<PAGE> 1
[KEMPER FRONT COVER]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
LARGEST SECTORS PORTFOLIO STATISTICS
8
PORTFOLIO OF INVESTMENTS
13
REPORT OF INDEPENDENT AUDITORS
14
FINANCIAL STATEMENTS
16
NOTES TO FINANCIAL STATEMENTS
18
FINANCIAL HIGHLIGHTS
19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
At A GLANCE
- --------------------------------------------------------------------------------
TOTAL RETURNS FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
BASED ON BASED ON
NET ASSET MARKET
VALUE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
STRATEGIC MUNICIPAL
INCOME TRUST 8.28% 12.87%
- --------------------------------------------------------------------------------
</TABLE>
NET ASSET VALUE AND MARKET PRICE
<TABLE>
<CAPTION>
AS OF AS OF
11/30/97 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $12.29 $12.14
- --------------------------------------------------------------------------------
MARKET PRICE $13.06 $12.38
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUND
AS OF NOVEMBER 30, 1997.
<TABLE>
<CAPTION>
KEMPER STRATEGIC
MUNICIPAL
INCOME TRUST
- --------------------------------------------------------------------------------
<S> <C>
ONE-YEAR INCOME: $0.8160
- --------------------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.068
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION
RATE:
(BASED ON NET ASSET VALUE) 6.64%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION
RATE:
(BASED ON MARKET PRICE) 6.25%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON NET ASSET VALUE AND A
37.1% FEDERAL INCOME TAX RATE) 10.56%
- --------------------------------------------------------------------------------
TAX EQUIVALENT DISTRIBUTION RATE:
(BASED ON MARKET PRICE AND A
37.1% FEDERAL INCOME TAX RATE) 9.94%
- --------------------------------------------------------------------------------
</TABLE>
Terms To KNOW
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.
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.
REVENUE BOND INDEX (RBI) The average yield on 25 revenue bonds with 30-year
maturities compiled by the Bond Buyer, a newspaper that reports on 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 a specified time period, assuming
the reinvestment of all dividends. It represents the aggregate percentage or
change in the value of an investment in the fund over the period. Total return
may be based upon net asset value or market price.
<PAGE> 3
ECONOMIC Overview
[ALLYN PHOTO]
MAUREEN F. ALLYN, A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.,
SERVES AS THE FIRM'S CHIEF ECONOMIST. ALLYN GRADUATED SUMMA CUM LAUDE FROM
OAKLAND UNIVERSITY NEAR DETROIT, WITH A BACHELOR'S DEGREE IN PSYCHOLOGY. SHE
RECEIVED HER MASTER'S IN ECONOMICS, WITH A SPECIALIZATION IN INTERNATIONAL TRADE
AND FINANCE, FROM THE NEW SCHOOL FOR SOCIAL RESEARCH IN NEW YORK.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT ADVISOR FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $200 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 COMPANIES IN THE UNITED STATES.
DEAR SHAREHOLDERS,
We start 1998 optimistic about the long-term prospects of the U.S. economy and
financial markets but cautious about the next several months. The Asian
financial crisis that dominated the global investment environment in the second
half of 1997 promises to continue, posing significant risks to the economy and
investors. We look for the strength of the American consumer -- currently
enjoying rising real incomes, better employment opportunities, lower mortgage
rates and easy access to credit -- and the secular strength of the trend toward
capital spending on high technology to be sufficient to override the influence
of Asia on the U.S. In short, our best case scenario calls for the U.S. to
muddle through an unsettling period. As it has for several years, the country
should continue to enjoy relatively low interest rates and low inflation. But
the new year will be different in at least two ways, both of which can be
expected to have direct bearing on investment opportunities.
First, the economy should grow at a much slower pace. A slowdown in Asia will
depress capital goods spending and heighten import pricing pressure, putting a
damper on American corporations' pricing and profit growth at least through
1999. While the U.S. economy grew at an almost 4 percent rate in 1997, we look
for no better than 2 percent growth for the next two years -- with more than
half of the change attributable to the effect of the Asian fallout.
Disappointing corporate profits is another given for 1998. Profits had begun
to slow last year even before the height of the Asian crisis. High current
valuations, however, seem to suggest that Wall Street has yet to recognize this.
The clash between Wall Street profit expectations and actual reported earnings
is part of the risk likely to be associated with equity investing in 1998.
