<PAGE> 1
Kemper Strategic Municipal Income Trust
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED NOVEMBER 30, 1995
"We often work closely with the issuers to structure deals. Then,
following the purchases, we continue to monitor the investments..."
<PAGE> 2
Table of
Contents
3
General
Economic Overview
6
Performance Update
7
Terms to Know
8
Largest Sectors
9
Portfolio Statistics
10
Portfolio of
Investments
14
Report of
Independent Auditors
15
Financial Statements
17
Notes to
Financial Statements
19
Financial Highlights
20
Description of
Dividend
Reinvestment Plan
At A Glance
- -------------------------------------------------------------
TOTAL RETURNS
For the year ended November 30, 1995
- -------------------------------------------------------------
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------------------
<S> <C> <C>
KEMPER
STRATEGIC MUNICIPAL
INCOME TRUST 13.09% 11.77%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------------------
AS OF AS OF
11/30/95 11/30/94
- -------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.19 $11.54
MARKET PRICE $12.125 $11.625
</TABLE>
- -------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1995.
<TABLE>
<S> <C>
1 YEAR INCOME: $0.816
- ----------------------------------------------------
NOVEMBER DIVIDEND: $0.068
- ----------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 6.69%
- ----------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.73%
- ----------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 10.64%
- ----------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 10.70%
- ----------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change
in net asset value/market value assuming reinvestment of dividends. Returns are
historical and do not represent future performance. Market price, net asset
value and returns fluctuate. Additional information concerning performance is
contained in the Financial Highlights appearing at the end of this report.
Income may be subject to state and local taxes and a portion of income may be
subject to the alternative minimum tax for certain investors.
About Your Report
Your fund's annual report is one of your best sources for tracking the progress
of your investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as to explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio management
team on what might be expected in the coming months.
Specifically, your report now includes:
- Terms you need to know related to your fund
- A look at your fund's largest sectors
- The maturity and quality of your fund's underlying investments
If you have any comments about the revised format, please write to:
Kemper Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 3
General Economic Overview
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER OF KEMPER
FINANCIAL SERVICES, INC. (KFS). KFS AND ITS AFFILIATES MANAGE APPROXIMATELY $63
BILLION IN ASSETS, INCLUDING $44 BILLION IN RETAIL MUTUAL FUNDS. TIMBERS IS A
GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD UNIVERSITY.
DEAR SHAREHOLDER,
Investors enjoyed very positive performance in both the fixed income and stock
markets in 1995. The returns of most leading securities markets worldwide were
significantly higher than they were in 1994.
We have an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be growing at a
pace that investors find comfortable. Contrary to isolated reports that caused
some observers to become concerned, we believe the economy is in no jeopardy of
recession. Its health was confirmed with the news that the economy grew (as
measured by real gross domestic product [GDP]) at an annual rate of 4.2 percent
in the third quarter. This follows much lower growth in the first two quarters,
as the economy was adjusting to the Federal Reserve Board's series of interest
rate increases. The slowdown, in fact, was acknowledged by the Fed when it
eased short-term rates by a small but symbolic 25 basis points in July. Now we
know that the economy was rebounding from July through September.
Growth without a corresponding increase in inflation is very
encouraging. Although we are well along in the economic cycle and at a point
when prices often start hiking up, inflationary pressures have actually been
reduced somewhat.
The Fed reduced rates again in December, this time acknowledging
discussions underway to reduce the federal budget deficit. Assuming these
discussions are productive, a third rate cut is possible later this month. Even
with such reducing by the Fed, our forecast calls for lower growth ranging
between 2 percent to 3 percent for the next few quarters, with the momentum
likely to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in the
fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
has shown some vulnerability and then gone on to set records. However, it's
inevitable -- the current bull market will come to an end some day. In fact,
some sectors may be overextended today.
As we view the new year, companies cannot necessarily count on the
economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest
in will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to
its post-World War II low last year, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the effect
of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors in
the next few months.
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The 10-
year Treasury rate and the prime rate are prevailing interest rates. The other
data report year-to-year percentage changes.
