<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MAY 31, 1998
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER STRATEGIC MUNICIPAL
INCOME TRUST
"We concentrated on keeping the fund fully invested in solid
municipal bond issues throughout the period. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
LARGEST SECTORS
PORTFOLIO STATISTICS
8
PORTFOLIO OF
INVESTMENTS
13
FINANCIAL STATEMENTS
15
NOTES TO
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
18
SHAREHOLDERS' MEETING
AT A GLANCE
- -------------------------------------------------------------------------------
TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- -------------------------------------------------------------------------------
<S> <C> <C>
KEMPER STRATEGIC MUNICIPAL
INCOME TRUST 3.30% -4.70%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET VALUE AND MARKET PRICE
- -------------------------------------------------------------------------------
AS OF AS OF
5/31/98 11/30/97
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.30 $12.29
- -------------------------------------------------------------------------------
MARKET PRICE $12.13 $13.06
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DIVIDEND REVIEW
- -------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF MAY 31, 1998.
<TABLE>
<CAPTION>
KEMPER STRATEGIC
MUNICIPAL
INCOME TRUST
- -------------------------------------------------------------------------------
<S> <C>
SIX-MONTHS INCOME: $0.3915
- -------------------------------------------------------------------------------
MAY DIVIDEND: $0.0625
- -------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE) 6.10%
- -------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE:
(BASED ON MARKET PRICE) 6.19%
- -------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION
RATE
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 9.70%
- -------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION
RATE
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 9.84%
- -------------------------------------------------------------------------------
</TABLE>
Statistical Note: Current annualized distribution rate is the latest monthly
dividend shown as an annualized percentage of net asset value/market price on
the date shown. Distribution rate simply measures the level of dividends and is
not a complete measure of performance. Total return measures aggregate change in
net asset value/market price assuming reinvestment of dividends. Returns are
historical and do not 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 the income may
be subject to the alternative minimum tax for certain investors.
TERMS TO KNOW
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 represents the aggregate percentage or dollar
value change over the period. Total return may be based upon net asset value or
market price.
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income investment or portfolio. The longer the duration, the greater the
interest rate risk.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
Dr. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS. HE IS ALSO A MEMBER OF THE INVESTMENT POLICY AND STRATEGY COMMITTEE
FOR KEMPER FUNDS.
SILVIA HOLDS BACHELOR OF ARTS AND PH.D. DEGREES IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND HAS A MASTER'S DEGREE IN ECONOMICS FROM BROWN
UNIVERSITY IN PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS
WITH THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $218 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS. IT IS ONE OF
THE 10 LARGEST MUTUAL FUND COMPLEXES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
Stable economic growth, low interest rates and sustained low inflation continued
to produce a beneficial market environment for investors in the second quarter
of 1998. Despite heightened sensitivity to earnings estimates and announcements,
the economy continued to support financial assets. We expect this favorable
climate to continue -- in spite of the sensitivity -- at least over the shorter
term.
As always, expectations have been at the heart of the actions and reactions
that move the markets. Expectations appear to be high, as demonstrated by a
record flow of new cash into mutual funds. As of April 30, 1998, a record $5
trillion in mutual fund assets surpassed total assets of the nation's banks,
according to the Investment Company Institute, a trade organization that
monitors the mutual fund industry, and the Federal Reserve Bank in Washington.
Unfortunately, high expectations often combine with high anxiety -- today's
investors are attuned to even the smallest hint of economic change. The result
is volatility. Many who believe that our long-running bull market is too good to
be true or that stock prices are too high are wondering when the market will
reverse.
While a reversal may not be on the immediate horizon, investors are wise to
watch for several signs that change is underway: rising prices, indicating
higher inflation; repercussions of the Asian economic crisis on American
business, which could appear in the form of reduced earnings; and a continued
widening of our trade deficit, a serious imbalance caused by heightened American
demand for foreign goods and services.
But at its monetary policy meeting at the end of the second quarter, the
Federal Reserve Board (the Fed) again chose to leave interest rates alone. In
the coming months, the Fed could raise interest rates if inflation accelerates
or if growth appears to be too rapid compared to the Fed's expectations.
Our positive outlook for the short term is based primarily on the current
resiliency of our marketplace. The United States appears to be firmly planted in
the middle of an economic cycle, with no evidence of detrimental pressures that
might be associated with the market's phenomenal growth. We are not seeing
widespread price increases for goods and services or a downturn in the housing
market, both of which we might expect late in an economic cycle.
