<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED NOVEMBER 30, 1997
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER STRATEGIC
INCOME FUND
"... We monitor the fund's emerging market investments
based on their own strenth but also the strength of
other regions in the world to which they have ties. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
MANAGEMENT TEAM
6
PERFORMANCE UPDATE
8
PORTFOLIO STATISTICS
9
PORTFOLIO OF
INVESTMENTS
12
REPORT OF
INDEPENDENT AUDITORS
13
FINANCIAL STATEMENTS
15
NOTES TO
FINANCIAL STATEMENTS
17
FINANCIAL HIGHLIGHTS
18
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>
KEMPER STRATEGIC
INCOME FUND 12.55% 23.53%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
AND MARKET PRICE
- --------------------------------------------------------------------------------
AS OF AS OF
11/30/97 11/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE $15.39 $15.34
- --------------------------------------------------------------------------------
MARKET PRICE $19.81 $17.75
- --------------------------------------------------------------------------------
</TABLE>
The fund may invest in lower-rated and non-rated securities, which present
greater risk of loss to principal and interest than higher-rated securities. The
fund may also invest a significant portion of its assets in foreign securities
which present special risks including fluctating exchange rates, government
regulation and differences in liquidity that may affect the volatility of your
investment.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND INFORMATION FOR THE FUND AS OF
NOVEMBER 30, 1997.
<TABLE>
<CAPTION>
KEMPER STRATEGIC
INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
ONE-YEAR INCOME: $1.799
- --------------------------------------------------------------------------------
NOVEMBER DIVIDEND: $0.1500
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON NET ASSET VALUE) 11.70%
- --------------------------------------------------------------------------------
ANNUALIZED DISTRIBUTION RATE
(BASED ON MARKET VALUE) 9.09%
- --------------------------------------------------------------------------------
</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.
TERMS TO KNOW
EMERGING MARKETS A developing or emerging country that is in the initial stages
of its industrial cycle. Developing or "emerging" markets involve exposure to
economic structures that are generally less diverse and mature than in the
United States and to political systems that may be less stable.
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 period, assuming the
reinvestment of all dividends. It represents the aggregate percentage 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.
VOLATILITY The characteristic of an investment that causes it to rise or fall
sharply in price in a relatively short time period.
<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
MANAGEMENT TEAM
KEMPER STRATEGIC INCOME FUND
PORTFOLIO MANAGEMENT TEAM
[BEIMFORD PHOTO]
J. Patrick Beimford, Jr. is a managing director with what is now Scudder Kemper
Investments, Inc. in 1976 and is a portfolio co-manager of Kemper Strategic
Income Fund. He received a bachelor of science and industrial management degree
from Purdue University and earned an M.B.A. from the University of Chicago.
[MCNAMARA PHOTO]
Mike McNamara has been with Scudder Kemper Investments since 1972 and is a
managing director of Scudder Kemper Investments and portfolio co-manager of
Kemper Strategic Income Fund. McNamara graduated with a B.S. in Business
Administration from the University of Missouri and earned an M.B.A. from Loyola
University.
[RESIS PHOTO]
Harry Resis is a managing director with Scudder Kemper Investments. He joined
the company in 1988 and is a portfolio co-manager of Kemper Strategic Income
Fund. Resis received a B.A. in Finance from Michigan State University.
[TRUTTER PHOTO]
Jonathan Trutter has been with Scudder Kemper Investments since 1989. He is a
senior vice president of Scudder Kemper Investments and a portfolio co-manager
of Kemper Strategic Income Fund. Trutter received a bachelor's degree with dual
majors in East Asian Languages and International Relations from the University
of Southern California. He earned a master's of management degree from Kellogg
Graduate School of Business at Northwestern University.
[VANDENBERG PHOTO]
Richard Vandenberg joined Scudder Kemper Investments in March 1996, as managing
director of Scudder Kemper Investments and portfolio co-manager of Kemper
Strategic Income Fund. Vandenberg has more than 20 years of fixed-income
portfolio management experience. He received both a bachelor's degree and an
M.B.A. from the University of Wisconsin.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
5
<PAGE> 6
PERFORMANCE UPDATE
FIXED-INCOME INVESTMENTS PERFORMED WELL DURING THE 12 MONTHS ENDED NOVEMBER 30,
1997. BELOW, THE PORTFOLIO MANAGERS DISCUSS WHY THEY FAVORED EMERGING MARKET
INVESTMENTS OVER OTHERS TO ENHANCE THE FUND'S PERFORMANCE.
