

17
<PAGE> 22

Zurich, Kemper and KFS assured each Board that they intend to comply with
Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser to an investment company or any of its
affiliated persons to receive any amount or benefit in connection with a change
in control of the investment adviser so long as two conditions are met. First,
for a period of three years after the transaction, at least 75% of the board
members of the investment company must not be interested persons of such
investment adviser. The Board of each Fund presently consists of six Board
Members, two of whom, Messrs. David B. Mathis and Stephen B. Timbers, are
interested persons of KFS. Accordingly, although the current composition of the
Board of each Fund is not in compliance with this provision of Section 15(f), if
Messrs. Akins and Renwick are elected (see Item 1 -- Election of Members to the
Boards), then each Fund would be in compliance with this provision of Section
15(f).* Second, an "unfair burden" must not be imposed upon the investment
company as a result of such transaction or any express or implied terms,
conditions or understandings applicable thereto. The term "unfair burden" is
defined in Section 15(f) to include any arrangement during the two-year period
after the transaction whereby the investment adviser, or any interested person
of any such adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its shareholders (other
than fees for bona fide investment advisory or other services) or from any
person in connection with the purchase or sale of securities or other property
to, from or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter for such investment company). Zurich,
Kemper and KFS are not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on any Fund as
a result of the Merger. Zurich, Kemper and KFS have agreed that they, and their
affiliates, will take no action that would have the effect of imposing an
"unfair burden" on any Fund as a result of the Merger. Zurich and Kemper have
undertaken to pay the costs of preparing and distributing proxy materials to and
of holding the meetings of the Funds' shareholders as well as other fees and
expenses in connection with the Merger, including the fees and expenses of legal
counsel to the Funds and the independent trustees and for other outside
assistance to help analyze the Merger from a financial perspective.

In connection with each Board's approval of the new management agreement, the
Board considered that the terms of the Merger Agreement and the KFS Merger
Agreement do not require any change in the Fund's investment objective or
policies, the investment management or operation of the Fund, or the investment
personnel managing the Fund. If, after the Merger, changes in New KFS are
proposed that might materially affect its services to a Fund, the Fund's Board
will consider the effect of those changes and take such action as it deems
advisable under the circumstances.

- ---------------

* After consummation of the Merger and subject to compliance with Section 15(f),
it is expected that a senior executive of Zurich will be proposed to be
nominated to each Board.

18
<PAGE> 23

In evaluating each new management agreement, each Board took into account that
the new management agreement for each Fund, including the terms relating to the
services to be provided and the fees and expenses payable by such Fund, is on
the same terms as the current management agreement. Each Board noted that, in
previously approving the continuation of the current management agreements, the
Board had considered a number of factors, including the nature and quality of
services provided by KFS; investment performance, both of the Fund itself and
relative to that of competitive investment companies; investment management fees
and expense ratios of the Fund and competitive investment companies; KFS
profitability from managing the Funds; fall-out benefits to KFS from its
relationship to the Funds, including revenues derived from services provided to
the Funds by affiliates of KFS; and the potential benefits to KFS and to the
Funds and their shareholders of receiving research services from broker/dealer
firms in connection with the allocation of portfolio transactions to such firms.

The Board discussed the Merger, the financial condition of Zurich and the pro
forma financial statements of New KFS with the senior management of KFS and
Zurich and among themselves. Zurich senior management personnel and
representatives advised the Board that Zurich expects the operating cash flows
from New KFS to be more than sufficient to service debt and pay for operating
and other expenses. The Board also considered that Zurich is a large,
well-established company with substantial resources and, as noted above, has
undertaken to devote such resources as are necessary to provide each Fund with
top quality services.

As a result of their investigation and consideration of the Merger and the new
management agreements, at its meeting on June 20, 1995, the Board of each Fund
voted to approve the new management agreement and to recommend it to the
shareholders of the Fund for their approval.

The Board of each Fund recommends that shareholders vote FOR approval of the new
management agreement and, in the case of GSP, FOR approval of the new
subadvisory agreement.

OTHER INFORMATION

KFS

KFS is a wholly owned subsidiary of Kemper Financial Companies, Inc., ("KFC"), a
financial services holding company. Kemper, an insurance and financial services
holding company, owns more than 99% of the voting securities of KFC. The address
of KFS is 120 South LaSalle Street, Chicago, Illinois 60603. The address of KFC
and Kemper is One Kemper Drive, Long Grove, Illinois 60049.

Since October 31, 1993, no Board Member or nominee for election as a Board
Member of any Fund purchased or sold securities, or as of May 31, 1995,
beneficially owned in the aggregate, more than 1% of the outstanding securities
of KFC, Kemper or Zurich. As of May 31, 1995, none of the non-interested Board

19
<PAGE> 24

Members, or non-interested nominees, beneficially owned any securities of KFC,
Kemper or Zurich.