(BAR GRAPH)
<TABLE>
<CAPTION>
Now (12/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.71 6.28 7.78 5.75
Prime rate (2) 8.65 8.80 8.50 6.00
Inflation rate(3)* 2.60 2.97 2.60 2.74
The U.S. dollar (4)* -1.57 -9.31 -4.52 1.71
Capital goods orders (5)** 7.60 17.84 13.53 23.75
Industrial production (6)* 1.88 2.80 6.43 3.76
Employment growth (7)* 1.50 2.29 3.15 2.58
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best
borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
* Data as of November 30, 1995
** Data as of October 31, 1995
SOURCE: ECONOMICS DEPARTMENT, KEMPER FINANCIAL SERVICES, INC.
We are in the midst of a global recovery, and the same fundamentals
that have driven markets higher in the U.S. can be found in many foreign
countries currently. However, leading international economies continue to lag
the U.S. Japan and Germany, whose economies typically follow U.S. growth, are
not as robust as in past cycles. Moreover, conditions in emerging market
countries underline the importance of careful research and experience in
understanding how these markets work.
Political leadership also has some bearing on the progress of the
economy and the state of the financial markets. In the months preceding a
presidential election year, it has been common for incumbents to attempt to
stimulate growth. Given our Republican Congress and Democratic President,
however, we do not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio managers. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
CHIEF INVESTMENT AND EXECUTIVE OFFICER
January 9, 1996
4
<PAGE> 5
Management Team
Kemper Strategic Municipal Income Trust
Portfolio Management Team
[MIER PHOTO]
CHRIS MIER JOINED KEMPER FINANCIAL SERVICES, INC. (KFS) IN 1986 AND IS NOW
SENIOR VICE PRESIDENT. HE HAS BEEN A PORTFOLIO MANAGER OF KEMPER STRATEGIC
MUNICIPAL INCOME TRUST SINCE THE FUND'S INCEPTION IN 1989. MIER RECEIVED A B.A.
DEGREE IN ECONOMICS FROM THE UNIVERSITY OF MICHIGAN AND WENT ON TO RECEIVE HIS
M.M. IN FINANCE FROM THE KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN
UNIVERSITY. HE IS A CHARTERED FINANCIAL ANALYST.
[WILLSON PHOTO]
STEVEN WILLSON IS A FIRST VICE PRESIDENT WITH KFS AND HAS BEEN WITH THE COMPANY
SINCE 1985. HE BECAME PORTFOLIO CO-MANAGER OF THE FUND IN 1993. WILLSON EARNED
A B.A. IN MATHEMATICS AND A MASTER'S DEGREE IN FINANCE FROM NORTHERN ILLINOIS
UNIVERSITY AND IS A CHARTERED FINANCIAL ANALYST.
[BURROW PHOTO]
DALE BURROW HAS BEEN WITH KFS SINCE 1987 AND IS NOW A FIRST VICE PRESIDENT. HE
BECAME PORTFOLIO CO-MANAGER OF THE FUND IN 1993. BURROW RECEIVED A B.A. DEGREE
FROM THE UNIVERSITY OF OKLAHOMA AND AN M.B.A. FROM DEpAUL UNIVERSITY. HE IS A
CHARTERED FINANCIAL ANALYST.
The views expressed in this report reflect those of the portfolio management
team only through the end of the period of the report, as stated on the cover.
The managers' views are subject to change at any time, based on market and
other conditions.
5
<PAGE> 6
Performance Update
THE PORTFOLIO MANAGEMENT TEAM OF KEMPER STRATEGIC MUNICIPAL INCOME TRUST
DISCUSSES THE FUND'S STRONG PERFORMANCE DURING LAST YEAR'S ENVIRONMENT OF LOW
INFLATION AND FALLING INTEREST RATES.
Q THE FUND RETURNED 13.09 PERCENT, ON A NET ASSET VALUE BASIS, AND 11.77
PERCENT, ON A MARKET PRICE BASIS, FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995.
WHAT CONTRIBUTED TO THIS STRONG PERFORMANCE?
A The year was a good one for the bond market. Bond prices appreciated as
interest rates fell due to moderate economic growth and low inflation. THE
BOND BUYER 25-Bond Revenue Bond Index (RBI) -- a gauge of municipal bond
interest rates -- peaked on November 17, 1994, at 7.37 percent and fell to 5.78
percent by November 30, 1995. As the environment for bonds improved, so did the
fund's performance. Its market price increased $0.50 to $12.125 per share and
its net asset value rose $0.65 to $12.19 per share.