Equities have continued to reward investors. The U.S. stock market, as
measured by the Standard & Poor's 500, gained nearly 18 percent in the first
half of 1998 but just 3.5 percent in the second quarter as profit concerns moved
front and center. Bonds in 1998 have also rewarded investors in terms of real
return, which is total return less the rate of inflation. The Treasury and high
yield debt markets have performed particularly well.
U.S. economic growth, as measured by the gross domestic product (GDP) growth
rate, was slightly above 5 percent for the first quarter. Our general
expectation for the year is that growth in all of 1998 will increase between 2.5
and 3 percent over last year. In other words, the economy will remain strong,
but will continue to slow down as the year progresses.
Consumer spending and corporate fixed investment have fueled the economy's
solid growth. Spending on both capital goods and high technology has been
strong. Corporate profit growth has continued to slow, which appears to be
acceptable to investors in an environment of stable interest rates. U.S.
employment growth has ranged from 2 to 2.25 percent, continuing to exceed
expectations. Consumer confidence has remained at all-time highs. The increase
in output prices, an indicator of inflation measured by the Consumer Price Index
(CPI), has stayed at 1.5 to 2 percent.
Adding to the good news, all seems to be quiet on the domestic policy front.
At the end of February, the U.S. federal budget deficit essentially vanished.
Recent efforts to reduce the deficit, combined with higher federal revenues due
to the robust economy, have left us with an expected budget surplus of $60
billion to $80 billion for fiscal 1998. To date, our Democratic president and
Republican Congress have not agreed on any significant legislation regarding tax
credits, spending cuts or health care that could threaten the newfound federal
budget surplus.
Can we expect a little more excitement from overseas? A full-scale global
recession from last year's Asian economic crisis seems unlikely at this point.
Although the crisis has impacted exporters in particular, it has yet to hurt
most U.S. businesses and investors. Quite the
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (6/30/98) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <S> <C>
10-YEAR TREASURY RATE(1) 5.5 5.54 6.22 6.87
PRIME RATE(2) 8.5 8.5 8.5 8.25
INFLATION RATE(3)* 1.75 1.7 2.3 2.82
THE U.S. DOLLAR(4) 9.54 9.32 7.32 8.35
CAPITAL GOODS ORDERS(5)* 10.51 14.37 8.58 2.44
INDUSTRIAL PRODUCTION(5)* 4.42 5.74 3.91 3.99
EMPLOYMENT GROWTH(6) 2.62 2.88 2.56 2.23
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6 percent. The low, moderate inflation of
the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of May 31, 1998.
contrary. While the mere threat of repercussions from the Asian crisis added to
the anxiety mentioned earlier, it has also had the effect of keeping U.S.
interest rates and prices in check, making the U.S. economy all the more
attractive to investors around the world.
In the global economy, the U.S. dollar continues to appreciate in value
compared to other currencies. In fact, more capital is flowing into U.S.
markets as investors generally avoid Asia. Europe also has been benefiting from
the crisis. Canada, which is a commodity-producing exporter, has been somewhat
negatively affected as commodity prices have fallen. Political unrest in
Indonesia, nuclear tests in India and Pakistan and economic turmoil in Russia
have been keeping international investors on the edges of their seats.
Other major developments abroad include the final selection of
countries to participate in Europe's single currency next year. Many European
countries are adopting more restrictive fiscal policy and reducing inflation in
anticipation of their momentous entry into the European Economic and Monetary
Union (EMU). But after the EMU is established in 1999, tensions may indeed
mount as countries work to adapt to the new structure.
As we approach the turn of the century, one caveat remains: Don't
underestimate the potential of the Year 2000 computer code problem. It appears
that a significant number of federal government agencies will not meet the
criteria necessary to avoid the problem. Many businesses are revealing that
billions of dollars are being spent on the situation. Some experts say a global
recession is in store. Others adamantly disagree. In any event, we may indeed
see a reduction in capital spending toward the of 1998 and the first half of
next year as companies focus on fixing existing computers rather than on
purchasing new equipment. We'll keep you posted!
Thank you for your continued support. We appreciate the opportunity to
serve your investment needs.