The investment companies to which KFS renders investment management services,
and the related management fees, are identified in Exhibit B.

The names, addresses and principal occupations of the principal executive
officer and the directors of KFS are as follows:

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------------------- ---------------------------------------
<S> <C>
James R. Boris, Director Chairman and Chief Executive Officer,
77 West Wacker Drive Kemper Securities, Inc. and Executive
Chicago, Illinois 60601 Vice President, Kemper
David B. Mathis, Director Chairman and Chief Executive Officer,
One Kemper Drive Kemper
Long Grove, Illinois 60049
John E. Neal, Director President and Chief Operating Officer,
120 South LaSalle Street KFS
Chicago, Illinois 60603
John E. Peters, Director Senior Executive Vice President, KFS
120 South LaSalle Street
Chicago, Illinois 60603
Stephen B. Timbers, Chairman President and Chief Operating Officer,
Chief Executive Officer and Kemper; Chairman, Chief Executive
Director Officer and Chief Investment Officer,
120 South LaSalle Street KFS
Chicago, Illinois 60603
</TABLE>

Upon consummation of the KFS Sale, it is expected that Messrs. Mathis, Neal,
Peters and Timbers and one or more senior executive officers of Zurich will
become directors of New KFS.

20
<PAGE> 25

GSP ONLY -- SPANISH ADVISER MANAGEMENT. The names, addresses and principal
occupations of the principal officers and directors of the Spanish Adviser are
as follows:

<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------- --------------------
<S> <C>
Eduardo Suarez Alvarez-Novoa Managing Director, BSN Gestion de
Chairman of the Board and Patrimonios, S.A., S.G.C.
Director
PASEO de la Castellana 32-
Planta 6
28046, Madrid, Spain

Gonzalo Milans del Bosch, Equities Chief Investment Officer, BSN
Director Gestion de Patrimonios, S.A., S.G.C.
PASEO de la Castellana 32-
Planta 6
28046, Madrid, Spain

Santiago Rubio, Director Fixed Income Chief Investment Officer,
PASEO de la Castellana 32- BSN Gestion de Patrimonios, S.A.,
Planta 6 S.G.C.
28046, Madrid, Spain
</TABLE>

CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 12 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02210, as sub-custodian, have custody of all securities and cash of each Fund
maintained in the United States. The Chase Manhattan Bank, N.A., Chase MetroTech
Center, Brooklyn, New York 11245, as custodian, has custody of all securities
and cash of KHI, KGT, KMM and KST held outside the United States. Banco
Santander ("Spanish Custodian"), Central Contable Electronica, Carretera de
Barcelona Km. 11,700, P.O. Box 50760, 28022 Madrid, as custodian, has custody of
all securities and cash of GSP held in Spain. The custodians attend to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by the Funds. IFTC is also each Fund's transfer
agent and divided-paying agent. Prior to February 1, 1995, IFTC was owned
equally by KFS and DST Systems, Inc., a company that is not affiliated with KFS.
On January 31, 1995, KFS and DST Systems, Inc. sold IFTC to State Street Boston
Corporation. Pursuant to a services agreement with IFTC, Kemper Service Company
("KSVC"), an affiliate of KFS, serves as "Shareholder Service Agent."

IFTC receives an annual fee, payable monthly, as custodian for each Fund of
$.085 per $1,000 of average monthly net assets of such Fund held in custody by
IFTC plus certain transaction charges and an out-of-pocket expense
reimbursement. In addition, there is an annual charge of $15 for each security
held in a Fund's portfolio. IFTC currently receives from each Fund as transfer
agent, annual account maintenance fees at a maximum rate of $7.50 per account
plus

21
<PAGE> 26

transaction charges and out-of-pocket expense reimbursement. IFTC's fee is
reduced by certain earnings credits in favor of the Funds.

For the fiscal year ended November 30, 1994, the Funds incurred custodian and
transfer agent fees to IFTC as set forth in Exhibit C. Also set forth in Exhibit
C are the shareholder service fees IFTC remitted to KSVC. It is anticipated that
KSVC (or its successor) will continue to provide transfer agent services after
consummation of the Merger.

GSP Only. The Spanish Custodian owns a controlling interest in Banco Santander
de Negocios, which owns a controlling interest in the Spanish Adviser. The
Spanish Custodian currently receives an annual fee as custodian for GSP, payable
quarterly, at a rate of .12 of 1% of the market value of the securities of the
Fund held in custody by the Spanish Custodian plus certain transaction costs and
out-of-pocket expense reimbursement. For its services as custodian for the Fund
for the fiscal year ended November 30, 1994, the Spanish Custodian earned
$211,000.

