<PAGE> 1
DEAR SHAREHOLDER:
We at Kemper are pleased to provide you with an overview of the performance of
your fund and the municipal market for the six-month period ended May 31, 1995.
In that time, Kemper Strategic Municipal Income Trust earned a total return of
8.53 percent based on net asset value. The fund's share price was $11.88 as of
May 31, 1995, representing a 1.86 percent discount to the fund's net asset value
of $12.10.
DIVIDEND REVIEW
The fund distributed a total of $.408 per common share during the six-month
period. Based on the fund's closing share price of $11.88 and the May dividend
of $.068, the current annualized distribution rate was 6.87 percent. This
distribution rate is equivalent to a taxable distribution rate of 10.92 percent
based on an assumed federal marginal income tax rate of 37.1 percent.
MARKET REVIEW
The six-month period was generally a favorable one for the municipal market. In
November 1994, just prior to the beginning of the period, yields reached their
recent highs. The higher yield ratios of municipals to Treasuries made
municipals attractive relative to Treasury securities. A strong market rally
ensued and extended throughout the six-month period which saw falling bond
yields and rising prices.
The municipal market rally was particularly powerful in the first quarter. An
unexpectedly low level of new issue volume helped municipal bonds outperform
Treasuries. The fixed-income markets continued to perform well into the second
quarter. Municipal bonds did not keep pace, however, with the Treasury market.
Market reaction to the first quarter's strong performance, a slightly larger
level of dealer inventories and growing concern about possible tax reforms all
contributed to the market's underperformance.
FUND ACTIVITY
The portfolio managers, encouraged by the prospect of increasing municipal bond
prices, reduced the fund's defensive hedge positions in December to enable the
fund to benefit when the market rallied. The portfolio remained nearly fully
invested throughout the remaining months; durations were extended somewhat to
take advantage of the municipal market's strength.
PORTFOLIO COMPOSITION
As of May 31, 1995, the composition of the fund was as follows:
<TABLE>
<CAPTION>
RATING PERCENT OF THE PORTFOLIO
------------------- ------------------------
<S> <C>
AAA 7%
AA 11
A 10
BBB 18
B 2
Non-rated 52
</TABLE>
The non-rated bonds are considered to be equivalent to bonds with the following
rating, by Kemper Financial Services, Inc., the fund's investment manager:
<TABLE>
<CAPTION>
RATING PERCENT OF THE PORTFOLIO
------------------- ------------------------
<S> <C>
AAA 3%
AA 0
A 4
BBB 8
BB 31
B 5
CCC 1
</TABLE>
The portfolio remained well diversified by state and industry. As of May 31,
1995, the fund's largest holdings were: 14 percent senior care bonds; 12 percent
U.S. government securities; 11 percent non-senior care bonds; 11 percent
hospital bonds; and 8 percent state single family housing bonds.
1
<PAGE> 2
OUTLOOK
We are generally positive about the prospects for the municipal market. First,
the efforts of the Federal Reserve appear to have been successful in both
slowing the economy and subduing inflation. It seems likely that rates will
remain in a range near today's levels and may possibly drop further, perhaps to
the lows in yields achieved in October 1993. In addition, we anticipate that new
issue volume will remain low, which will help to support municipal bond prices
further.
Tax reform proposals have already caused an increase in the yield ratio of
municipal bonds to Treasuries. This adjustment process may continue until the
market believes that the risks of tax reform are fully discounted in the market.
The situation is uncertain and we will continue to monitor it.
In any case, tax reform is sure to be a key campaign issue in 1996. We will be
vigilant about any signs of decreased demand for municipal bonds due to tax
reform concerns and may maintain a slightly higher cash position as we watch the
situation develop.
We appreciate your continued support of Kemper Strategic Municipal Income Trust
and look forward to continuing to meet your investment needs in the future.