Sincerely,
/s/ John E. Silvia
JOHN E. SILVIA
July 10, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRISTOPHER MIER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986 AND IS A
ANAGING DIRECTOR. MIER IS A VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER
TRATEGIC MUNICIPAL INCOME TRUST. MIER RECEIVED A BACHELOR'S DEGREE IN ECONOMICS
ROM THE UNIVERSITY OF MICHIGAN AND EARNED HIS M.M. IN FINANCE FROM THE KELLOGG
RADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. HE IS A CHARTERED
INANCIAL ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY
TIME, BASED ON MARKET AND OTHER CONDITIONS.
KEMPER STRATEGIC MUNICIPAL INCOME TRUST NAVIGATED THROUGH RECORD LOW INFLATION,
HIGH NEW ISSUE VOLUME AND THE ASIAN MARKETS AND CURRENCIES CRISIS. PORTFOLIO
MANAGER CHRIS MIER EXPLAINS HOW THESE FACTORS AFFECTED THE FUND AND THE
MUNICIPAL MARKET AND WHAT HE EXPECTS FOR THE REMAINDER OF THE FUND'S FISCAL
YEAR.
Q KEMPER STRATEGIC MUNICIPAL INCOME TRUST HAD A TOTAL RETURN BASED ON A
NET ASSET VALUE OF 3.30 PERCENT DURING THE SIX-MONTH PERIOD ENDED MAY 31, 1998,
LAGGING ITS LIPPER ANALYTICAL SERVICE'S HIGH YIELD MUNICIPAL DEBT CATEGORY
AVERAGE OF 4.02 PERCENT. TO WHAT DO YOU ATTRIBUTE ITS UNDERPERFORMANCE?
A We concentrated on keeping the fund fully invested in solid municipal
bond issues throughout the period. With a closed-end fund, we don't adjust the
duration of the portfolio as often as we do in our open-end municipal bond
fund.
However, we suffered significant market depreciation in one of the high
yield holdings, Arizona Health Facilities for New Foundation, which came under
some credit pressure. The bonds are still current in their payment of debt
service.
I want to add the reminder that this fund was created to deliver a
high level of tax-exempt income and not primarily for total return. We give
the Lipper figures for information purposes, but Lipper measures total return
performance.
To achieve its tax-exempt income, the fund invests 50 percent of its
assets in investment-grade municipal securities and up to 50 percent in
high-yield municipal securities that are below investment grade. We were
relatively pleased with the high yield portion of the portfolio, despite the
problem with Arizona Health.
Q THE DIVIDEND WAS LOWERED IN MARCH. WHY?
A Because of continued lower interest rates, the fund was no longer earning
its dividend. Although unpopular, the fiscally responsible thing to do was cut
the dividend, which we did in March by $0.0055 to $0.0625 from $0.068. The last
dividend decrease for this fund occurred in 1993. Since its inception, Kemper
Strategic Municipal Income Trust has never missed a dividend payment.
Q WHAT OVERALL MARKET FACTORS AFFECTED THE MUNICIPAL BOND MARKET DURING
THESE SIX MONTHS?
A Strong economic growth, lower-than-expected inflation, declining
interest rates and, of course, the Southeast Asian currency and market crisis
were the main four factors that affected the municipal bond market from
December 1, 1997 through May 31, 1998.
Q YOU MENTION THE SOUTHEAST ASIAN CURRENCY AND MARKET CRISIS AS A FACTOR
AFFECTING THE BOND MARKET. COULD YOU EXPLAIN THE EFFECT THE CRISIS HAD ON THE
MARKET?
A When the Hong Kong stock market followed other Asian markets and crashed
last fall, investors worldwide sought safe investment vehicles. U.S. dollar and
dollar-denominated investments, particularly those of high quality and
liquidity, such as U.S. Treasuries, experienced a massive cash inflow. This is
generally referred to as
5
<PAGE> 6
PERFORMANCE UPDATE
"flight to quality." The municipal bond market, which often moves in tandem with
the Treasury market, benefited from the resulting declining interest rate
environment.
Q THE AMOUNT OF NEW MUNICIPAL ISSUES CONTINUES AT A HEAVY RATE. WHAT EFFECT
DID THIS HAVE ON THE MARKET AND THE FUND'S PERFORMANCE?
A The volume of new issues forced municipal rates to stay attractive
relative to their taxable counterparts. Municipal rates were about 92.5 percent
of 30-year Treasury bonds at the end of the fund's six-month period.