Volatility, such as we experienced in 1997, should continue. In fact, the
overall market volatility is not likely to reflect the turmoil that individual
equities may experience. There will be a narrowing of the number of companies
able to meet analysts' expectations and this market will be absolutely
unforgiving to those companies that fall far short.
Having stated this, however, we look for the Standard & Poor's 500 to return
about 9.5 percent, including the effect of reinvested dividends. This would be
an average return and in line with the historical long-term 10 percent return of
the stock market. On the heels of the last three 20 percent-plus return years,
an investor in 1998 may weigh the 10 percent prospect against a projected 7
percent total return on bonds and consider the difference insufficient
compensation for the inherent added risk. Adopting a more conservative posture
for the new year may be an appropriate step that you'll want to discuss with
your financial representative in the context of your long-term investing
objectives.
To achieve a 9.5 percent return in 1998, the market's already high valuations
need to move even higher. We expect this to occur for a few reasons: the market
has so far demonstrated a certain complacency about the valuation levels;
American investors don't perceive there's anywhere better to go than the U.S.
equity market; and foreigners think of the U.S. market as a safe haven. All
should help support the market.
Where, then, are the opportunities likely to be in 1998? Expect to see
disparate performance within industry sectors. For example, while the financial
services sector in 1997 tended to provide across-the-board strong performance,
in 1998 we expect the sector to include its share of winners and losers. Stock
selection will be key, too, to benefiting from the technology sector. Over the
long term, we are optimistic about technology and corporate America's continuing
commitment to it. It will be difficult to participate in a market return in 1998
without having some exposure to technology-based companies. One caution: Not all
technology companies will survive the year, which raises the risk of investing
in the sector.
Conventional wisdom might argue in favor of remaining in the U.S. with your
investment dollars in 1998 and, more specifically, invested in small
capitalization companies with domestic lines of business. We'd challenge such
thinking as slower growth, slower inflation and even
<PAGE> 4
ECONOMIC OVERVIEW
[BAR GRAPH]
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.
<TABLE>
<CAPTION>
NOW (12/31/97) 6 MONTHS AGO 1 YEAR AGO 2 YEAR AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 5.81 6.22 6.58 5.65
PRIME RATE(2) 8.5 8.5 8.25 8.5
INFLATION RATE(3) 1.7 2.23 3.04 2.72
THE U.S. DOLLAR(4) 10.43 7.32 4.59 -0.57
CAPITAL GOODS ORDERS(5)* 11.61 8.58 2.23 9.56
INDUSTRIAL PRODUCTION(5)* 5.59 3.91 4.7 2.34
EMPLOYMENT GROWTH(6) 2.66 2.3 2.41 1.57
</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 November 30, 1997.
Source: Economics Department, Scudder Kemper Investment, Inc.
deflation and pricing pressures change the U.S. economic climate. The only real
antidote is growth, and from now on growth is more likely to be found outside
the United States. Today to participate in the growth from global business you'd
need to be exposed to large capitalization companies.
International investing is a promising proposition in 1998, the Asian fallout
notwithstanding. In established markets, there are attractive opportunities to
be found in Europe and in Japan. Several Japanese companies have real cash flows
and even relatively attractive valuations. In addition, the effect of the Asian
problems has not been to discourage all investment into emerging markets; rather
investors have tended to divert investment dollars and business to other
increasingly attractive emerging markets in eastern Europe, the Middle East,
Africa and Latin America.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including an interview with your fund's portfolio
management. Thank you for your continued support. We appreciate the opportunity
to serve your investment needs.
Sincerely,
/s/ Maureen Allyn
MAUREEN ALLYN
Chief Economist, Scudder Kemper Investments, Inc.
January 9, 1998
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRISTOPHER MIER JOINED WHAT IS NOW SCUDDER KEMPER INVESTMENTS, INC. IN 1986 AND
IS NOW A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS AND A VICE PRESIDENT
AND PORTFOLIO MANAGER OF KEMPER STRATEGIC MUNICIPAL INCOME TRUST. HE HAS BEEN
PORTFOLIO MANAGER 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.
[BURROW PHOTO]
DALE BURROW HAS BEEN WITH SCUDDER KEMPER INVESTMENTS SINCE 1987 AND IS A SENIOR
VICE PRESIDENT. HE BECAME A VICE PRESIDENT AND 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.