Sincerely,
[SIG]
Christopher J. Mier
Vice President and Portfolio Co-Manager
[SIG]
Dale R. Burrow
Vice President and Portfolio Co-Manager
[SIG]
Stephen R. Willson
Vice President and Portfolio Co-Manager
June 28, 1995
Mr. Mier has been a Portfolio Manager of the Fund since its inception in March,
1989. He is a Senior Vice President of Kemper Financial Services, Inc. (KFS).
Mr. Burrow became Portfolio Co-Manager of the Fund in 1993. He joined KFS in
1987 and is now a First Vice President of KFS.
Mr. Willson became Portfolio Co-Manager of the Fund in 1993. He joined KFS in
1985 and is now a First Vice President of KFS.
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of market price on the date shown.
Distribution rate simply measures the level of dividends and is not a complete
measure of performance. Total return measures aggregate change in net asset
value/market value assuming reinvestment of dividends. The tax equivalent
distribution rate is based on the distribution rate and the 37.1% federal tax
rate. Returns are historical and do not represent future performance. Market
price, net asset value and returns fluctuate. Additional information concerning
performance is contained in the Financial Highlights appearing at the end of
this report. The ratings of Standard and Poor's Corporation (S&P) and Moody's
Investors Service, Inc. (Moody's) represent their opinions as to the quality of
securities that they undertake to rate. The percentage shown reflects the higher
of Moody's or S&P's ratings. Portfolio composition will change over time.
Ratings are relative and subjective and not absolute standards of quality.
Income may be subject to state and local taxes. A portion of the income may be
subject to the alternative minimum tax for certain investors.
2
<PAGE> 3
ANNUAL SHAREHOLDERS MEETING
We are pleased to report that all six trustees have been re-elected to the Board
of Trustees of Kemper Strategic Municipal Income Trust at the annual meeting
held on May 16, 1995. The Trustees are: Arthur R. Gottschalk, Frederick T.
Kelsey, David B. Mathis, Stephen B. Timbers, John B. Tingleff and John G.
Weithers.
Along with the re-election of the Trustees, shareholders were asked to ratify
the selection of Ernst & Young LLP as the independent auditors for the fund. The
results of the shareholders' vote at the May 16, 1995 meeting were as follows:
- Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Arthur R.
Gottschalk 9,213,268 129,141
Frederick T. Kelsey 9,214,267 128,141
David B. Mathis 9,222,590 119,819
Stephen B. Timbers 9,205,591 136,818
John B. Tingleff 9,223,992 118,417
John G. Weithers 9,225,788 116,621
</TABLE>
- Ratification of the selection of Ernst & Young LLP as independent auditors for
the fund
For 9,342,409
Against 34,906
3
<PAGE> 4
PORTFOLIO OF INVESTMENTS May 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
ISSUER Amount Value
--------------------------------------------------------------------------------------------- --------- --------
<S> <C> <C>
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES.