Q DO YOU ANTICIPATE THIS HIGH VOLUME TO CONTINUE?
A The elevated supply was due to two factors -- declining interest rates,
which led to an increase in advanced refunding issues, and continued growth in
new project financing. The economy has been strong with inflation not much of a
threat, so municipalities can afford to undertake large capital improvements and
other projects that municipal bonds are issued to finance. New issue volume has
been increasing year over year, and while it will have to subside at some point,
I don't see any signs of slowing yet.
Q HOW HAS THE DIRECTION OF INTEREST RATES AFFECTED THE MARKET?
A Throughout half of this period, the Federal Reserve Board (the Fed) had
indicated a bias toward tightening rates because of strong domestic growth. When
the economy expands too quickly, inflation becomes a threat. The Fed was poised
to slow that growth by raising interest rates. However, minutes released in
February indicated the Fed went to a neutral bias at its December meetings
because it was becoming apparent the Asian crisis would have a deflationary
effect and offset our very strong economy to some degree. When the Fed met again
in March, it again made no move to change rates.
Q EL NINO AND OTHER UNUSUAL WEATHER HAVE PLAGUED MUCH OF THE U.S. WILL THE
COSTS ASSOCIATED WITH REBUILDING AFFECT A MUNICIPALITY'S ABILITY TO REPAY THEIR
OBLIGATIONS?
A When a natural disaster occurs, cities, counties and states receive a
great deal of federal money and insurance money to repair whatever has been
destroyed, so a disaster isn't generally as much of a financial drain as would
be expected.
Q IS THIS STILL A GOOD TIME TO BE IN MUNICIPALS?
A I think municipals are quite attractive right now. They're at high yield
percentages to Treasuries and offer attractive real rates of interest because of
our current low rate of inflation. If supply begins to taper off and the economy
begins to slow, that should be more good news for the fund.
YEAR 2000
YEAR 2000 ISSUE
Like other registered investment companies and financial and business
organizations worldwide, the fund could be adversely affected if computer
systems on which the fund relies, which primarily include those used by the
Manager, its affiliates or other service providers, are unable to correctly
process date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to successfully address the Year
2000 Issue could result in interruptions to and other material adverse effects
on the fund's business and operations. The Manager has commenced a review of the
Year 2000 Issue as it may affect the fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
municipalities whose securities are held by the fund or on global markets or
economies generally.
6
<PAGE> 7
LARGEST SECTORS
THE FUND'S LARGEST SECTORS*
REPRESENTING 60 PERCENT OF THE FUND'S TOTAL NET ASSETS ON MAY 31, 1998
<TABLE>
<CAPTION>
HOLDINGS PERCENT
- ------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------
1. U.S. GOVERNMENT SECURED 21%
- ------------------------------------------------------
2. SENIOR CARE BONDS 13%
- ------------------------------------------------------
3. HOSPITAL BONDS 10%
- ------------------------------------------------------
4. NON-SENIOR CARE BONDS 9%
- ------------------------------------------------------
5. INDUSTRIAL REVENUE BONDS 7%
- ------------------------------------------------------
</TABLE>
PORTFOLIO STATISTICS
SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
<S> <C> <C>
AAA 7% 5%
................................................................................
AA 5 6
................................................................................
A 2 1
................................................................................
BBB 24 24
................................................................................
BB 2 3
................................................................................
B 3 4
................................................................................
Not rated+ 57 57
- ------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
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
Scudder Kemper Investments, Inc. as follows: AAA 17%, A 2%, BBB 4%,
BB 29% and B 5% for May 31, 1998, and AAA 19%, A 2%, BBB 7%,
BB 23% and B 6% for November 30, 1997.