CHRISTOPHER MIER AND DALE BURROW, KEMPER STRATEGIC MUNICIPAL INCOME TRUST
PORTFOLIO MANAGERS, DISCUSS SUCCESSFUL RESULTS FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 1997, AND DESCRIBE THE INVESTMENT STRATEGY BEHIND THOSE RESULTS.
Q WAS PERFORMANCE FOR THE FISCAL YEAR FAVORABLE?
A Yes, we're pleased with the results. For the year ended November 30,
1997, Kemper Strategic Municipal Income Trust had a total return of 8.28
percent, roughly in line with 8.33 percent for the average of its high yield
municipal debt category, as reported by Lipper Analytical Services, Inc.
This fund was created to deliver a high level of tax-exempt income and not
primarily for total return (although we give the Lipper figures for information
purposes), and again, it did not disappoint shareholders this year. The fund
paid consistent monthly dividends of $0.068 ($0.816 annualized) per share to
shareholders during the year ended November 30, 1997.
Based on its net asset value of $12.29, this amounts to an annual distribution
rate of 6.64 percent, compared with its Lipper peer group average of 5.98
percent. And based on the share price at fiscal year end, November 30, 1997, of
$13.06, the distribution rate is 6.25 percent, compared with its Lipper peer
group average of 5.97 percent.
For an individual investor in the federal tax bracket of 37.1 percent, the
fund's tax-equivalent distribution rate on the share price at November 30, 1997
is 9.94 percent.
Q SINCE THIS IS AN INCOME FUND, HOW STABLE HAS THE DIVIDEND BEEN?
A Since its inception, Kemper Strategic Municipal Income Trust has never
missed a dividend payment and experienced a single decrease of 0.7 percent in
1993.
Q HOW IS THE DIVIDEND VIEWED BY INVESTORS?
A Many funds trade at big discounts to net asset value. Interestingly,
however, since its creation, this fund has generally traded at a share price
that is at a premium to net asset value. That premium, of one or two percent
above net asset value, is a validation from the market of the style of portfolio
management used in managing our fund. The market likes to see stability in the
dividend over a long period of time and Kemper Strategic Municipal Income Trust
provides it.
Q HOW DID MARKET CONDITIONS FOR THE YEAR AFFECT INCOME?
A The year began with two quarters of strong growth, and with a parallel
run-up in interest rates, which peaked in the 7 percent range in the Treasury
long bond rate in April 1997. This increase in rates was caused by fears of a
major Federal Reserve Board (the Fed) rate action, following the early December
1996 speech by Alan Greenspan, Fed Chairman, discussing the 'irrational
exuberance' in the stock market.
And then a second phase began, which we are still in today, in which rates
have declined to levels even lower than before the Fed Chairman's speech. With
strong but sustainable growth in the economy, accompanied by low inflation,
investors became convinced that the
5
<PAGE> 6
PERFORMANCE UPDATE
lower municipal bond yields we have today are quite appropriate.
The trend to lower interest rates was accentuated in late summer 1997 by the
emerging financial crisis in Southeast Asia. The banking and other problems,
which continue to cast their shadow in the West, caused a flight to quality (in
this case to the United States fixed-income markets), and a run-up in bond
prices and a commensurate decline in interest rates, to levels we haven't seen
in several years.
Q IN THESE CIRCUMSTANCES, IS NOW A GOOD TIME TO INVEST IN MUNICIPAL BONDS?
A Yes, for a number of reasons. First, if you compare the ratio of the
weekly revenue bond index with the long Treasury bond, municipal bonds are now
basically at their cheapest point in the last 12 months.
Secondly, in general, real interest rates are high. This is demonstrated by
subtracting the trailing 12-month inflation rate (using the Consumer Price Index
or any other inflation measure) from the nominal rate of interest. In fact, at
the present point the United States offers some of the highest yields in the
world, with municipal bonds representing less credit risk than many nations.
The third reason is that if you look at the broad span of interest rates over
the last 100 years, 85 percent of the time interest rates have been lower than
they are right now. Most people on the street would tell you that interest rates
seem low because they are thinking back to the early '80s and late '70s. As
people adjust to these rate levels they will realize that they are attractive in
a broader historical context.
Next, taxes are still consuming more of people's incomes than they ever did,
so that there's a greater need than ever for municipal bonds, a need for
tax-exempt income.