ALLOCATION OF PORTFOLIO TRANSACTIONS. KFS is the investment manager for the
Funds and KFS and its affiliates also furnish investment management services to
other clients including the KFS Advised Funds, Kemper and the Kemper insurance
companies. KFS is the sole shareholder of Kemper Asset Management Company and
Kemper Investment Management Company Limited. These three entities share some
common research and trading facilities. At times investment decisions may be
made to purchase or sell the same investment securities for one or more Fund and
for one or more of the other clients advised by KFS (or by the Spanish Adviser
for GSP). When two or more of such clients are simultaneously engaged in the
purchase or sale of the same security, the transactions are allocated as to
amount and price in a manner considered equitable to each and so that each
receives, to the extent practicable, the average price of such transactions.

National securities exchanges have established limitations governing the maximum
number of options in each class that may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options a Fund
will be able to write on a particular security.

The above mentioned factors may have a detrimental effect on the quantities or
prices of securities available to a Fund. On the other hand, the ability of a
Fund to participate in volume transactions may produce better execution for the
Fund in some cases. The Board of each Fund believes that the benefits of KFS'
(and the Spanish Adviser's for GSP) organization outweigh any limitations that
may arise from simultaneous transactions.

KFS (and the Spanish Adviser for GSP), in effecting purchases and sales of
portfolio securities for the account of a Fund, implements the Fund's policy of
seeking best execution of orders, which includes best net prices, except to the
extent that KFS may be permitted to pay higher brokerage commissions for

22
<PAGE> 27

research services as described below. Consistent with this policy, orders for
portfolio transactions are placed with broker-dealer firms giving consideration
to the quality, quantity and nature of each firm's professional services which
include execution, clearance procedures, wire service quotations and statistical
and other research information provided to a Fund and KFS (and the Spanish
Adviser for GSP). Any research benefits derived are available for all clients,
including clients of affiliated companies. Since statistical and other research
information is only supplementary to research efforts of KFS (and the Spanish
Adviser for GSP) and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to materially reduce its
expenses. In selecting among firms believed to meet the criteria for handling a
particular transaction, KFS (and the Spanish Adviser for GSP) may give
consideration to those firms that have sold or are selling shares of the Kemper
Mutual Funds, as well as to those firms that provide market, statistical and
other research information to the Fund and KFS (and the Spanish Adviser for
GSP). KFS is not authorized to pay higher commissions or in the case of
principal trades, higher prices, to firms that provide such services, except as
provided below. The Fund may purchase instruments issued by banks that are
receiving service payments or commissions; however, no preferences will be given
in making such portfolio purchases. Money market instruments are normally
purchased in principal transactions directly from the issuer or from an
underwriter or market maker. There are normally no brokerage commissions paid
for such purchases. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and ask prices.

All Funds, except for GSP. KFS may in certain instances be permitted to pay
higher brokerage commissions solely for receipt of market, statistical and other
research services. Subject to Section 28(e) of the Securities Exchange Act of
1934 and procedures adopted by the Board of a Fund, a Fund could pay to a firm
that provides research services to KFS a commission for effecting a securities
transaction for the Fund in excess of the amount other firms would have charged
for the transaction. A Fund could do this if KFS determines in good faith that
the greater commission is reasonable in relation to the value of the research
services provided by the executing firm viewed in terms either of a particular
transaction or KFS's overall responsibilities to a particular Fund or other
clients. Not all such research services may be useful or of value in advising a
particular Fund. Research benefits will be available for all clients of KFS and
its subsidiaries. In addition, the investment management fee paid by the Fund to
KFS is not reduced because KFS receives these research services.

GSP Only. Subject to GSP's policy of seeking best execution of orders, GSP may
execute portfolio transactions through direct or indirect affiliates of the
Spanish Adviser in accordance with procedures adopted by GSP's Board pursuant to
Rule 17e-1 of the 1940 Act. Of the brokerage commissions paid by GSP during the
fiscal year ended November 30, 1994, $493,000 was paid to BSN Sociedad de
Valores y Bolsa, an affiliate of the Spanish Adviser ("Affiliated Broker"). The
Affiliated Broker was paid approximately 41% of the total brokerage commissions
paid during the period noted above and approximately 39% of the aggregate

23
<PAGE> 28

dollar amount of portfolio transactions for the period were effected through the
Affiliated Broker.