FLORIDA
---------------------------------------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, Airport Facilities, Revenue, 8.00%, to be called 10-1-98
@ 102 $ 70 $ 79
---------------------------------------------------------------------------------------------------------------------------
Volusia County Health Facilities Authority, Memorial Health Systems, Hospital Facilities,
Revenue, 8.25%, to be called 6-1-00 @ 102 2,390 2,815
---------------------------------------------------------------------------------------------------------------------------
2,894
ILLINOIS
---------------------------------------------------------------------------------------------------------------------------
Chicago, Central Station Project, Tax Increment Revenue, 8.90%, to be called 1-1-05 @ 100 2,235 2,795
---------------------------------------------------------------------------------------------------------------------------
INDIANA
---------------------------------------------------------------------------------------------------------------------------
Indianapolis Local Public Improvement Bond Bank, Revenue, 8.50%, to be called 2-1-98 @ 102 3,000 3,363
---------------------------------------------------------------------------------------------------------------------------
OHIO
---------------------------------------------------------------------------------------------------------------------------
Marion County, United Church Health Care Facilities, Revenue, 8.875%, to be called 12-1-99 @
103 2,780 3,326
---------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
---------------------------------------------------------------------------------------------------------------------------
Greene County, General Obligation, 8.75%, to be called 12-1-00 @ 100 1,895 2,276
---------------------------------------------------------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS-11.6%
(Cost: $12,308) 14,654
---------------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
ARIZONA
---------------------------------------------------------------------------------------------------------------------------
Coconino County, Industrial Development Authority, The Guidance Center, Inc. Project,
Revenue, 9.25%, 2011 1,920 2,059
---------------------------------------------------------------------------------------------------------------------------
Industrial Development Authority of the County of Pima, Larson Company Project, Revenue,
9.50%, 2010 2,400 2,672
---------------------------------------------------------------------------------------------------------------------------
Industrial Development Authority of the County of Pima, Single Family Mortgage, Revenue,
8.20%, 2021 3,805 4,106
---------------------------------------------------------------------------------------------------------------------------
Maricopa County, Rural Road Improvement District, General Obligation, 8.625%, 2007 1,560 1,796
---------------------------------------------------------------------------------------------------------------------------
Arizona Health Facilities Authority, The New Foundation, Healthcare Revenue, 8.25%, 2019 2,475 2,567
---------------------------------------------------------------------------------------------------------------------------
13,200
CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------
San Diego, Detention Facility, Certificates of Participation, Revenue, 8.00%, 2002 425 451
---------------------------------------------------------------------------------------------------------------------------
COLORADO
---------------------------------------------------------------------------------------------------------------------------
City and County of Denver, Airport System Revenue, 7.50% to 8.75%, 2023 through 2025 2,900 3,169
---------------------------------------------------------------------------------------------------------------------------
CONNECTICUT
---------------------------------------------------------------------------------------------------------------------------
Connecticut Development Authority, Pierce Memorial Baptist Home, Revenue, 9.25%, 2018 2,000 2,251
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
FLORIDA
---------------------------------------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, Airport Facilities, Revenue, 8.00%, 2018 $ 625 $ 697
---------------------------------------------------------------------------------------------------------------------------
Martin County Industrial Development Authority, Revenue, 7.875%, 2025 1,500 1,632
---------------------------------------------------------------------------------------------------------------------------
Nassua County, Amelia Island Project, Revenue, 9.75%, 2023 1,990 2,208
---------------------------------------------------------------------------------------------------------------------------
4,537
ILLINOIS
---------------------------------------------------------------------------------------------------------------------------
Chicago, O'Hare International Airport, American Airlines, Special Facilities, Revenue, 8.20%,
2018 and 2024 4,075 4,440
---------------------------------------------------------------------------------------------------------------------------
Harvard, Multifamily Housing, Northfield Court Project, Revenue, 9.50%, 2006 1,990 2,184
---------------------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority, Bethany Home and Hospital of the Methodist Church,