Q DURING THE FUND'S FISCAL YEAR THE FEDERAL RESERVE BOARD (THE FED) RAISED
SHORT-TERM INTEREST RATES. NEAR THE END OF THE YEAR, EVENTS IN SOUTHEAST ASIA
CAUSED A MAJOR SELL-OFF IN GLOBAL MARKETS. HOW DID THESE EVENTS IMPACT THE
PERFORMANCE OF THE FIXED-INCOME MARKETS?
A Despite these events, fixed-income securities performed relatively well
during the 12-month period. The Fed did raise interest rates but the impact of
the tightening on the market was brief and relatively minimal. In addition, the
crisis in Southeast Asia hurt some corporate and emerging market bonds but
caused U.S. government bonds to rally. Specifically, here's what happened.
At the start of the fiscal year, Federal Reserve Board Chairman Alan Greenspan
implied in passing that financial assets might be overvalued. This shook the
market and caused yields to rise and securities prices to fall. Early in 1997,
strong economic reports surfaced and Greenspan reiterated his concern about the
values of securities and about the potential for a rise in wage inflation. In
what was considered to be a preemptive move at keeping inflation in check, the
Fed tightened short-term rates by 0.25 percent in late March.
While economic growth remained somewhat strong, even after the Fed tightening,
inflation remained uncharacteristically low. Fixed-income markets began
recouping losses experienced with the Fed's interest rate increase as inflation
fears remained unconfirmed. Market yields fluctuated with the release of varying
economic data but remained relatively range-bound until October.
On October 8, Greenspan once again expressed his concern about whether the
current low level of inflation could continue with such a strong U.S. economy.
The market believed his comments to be a warning that he might tighten interest
rates again soon. That prospect was discounted on October 27, Gray Monday as it
was later named, when there was a global equity market sell-off spawned by
economic events in Southeast Asia. The sell-off was dramatic but short-lived.
Gray Monday ushered in steep declines in emerging market bonds and declines less
significant in high yield and investment grade corporate bonds. Investors
flocked to higher quality issues and as a result the U.S. Treasury market
rallied through the end of the fund's fiscal year. Corporate and emerging
markets began recovering in November, as investors began to regain confidence in
these markets.
Q HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A Kemper Strategic Income Fund performed well and on November 30, 1997, was
trading at a 28.74 percent premium to net asset value. On a market price basis,
the fund gained 23.53 percent. In net asset value (NAV), the fund gained 12.55
percent, outperforming the NAV return of its peer group average by almost 11
percent. The Lipper Analytical Services, Inc. flexible income category average
NAV return was 11.31 percent.
Based on its net asset value of $15.39 on November 30, the fund provided a
distribution rate of 11.7 percent, compared with the 7.8 percent average
distribution rate of the Lipper flexible income category for the same period.
Based on the fund's market price of $19.81 per share on November 30, Kemper
Strategic Income Fund's distribution rate was 9.1 percent compared with the 7.9
percent average rate of its Lipper peer group.
Q HOW DID YOU POSITION THE FUND'S INVESTMENTS?
A Our focus in managing the fund is to maximize income for shareholders
while managing risk. This income focus gives us the flexibility to take strong
positions in the investments we believe have the most income-earning potential.
This year we found a great deal of potential in the emerging markets sector and
kept an overweighting of about 40-43 percent of the fund in that sector. This
strong position was beneficial as emerging markets were the best performing
fixed-income sector for the 12-month period, gaining 14.18 percent according to
the Salomon Smith Barney Total Rate-of-Return Index.
Our second largest allocation was to mortgages which represented just over
one-third of the fund during most of the year. This allocation was positive on
several levels. First, mortgages enjoyed positive performance during the period,
gaining 7.80 percent, according to Salomon Brothers, for the 12 months ended
November 30. Mortgages are high credit quality assets (AAA-rated), which not
only boost the fund's overall credit quality but act as a good portfolio
diversification tool.