Set forth in Exhibit C are the total brokerage commissions paid by each Fund for
the fiscal year ended November 30, 1994, as well as the percentage of such
amounts that was allocated to broker-dealer firms on the basis of research
information or on the basis of sales of Kemper Mutual Fund shares.

MISCELLANEOUS

GENERAL

The cost of preparing, printing and mailing the enclosed proxy, accompanying
notice and proxy statement and all other costs in connection with solicitation
of proxies will be paid by Kemper and Zurich, including any additional
solicitation made by letter, telephone or telegraph. In addition to solicitation
by mail, certain officers and representatives of the Funds, officers and
employees of KFS and certain financial services firms and their representatives,
who will receive no extra compensation for their services, may solicit proxies
by telephone, telegram or personally. In addition, Kemper and Zurich may retain
a firm to solicit proxies on behalf of each Fund's Board and the boards of the
other KFS Advised Funds, the fee for which will be borne by Kemper and Zurich. A
COPY OF YOUR FUND'S ANNUAL REPORT IS AVAILABLE (AND THE SEMI-ANNUAL REPORT WILL
SOON BE AVAILABLE) WITHOUT CHARGE UPON REQUEST BY WRITING TO THE FUND, 120 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60603 OR BY CALLING 1-800-294-4366.

PROPOSALS OF SHAREHOLDERS

Any shareholder proposal that may properly be included in the proxy solicitation
material for a Fund's next annual shareholder meeting must be received by such
Fund no later than December 5, 1995.

OTHER MATTERS TO COME BEFORE THE MEETING

The Boards are not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in accordance with their best judgment in the interest of the Fund.

VOTING, QUORUM

Each share of a Fund is entitled to one vote on each matter submitted to a vote
of the shareholders of that Fund at the Meeting; no shares have cumulative
voting rights.

Each valid proxy will be voted in accordance with the instructions on the proxy
and as the persons named in the proxy determine on such other business as may
come before the Meeting. If no instructions are given, the proxy will be voted
FOR the election of the persons who have been nominated as additional Board

24
<PAGE> 29

Members for such Fund and FOR Items 2 and 3. Shareholders who execute proxies
may revoke them at any time before they are voted, either by writing to the Fund
or in person at the time of the Meeting. Proxies given by telephone or
electronically transmitted instruments may be counted if obtained pursuant to
procedures designed to verify that such instructions have been authorized.

Item 1 (election of Board Members) requires a plurality vote of the shares of
each Fund. This means that the two nominees receiving the largest number of
votes will be elected. Item 2 (ratification of selection of independent
auditors) requires the affirmative vote of a majority of the shares voting on
the matter. Items 3A and 3B (approval of new investment management agreement
and, for GSP only, approval of new sub-advisory agreement) require the
affirmative vote of a "majority of the outstanding voting securities" of the
applicable Fund. The term "majority of the outstanding voting securities" as
defined in the 1940 Act means: the affirmative vote of the lesser of (1) 67% of
the voting securities of the Fund present at the meeting if more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of the Fund. Approval of Item 3B is
conditional upon approval of Item 3A for GSP. As noted previously, the holders
of the Common Shares and the Preferred Shares of KTF will vote together as a
single class on all items.

At least 50% of the shares of a Fund must be present, in person or by proxy, in
order to constitute a quorum for that Fund. Thus, the meeting for a particular
Fund could not take place on its scheduled date if less than 50% of the shares
of that Fund were represented. If, by the time scheduled for the meeting, a
quorum of shareholders of a Fund is not present or if a quorum is present but
sufficient votes in favor of any of the items are not received, the persons
named as proxies may propose one or more adjournments of the meeting for that
Fund to permit further soliciting of proxies from its shareholders. Any such
adjournment will require the affirmative vote of a majority of the shares of the
Fund as to which the meeting is being adjourned, present (in person or by proxy)
at the session of the meeting to be adjourned. The persons named as proxies will
vote in favor of any such adjournment if they determine that such adjournment
and additional solicitation are reasonable and in the interest of the respective
Fund's shareholders.

In tallying shareholder votes, abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter) will be
counted for purposes of determining whether a quorum is present for purposes of
convening the Meeting. On Item 1, abstentious and broker non-votes will have no
effect; the two nominees receiving the largest number of votes will be elected.
On Item 2, abstentions and broker non-votes will not be counted as "votes cast"
and will have no effect on the result of the vote. On Items 3A and 3B
abstentions and broker non-votes will be considered to be both present at the
Meeting and issued and outstanding and, as a result, will have the effect of
being counted as voted against the Items.

25
<PAGE> 30

The Board of each Fund recommends an affirmative vote on all items.

PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.