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 5/31/98 ON 11/30/97
- ---------------------------------------------------------------------------
<S> <C> <C>
Average Maturity 15.8 years 16.1 years
- ---------------------------------------------------------------------------
</TABLE>
* Portfolio holdings and composition are subject to change.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
KEMPER STRATEGIC MUNICIPAL INCOME TRUST
Portfolio of Investments at May 31, 1998 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCED REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
Greater Orlando, FL, Aviation Auth., Airport
Facilities Rev., 8.00%, to be called 10-1-98 @
102 $ 70 $ 72
New York City, NY, Gen. Oblg., 7.50%, to be called
8-15-99 @ 101.50 1,195 1,264
Cuyahoga County, OH, Health Care Facilities, Judson
Retirement Community Center, Rev., 8.875%,
to be called 11-15-99 @ 103 2,500 2,745
Marion County, OH, Health Care Facilities, United
Church Homes, Inc., Rev., 8.875%, to be called
12-1-99 @ 103 2,780 3,058
Health Facilities Auth., IL, Bethany Home and
Hospital of the Methodist Church, Rev., 8.625%,
to be called 2-15-00 @ 102 2,275 2,491
Lombard, IL, Tax Increment Rev., 8.80%, to be
called 6-1-00 @ 102 1,475 1,639
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems Proj., Rev., 8.25%, to be
called 6-1-00 @ 102 2,390 2,626
West Plains, MO, Industrial Dev. Auth., Ozarks
Medical Center Proj. Rev., 8.625%, to be called
9-15-00 @ 102 1,970 2,204
Woodward Municipal Auth., OK, Hospital Rev.,
9.25%, to be called 11-1-00 @ 102 1,750 1,988
Itasca, IL, Central Manufacturing District, Special
Service Area, Rev., 8.375%, to be called 12-1-00
@ 102 2,365 2,650
Greene County, PA, Gen. Oblg., 8.75%, to be called
12-1-00 @ 100 1,700 1,892
Coconino County, AZ, Industrial Dev. Auth.,
The Guidance Center, Inc. Proj., Rev., 9.25%,
to be called 6-1-01 @ 102 1,770 2,029
Medical Care Facilities Finance Agcy., NY, Rev.,
7.30%, to be called 8-15-01 @ 102 40 45
City and County of Denver, CO, Airport System Rev.,
8.75%, to be called 11-15-01 @ 102 265 309
8.00%, to be called 11-15-01 @ 100 240 270
Chicago, IL, Tax Increment Allocation, Central
Station Proj., Rev., 8.90%, to be called 1-1-02 @
102 2,020 2,430
City and County of Denver, CO, Airport System Rev.,
7.50%, to be called 11-15-04 @ 102 170 204
Arapahoe County, CO, Capital Improvement Trust
Fund, Rev., zero coupon, to be called 8-31-05 @
71.45 5,000 2,595
---------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--23.2% 30,511
---------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--6.0% Allegheny County, Pittsburgh International Airport,
Rev., 5.25%, 2016 $ 1,200 $ 1,205
Columbia County, Industrial Dev. Auth., First
Mortgage, First Street Association Proj., Rev.,
9.00%, 2014 1,790 2,011
Higher Educational Facilities Auth., Philadelphia
College of Textiles & Science, Rev., 6.70%, 2014 2,000 2,194
Lehigh County General Purpose Auth., Wiley House,
Rev., 8.65%, 2004 2,345 2,456
---------------------------------------------------------------------------
7,866
- --------------------------------------------------------------------------------------------------------------------
ILLINOIS--5.9% Chicago, O'Hare International Airport,
International Terminal, Special Rev., 8.20%, 2024 1,200 1,435
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 1,955 2,108
St. Charles, Multifamily Housing, Wessel Court
Proj., Rev., 7.60%, 2024 1,925 2,000
Village of University Park, Tax Increment,
Governors Gateway Industrial Park, Rev., 8.50%,
2011 1,930 2,217
---------------------------------------------------------------------------
7,760
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--5.7% Dormitory Auth., Brookdale Hospital Medical Center,
Rev., 5.20%, 2016 2,095 2,089
Medical Care Facilities Finance Agcy., Rev., 7.30%,
2021 20 22
Metropolitan Transit Auth., Commuter Facilities,
Rev., 5.50%, 2021 200 203
New York City, Gen. Oblg., 7.00% and 7.50%, 2010 1,270 1,327
New York City Industrial Dev. Agcy., Brooklyn Navy
Yard Congeneration Partners, L.P. Proj., Rev.,
5.75%, 2036 1,000 1,013
Port Auth. of New York and New Jersey, LaGuardia
Airport Passenger Terminal, Rev., 9.125%, 2015 2,500 2,805
---------------------------------------------------------------------------
7,459
- --------------------------------------------------------------------------------------------------------------------
INDIANA--5.4% Fishers, Economic Dev. Auth., Indianapolis Water
Co. Proj., Rev., 7.875%, 2019 685 701
Health Facilities Finance Auth., Fayette Memorial
Hospital Proj., Rev., 7.20%, 2022 2,800 3,044
Housing Finance Auth., Residential Mortgage, Rev.,
8.375%, 2020 1,295 1,338
Indianapolis Airport Auth., United Air Lines, Inc.