6
<PAGE> 7
PERFORMANCE UPDATE
Generally mortgage investments do not perform in tandem with the other sectors
in which the fund invests -- emerging market investments and corporate high
yield bonds. This lack of direct correlation helps limit volatility of the fund.
Mortgages also play a role in our use of leverage for the fund. We borrow to
increase our investment in bonds, thus increasing income. We are generally able
to borrow almost the full value of the fund's mortgage investments. This use of
leverage enabled us to invest more heavily in emerging markets, thus boosting
the income earned by the fund.
Because of the fund's substantial positions in mortgages and emerging market
investments, high yield bonds represented just over 20 percent of the fund's
investments during most of the year. We chose to limit the fund's high yield
investments not because of any fundamental weakness in that market, but because
we believed that the incremental performance of emerging market investments
outweighed performance potential of high yield corporate bonds.
Q HOW DID THE FUND'S EMERGING MARKET INVESTMENTS PERFORM GIVEN THE RECENT
VOLATILITY IN THE GLOBAL MARKETPLACE?
A Events in Southeast Asia late in the year temporarily hurt the fund's
emerging markets sector. However, the fund had no Southeast Asian exposure, so
the set-back was brief and the fund began recovering as quickly as November and
for the year, this sector provided the highest returns for the fund.
Q DO YOU REMAIN OPTIMISTIC ABOUT THE POTENTIAL OF EMERGING MARKET
INVESTMENTS?
A Most definitely. Remember, the sell-off on Gray Monday was caused by
concerns about Southeast Asia and did not occur because of any fundamental
weaknesses in other markets. In recent years, market investments have shown
great resiliency -- from the Southeast Asia crisis this year and from the
Mexican peso crisis of 1994-95.
Many emerging markets have also made great strides at making economic changes
that have helped improve their sovereign creditworthiness. Additionally, because
of the lower global interest rate environment, investors are looking for higher
rates of income. This has been very positive for the emerging markets sector.
We remain bullish about emerging market investments. However, we don't
discount the fact that these investments are more volatile. We monitor the
fund's emerging market investments based on their own strength but also the
strength of other regions in the world to which they have ties. We plan to use
these investments prudently and cautiously to maintain a high level of income
for the fund.
Q WHAT CAN YOU TELL US ABOUT THE PERFORMANCE OF HIGH YIELD BONDS?
A It was another strong year for high yield bonds, but we began to see some
intermittent bouts of volatility enter the market. The market was impacted by
both a Federal Reserve Board interest rate tightening early in the year and Gray
Monday late in the fiscal year. High yield bonds weren't sidelined for long on
either occasion. New high yield supply grew phenomenally during the year,
reaching record levels and was met with strong demand. The fund's high yield
investments performed in-line with the market, benefiting from strong economic
and corporate growth.
Q WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A We remain bullish on the fixed-income marketplace. Economic growth in the
U.S. is strong, while inflation remains tame. Global interest rates are low as
well with relatively strong growth (except Southeast Asia). These are all
positive signs for the bond markets and the sectors in which the fund invests.