Revenue, 8.625%, 2009 2,610 2,836
---------------------------------------------------------------------------------------------------------------------------
Itasca, Central Manufacturing District, Revenue, 8.375%, 2009 2,680 2,930
---------------------------------------------------------------------------------------------------------------------------
Lombard, Tax Increment Revenue, 8.80%, 2004 1,885 2,184
---------------------------------------------------------------------------------------------------------------------------
St. Charles, Multifamily Housing, Wessel Court Project, Revenue, 7.60%, 2024 2,000 2,034
---------------------------------------------------------------------------------------------------------------------------
University Park, Tax Increment Revenue, 8.50%, 2011 2,000 2,159
---------------------------------------------------------------------------------------------------------------------------
18,767
INDIANA
---------------------------------------------------------------------------------------------------------------------------
Indiana Health Facilities Finance Authority, Fayette Memorial Hospital, Revenue, 7.20%, 2022 2,800 2,801
---------------------------------------------------------------------------------------------------------------------------
Indiana Housing Finance Authority, Revenue, 8.375%, 2020 1,905 2,041
---------------------------------------------------------------------------------------------------------------------------
Fishers, Economic Development Water Facilities, Indianapolis Water Company, Revenue, 7.875%,
2019 685 749
---------------------------------------------------------------------------------------------------------------------------
5,591
IOWA
---------------------------------------------------------------------------------------------------------------------------
Lake City, Health Care Facility, Opportunity Living Project, Revenue, 10.00%, 2015 2,000 2,284
---------------------------------------------------------------------------------------------------------------------------
Iowa Finance Authority, On With Life, Healthcare Facility Refunding Revenue, 7.25%, 2015 2,000 2,049
---------------------------------------------------------------------------------------------------------------------------
4,333
KENTUCKY
---------------------------------------------------------------------------------------------------------------------------
Jefferson County, Louisville Gas and Electric, Pollution Control, Revenue, 7.75%, 2019 1,500 1,633
---------------------------------------------------------------------------------------------------------------------------
MARYLAND
---------------------------------------------------------------------------------------------------------------------------
Maryland Health and Higher Educational Facilities Authority, Revenue, 5.75%, 2013 1,300 1,147
---------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
---------------------------------------------------------------------------------------------------------------------------
Worcester, Briarwood Retirement Community, Revenue, 9.25%, 2022 2,000 2,131
---------------------------------------------------------------------------------------------------------------------------
MICHIGAN
---------------------------------------------------------------------------------------------------------------------------
Gogebic County, Grand View Hospital, Revenue, 8.75%, 2016 2,250 2,438
---------------------------------------------------------------------------------------------------------------------------
Greater Detroit Resource Recovery Authority, Revenue, 9.25%, 2008 2,325 2,432
---------------------------------------------------------------------------------------------------------------------------
Madison Heights, Tax Increment Finance Authority, Revenue, 8.50%, 2001 1,120 1,188
---------------------------------------------------------------------------------------------------------------------------
6,058
</TABLE>
5
<PAGE> 6
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
MINNESOTA
---------------------------------------------------------------------------------------------------------------------------
Sauk Rapids, Industrial Development, Gold N Plump, Revenue, 9.50%, 2005 $ 2,285 $ 2,400
---------------------------------------------------------------------------------------------------------------------------
Minnesota Housing Finance Agency, Single Family Mortgage Revenue, 7.95%, 2022 2,200 2,349
---------------------------------------------------------------------------------------------------------------------------
4,749
MISSOURI
---------------------------------------------------------------------------------------------------------------------------
St. Louis, Scullin Redevelopment Project, Revenue, 10.00%, 2010 2,440 2,791
---------------------------------------------------------------------------------------------------------------------------
West Plains, Industrial Development Authority, Ozarks Medical Center, Hospital Revenue,
8.625%, 2020 2,000 2,202
---------------------------------------------------------------------------------------------------------------------------
4,993
NEVADA
---------------------------------------------------------------------------------------------------------------------------
Nevada Housing Division, Single Family Program, Revenue, 7.90%, 2021 2,000 2,084