By order of the Boards,
Philip J. Collora
Secretary

26
<PAGE> 31

EXHIBIT A

FORM OF
INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT made this day of , 199 , by and between
, a Massachusetts business trust [a Maryland corporation, in the case
of GSP] (the "Fund"), and KEMPER FINANCIAL SERVICES, INC., a Delaware
corporation (the "Adviser").

WHEREAS, the Fund is a closed-end management investment company registered under
the Investment Company Act of 1940, the shares of beneficial interest (common
stock, in the case of GSP) ("Shares") of which are registered under the
Securities Act of 1933; and

WHEREAS, the Fund desires to retain the Adviser to render investment advisory
and management services, and the Adviser is willing to render such services;

NOW THEREFORE, in consideration of the mutual covenants hereinafter contained,
it is hereby agreed by and between the parties hereto as follows:

1. The Fund hereby employs the Adviser to act as the investment adviser and to
manage the investment and reinvestment of the assets in accordance with the
Fund's investment objectives and policies and limitations, and to administer its
affairs to the extent requested by and subject to the supervision of the Board
of Trustees [Directors, in the case of GSP] of the Fund for the period and upon
the terms herein set forth [Note: This section does not apply to GSP: and to
place orders for the purchase or sale of portfolio securities for the Fund's
account with brokers or dealers selected by it; and in connection therewith, the
Adviser is authorized as the agent of the Fund to give instructions to the
custodian of the Fund as to the deliveries of securities and payments of cash
for the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund best execution of orders. Subject to such policies as the Board of Trustees
of the Fund determines, the Adviser shall not be deemed to have acted unlawfully
or to have breached any duty, created by this Agreement or otherwise, solely by
reason of its having caused the Fund to pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting a
securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the clients of the Adviser as
to which the Adviser exercises investment discretion. The Fund recognizes that
all research services and research that the Adviser receives or generates are
available for all clients, and that the Fund and other clients may benefit
thereby.] The investment of funds shall be subject to all applicable
restrictions of the Agreement and Declaration of Trust [Articles of

A-1
<PAGE> 32

Incorporation, in the case of GSP] and By-Laws of the Fund as may from time to
time be in force.

The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and certain administrative services for the Fund, to permit any of its officers
or employees to serve without compensation as trustees [directors, in the case
of GSP] or officers of the Fund if elected to such positions and to assume the
obligations herein set forth for the compensation herein provided. The Adviser
shall for all purposes herein provided be deemed to be an independent contractor
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Fund in any way or otherwise be deemed an agent of
the Fund. It is understood and agreed that the Adviser, by separate agreements
with the Fund, may also serve the Fund in other capacities.

2. For the services and facilities described in Section 1, the Fund will pay to
the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of [see page of Proxy Statement for each Fund's
management fee] of the average weekly net assets. For the month and year in
which this Agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the Agreement is
in effect during the month and year, respectively.

3. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.

4. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund as
provided in the prospectus of the Fund. The Adviser shall not be required to pay
and the Fund shall assume and pay the charges and expenses of its operations,
including compensation of the trustees [directors, in the case of GSP] (other
than those affiliated with the Adviser), charges and expenses of independent
auditors, of legal counsel, of any transfer or dividend disbursing agent, any
registrar of the Fund, costs of acquiring and disposing of portfolio securities,
interest, if any, on obligations incurred by the Fund, costs of share
certificates and of reports, membership dues in the Investment Company Institute
or any similar organization, reports and notices to shareholders, other like
miscellaneous expenses and all taxes and fees payable to federal, state or other
governmental agencies on account of the registration of securities issued by the
Fund, filing of trust documents or otherwise. The Fund shall not pay or incur
any obligation for any expenses for which the Fund intends to seek reimbursement
from the Adviser as herein provided without first obtaining the written approval
of the Adviser. The Adviser shall arrange, if desired by the Fund, for officers
or employees of the Adviser to serve, without compensation from the Fund, as
trustees [directors, in the case of GSP], officers or agents of the Fund if duly
elected or appointed to such

A-2
<PAGE> 33

positions and subject to their individual consent and to any limitations imposed
by law.

The net asset value of the Fund shall be calculated in accordance with the
provisions of the Fund's prospectus or at such other time or times as the
trustees [directors, in the case of GSP] may determine in accordance with the
provisions of the Investment Company Act of 1940. On each day when net asset
value is not calculated, the net asset value shall be deemed to be the net asset
value as of the close of business on the last day on which such calculation was
made for the purpose of the foregoing computations.

5. Subject to applicable statutes and regulations, it is understood that
trustees [directors, in the case of GSP], officers or agents of the Fund are or
may be interested in the Adviser as officers, directors, agents, shareholders or
otherwise, and that the officers, directors, shareholders and agents of the
Adviser may be interested in the Fund otherwise than as a trustee [director, in
the case of GSP], officer or agent.