The reason for the market's solid performance was the Federal Reserve
Board's apparent success in engineering a "soft landing" for the economy --
slow growth and low inflation. In early 1994, the Fed began raising short-term
interest rates to slow robust economic growth and to keep inflation under
control. After a series of interest rate hikes, market yields for long-term
bonds peaked in November 1994. With interest rates high, inflation low and
economic growth moderating, the market was poised for a significant rally.
Q HOW WAS THE FUND POSITIONED DURING THE YEAR?
A We selectively added high yield investments to the portfolio,
while maintaining our position in high coupon, investment grade bonds. The high
yield investments provided a strong flow of income for the fund while the high
coupon investment grade bonds reduced price sensitivity. Throughout the year,
we kept the fund fully invested.
Q WERE THERE ANY SIGNIFICANT TRENDS THAT AFFECTED MUNICIPAL BOND
PERFORMANCE DURING THE FISCAL YEAR?
A Municipal bond credit quality continued to improve at the state
level during the year as the nation's economic expansion approached its fifth
year. As such, some states began to see large fund balances and deliberated
over tax cuts or possible rebates to taxpayers. Midwest states enjoyed
particularly strong performance during the year and we continued to hold issues
from Illinois, Indiana, Ohio and Michigan. Political considerations at both the
national and state level -- especially those with respect to tax reform -- also
impacted the municipal bond market during the fiscal year.
Q WHAT EFFECT HAS TAX REFORM DISCUSSION HAD ON THE MUNICIPAL MARKET?
A Tax reform discussion caused the municipal bond yield ratio to
increase by about 10 percentage points compared to Treasuries. The yield ratio
measures the relationship of municipal bond yields to comparable-term U.S.
Treasury yields. This wider yield ratio means that the market has already
discounted some of the potential impact of tax reform. If significant reform
fails to materialize, the market will most likely correct itself, which may
help the performance of municipal bonds.
Q WAS SUPPLY A POSITIVE FACTOR FOR THE FUND LAST YEAR?
A Supply in calendar year 1995 was $156.2 billion, which was down
approximately 5 percent from 1994's total supply of $164.5 billion. In
addition, bond calls and redemptions peaked in 1995. Therefore, the
availability of bonds declined, for the second year in a row, as calls and
redemptions outpaced new issue supply. Such factors are generally favorable for
municipal bond market performance.
6
<PAGE> 7
Performance Update
Q HOW IS THE FUND'S INVESTMENT SELECTION PROCESS MANAGED?
A Sound credit research is the cornerstone to managing the fund's
investment selection. A team of sector-specific credit analysts works closely
with the portfolio managers to evaluate the relative value and attractiveness
of potential investments. With stringent quality criteria in place, we don't
sacrifice our investment integrity -- even if it means missing out on a high
yield issue. We often work closely with the issuers to structure deals. Then,
following the purchases, we continue to monitor the investments to help ensure
they are meeting our expectations.
Q ARE THERE EVER ANY SURPRISES?
A We don't like surprises, but they do occur from time to time.
The key in those cases is to remedy the situation as quickly as possible. This
year, for instance, we sold an issue that we had originally anticipated keeping
for a much longer time. It was a nursing home facility bond we purchased in
1991 that recently suffered from a combination of local regulatory issues and
real estate taxes that were levied on the previously tax-exempt facility. At
first we worked to restructure the issue but in November 1995, we decided it
was more prudent to sell the bond. We sold our stake in the project at a
reasonable price and were satisfied with the outcome. The bond represented less
than 2 percent of the portfolio and, as such, did not have a significant impact
on the fund's performance. This demonstrates the value of the fund's
diversification.
Q WHAT'S YOUR OUTLOOK FOR 1996?
A We anticipate continued slow but positive economic growth with inflation
remaining under control. We also expect that a meaningful federal budget
resolution will eventually occur, which could move rates even lower. Although
it is unlikely that we'll see total returns of the magnitude of 1995, we
believe this year should provide a positive environment for the bond market.
For the municipal bond market, in particular, we expect the supply of
and demand for new municipal issues to increase moderately if interest rates
fall. And as mentioned before, we believe that the market has substantially
discounted the potential of tax reform. Should the market overreact or
over-discount events as they unfold, we may well see some attractive buying
opportunities.
Terms to Know
REVENUE BOND INDEX (RBI) The average yield on 25 revenue bonds with 30-year
maturities compiled by THE BOND BUYER, a newspaper that covers the municipal
bond market.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It may represent the aggregate percentage or
dollar value change over a period or may be shown as an annualized figure.