---------------------------------------------------------------------------------------------------------------------------
NEW JERSEY
---------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority, Caldwell College, Revenue, 7.25%, 2025 1,150 1,154
---------------------------------------------------------------------------------------------------------------------------
NEW MEXICO
---------------------------------------------------------------------------------------------------------------------------
Albuquerque Health Care Ltd., Nursing Home Refunding, Revenue, 9.75%, 2014 1,430 1,600
---------------------------------------------------------------------------------------------------------------------------
Truth or Consequences, Nursing Home Improvement, Sierra Health Care, Inc., Revenue, 9.75%,
2014 955 1,069
---------------------------------------------------------------------------------------------------------------------------
2,669
NEW YORK
---------------------------------------------------------------------------------------------------------------------------
New York City, General Obligation, 7.00% and 7.50%, 2010 4,300 4,496
---------------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency, Revenue, 6.75% and 7.30%, 2014 and
2021 1,560 1,725
---------------------------------------------------------------------------------------------------------------------------
New York State Mortgage Agency, Homeowner Mortgage Revenue, 8.25%, 2022 295 312
---------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, LaGuardia Airport Passenger Terminal, Revenue,
9.125%, 2015 2,500 2,810
---------------------------------------------------------------------------------------------------------------------------
9,343
NORTH DAKOTA
---------------------------------------------------------------------------------------------------------------------------
North Dakota Housing Finance Agency, Single Family Mortgage Revenue, 8.375%, 2021 1,170 1,229
---------------------------------------------------------------------------------------------------------------------------
OHIO
---------------------------------------------------------------------------------------------------------------------------
Cuyahoga County, Judson Retirement Community Center, Revenue, 8.875%, 2019 2,500 2,726
---------------------------------------------------------------------------------------------------------------------------
OKLAHOMA
---------------------------------------------------------------------------------------------------------------------------
Woodward Municipal Authority, Hospital Revenue, 8.50% and 9.25%, 2014 3,085 3,407
---------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
---------------------------------------------------------------------------------------------------------------------------
Columbia County, Industrial Development Authority, First Mortgage Revenue, 9.00%, 2014 1,955 2,088
---------------------------------------------------------------------------------------------------------------------------
Dauphin County Industrial Development Authority, Susquehanna Center Nursing Facility, First
Mortgage Revenue, 10.45%, 2011 1,880 1,382
---------------------------------------------------------------------------------------------------------------------------
Lehigh County General Purpose Authority, Wiley House, Revenue, 8.65%, 2004 3,000 3,048
---------------------------------------------------------------------------------------------------------------------------
6,518
RHODE ISLAND
---------------------------------------------------------------------------------------------------------------------------
Rhode Island Housing and Mortgage Finance Corporation, Revenue, 8.30%, 2011 1,775 1,876
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- --------
<S> <C> <C>
SOUTH CAROLINA
---------------------------------------------------------------------------------------------------------------------------
Aiken County, Mattie C. Hall Health Care Center, Hospital Facilities Revenue, 8.625%, 2010 $ 1,500 $ 1,647
---------------------------------------------------------------------------------------------------------------------------
TEXAS
---------------------------------------------------------------------------------------------------------------------------
Brazos River Authority, Texas Utilities Electric Company, Pollution Control Revenue, 8.25%,
2019 2,000 2,201
---------------------------------------------------------------------------------------------------------------------------
Lower Neches Valley, Industrial Development Authority, Mobil Oil Refining Corporation
Project, Revenue, 6.40%, 2030 1,765 1,807
---------------------------------------------------------------------------------------------------------------------------
4,008
TOTAL OTHER MUNICIPAL OBLIGATIONS-86.6%
(Cost: $101,438) 109,671
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-98.2%
(Cost: $113,746) 124,325
---------------------------------------------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES-1.8% 2,327
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS-100% $126,652
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $113,746,000 for federal income tax purposes
at May 31, 1995 the aggregate gross unrealized appreciation of investments was
$11,077,000, the aggregate gross unrealized depreciation was $498,000 and the
net unrealized appreciation of investments was $10,579,000.
See accompanying Notes to Financial Statements.