7
<PAGE> 8
PORTFOLIO STATISTICS
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 11/30/97 ON 11/30/96
- --------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE PASS-THROUGHS 34% 32%
- --------------------------------------------------------------------------
HIGH YIELD CORPORATE BONDS 21 26
- --------------------------------------------------------------------------
EMERGING MARKETS 42 40
- --------------------------------------------------------------------------
OTHER 3 2
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/97 ON 11/30/96
LONG-TERM FIXED INCOME SECURITIES RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ON 11/30/97 ON 11/30/96
- --------------------------------------------------------------------------
<S> <C> <C>
AAA 37% 35%
- --------------------------------------------------------------------------
A 6 6
- --------------------------------------------------------------------------
BB 26 23
- --------------------------------------------------------------------------
B 31 35
- --------------------------------------------------------------------------
OTHER -- 1
- --------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 11/30/97 ON 11/30/96
The ratings of Standard and 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 S&P or Moody's 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 11.2 years 13.4 years
- ------------------------------------------------------------------------
</TABLE>
*Portfolio composition is subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER STRATEGIC INCOME FUND
Portfolio of Investments at November 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT--49.9% Federal National Mortgage Association
7.50%, 2027 $ 966 $ 986
Government National Mortgage Association
7.50%, 2023-2027 14,208 14,520
8.00%, 2022-2026 10,553 10,947
-----------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost: $25,210) 26,453
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENTS--62.3% (b)Republic of Argentina
5.656%, 2002 8,900 10,254
5.656%, 2007 6,350 5,399
Federal Republic of Brazil, 8.00%, 2014,
PIK 15,745 11,809
(b)United Mexican States,
6.25%, 2019 2,500 2,031
11.50%, 2026 910 1,053
(b)Republic of Venezuela
6.843%, 2002 1,956 1,897
6.75%, 2007 750 670
-----------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost: $25,416) 33,113
-----------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BROADCASTING, Affinity Group, Inc., 11.50%, 2003 500 532
CABLESYSTEMS AND (a)Australis Holdings, 15.00%, with
PUBLISHING--7.6% warrants, 2002 500 225
Cablevision Systems Corp., 9.875%, 2013 450 489
Frontiervision, 11.00%, 2006 400 433
Intermedia Capital Partners, 11.25%,
2006 250 277
(a)International Cabletel, Inc., 12.75%,
2005 1,130 924
Newsquest Capital, PLC, 11.00%, 2006 400 446
Sinclair Broadcasting Group, Inc.,
10.00%, 2003 500 543
(a)UIH Australia Pacific, Inc., 14.00%,
2006 280 182
-----------------------------------------------------------------------
4,051
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.8% (a)Call-Net Enterprises, Inc., 13.25%,
2004 330 301
Communication and Power Industry, Inc.,
12.00%, 2005 150 168
(a)Intermedia Communications of Florida
Inc., 11.25%, 2007, with warrants
expiring 2000 520 372
Metronet Communications, 12.00%, 2007 100 113
(a)Millicom International Cellular,
S.A., 13.50%, 2006 500 365
USA Mobile Communications, Inc. II,
14.00%, 2004 140 155
Western Wireless, 10.50%, 2007 500 538
-----------------------------------------------------------------------
2,012
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES, Coinmach Corp., 11.75%, 2005 $ 500 $ 555
HOMEBUILDERS AND Hovnanian Enterprises, 11.25%, 2002 500 523
REAL ESTATE--3.2% Presley Companies, 12.50%, 2001 320 305
(a)PTC International Finance, 10.75%, 2007 500 320
-----------------------------------------------------------------------
1,703
- --------------------------------------------------------------------------------------------------------------------
LODGING AND GAMING--2.5% Empress River Casino, 10.75%, 2002 200 214
Players International, 10.875%, 2005 470 508
(a)Six Flags Theme Park, 12.25%, 2005 550 580
-----------------------------------------------------------------------
1,302
- --------------------------------------------------------------------------------------------------------------------
MANUFACTURING, METALS AND Aftermarket Technology, 12.00%, 2004 375 416
MINING--8.9% Alvey Systems, 11.375%, 2003 500 530
Bar Technologies, 13.50%, with warrants,
2001 500 570
(a)Building Materials Corporation of
America, 11.75%, 2004 1,100 1,028
Day International Group, Inc., 11.125%,
2005 40 43
Euramax International, PLC, 11.25%, 2006 400 433
GS Technologies, 12.25%, 2005 100 112
Huntsman Polymers Corp., 11.75%, 2004 170 190
IMO Industries, 11.75%, 2006 500 549
InterAmericas Communications, 14.00%,
2007 200 202
Nortek, Inc., 9.875%, 2004 270 274
Weirton Steel Corp., 11.375%, 2004 400 422
-----------------------------------------------------------------------
4,769
- --------------------------------------------------------------------------------------------------------------------
PAPER, FOREST PRODUCTS Gaylord Container Corp., 12.75%, 2005 500 541
AND CONTAINERS--3.7% Maxxam Group, Inc., 11.25%, 2003 500 530
National Fiberstock Corp., 11.625%, 2002 500 528
Riverwood International., 10.875%, 2008 300 293
Stone Container Corp., 11.50%, 2006 70 75
-----------------------------------------------------------------------
1,967
- --------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--1.1% (c)Color Tile, Inc., 10.75%, 2001 330 3
Hines Horticulture, 11.75%, 2005 500 549
Pathmark Stores, Inc., 9.625%, 2003 20 20
-----------------------------------------------------------------------
572
-----------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--30.8%
(Cost: $15,504) 16,376
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCK NUMBER OF SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(c)EchoStar Communications 1,150 shs. 21
(c)Empire Gas Corp., warrants 359 2
(c)Foamex International, warrants 160 5
(c)Gulf States Steel, warrants 150 1
-----------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost: $14) 29
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--5.85%
INSTRUMENTS--4.3% Due--December 1997
(Cost: $2,300) $ 2,300 $ 2,299
---------------------------------------------------------------------
TOTAL INVESTMENTS--147.3%
(Cost: $68,444) 78,270
---------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS--(47.3)% (25,141)
---------------------------------------------------------------------
NET ASSETS--100% $ 53,129
---------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) Deferred interest obligation; currently zero coupon under terms of the
initial offering.