6. The Adviser shall not be liable for any error of judgment or of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its reckless disregard of its obligations
and duties under this Agreement.

7. This Agreement shall become effective on the date hereof and shall remain in
full force until , 199 , unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only as long as such continuance is specifically approved at least annually
in the manner required by the Investment Company Act of 1940 and the rules and
regulations thereunder; provided, however, that if the continuation of this
Agreement is not approved, the Adviser may continue to serve in such capacity in
the manner and to the extent permitted by the Investment Company Act of 1940 and
the rules and regulations thereunder.

This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser on sixty (60) days written notice to the other party. The Fund
may effect termination by action of the Board of Trustees [Directors, in the
case of GSP] or by vote of a majority of the outstanding voting securities.

This Agreement may be terminated at any time without the payment of any penalty
by the Board of Trustees [Directors, in the case of GSP] or by vote of a
majority of the outstanding voting securities in the event that it shall have
been established by a court of competent jurisdiction that the Adviser or any
officer or director of the Adviser has taken any action which results in a
breach of the covenants of the Adviser set forth herein.

The terms "assignments" and "vote" of a majority of the outstanding voting
securities shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.

A-3
<PAGE> 34

Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
2 earned prior to such termination.

8. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.

9. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.

10. [This section is not applicable to GSP] All parties hereto are expressly put
on notice of the Fund's Agreement and Declaration of Trust and all amendments
thereto, all of which are on file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and trustee liability contained
therein. This Agreement has been executed by and on behalf of the Fund by its
representatives as such representatives and not individually, and the
obligations of the Fund hereunder are not binding upon any of the trustees,
officers or shareholders of the Fund individually but are binding upon only the
assets and property of the Fund.

10. (This section is applicable to GSP only] The Adviser may delegate or
subcontract some or all of its duties hereunder to a sub-adviser subject to the
approval of the Board of Directors of the Fund and the requirements of the
Investment Company Act of 1940. In such event, the Adviser will be responsible
for the payment of any compensation of any such sub-adviser.

11. This Agreement shall be construed in accordance with applicable federal law
and (This parenthetical does not apply to GSP: except as to Section 10 hereof
which shall be construed in accordance with the laws of The Commonwealth of
Massachusetts) the laws of the State of Illinois.

12. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.

A-4
<PAGE> 35

IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed as of the day and year first above written.

[FUND]

By:

----------------------------------

Title:

-------------------------------

ATTEST:

By:

----------------------------------

Title:

--------------------------------

KEMPER FINANCIAL SERVICES, INC.

By:

----------------------------------

Title:

-------------------------------

ATTEST:

By:

----------------------------------

Title:

--------------------------------

A-5
<PAGE> 36

EXHIBIT B

FUNDS AND MANAGEMENT FEES

<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- -------------------------------------------------------------------- -----------
<S> <C> <C>
Kemper Technology Fund............................ $ 786 A
Kemper Total Return Fund.......................... 2,842 A
Kemper Growth Fund................................ 2,269 A
Kemper Small Capitalization Equity Fund........... 655 F
Kemper Income and Capital Preservation Fund....... 548 B
Kemper National Tax-Free Income Series
1. Kemper Municipal Bond Fund................... 3,634 C
2. Kemper Intermediate Municipal Bond Fund...... 13 B
Kemper Diversified Income Fund.................... 768 A
Kemper High Yield Fund............................ 3,517 A
Kemper U.S. Government Securities Fund............ 4,889 C
Kemper International Fund......................... 369 D
Kemper International Bond Fund.................... 7 D
Kemper State Tax-Free Income Series
1. Kemper California Tax-Free Income Fund....... 1,139 B
2. Kemper New York Tax-Free Income Fund......... 329 B
3. Kemper Florida Tax-Free Income Fund.......... 123 B
4. Kemper Texas Tax-Free Income Fund............ 16 B
5. Kemper Ohio Tax-Free Income Fund............. 31 B
6. Kemper Michigan Tax-Free Income Fund......... 2 B
7. Kemper New Jersey Tax-Free Income Fund....... 4 B
8. Kemper Pennsylvania Tax-Free Income Fund..... 2 B
Kemper Portfolios
1. Kemper Cash Reserves Fund.................... 214 E
2. Kemper U.S. Mortgage Fund.................... 3,652 B
3. Kemper Short-Intermediate Government Fund.... 250 B
Kemper Adjustable Rate U.S. Government Fund....... 150 B
Kemper Blue Chip Fund............................. 155 A
Kemper Global Income Fund......................... 172 D
Kemper Money Market Fund.......................... G
1. Money Market Portfolio....................... 3,998
2. Government Securities Portfolio.............. 586
3. Tax-Exempt Portfolio......................... 738
Cash Equivalent Fund
1. Money Market Portfolio....................... 3,451 H
2. Government Securities Portfolio.............. 1,687 H
Cash Equivalent Fund
1. Tax-Exempt Portfolio......................... 1,020 H
Tax-Exempt California Money Market Fund........... 94 H
Cash Account Trust................................ H
1. Money Market Portfolio....................... 397
2. Government Securities Portfolio.............. 150
3. Tax-Exempt Portfolio......................... 70
Investors Cash Trust
1. Government Securities Portfolio.............. 197 0.15%
2. Treasury Portfolio........................... 67 0.15%
</TABLE>