DISTRIBUTION RATE Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and
is not a complete measure of performance.
7
<PAGE> 8
Largest Sectors
THE FUND'S LARGEST SECTORS
REPRESENTING 53.0% OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Holdings Percent
- ----------------------------------------------------------
<S> <C> <C>
1. SENIOR CARE BONDS 12.8%
2. U.S. GOVERNMENT SECURED 11.4%
3. NON-SENIOR CARE BONDS 11.1%
4. HOSPITAL BONDS 9.5%
5. SINGLE FAMILY STATE HOUSING BONDS 8.2%
</TABLE>
8
<PAGE> 9
Portfolio Statistics
SECURITIES RATINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ----------------------------------------------------------
<S> <C> <C>
AAA 4% 5%
AA 10 11
A 6 11
BBB 22 17
B 2 2
NOT RATED+ 56 54
100% 100%
</TABLE>
- AAA
- AA
[PIE CHARTS] - A
- BBB
- B
- NOT RATED
On 11/30/95 On 11/30/94
THE RATINGS OF STANDARD & POOR'S CORPORATION (S&P) AND MOODY'S INVESTORS
SERVICES, INC. (MOODY'S) REPRESENT THEIR OPINIONS AS TO THE QUALITY OF
SECURITIES THAT THEY UNDERTAKE TO RATE. THE PERCENTAGE SHOWN REFLECTS THE
HIGHER OF MOODY'S OR S&P RATINGS. PORTFOLIO COMPOSITION WILL CHANGE OVER TIME.
RATINGS ARE RELATIVE AND SUBJECTIVE AND NOT ABSOLUTE STANDARDS OF QUALITY.
+THESE SECURITIES ARE NOT RATED BY S&P OR MOODY'S, HOWEVER THEY ARE RATED BY
KEMPER FINANCIAL SERVICES, INC. AS FOLLOWS: AAA 7%, A 4%, BBB 9%, BB 31% AND B
5% FOR 11/30/95 AND AAA 3%, A 5%, BBB 10%, BB 30%, B 5% AND CCC 1% FOR
11/30/94.
AVERAGE MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------
ON 11/30/95 ON 11/30/94
- ----------------------------------------------------------
<S> <C> <C>
Average Maturity 17.2 years 17.5 years
</TABLE>
9
<PAGE> 10
Portfolio of Investments
KEMPER STRATEGIC MUNICIPAL INCOME TRUST
Portfolio of Investments at November 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES--11.4%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indianapolis, IN, Local Public Improvement Bond
Bank,
Rev., 8.50%, to be called 2-1-98 @ 102 $3,000 $ 3,330
Marion County, OH, United Church Health Care
Facilities, Rev., 8.875%, to be called 12-1-99
@ 103 2,780 3,295
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems, Hospital Facilities,
Rev., 8.25%, to be called 6-1-00 @ 102 2,390 2,787
Greater Orlando, FL, Aviation Auth., Airport
Facilities,
Rev., 8.00%, to be called 10-1-98 @ 102 70 78
Chicago, IL, Central Station Proj., Tax Increment
Rev., 8.90%, to be called 1-1-02 @ 102 2,235 2,789
Greene County, PA, Gen. Oblg., 8.75%,
to be called 12-1-00 @ 100 1,895 2,254
===========================================================================
TOTAL ADVANCED REFUNDED OBLIGATIONS
(Cost: $12,306) 14,533
===========================================================================
OTHER MUNICIPAL OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------
ILLINOIS--14.7%
Chicago, O'Hare International Airport, American
Airlines, Special Facilities, Rev., 8.20%, 2018
and 2024 4,075 4,460
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 1,975 2,177
Health Facilities Auth., Bethany Home and
Hospital of the Methodist Church, Rev., 8.625%,
2009 2,610 2,856
Itasca, Central Manufacturing District,
Rev., 8.375%, 2009 2,680 2,975
Lombard, Tax Increment Rev.,
8.80%, 2004 1,885 2,174
St. Charles, Multifamily Housing, Wessel Court
Proj., Rev., 7.60%, 2024 2,000 2,059
University Park, Tax Increment Rev.,
8.50%, 2011 2,000 2,156
---------------------------------------------------------------------------
18,857
- ------------------------------------------------------------------------------------------------------------
ARIZONA--10.3%
Coconino County, Industrial Dev. Auth., The
Guidance Center, Inc. Proj., Rev., 9.25%, 2011 1,875 2,034
Health Facilities Auth., The New Foundation,
Healthcare Rev., 8.25%, 2019 2,475 2,624
Industrial Dev. Auth. of the County of Pima,
Larson Company Proj., Rev., 9.50%, 2010 2,300 2,607
Maricopa County, Gen. Oblg., 8.625%, 2007 1,560 1,828
Single Family Mortgage, Rev., 8.20%, 2021 3,805 4,085
---------------------------------------------------------------------------
13,178
- ------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
NEW YORK--6.8%
Medical Care Facilities Finance Agcy.,
Rev., 7.30%, 2021 $ 60 $ 66
Mortgage Agcy., Homeowner Mortgage Rev.,
6.05%, 2017 1,250 1,256
New York City, Gen. Oblg.,
7.00% and 7.50%, 2010 4,300 4,526
Port Auth., LaGuardia Airport Passenger Terminal,
Rev., 9.125%, 2015 2,500 2,843
---------------------------------------------------------------------------
8,691
- ------------------------------------------------------------------------------------------------------------
MICHIGAN--4.7%
Gogebic County, Grand View Hospital,
Rev., 8.75%, 2016 2,250 2,469
Greater Detroit Resource Recovery Auth.,
Rev., 9.25%, 2008 2,325 2,401
Madison Heights, Tax Increment Finance Auth.,
Rev., 8.50%, 2001 1,025 1,088
---------------------------------------------------------------------------
5,958
- ------------------------------------------------------------------------------------------------------------
INDIANA--4.4%
Fishers, Economic Dev. Water Facilities,