(b) Variable rate security. Rate shown is the effective rate on November 30,
1997 and date shown represents the final maturity of the obligation.
(c) Non-income producing security. In the case of a bond, generally denotes that
issuer has defaulted on payment of principal or interest or has filed for
bankruptcy.
PIK denotes that interest or dividend is paid in kind.
Based on the cost of investments of $68,444,000 for federal income tax purposes
at November 30, 1997, the gross unrealized appreciation was $10,266,000, the
gross unrealized depreciation was $440,000 and the net unrealized appreciation
on investments was $9,826,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER STRATEGIC INCOME FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Strategic Income Fund as of
November 30, 1997, the related statements of operations for the year then ended
and cash flows 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
1994. 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 Income Fund at November 30, 1997, the results of its operations, its
cash flows, and the changes in its net assets and the financial highlights for
the periods referred to above in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 20, 1998
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------
Investments, at value
(Cost: $68,444) $78,270
- -----------------------------------------------------------------------
Interest rate swap agreements, at value 163
- -----------------------------------------------------------------------
Receivable for:
Investments sold 58
- -----------------------------------------------------------------------
Interest 775
- -----------------------------------------------------------------------
Deferred organization costs 15
- -----------------------------------------------------------------------
TOTAL ASSETS 79,281
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -----------------------------------------------------------------------
Cash overdraft 442
- -----------------------------------------------------------------------
Liability under reverse repurchase agreements 25,643
- -----------------------------------------------------------------------
Payable for:
Management fee 35
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 26
- -----------------------------------------------------------------------
Trustees' fees and other 6
- -----------------------------------------------------------------------
Total liabilities 26,152
- -----------------------------------------------------------------------
NET ASSETS $53,129
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- -----------------------------------------------------------------------
Paid-in capital $48,313
- -----------------------------------------------------------------------
Accumulated net realized loss on sales of investments (5,778)
- -----------------------------------------------------------------------
Net unrealized appreciation on investments 9,989
- -----------------------------------------------------------------------
Undistributed net investment income 605
- -----------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $53,129
- -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE, $.01 PAR VALUE
($53,129 / 3,453 shares outstanding) $ 15.39
- -----------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------
Interest income $8,341
- -----------------------------------------------------------------------
Expenses:
Management fee 459
- -----------------------------------------------------------------------
Interest expense 1,494
- -----------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 106
- -----------------------------------------------------------------------
Professional fees 48
- -----------------------------------------------------------------------
Trustees' fees and other 49
- -----------------------------------------------------------------------
Total expenses 2,156
- -----------------------------------------------------------------------
NET INVESTMENT INCOME 6,185
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -----------------------------------------------------------------------
Net realized gain on sales of investments 100
- -----------------------------------------------------------------------
Change in net unrealized appreciation on investments 46
- -----------------------------------------------------------------------
Net gain on investments 146
- -----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,331
- -----------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS AND CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1997 1996
- ------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 6,185 6,046
- ------------------------------------------------------------------------------------------
Net realized gain 100 319
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation 46 7,362
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,331 13,727
- ------------------------------------------------------------------------------------------