Finally, the last reason concerns asset reallocation. Since October 11, 1990,
the Standard & Poor's 500 Stock Index has gone up 223.36 percent, its largest
upward movement without a correction of 20 percent or more since Standard &
Poor's started to record market activity in 1926. After such a move, it is
prudent to consider diverting a greater percentage of portfolio capital into
bonds, since the equity portion is likely to have been enlarged relative to the
bond portion, thereby increasing portfolio risk.
Q THE AVERAGE MATURITY OF YOUR PORTFOLIO AT FISCAL YEAR END WAS QUITE
LONG -- 16.1 YEARS. HOW DOES THIS TIE IN WITH YOUR OUTLOOK FOR THE MUNICIPAL
BOND MARKET?
A We expect that rates will continue to decline over the short term as long
as inflation remains at present levels or lower. As mentioned earlier, adjusted
for inflation, bond yields are unusually high, and we expect rates will decline
further in response to little inflation pressure. We believe it is a good time
to buy municipal bonds.
6
<PAGE> 7
LARGEST SECTORS
PORTFOLIO STATISTICS
THE FUND'S FIVE LARGEST SECTORS*
REPRESENTING 61 PERCENT OF THE FUND'S TOTAL NET ASSETS ON NOVEMBER 30, 1997
<TABLE>
<CAPTION>
HOLDINGS PERCENT
<S> <C> <C>
- ------------------------------------------------------
1. U.S. GOVERNMENT SECURED 22%
- ------------------------------------------------------
2. SENIOR CARE BONDS 13%
- ------------------------------------------------------
3. NON-SENIOR CARE BONDS 10%
- ------------------------------------------------------
4. HOSPITAL BONDS 9%
- ------------------------------------------------------
5. INDUSTRIAL REVENUE BONDS 7%
- ------------------------------------------------------
</TABLE>
SECURITIES RATINGS
<TABLE>
<CAPTION>
ON 11/30/97 ON 11/30/96
<S> <C> <C> <C>
AAA 5% 4%
- ------------------------------------------------------------------------------------------------------
AA 6 7
- ------------------------------------------------------------------------------------------------------
A 1 3
- ------------------------------------------------------------------------------------------------------
BBB 24 26
- ------------------------------------------------------------------------------------------------------
BB 3 --
- ------------------------------------------------------------------------------------------------------
B 4 2
- ------------------------------------------------------------------------------------------------------
Not rated+ 57 58
- ------------------------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
+ These securities are not rated by S&P or Moody's, however they are rated by
Scudder Kemper Investments, Inc. as follows: AAA 19%, A 2%, BBB 7%,
BB 23% and B 6% for November 30, 1997, and AAA 13%, A 5%, BBB 4%,
BB 31% and B 5% for November 30, 1996.
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.
AVERAGE MATURITY
<TABLE>
<CAPTION>
ON 11/30/97 ON 11/30/96
<S> <C> <C>
Average Maturity 16.1 years 16.9 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 November 30, 1997
(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
- --------------------------------------------------------------------------------------------------------------------------
Indianapolis, IN, Local Public Improvement Bond
Bank, Rev., 8.50%, to be called 2-01-98 @ 102 $ 3,000 $ 3,083
Jefferson County, KY, Pollution Control, Louisville
Gas & Electric Co. Proj., Rev., 7.75%, to be
called 2-01-98 @ 102 1,500 1,540
Greater Orlando, FL, Aviation Auth., Airport
Facilities Rev., 8.00%, to be called 10-01-98 @
102 70 74
New York City, NY, Gen. Oblg., 7.50%, to be called
8-15-99 @ 101.50 420 450
Cuyahoga County, OH, Health Care Facilities, Judson
Retirement Community Center, Rev., 8.875%, to be
called 11-15-99 @ 103 2,500 2,788
Marion County, OH, Health Care Facilities, United
Church Homes, Inc., Rev., 8.875%, to be called
12-01-99 @ 103 2,780 3,106
Health Facilities Auth., IL, Bethany Home and
Hospital of the Methodist Church, Rev., 8.625%,
to be called 2-15-00 @ 102 2,395 2,663
Volusia County, FL, Health Facilities Auth.,
Memorial Health Systems Proj., Rev., 8.25%, to be
called 6-01-00 @ 102 2,390 2,662
Woodward Municipal Auth., OK, Hospital Rev., 9.25%,
to be called 11-01-00 @ 102 1,750 2,018
Itasca, IL, Central Manufacturing District, Special
Service Area, Rev., 8.375%, to be called 12-01-00
@ 102 2,480 2,815
Greene County, PA, Gen. Oblg., 8.75% to be called
12-01-00 @ 100 1,770 1,990
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 @ 102 265 312
8.00%, to be called 11-15-01 @ 100 240 272
Chicago, IL, Tax Increment Allocation, Central
Station Proj., Rev., 8.90%, to be called 1-01-02
@ 102 2,100 2,536
City and County of Denver, CO, Airport System Rev.,
7.50%, to be called 11-15-04 @ 102 170 203