Indianapolis Water Company, Rev., 7.875%, 2019 685 741
Health Facilities Finance Auth., Fayette Memorial
Hospital,
Rev., 7.20%, 2022 2,800 2,866
Housing Finance Auth., Rev., 8.375%, 2020 1,905 2,046
---------------------------------------------------------------------------
5,653
- ------------------------------------------------------------------------------------------------------------
COLORADO--4.3%
Arapahoe County, Capital Improvement Trust Fund
Highway, Rev., 7.00%, 2026 2,000 2,160
City and County of Denver, Airport System Rev.,
7.50% to 8.75%, 2023 through 2025 2,900 3,311
---------------------------------------------------------------------------
5,471
- ------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.9%
Columbia County, Industrial Dev. Auth., First
Mortgage Rev., 9.00%, 2014 1,955 2,118
Lehigh County General Purpose Auth., Wiley House,
Rev., 8.65%, 2004 2,800 2,916
---------------------------------------------------------------------------
5,034
- ------------------------------------------------------------------------------------------------------------
MISSOURI--3.9%
St. Louis, Scullin Redevelopment Proj.,
Rev., 10.00%, 2010 2,365 2,789
West Plains, Industrial Dev. Auth., Ozarks
Medical Center, Hospital Rev., 8.625%, 2020 2,000 2,225
---------------------------------------------------------------------------
5,014
- ------------------------------------------------------------------------------------------------------------
FLORIDA--3.6%
Greater Orlando Aviation Auth., Airport
Facilities,
Rev., 8.00%, 2018 625 695
Martin County Industrial Dev. Auth.,
Rev., 7.875%, 2025 1,500 1,722
Nassua County, Amelia Island Proj., Rev., 9.75%,
2023 1,993 2,241
---------------------------------------------------------------------------
4,658
- ------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
MINNESOTA--3.5%
Housing Finance Agcy., Single Family Mortgage
Rev., 7.95%, 2022 $2,070 $ 2,216
Sauk Rapids, Industrial Dev., Gold N Plump,
Rev., 9.50%, 2005 2,160 2,295
---------------------------------------------------------------------------
4,511
- ------------------------------------------------------------------------------------------------------------
IOWA--3.4%
Finance Auth., On With Life, Healthcare Facility
Rev., 7.25%, 2015 2,000 2,098
Lake City, Health Care Facility, Opportunity
Living Proj., Rev., 10.00%, 2015 2,000 2,274
---------------------------------------------------------------------------
4,372
- ------------------------------------------------------------------------------------------------------------
OKLAHOMA--2.7%
Woodward Municipal Auth., Hospital Rev.,
8.50% and 9.25%, 2014 3,085 3,460
- ------------------------------------------------------------------------------------------------------------
OHIO--2.2%
Cuyahoga County, Judson Retirement Community
Center, Rev., 8.875%, 2019 2,500 2,750
- ------------------------------------------------------------------------------------------------------------
NEW MEXICO--2.1%
Albuquerque Health Care Ltd., Nursing Home,
Rev., 9.75%, 2014 1,430 1,577
Truth or Consequences, Nursing Home Improvement,
Sierra Health Care, Inc., Rev., 9.75%, 2014 955 1,053
---------------------------------------------------------------------------
2,630
- ------------------------------------------------------------------------------------------------------------
CONNECTICUT--1.8%
Dev. Auth., Pierce Memorial Baptist Home,
Rev., 9.25%, 2018 2,000 2,281
- ------------------------------------------------------------------------------------------------------------
TEXAS--1.7%
Brazos River Auth., Texas Utilities Electric
Company, Pollution Control Rev., 8.25%, 2019 2,000 2,220
- ------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.7%
Worcester, Briarwood Retirement Community,
Rev., 9.25%, 2022 2,000 2,158
- ------------------------------------------------------------------------------------------------------------
NEVADA--1.6%
Housing Division, Single Family Program,
Rev., 7.90%, 2021 1,990 2,095
- ------------------------------------------------------------------------------------------------------------
RHODE ISLAND--1.5%
Housing and Mortgage Finance Corp.,
Rev., 8.30%, 2011 1,775 1,866
- ------------------------------------------------------------------------------------------------------------
CALIFORNIA--1.4%
Sacramento County, Rev., 7.20%, 2015 1,250 1,288
San Diego, Detention Facility, Certificates of
Participation, Rev., 8.00%, 2002 425 466
---------------------------------------------------------------------------
1,754
- ------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.3%
Aiken County, Mattie C. Hall Health Care Center,
Hospital Facilities Rev., 8.625%, 2010 1,500 1,635
- ------------------------------------------------------------------------------------------------------------
KENTUCKY--1.3%
Jefferson County, Louisville Gas and Electric,
Pollution Control, Rev., 7.75%, 2019 1,500 1,615
- ------------------------------------------------------------------------------------------------------------
MARYLAND--1.0%
Health and Higher Educational Facilities Auth.,