Proj., Rev., 6.50%, 2031 1,900 2,068
---------------------------------------------------------------------------
7,151
- --------------------------------------------------------------------------------------------------------------------
FLORIDA--5.0% Greater Orlando Aviation Auth., Airport Facilities,
Rev., 8.00%, 2018 625 645
Manatee County, First Mortgage, Meditrust Proj.,
Rev., 7.35%, 2015 1,685 1,908
Martin County Industrial Dev. Auth., Indiantown
Congeneration, L.P. Proj., Rev., 7.875%, 2025 1,500 1,763
Nassau County, Amelia Island Care Center Proj.,
Rev., 9.75%, 2023 1,970 2,294
---------------------------------------------------------------------------
6,610
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW MEXICO--4.7% Albuquerque Nursing Home, West Mesa Center Proj.,
Rev., 9.75%, 2014 $ 1,340 $ 1,409
Farmington, Pollution Control, San Juan Proj.,
Rev., 6.30% and 6.95%, 2016 and 2020 3,500 3,884
Truth or Consequences Nursing Home, Sierra Health
Care, Inc., Rev., 9.75%, 2014 895 934
---------------------------------------------------------------------------
6,227
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.3% Foothill/Eastern Transportation Corridor Agcy.,
Toll Road Rev., zero coupon, 2026 11,500 2,570
Sacramento County, Bradshaw Road Proj., Rev.,
7.20%, 2015 1,225 1,267
San Diego, Detention Facility, Certificates of
Participation, 8.00%, 2002 375 404
San Joaquin Hills Transportation Corridor Agcy.,
Senior Lien Toll Road Rev., zero coupon, 2020 4,300 1,425
---------------------------------------------------------------------------
5,666
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--3.8% Gogebic County, Hospital Finance Auth., Grand View
Hospital Proj., Rev., 8.75%, 2016 2,250 2,461
Madison Heights, Tax Increment Finance Auth., Rev.,
8.50%, 2001 645 690
Tawas City, Hospital Finance Auth., St. Joseph
Health System, Rev., 5.60% and 5.75%, 2013 and
2023 1,840 1,846
---------------------------------------------------------------------------
4,997
- --------------------------------------------------------------------------------------------------------------------
ARIZONA--3.6% Health Facilities Auth., The New Foundation Proj.,
Rev., 8.25%, 2019 2,375 2,317
Pima County Industrial Dev. Auth., Larson Co.
Proj., Rev., 9.50%, 2010 2,100 2,459
---------------------------------------------------------------------------
4,776
- --------------------------------------------------------------------------------------------------------------------
IOWA--3.3% Finance Auth., Healthcare Facilities, On With Life,
Inc. Proj., Rev., 7.25%, 2015 2,000 2,166
Lake City, Health Care Facility, Opportunity Living
Proj., Rev., 10.00%, 2015 2,000 2,112
---------------------------------------------------------------------------
4,278
- --------------------------------------------------------------------------------------------------------------------
CONNECTICUT--3.2% Dev. Auth., Pierce Memorial Baptist Home, Inc.