B-1
<PAGE> 37

<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- -------------------------------------------------------------------- -----------
<S> <C> <C>
Tax-Exempt New York Money Market Fund............. 15 H
Kemper High Income Trust.......................... 200 0.85%
Kemper Intermediate Government Trust.............. 278 0.80%
Kemper Municipal Income Trust..................... 672 0.55%
Kemper Multi-Market Income Trust.................. 215 0.85%
Kemper Strategic Municipal Income Trust........... 126 0.60%
The Growth Fund of Spain, Inc. ................... 221 1.00%
Kemper Strategic Income Fund...................... 45 0.85%
Kemper Investors Fund
1. Money Market Portfolio....................... 65 0.50%
2. Total Return Portfolio....................... 626 0.55%
3. High Yield Portfolio......................... 265 0.60%
4. Equity Portfolio............................. 336 0.60%
5. Government Securities Portfolio.............. 96 0.55%
6. International Portfolio...................... 125 0.75%
7. Small Capitalization Equity Portfolio........ 18 0.65%
Kemper Target Equity Fund
1. Kemper Retirement Fund Series I.............. 105 0.50%
2. Kemper Retirement Fund Series II ............ 172 0.50%
3. Kemper Retirement Fund Series III ........... 123 0.50%
4. Kemper Retirement Fund Series IV ............ 151 0.50%
5. Kemper Retirement Fund Series V.............. 134 0.50%
6. Kemper Retirement Fund Series VI............. 3 0.50%
7. Kemper Worldwide 2004 Fund................... 30 0.60%
Sterling Funds
1. Equity Fund.................................. 0 I
2. Total Return Fund............................ 0 I
3. U.S. Government Securities Fund.............. 0 J
4. Municipal Bond Fund.......................... 0 J
5. Government Money Market Fund................. 0 K
Amway Mutual Fund, Inc.***........................ 63 0.45%
</TABLE>

- ---------------
* Total Net Assets, in millions, as of May 31, 1995.

** Scheduled annual management fees payable to KFS as a percentage of average
daily net assets.

*** KFS serves as sub-adviser.

(A) .58 of 1% of the first $250 million, .55 of 1% of the next $750 million, .53
of 1% of the next $1.5 billion, .51 of 1% of the next $2.5 billion, .48 of
1% of the next $2.5 billion, .46 of 1% of the next $2.5 billion, .44 of 1%
of the next $2.5 billion and .42 of 1% thereafter.

(B) .55 of 1% of the first $250 million, .52 of 1% of the next $750 million, .50
of 1% of the next $1.5 billion, .48 of 1% of the next $2.5 billion, .45 of
1% of the next $2.5 billion, .43 of 1% of the next $2.5 billion, .41 of 1%
of the next $2.5 billion and .40 of 1% thereafter. KFS is currently waiving
its management fee for Kemper Intermediate Municipal Bond Fund, Kemper
Michigan Tax-Free Income Fund, Kemper New Jersey Tax-Free Income Fund and
Kemper Pennsylvania Tax-Free Income Fund.

B-2
<PAGE> 38

(C) .45 of 1% of the first $250 million, .43 of 1% of the next $750 million, .41
of 1% of the next $1.5 billion, .40 of 1% of the next $2.5 billion, .38 of
1% of the next $2.5 billion, .36 of 1% of the next $2.5 billion, .34 of 1%
of the next $2.5 billion and .32 of 1% thereafter.

(D) .75 of 1% of the first $250 million, .72 of 1% of the next $750 million, .70
of 1% of the next $1.5 billion, .68 of 1% of the next $2.5 billion, .65 of
1% of the next $2.5 billion, .64 of 1% of the next $2.5 billion, .63 of 1%
of the next $2.5 billion and .62 of 1% thereafter.