Arapahoe County, CO, Capital Improvement Trust
Fund, Rev., zero coupon, to be called 8-31-05 @
71.45 5,000 2,506
---------------------------------------------------------------------------------
TOTAL ADVANCED REFUNDED OBLIGATIONS--22.2%
(Cost: $25,791) 29,063
---------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in Thousands)
ISSUER PRINCIPAL
AMOUNT VALUE
<S> <C> <C> <C>
OTHER MUNICIPAL OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------
ILLINOIS--7.4% Chicago, O'Hare International Airport,
International Terminal, Special Rev., 8.20%, 2024 $ 1,200 $ 1,451
Harvard, Multifamily Housing, Northfield Court
Proj., Rev., 9.50%, 2006 1,955 2,116
Lombard, Tax Increment Rev., 8.80%, 2004 1,625 1,784
St. Charles, Multifamily Housing, Wessel Court
Proj., Rev., 7.60%, 2024 1,960 2,032
Village of University Park, Tax Increment,
Governors Gateway Industrial Park, Rev., 8.50%,
2011 1,970 2,251
-----------------------------------------------------------------------
9,634
- ----------------------------------------------------------------------------------------------------------------
INDIANA--5.5% Fishers, Economic Dev. Auth., Indianapolis Water
Co. Proj., Rev., 7.875%, 2019 685 704
Health Facilities Finance Auth., Fayette Memorial
Hospital Proj., Rev., 7.20%, 2022 2,800 3,001
Housing Finance Auth., Residential Mortgage, Rev.,
8.375%, 2020 1,395 1,450
Indianapolis Airport Auth., United Air Lines, Inc.
Proj., Rev., 6.50%, 2031 1,900 2,032
-----------------------------------------------------------------------
7,187
- ----------------------------------------------------------------------------------------------------------------
ARIZONA--5.4% Coconino County, Industrial Dev. Auth., The
Guidance Center, Inc. Proj., Rev., 9.25%, 2011 1,770 1,979
Health Facilities Auth., The New Foundation Proj.,
Rev., 8.25%, 2019 2,415 2,626
Pima County Industrial Dev. Auth., Larson Co.
Proj., Rev., 9.50%, 2010 2,100 2,434
-----------------------------------------------------------------------
7,039
- ----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--5.1% Columbia County, Industrial Dev. Auth., First
Mortgage, First Street Association Proj., Rev.,
9.00%, 2014 1,890 2,104
Higher Educational Facilities Auth., Philadelphia
College of Textiles & Science, Rev., 6.70%, 2014 2,000 2,153
Lehigh County General Purpose Auth., Wiley House,
Rev., 8.65%, 2004 2,345 2,454
-----------------------------------------------------------------------
6,711
- ----------------------------------------------------------------------------------------------------------------
FLORIDA--5.1% Greater Orlando Aviation Auth., Airport Facilities,
Rev., 8.00%, 2018 625 655
Manatee County, First Mortgage, Meditrust Proj.,
Rev., 7.35%, 2015 1,730 1,955
Martin County Industrial Dev. Auth., Indiantown
Congeneration L.P. Proj., Rev., 7.875%, 2025 1,500 1,746
Nassau County, Amelia Island Care Center Proj.,
Rev., 9.75%, 2023 1,980 2,303
-----------------------------------------------------------------------
6,659
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C> <C> <C>
ISSUER PRINCIPAL
AMOUNT VALUE
<-> Albuquerque Nursing Home, West Mesa Center Proj.,
NEW MEXICO--4.8% Rev., 9.75%, 2014 $ 1,375 $ 1,458
Farmington, Pollution Control, San Juan Proj.,
Rev., 6.30% and 6.95%, 2016 and 2020 3,500 3,806
Truth or Consequences Nursing Home, Sierra Health
Care, Inc., Rev., 9.75%, 2014 915 954
-----------------------------------------------------------------------
6,218
- ----------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.1% Foothill/Eastern Transportation Corridor Agcy.,
Toll Road Rev., zero coupon, 2026 11,500 2,375
Sacramento County, Bradshaw Road Proj., Rev.,
7.20%, 2015 1,225 1,266
San Diego, Detention Facility, Certificates of
Participation, 8.00%, 2002 375 407
San Joaquin Hills Transportation Corridor Agcy.,
Senior Lien Toll Road Rev., zero coupon, 2020 4,300 1,350
-----------------------------------------------------------------------
5,398
- ----------------------------------------------------------------------------------------------------------------
NEW YORK--4.0% Medical Care Facilities Finance Agcy., Rev. 7.30%,
2021 20 22
Metropolitan Transit Auth., Commuter Facilities,
Rev., 5.50%, 2021 200 198
New York City, Gen. Oblg., 7.00% and 7.50%, 2010 2,045 2,160
Port Auth. of New York and New Jersey, LaGuardia
Airport Passenger Terminal, Rev., 9.125%, 2015 2,500 2,833
-----------------------------------------------------------------------
5,213
- ----------------------------------------------------------------------------------------------------------------
MISSOURI--3.8% St. Louis, Tax Increment, Scullin Redev. Proj.,
Rev., 10.00%, 2010 2,205 2,769
West Plains, Industrial Dev. Auth., Ozarks Medical