Proj., Rev., 9.25%, 2018 2,000 2,198
Greenwich Housing Auth., Multifamily Housing Rev.,
6.35%, 2027 2,000 2,041
---------------------------------------------------------------------------
4,239
- --------------------------------------------------------------------------------------------------------------------
TEXAS--3.2% Brazos River Auth., Collateralized Pollution
Control, Utilities Electric Co. Proj., Rev.,
8.25%, 2019 2,000 2,084
Houston, Airport System Special Facilities,
Continental Airlines, Inc., Improvement Projs.,
Rev., 6.125%, 2027 2,000 2,094
---------------------------------------------------------------------------
4,178
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MINNESOTA--2.9% Housing Finance Agcy., Single Family Mortgage Rev.,
7.95%, 2022 $ 1,800 $ 1,896
Sauk Rapids, Industrial Dev., Gold N Plump Poultry
Proj., Rev., 9.50%, 2005 1,870 1,983
---------------------------------------------------------------------------
3,879
- --------------------------------------------------------------------------------------------------------------------
MISSOURI--2.1% St. Louis, Tax Increment, Scullin Redev. Proj.,
Rev., 10.00%, 2010 2,205 2,795
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEVADA--2.0% Housing Division, Single Family Mortgage Program,
Rev., 7.90% and 6.50%, 2021 and 2028 2,465 2,600
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COLORADO--1.9% City and County of Denver, Airport System Rev.,
7.50% to 8.75%, 2023 through 2025 2,225 2,522
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.7% Worcester, Briarwood Retirement Community, Salem
Community Corp., Rev., 9.25%, 2022 1,965 2,253
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.7% Higher Educational and Health Facilities Auth.,
United Church of Christ-Havenwood, Rev., 7.45%,
2025 2,000 2,201
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.2% Aiken County, Hospital Facilities, Mattie C. Hall
Health Care Center Proj., Rev., 8.625%, 2010 1,500 1,544
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.2% Woodward Municipal Auth., Hospital Rev.,
8.50%, 2014 1,335 1,527
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.2% Health & Higher Educational Facilities Auth.,
Doctors Community Hospital Proj., Rev., 5.50%,
2024 1,500 1,513
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
UTAH--1.1% Housing Finance Agcy., Single Family Mortgage Rev.,
6.65%, 2026 1,345 1,436
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.1% Economic Dev. Auth., Rev., 5.875%, 2026 200 206
Educational Facilities Auth., Caldwell College,
Rev., 7.25%, 2025 1,100 1,199
---------------------------------------------------------------------------
1,405
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
ISSUER PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATES LESS THAN NE, Investment Finance Auth., Single Family Housing
ONE PERCENT--1.9% Rev., 6.70%, 2026 $ 500 $ 532
ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 780 815
WI, Health & Educational Facilities Auth., Rev.,
6.35%, 2017 600 616
WI, Housing & Economic Dev. Auth., Home Ownership,
Rev., 6.20%, 2027 500 527
----------------------------------------------------------------------------
2,490
----------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--74.1% 97,372
----------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.3%
(Cost: $115,117) 127,883
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.10%
INSTRUMENTS--.4%
Due--June 1998
(Cost: $500) 500 500
----------------------------------------------------------------------------
TOTAL INVESTMENTS--97.7%
(Cost: $115,617) 128,383
----------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.3% 2,957
----------------------------------------------------------------------------
NET ASSETS--100% $131,340
----------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $115,617,000 for federal income tax purposes
at May 31, 1998, the gross and net unrealized appreciation on investments was
$12,766,000.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $115,617) $128,383
- ------------------------------------------------------------------------
Cash 266
- ------------------------------------------------------------------------
Interest receivable 2,776
- ------------------------------------------------------------------------
TOTAL ASSETS 131,425
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Management fee 66
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 7
- ------------------------------------------------------------------------
Trustees' fees 12
- ------------------------------------------------------------------------
Total liabilities 85
- ------------------------------------------------------------------------
NET ASSETS $131,340
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $118,812
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (441)
- ------------------------------------------------------------------------
Net unrealized appreciation on investments 12,766
- ------------------------------------------------------------------------
Undistributed net investment income 203
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $131,340
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($131,340 / 10,677 shares outstanding) $12.30
- ------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended May 31, 1998 (unaudited)
(IN THOUSANDS)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest income $ 4,680
- -----------------------------------------------------------------------
Expenses:
Management fee 395
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 23
- -----------------------------------------------------------------------
Professional fees 26
- -----------------------------------------------------------------------
Reports to shareholders 26
- -----------------------------------------------------------------------
Trustees' fees and other 17
- -----------------------------------------------------------------------
Total expenses 487
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 4,193
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of investments 85
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments (8)
- -----------------------------------------------------------------------
Net gain on investments 77
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,270
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEAR ENDED
1998 NOVEMBER 30,
(UNAUDITED) 1997
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 4,193 8,512
- -------------------------------------------------------------------------------------------
Net realized gain 85 59
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (8) 1,650
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,270 10,221
- -------------------------------------------------------------------------------------------
Distribution from net investment income (4,192) (8,695)
- -------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(28 shares and 90 shares, respectively) 367 1,135
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 445 2,661
- -------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------
Beginning of period 130,895 128,234
- -------------------------------------------------------------------------------------------
END OF PERIOD
(including undistributed net investment income of
$203 and $202, respectively) $131,340 130,895
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. Kemper Strategic Municipal
Income Trust (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. Financial futures and options are
valued at the settlement price established each day
by the board of trade or exchange on which they are
traded. Over-the-counter traded options are valued
based upon prices provided by market makers. 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 includes premium and original
issue discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
FEDERAL INCOME TAXES. The Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended May 31, 1998. The accumulated net
realized loss on sales of investments for federal
income tax purposes at May 31, 1998, amounting to
approximately $138,000, is available to offset
future taxable gains. If not applied, the loss
carryover expires during the period 2002 through
2005.