Rev., 5.75%, 2013 1,300 1,214
- ------------------------------------------------------------------------------------------------------------
NEW JERSEY--.9%
Educational Facilities Auth., Caldwell College,
Rev., 7.25%, 2025 1,150 1,206
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
Portfolio of Investments
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
NORTH DAKOTA--.9%
Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 $1,055 $ 1,125
===========================================================================
TOTAL OTHER MUNICIPAL OBLIGATIONS--85.6%
(Cost: $99,627) 109,406
===========================================================================
TOTAL MUNICIPAL OBLIGATIONS--97.0%
(Cost: $111,933) 123,939
===========================================================================
- ------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--.5%
<S> <C> <C> <C> <C>
Yield--4.00%
Due--December 1995
(Cost: $700) $ 700 $ 700
===========================================================================
TOTAL INVESTMENTS--97.5%
(Cost: $112,633) 124,639
===========================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--2.5% 3,205
===========================================================================
NET ASSETS--100% $127,844
===========================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $112,633,000 for federal income tax purposes
at November 30, 1995, the aggregate gross unrealized appreciation on investments
was $12,006,000 and there was no gross unrealized depreciation.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER STRATEGIC MUNICIPAL INCOME TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Strategic Municipal Income
Trust as of November 30, 1995, the related statements of operations for the year
then ended and changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the fiscal periods since
1991. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
November 30, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Kemper
Strategic Municipal Income Trust at November 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the fiscal periods since 1991, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 12, 1996
14
<PAGE> 15
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
(in thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at value
(Cost: $112,633) $124,639
- -------------------------------------------------------------------------------------------------
Cash 240
- -------------------------------------------------------------------------------------------------
Interest receivable 3,056
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS 127,935
=================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
<TABLE>
<S> <C>
Payable for:
Management fee 63
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 9
- -------------------------------------------------------------------------------------------------
Other 19
- -------------------------------------------------------------------------------------------------
Total liabilities 91
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO 10,485 SHARES OUTSTANDING,
$.01 PAR VALUE, EQUIVALENT TO $12.19 PER SHARE $127,844
=================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
<TABLE>
<S> <C>
Paid-in capital $116,391
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (921)
- -------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 12,006
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 368
- -------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $127,844
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($127,844 / 10,485 shares outstanding) $12.19
=================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
Financial Statements
STATEMENT OF OPERATIONS
Year ended November 30, 1995
(in thousands)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
<TABLE>
<S> <C>
Interest income $ 9,650
- -------------------------------------------------------------------------------------------------
Expenses:
Management fee 750
- -------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 83
- -------------------------------------------------------------------------------------------------
Professional fees 44
- -------------------------------------------------------------------------------------------------
Reports to shareholders 17
- -------------------------------------------------------------------------------------------------
Trustees' fees 15
- -------------------------------------------------------------------------------------------------
Other 37
- -------------------------------------------------------------------------------------------------
Total expenses 946
- -------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 8,704
=================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
<TABLE>
<S> <C>
Net realized loss on sales of investments (213)
- -------------------------------------------------------------------------------------------------
Net realized loss from futures transactions (49)