Center Proj. Rev., 8.625%, 2020 1,970 2,150
-----------------------------------------------------------------------
4,919
- ----------------------------------------------------------------------------------------------------------------
IOWA--3.3% Finance Auth., Healthcare Facilities, On With Life,
Inc. Proj., Rev., 7.25%, 2015 2,000 2,139
Lake City, Health Care Facility, Opportunity Living
Proj., Rev., 10.00%, 2015 2,000 2,144
-----------------------------------------------------------------------
4,283
- ----------------------------------------------------------------------------------------------------------------
CONNECTICUT--3.2% Dev. Auth., Pierce Memorial Baptist Home, Inc.
Proj., Rev., 9.25%, 2018 2,000 2,201
Greenwich Housing Auth., Multifamily Housing Rev.,
6.35%, 2027 2,000 2,018
-----------------------------------------------------------------------
4,219
- ----------------------------------------------------------------------------------------------------------------
TEXAS--3.2% Brazos River Auth., Collateralized Pollution
Control, Utilities Electric Co. Proj., Rev.,
8.25%, 2019 2,000 2,115
Houston, Airport System Special Facilities,
Continental Airlines, Inc., Improvement Projs.,
Rev., 6.125%, 2027 2,000 2,070
-----------------------------------------------------------------------
4,185
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C> <C> <C>
ISSUER Amount Principal Value
<-> Housing Finance Agcy., Single Family Mortgage Rev.,
MINNESOTA--3.0% 7.95%, 2022 $ 1,850 $ 1,958
Sauk Rapids, Industrial Dev., Gold N Plump Poultry
Proj., Rev., 9.50%, 2005 1,870 1,986
---------------------------------------------------------------------------
3,944
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--2.5% Gogebic County, Hospital Finance Auth., Grand View
Hospital Proj., Rev., 8.75%, 2016 2,250 2,455
Madison Heights, Tax Increment Finance Auth., Rev.,
8.50%, 2001 710 759
---------------------------------------------------------------------------
3,214
- --------------------------------------------------------------------------------------------------------------------
NEVADA--2.1% Housing Division, Single Family Mortgage Program,
Rev., 7.90% and 6.50%, 2021 and 2028 2,610 2,749
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COLORADO--1.9% City and County of Denver, Airport System Rev.,
7.50% to 8.75%, 2023 through 2025 2,225 2,538
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.7% Worcester, Briarwood Retirement Community, Salem
Community Corp., Rev., 9.25%, 2022 1,985 2,230
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.6% Higher Educational and Health Facilities Auth.,
United Church of Christ-Havenwood, Rev., 7.45%,
2025 2,000 2,127
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.2% Aiken County, Hospital Facilities, Mattie C. Hall
Health Care Center Proj., Rev., 8.625%, 2010 1,500 1,562
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
UTAH--1.2% Housing Finance Agcy., Single Family Mortgage Rev.,
6.65%, 2026 1,455 1,547
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.1% Woodward Municipal Auth., Hospital Rev., 8.50%,
2014 1,335 1,509
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MARYLAND--1.1% Health & Higher Educational Facilities Auth.,
Doctors Community Hospital Proj., Rev., 5.50%,
2024 1,500 1,479
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.1% Economic Dev. Auth., Rev., 5.875%, 2026 200 205
Educational Facilities Auth., Caldwell College,
Rev., 7.25%, 2025 1,100 1,190
---------------------------------------------------------------------------
1,395
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C> <C> <C>
ISSUER PRINCIPAL
AMOUNT VALUE
<-> NE, Investment Finance Auth., Single Family Housing
STATES LESS THAN Rev., 6.70%, 2026 $ 500 $ 531
ONE PERCENT--1.9% ND, Housing Finance Agcy., Single Family Mortgage
Rev., 8.375%, 2021 820 861
WI, Health & Educational Facilities Auth., Rev.,
6.35%, 2017 600 606
WI, Housing & Economic Dev. Auth., Home Ownership,
Rev., 6.20%, 2027 500 521
---------------------------------------------------------------------------
2,519
---------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--75.3%
(Cost: $88,976) 98,478
===========================================================================
TOTAL MUNICIPAL OBLIGATIONS--97.5%
(Cost: $114,767) 127,541
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--4.10%
INSTRUMENTS--.8%
Due--December, 1997
(Cost: $1,100) 1,100 1,100
---------------------------------------------------------------------------
TOTAL INVESTMENTS--98.3%
(Cost: $115,867) 128,641
---------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.7% 2,254
---------------------------------------------------------------------------
NET ASSETS--100% $130,895