7
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
(in thousands)
<TABLE>
<S> <C>
ASSETS
----------------------------------------------------------
Investments, at value
(Cost: $113,746) $ 124,325
----------------------------------------------------------
Cash 401
----------------------------------------------------------
Interest receivable 3,157
----------------------------------------------------------
Total assets 127,883
----------------------------------------------------------
LIABILITIES AND NET ASSETS
----------------------------------------------------------
Payable for:
Investments purchased 1,146
----------------------------------------------------------
Management fee 63
----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 11
----------------------------------------------------------
Other 11
----------------------------------------------------------
Total liabilities 1,231
----------------------------------------------------------
Net assets applicable to 10,468
shares outstanding, $.01 par value,
equivalent to $12.10 per share $ 126,652
----------------------------------------------------------
ANALYSIS OF NET ASSETS
----------------------------------------------------------
Net amount received from issuance of
shares on account of capital $ 116,194
----------------------------------------------------------
Accumulated net realized loss on sales of
investments (462)
----------------------------------------------------------
Unrealized appreciation of investments 10,579
----------------------------------------------------------
Undistributed net investment income 341
----------------------------------------------------------
Net assets applicable to shares outstanding $ 126,652
----------------------------------------------------------
Net asset value per share
($126,652 / 10,468 shares outstanding) $12.10
----------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENT OF OPERATIONS
Six Months ended May 31, 1995
(in thousands)
<TABLE>
<S> <C>
INTEREST INCOME $ 4,857
---------------------------------------------------------
EXPENSES
---------------------------------------------------------
Management fee 371
---------------------------------------------------------
Custodian and transfer agent fees
and related expenses 21
---------------------------------------------------------
Professional fees 15
---------------------------------------------------------
Reports to shareholders 4
---------------------------------------------------------
Trustees' fees and other 35
---------------------------------------------------------
Total expenses 446
---------------------------------------------------------
Net investment income 4,411
---------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
---------------------------------------------------------
Net realized gain on sales of investments 225
---------------------------------------------------------
Net realized loss from futures transactions (34)
---------------------------------------------------------
Net realized gain 191
---------------------------------------------------------
Net change in balance of unrealized
appreciation of investments 5,534
---------------------------------------------------------
Net gain on investments 5,725
---------------------------------------------------------
Net increase in net assets resulting
from operations $10,136
---------------------------------------------------------
</TABLE>
8
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
Six Months
ended Year ended
May 31, November 30,
1995 1994
----------- ------------
<S> <C> <C>
OPERATIONS
----------------------------------------------------------
Net investment income $ 4,411 8,685
----------------------------------------------------------
Net realized gain (loss)
on investments 191 (426)
----------------------------------------------------------
Net change in unrealized
appreciation 5,534 (8,114)
----------------------------------------------------------
Net increase in net assets
resulting from operations 10,136 145
----------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS
----------------------------------------------------------
Distribution from net
investment income (4,270) (8,543)
----------------------------------------------------------
Distribution in excess of
net realized gain on
investments -- (260)
----------------------------------------------------------
Total dividends to
shareholders (4,270) (8,803)
----------------------------------------------------------
Proceeds from shares issued in
reinvestment of dividends
(8 shares in 1995 and
62 shares in 1994) 97 783
----------------------------------------------------------
Total increase (decrease) in
net assets 5,963 (7,875)
----------------------------------------------------------
NET ASSETS
----------------------------------------------------------
Beginning of period 120,689 128,564
----------------------------------------------------------
End of period (including
undistributed net investment
income of $341 in 1995 and
$200 in 1994) $ 126,652 120,689
----------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF FUND
The Fund is registered under the Investment Company Act of 1940 as a
non-diversified, closed-end management investment company.
INVESTMENT VALUATION
Investments are stated at value. Fixed income securities are valued by using
market quotations, or independent pricing services that use prices provided by
market makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Exchange traded options
are valued at the last sale price unless there is no sale price, in which event
prices provided by market makers are used. Over-the-counter traded options are
valued based upon prices provided by market makers. Financial futures and
options thereon are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Other securities and assets
are valued at fair value as determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis and
premiums and original issue discount on securities are amortized. Realized gains
and losses from investment transactions are reported on an identified cost
basis. Realized and unrealized gains and losses on financial futures and options
are included in net realized and unrealized gain (loss) on investments, as
appropriate.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies for the six months ended May 31, 1995. The
accumulated net realized loss on sales of investments for federal income tax
purposes at May 31, 1995, amounting to approximately $275,000, is available to
offset future taxable gains. If not applied, the loss carryover expires in the
year 2002.
The Fund declares and pays dividends on a monthly basis. Dividends payable to
its shareholders are recorded by the Fund on the ex-dividend date.