DIVIDENDS TO SHAREHOLDERS. The Fund declares and
pays dividends of net investment income monthly and
any net realized capital gains annually, which are
recorded on the ex-dividend date. Dividends are
determined in accordance with income tax principles
which may treat certain transactions differently
from generally accepted accounting principles.
- --------------------------------------------------------------------------------
2 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper) and pays a management fee at an
annual rate of .60% of average weekly net assets.
The Fund incurred a management fee of $395,000 for
the six months ended May 31, 1998.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $12,000
for the six months ended May 31, 1998.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended May 31,
1998, the Fund made no direct payments to its
officers and incurred trustees' fees of $10,000 to
independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT For the six months ended May 31, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $13,877
Proceeds from sales 13,612
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $12.29 12.14 12.19 11.54 12.36
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .39 .80 .82 .83 .83
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 .17 (.05) .64 (.80)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations .40 .97 .77 1.47 .03
- ----------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .39 .82 .82 .82 .82
- ----------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- .03
- ----------------------------------------------------------------------------------------------------------
Total dividends .39 .82 .82 .82 .85
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.30 12.29 12.14 12.19 11.54
- ----------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD $12.13 13.06 12.38 12.13 11.63
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
Based on net asset value 3.30% 8.28 6.58 13.09 .12
- ----------------------------------------------------------------------------------------------------------
Based on market value (4.70)% 12.87 9.19 11.70 .74
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
Expenses .73% .76 .74 .76 .75
- ----------------------------------------------------------------------------------------------------------
Net investment income 6.52% 6.62 6.82 6.97 6.92
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of period (in thousands) $131,340 130,895 128,234 127,844 120,689
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 15% 13 31 8 11
- ----------------------------------------------------------------------------------------------------------
</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. Data for the period ended May 31, 1998 is unaudited.
17
<PAGE> 18
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 3, 1997, a special shareholders' meeting was held and adjourned as
necessary. Kemper Strategic Municipal Income Trust shareholders were asked to
vote on three separate issues: election of the two members to the Board of
Trustees, ratification of Ernst & Young LLP as independent auditors, and
approval of a new investment management agreement with Scudder Kemper
Investments, Inc. The following are the results for each issue:
1) Election of Trustees
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Daniel Pierce 8,699,307 149,351
Edmond D. Villani 8,698,502 150,156
</TABLE>
2) Ratification of the selection of Ernst & Young LLP as independent auditors
for the current fiscal year.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
8,734,012 31,041 83,605
</TABLE>
3) Approval of a new investment management agreement with Scudder Kemper
Investments, Inc.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
8,114,529 110,703 165,923 457,502
</TABLE>
18
<PAGE> 19
NOTES
19
<PAGE> 20
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY ROBERT C. PECK, JR.
Chairman and Trustee President Vice President
JAMES E. AKINS PHILIP J. COLLORA KATHRYN L. QUIRK
Trustee Vice President and Vice President
ARTHUR R. GOTTSCHALK Secretary LINDA J. WONDRACK
Trustee JOHN R. HEBBLE Vice President
FREDERICK T. KELSEY Treasurer MAUREEN E. KANE
Trustee DALE R. BURROW Assistant Secretary
FRED B. RENWICK Vice President CAROLINE PEARSON
Trustee JERARD K. HARTMAN Assistant Secretary
JOHN B. TINGLEFF Vice President ELIZABETH C. WERTH
Trustee THOMAS W. LITTAUER Assistant Secretary
EDMOND D. VILLANI Vice President
Trustee ANN M. MCCREARY
JOHN G. WEITHERS Vice President
Trustee CHRISTOPHER J. MIER
Vice President
<TABLE>
<S> <C>
..........................................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
..........................................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419066
Kansas City, MO 64141
..........................................................................................................
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania
Kansas City, MO 64105
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
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