---------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $115,867,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation on investments was
$12,774,000 and there was no gross unrealized depreciation.
See accompanying Notes to Financial Statements.
12
<PAGE> 13
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, 1997, and 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 1993. 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, 1997, by correspondence with the custodian and brokers. 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, 1997, 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 years since 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1997
(in thousands)
<TABLE>
<S> <C>
ASSETS
Investments, at value
(Cost: $115,867) $128,641
- ------------------------------------------------------------------------
Interest receivable 2,864
- ------------------------------------------------------------------------
TOTAL ASSETS 131,505
- ------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Cash overdraft 517
- ------------------------------------------------------------------------
Payable for:
Management fee 65
- ------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 8
- ------------------------------------------------------------------------
Trustees' fees and other 20
- ------------------------------------------------------------------------
Total liabilities 610
- ------------------------------------------------------------------------
NET ASSETS $130,895
- ------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $118,445
- ------------------------------------------------------------------------
Accumulated net realized loss on investments (526)
- ------------------------------------------------------------------------
Unrealized appreciation on investments 12,774
- ------------------------------------------------------------------------
Undistributed net investment income 202
- ------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $130,895
- ------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($130,895 / 10,649 shares outstanding) $12.29
- ------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended November 30, 1997
(in thousands)
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Interest income $ 9,493
- -----------------------------------------------------------------------
Expenses:
Management fee 772
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 87
- -----------------------------------------------------------------------
Professional fees 45
- -----------------------------------------------------------------------
Reports to shareholders 21
- -----------------------------------------------------------------------
Trustees' fees and other 56
- -----------------------------------------------------------------------
Total expenses 981
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 8,512
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of investments 127
- -----------------------------------------------------------------------
Net realized loss from futures transactions (68)
- -----------------------------------------------------------------------
Net realized gain 59
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 1,650
- -----------------------------------------------------------------------
Net gain on investments 1,709
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,221
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
<S> <C> <C>
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
Net investment income $ 8,512 8,636
- -------------------------------------------------------------------------------------------
Net realized gain 59 328
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) 1,650 (882)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,221 8,082
- -------------------------------------------------------------------------------------------
Distribution from net investment income (8,695) (8,611)
- -------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(90 shares and 74 shares, respectively) 1,135 919
- -------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 2,661 390
- -------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 128,234 127,844
- -------------------------------------------------------------------------------------------
END OF YEAR (including undistributed
net investment income of
$202 and $399, respectively) $130,895 128,234
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1
SIGNIFICANT DESCRIPTION OF FUND. Kemper Strategic Municipal
ACCOUNTING POLICIES 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 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, 1997, amounting to approximately
$223,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2004.