9
<PAGE> 10
Distributions are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles.
2. TRANSACTIONS WITH AFFILIATES
The Fund has a management agreement with Kemper Financial Services, Inc. (KFS).
For management services and facilities furnished, the Fund pays a fee at an
annual rate of .60% of average weekly net assets. The Fund incurred a management
fee of $371,000 for the six months ended May 31, 1995.
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which was 50% owned by KFS until January 31,
1995, when KFS completed the sale of IFTC to a third party. For the six months
ended May 31, 1995, the Fund incurred custodian and transfer agent fees of
$9,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the six months ended May 31, 1995, IFTC remitted
shareholder service fees of $12,000 to KSvC.
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the six months ended May 31, 1995, the Fund made no direct payments to
its officers and incurred trustees' fees of $5,000 to independent trustees.
3. INVESTMENT TRANSACTIONS
For the six months ended May 31, 1995, investment transactions (excluding money
market instruments) are as follows (in thousands):
Purchases $9,294
--------------------------------------------------------------------------------
Proceeds from sales 4,271
--------------------------------------------------------------------------------
10
<PAGE> 11
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six months
ended
May 31, Year ended November 30,
1995 1994 1993 1992 1991
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $11.54 12.36 11.86 11.65 11.37
-----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .42 .83 .83 .84 .84
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .55 (.80) .58 .30 .36
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .97 .03 1.41 1.14 1.20
-----------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .41 .82 .89 .83 .81
-----------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments -- -- .02 .10 .11
-----------------------------------------------------------------------------------------------------------------------------
Distribution in excess of net realized gain on
investments -- .03 -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total dividends .41 .85 .91 .93 .92
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.10 11.54 12.36 11.86 11.65
-----------------------------------------------------------------------------------------------------------------------------
Market value, end of period $11.88 11.63 12.38 12.13 12.13
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%):
Based on net asset value 8.53 .12 12.32 10.14 10.99
-----------------------------------------------------------------------------------------------------------------------------
Based on market value 5.81 .71 9.51 7.86 21.92
-----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .72 .75 .74 .77 .77
-----------------------------------------------------------------------------------------------------------------------------
Net investment income 7.14 6.92 6.87 7.17 7.31
-----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $126,652 120,689 128,564 122,035 118,864
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 7 11 8 10 20
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the year. Total return based on market value reflects
changes in market value. Each figure includes reinvestment of dividends.
These figures will differ depending upon the level of any discount from or
premium to net asset value at which the Fund's shares trade during the
year.
11
<PAGE> 12
KEMPER STRATEGIC MUNICPAL INCOME TRUST
Trustees Officers
STEPHEN B. TIMBERS JOHN E. PETERS
President and Trustee Vice President
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY CHRISTOPHER J. MIER
Trustee Vice President
DAVID B. MATHIS DALE R. BURROW
Trustee Vice President
JOHN B. TINGLEFF STEPHEN R. WILLSON
Trustee Vice President
JOHN G. WEITHERS PHILIP J. COLLORA
Trustee Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
---------------------------------------------------------
Legal Counsel Custodian and Transfer Agent
VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY
& KAMMHOLZ TRUST COMPANY
222 North LaSalle Street 127 West 10th Street
Chicago, IL 60601 Kansas City, MO 64105
Shareholder Service Agent
KEMPER SERVICE COMPANY
P.O. Box 419430
Kansas City, MO 64141
Investment Manager
KEMPER FINANCIAL
SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
SEMIANNUAL REPORT TO SHAREHOLDERS
May 31, 1995
---------------------------------------
KEMPER
---------------------------------------
STRATEGIC
---------------------------------------
MUNICIPAL
---------------------------------------
INCOME
---------------------------------------
TRUST
---------------------------------------
[KEMPER LOGO]
KSMIT-3 (7/95) [LOGO] PRINTED ON RECYCLED 240750
PAPER Printed in U.S.A.