(E) .40 of 1% of the first $250 million, .38 of 1% of the next $750 million, .35
of 1% of the next $1.5 billion, .32 of 1% of the next $2.5 billion, .30 of
1% of the next $2.5 billion, .28 of 1% of the next $2.5 billion, .26 of 1%
of the next $2.5 billion and .25 of 1% thereafter.

(F) Base investment management fee of .65 of 1% of average daily net assets plus
or minus an incentive fee based upon the investment performance of the fund
as compared with the performance of the Standard & Poor's 500 Stock Index
which may result in a total fee ranging from .35 of 1% to .95 of 1%.

(G) .50% of the first $215 million; .375% of the next $335 million; .30% of the
next $250 million; .25% thereafter (on the identified series in the
aggregate).

(H) .22% of the first $500 million; .20% of the next $500 million; .175% of the
next $1 billion; .16% of the next $1 billion; .15% thereafter (on the
identified series in the aggregate).

(I) .80% of the first $250 million; .79% of the next $750 million; .77% of the
next $1.5 billion; .75% thereafter.

(J) .65% of the first $250 million; .64% of the next $750 million; .62% of the
next $1.5 billion; .60% thereafter.

(K) .50% of the first $250 million; .49% of the next $750 million; .47% of the
next $1.5 billion; .45% thereafter.

B-3
<PAGE> 39

EXHIBIT C

FEES AND EXPENSES

<TABLE>
<CAPTION>
KHI KGT KTF KMM KSM GSP KST
---------- --------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year End................................ 11/30/94 11/30/94 11/30/94 11/30/94 11/30/94 11/30/94 11/30/94(a)
Management Fees Paid to KFS.................... $1,714,000 2,234,000 3,678,000 1,827,000 753,000 2,135,000 228,000
Effective Management Fee Rate.................. .85% .80 .55 .85 .60 1.00 .85
Custodian, Transfer Agent Fees Paid by Fund to
IFTC......................................... $ 102,000 103,000 118,000 123,000 21,000 24,000 31,000
Shareholder Service Fees Paid by IFTC to
KSVC......................................... $ 63,000 57,000 91,000 42,000 24,000 24,000 19,000
Brokerage Commissions Paid by Fund............. $1,411,000 365,000 23,000 866,000 73,000 1,621,000 109,000
Percent of Brokerage Commissions Paid by Fund
Allocated on Basis of Research/Sales......... 1% 69 86 25 1 100 0
</TABLE>

- ---------------
(a) For the period from April 29, 1994 (commencement of operations) to November
30, 1994.

C-1
<PAGE> 40

Thank you for mailing your proxy card promptly! We appreciate your continuing
support and look forward to serving your future investment needs.
<PAGE> 41

KEMPER CLOSED-END FUNDS
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund

Printed on recycled paper.
<PAGE> 42

2. Ratify or reject the selection of For Against Abstain
/ / / / / /
Ernst & Young LLP as the Fund's
independent auditors for the current
fiscal year.

3A. Approve or disapprove a new investment. / / / / / /
Management agreement with Kemper
Financial Services, Inc. or its
successor on the same terms as the
current agreement.

3B. For GSP only, to approve or disapprove / / / / / /
a new sub-advisory agreement with BSN
Gastion de Patrinonios, S.A., S.G.C.
on the same terms as the current
agreement.

Approval of Item 3B is conditional upon approval of Item 3A for GSP.

Signature(s) (All registered owners of accounts shown to the left must
sign. If signing for a corporation, estate or trust, please indicate your
capacity or title.)
</TABLE>

X
- -------------------------------------------------------------------------------
Signature Date

THIS PROXY WILL BE VOTED AS SPECIFIED HERE BY YOU. IF NO SPECIFICATION IS
MADE, THE PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THIS PROXY.

PLEASE VOTE TODAY!

<PAGE> 43

PLEASE VOTE PROMPTLY!

Your vote is needed! Please vote on the reverse side of this form and sign in
the space provided. Return your completed proxy in the enclosed envelope
today.

You may receive additional proxies for your other accounts with Kemper. These
are not duplicates; you should sign and return each proxy card in order for
your votes to be counted. Please return them as soon as possible to help save
the cost of additional mailings.

The signers of this proxy hereby appoint Stephen B. Timbers and Arthur R.
Gottschalk, and each of them, attorneys and proxies, with power of substitution
in each, to vote all shares for the signers at the special meeting of
shareholders to be held September 19, 1995, and at any adjournments thereof, as
specified herein, and in accordance with their best judgement, on any other
business that may properly come before this meeting. If no specification is
made herein, all shares will be voted "FOR" the proposals set for on this
proxy.

The proxy is solicited by the Board of the Fund which recommends a vote "FOR"
all matters.