- -------------------------------------------------------------------------------------------------
Net realized loss (262)
- -------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 6,961
- -------------------------------------------------------------------------------------------------
Net gain on investments 6,699
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,403
=================================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 8,704 8,685
- --------------------------------------------------------------------------------------------------
Net realized loss (262) (426)
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 6,961 (8,114)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,403 145
- --------------------------------------------------------------------------------------------------
Distribution from net investment income (8,542) (8,543)
- --------------------------------------------------------------------------------------------------
Distribution from net realized gain -- (260)
- --------------------------------------------------------------------------------------------------
Total dividends to shareholders (8,542) (8,803)
- --------------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(25 shares in 1995 and 62 shares in 1994) 294 783
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 7,155 (7,875)
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
NET ASSETS
<TABLE>
<S> <C> <C>
Beginning of year 120,689 128,564
- --------------------------------------------------------------------------------------------------
END OF YEAR (including undistributed net investment income of
$368 and $200, respectively) $127,844 120,689
==================================================================================================
</TABLE>
16
<PAGE> 17
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.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS.
The Fund has complied with the special provisions
of the Internal Revenue Code available to
investment companies and therefore no federal
income tax provision is required. The accumulated
net realized loss on sales of investments for
federal income tax purposes at November 30, 1995,
amounting to approximately $399,000, is available
to offset future taxable gains. If not applied, the
loss carryover expires during the period 2002
through 2004.
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.
Dividends 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) and pays a
management fee at an annual rate of .60% of average
weekly net assets. The Fund incurred a management
fee of $750,000 for the year ended November 30,
1995.
Pursuant to a services agreement with the Fund's
transfer agent, Kemper Service Company (KSvC) is
the shareholder service agent of the Fund. For the
year ended November 30, 1995, the transfer agent
remitted shareholder services fees to KSvC of
$24,000.
Certain officers or trustees of the Fund are also
officers or directors of KFS. During the year ended
November 30, 1995, the Fund made no direct
17
<PAGE> 18
Notes to Financial Statements
payments to its officers and incurred trustees'
fees of $15,000 to independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1995, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $13,839
Proceeds from sales 10,191
18
<PAGE> 19
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $11.54 12.36 11.86 11.65 11.37
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .83 .83 .83 .84 .84
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .64 (.80) .58 .30 .36
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.47 .03 1.41 1.14 1.20
- -----------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .82 .82 .89 .83 .81
- -----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .03 .02 .10 .11
- -----------------------------------------------------------------------------------------------------------------
Total dividends .82 .85 .91 .93 .92
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.19 11.54 12.36 11.86 11.65
- -----------------------------------------------------------------------------------------------------------------
Market value, end of year $12.13 11.63 12.38 12.13 12.13
=================================================================================================================
TOTAL RETURN
Based on net asset value 13.09% .12 12.32 10.14 10.99
- -----------------------------------------------------------------------------------------------------------------
Based on market value 11.77 .71 9.51 7.86 21.92
=================================================================================================================
RATIOS TO AVERAGE NET ASSETS
Expenses .76% .75 .74 .77 .77
- -----------------------------------------------------------------------------------------------------------------
Net investment income 6.97 6.92 6.87 7.17 7.31
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $127,844 120,689 128,564 122,035 118,864
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8% 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.