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 INVESTMENT MANAGER COMBINATION. Zurich Insurance
AFFILIATES Company, the parent of Zurich Kemper Investments,
Inc. (ZKI), has acquired a majority interest in
Scudder, Stevens & Clark, Inc. (Scudder), another
major investment manager. At completion of this
transaction on December 31, 1997, Scudder changed
its name to Scudder Kemper Investments, Inc.
(Scudder Kemper) and the operations of ZKI were
combined with Scudder Kemper. In addition, the name
of the Fund's shareholder service agent was changed
to Kemper Service Company (KSvC).
MANAGEMENT AGREEMENT. The Fund has a management
agreement with 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
$772,000 for the year ended November 30, 1997.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
KSvC is the shareholder service agent of the Fund.
Under the agreement, KSvC received shareholder
services fees of $24,000 for the year ended
November 30, 1997.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. During the year ended November 30,
1997, the Fund made no direct payments to its
officers and incurred trustees' fees of $17,000 to
independent trustees.
- --------------------------------------------------------------------------------
3
INVESTMENT For the year ended November 30, 1997, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $25,755
Proceeds from sales 24,520
17
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $12.14 12.19 11.54 12.36 11.86
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .80 .82 .83 .83 .83
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .17 (.05) .64 (.80) .58
- --------------------------------------------------------------------------------------------------------
Total from investment operations .97 .77 1.47 .03 1.41
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .82 .82 .82 .82 .89
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- .03 .02
- --------------------------------------------------------------------------------------------------------
Total dividends .82 .82 .82 .85 .91
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $12.29 12.14 12.19 11.54 12.36
- --------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $13.06 12.38 12.13 11.63 12.38
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN
Based on net asset value 8.28% 6.58 13.09 .12 12.32
- --------------------------------------------------------------------------------------------------------
Based on market value 12.87% 9.19 11.70 .74 9.99
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .76% .74 .76 .75 .74
- --------------------------------------------------------------------------------------------------------
Net investment income 6.62% 6.82 6.97 6.92 6.87
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $130,895 128,234 127,844 120,689 128,564
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13% 31 8 11 8
- --------------------------------------------------------------------------------------------------------
</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 1997 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.
18
<PAGE> 19
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 The Fund's transfer agent and dividend disbursing
ACCOUNT 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 If on the record date for a Distribution (the
DISTRIBUTION FUNDS "Record Date"), Shares are trading at a discount
HELD IN EACH ACCOUNT 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 Address all notices, correspondence, questions, or
INFORMATION other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
19
<PAGE> 20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF The Fund will increase the price at which Shares
PURCHASE PRICE 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 The cost of Shares and fractional Shares acquired
PURCHASE PRICE 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 Agent will maintain the participants Account, hold
HELD BY AGENT 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 Beneficial owners of Shares which are held in the
SHAREHOLDER'S name of a broker or nominee will not be
NAME 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 notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
20
<PAGE> 21
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
12 WITHDRAWAL FROM Shareholders may withdraw from the Plan at any time
PLAN 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.
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES
OFFICERS
JAMES E. AKINS
Trustee
ARTHUR R. GOTTSCHALK
Trustee
FREDERICK T. KELSEY
Trustee
DANIEL PIERCE
Trustee
FRED B. RENWICK
Trustee
JOHN B. TINGLEFF
Trustee
EDMOND D. VILLANI
Trustee
JOHN G. WEITHERS
Trustee
DANIEL PIERCE
Chairman of the Board
MARK S. CASADY
President
PHILIP J. COLLORA
Vice President,
Secretary and Treasurer
DALE R. BURROW
Vice President
JERARD K. HARTMAN
Vice President
THOMAS W. LITTAUER
Vice President
ANN M. MCCREARY
Vice President
CHRISTOPHER J. MIER
Vice President
ROBERT C. PECK, JR.
Vice President
KATHRYN L. QUIRK
Vice President
LINDA J. WONDRACK
Vice President
JOHN R. HEBBLE
Assistant Treasurer
MAUREEN E. KANE
Assistant Secretary
CAROLINE PEARSON
Assistant Secretary
ELIZABETH C. WERTH
Assistant Secretary
<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
..........................................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
</TABLE>
KEMPER LOGO
Printed on recycled paper.
KSMIT - 2 (1/98) 1042010
Printed in the U.S.A.
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
TRUSTEES&OFFICERS