FEDERAL TAX STATUS OF 1995 DIVIDENDS
All of the dividends paid from net investment income by the Fund constitute
tax-exempt interest that is not taxable for federal income tax purposes;
however, a portion of the dividends paid may be includable in the alternative
minimum tax calculation.
19
<PAGE> 20
Description of Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
1 PARTICIPATION We invite you to review the description of the
Dividend Reinvestment Plan (the "Plan") which is
available to you as a shareholder of Kemper
Strategic Municipal Income Trust (the "Fund"). If
you wish to participate and your shares are held in
your own name, simply contact Kemper Service
Company, whose address and phone number are
provided in Paragraph 4 for the appropriate form.
If your shares are held in the name of a brokerage
firm, bank, or other nominee, you must instruct
that nominee to re-register your shares in your
name so that you may participate in the Plan,
unless your nominee has made the Plan available on
shares held by them. Shareholders who so elect will
be deemed to have appointed United Missouri Bank,
n.a. ("UMB") as their agent and as agent for the
Fund under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distributions."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS HELD
IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
- --------------------------------------------------------------------------------
4 ADDITIONAL INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
20
<PAGE> 21
Description of Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
6 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 7 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
7 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of
Shares for individual Accounts through the Plan can
be expected to be less than the usual brokerage
charges for such transactions, as UMB will be
purchasing Shares for all participants in blocks
and prorating the lower commission thus attainable.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participants Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
10 SHARES NOT HELD IN
SHAREHOLDER'S NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
11 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to
21
<PAGE> 22
Description of Dividend Reinvestment Plan
notice thereof sent to participants in the Plan at
least ninety days before the record date for such
Distribution.
- --------------------------------------------------------------------------------
12 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
payable to the shareholder of record and mailed to
the address of record, a signature guarantee
normally will not be required for notices by
individual account owners (including joint account
owners), otherwise a signature guarantee will be
required. In addition, if the certificate is to be
sent to anyone other than the registered owner(s)
at the address of record, a signature guarantee
will be required on the notice. A notice of
withdrawal will be effective for the next
Distribution following receipt of the notice by the
Agent provided the notice is received by the Agent
at least ten days prior to the Record Date for the
Distribution. When a participant withdraws from the
Plan, or when the Plan is terminated in accordance
with Paragraph 11 hereof, the participant will
receive a certificate for full Shares in the
Account, plus a check for any fractional Shares
based on market price; or if a Participant so
desires, Agent will notify UMB to sell his Shares
in the Plan and send the proceeds to the
participant, less brokerage commissions and a $2.50
service fee.
- --------------------------------------------------------------------------------
13 TAX IMPLICATIONS Shareholders will receive tax information annually
for personal records and to assist in preparation
of their Federal income tax returns. If shares are
purchased at a discount, the amount of the discount
is considered taxable income and is added to the
cost basis of the purchased shares.
22
<PAGE> 23
Shareholders' Meeting
SPECIAL SHAREHOLDERS' MEETING
On September 19, 1995, a special shareholders' meeting was held. Kemper
Strategic Municipal Income Trust shareholders were asked to vote on three
separate issues: election of two additional members to the Board of Trustees,
ratification of Ernst & Young LLP as independent auditors and approval of a new
investment management agreement with Kemper Financial Services, Inc. We are
pleased to report that all nominees were elected and all other items were
approved. Following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James B. Akins 7,228,227 262,940
Fred B. Renwick 7,228,227 262,940
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,364,536 36,602 90,029
</TABLE>
3) Approval of new investment management agreement
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,207,633 121,810 161,724
</TABLE>
23
<PAGE> 24
Trustees and Officers
Trustees Officers
STEPHEN B. TIMBERS JOHN E. NEAL CHARLES F. CUSTER
President and Trustee Vice President Vice President and
Assistant Secretary
JAMES E. AKINS JOHN E. PETERS
Trustee Vice President JEROME L. DUFFY
Treasurer
ARTHUR R. GOTTSCHALK J. PATRICK BEIMFORD, JR.
Trustee Vice President
FREDERICK T. KELSEY CHRISTOPHER J. MIER
Trustee Vice President
FRED B. RENWICK 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
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
[RECYCLE LOGO] [KEMPER FUNDS LOGO]
Printed on recycled paper.
KSMIT-2 (1/96) 1008290
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