Distribution from net investment income (6,211) (6,137)
- ------------------------------------------------------------------------------------------
Proceeds from shares issued in reinvestment of dividends
(3 shares and 37 shares, respectively) 65 578
- ------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 185 8,168
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Beginning of year 52,944 44,776
- ------------------------------------------------------------------------------------------
END OF YEAR
(including undistributed net investment
income of $605 and $637, respectively) $53,129 52,944
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------
Increase in net assets from operations $ 6,331 13,727
- ------------------------------------------------------------------------------------------
Non-cash items (2,903) (10,769)
- ------------------------------------------------------------------------------------------
Sale (purchase) of investments 250 (322)
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,678 2,636
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------
Proceeds from reverse repurchase agreements 1,630 2,741
- ------------------------------------------------------------------------------------------
Distributions to shareholders (6,146) (5,559)
- ------------------------------------------------------------------------------------------
Net cash used in financing activities (4,516) (2,818)
- ------------------------------------------------------------------------------------------
Net decrease in cash (838) (182)
- ------------------------------------------------------------------------------------------
Cash at beginning of year 396 578
- ------------------------------------------------------------------------------------------
Cash (overdraft) at end of year $ (442) 396
- ------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES DESCRIPTION OF FUND. The Fund is registered under
the Investment Company Act of 1940 as a
diversified, closed-end management investment
company.
INVESTMENT VALUATION. Investments are stated at
value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Exchange traded 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 and interest rate swap agreements
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 discount amortization on
all fixed income securities and premium
amortization on mortgage-backed securities.
Payments received or made under interest rate swap
agreements are recorded as adjustments to interest
income. 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
$5,772,000, is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2006.
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 INVESTMENT MANAGER COMBINATION. Zurich Insurance
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 .85% of average
weekly net assets. The Fund incurred a management
fee of $459,000 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
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
the agreement, KSvC received shareholder services
fees of $24,000 for the year ended November 30,
1997.
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 $13,000 to
independent trustees.
- --------------------------------------------------------------------------------
3 INVESTMENT
TRANSACTIONS For the year ended November 30, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
Purchases $22,491
Proceeds from sales 22,206
- --------------------------------------------------------------------------------
4 REVERSE REPURCHASE
AGREEMENTS The Fund has entered into reverse repurchase
agreements with third parties involving its
holdings in U.S. Government Agency securities. At
November 30, 1997, the Fund had outstanding reverse
repurchase agreements as follows:
<TABLE>
<CAPTION>
VALUE OF ASSETS SOLD WEIGHTED
UNDER AGREEMENT REPURCHASE AVERAGE
MATURITY TO REPURCHASE LIABILITY INTEREST RATE
-------- -------------------- ----------- ----------------
<S> <C> <C> <C>
Up to 30 days $10,578,000 $10,254,000 5.66%
30-90 days 11,213,000 10,870,000 5.74
Over 90 days 4,662,000 4,519,000 5.85
</TABLE>
- --------------------------------------------------------------------------------
5 INTEREST RATE SWAP
AGREEMENTS In order to reduce the uncertainty of future
interest rates for a portion of the portfolio, the
Fund has entered into interest rate swap agreements
with counterparties to effectively convert
investments in floating rate obligations into fixed
rate obligations. At November 30, 1997, the Fund
had outstanding interest rate swap agreements as
follows:
<TABLE>
<CAPTION>
FLOATING RATE FIXED RATE
PAYMENTS MADE PAYMENTS
NOTIONAL TERMINATION BY THE FUND RECEIVED
COUNTERPARTY AMOUNT DATE BASED ON BY THE FUND
------------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
GS Financial Products
U.S., L.P. $5,000,000 5/31/99 LIBOR 6.97%
Lehman Brothers
Special Financing
Inc. 5,000,000 5/31/99 LIBOR 6.875%
</TABLE>
The Fund bears the market risk from changes in
interest rates and accordingly the unrealized gain
or loss on the swap agreements is included in the
financial statements. The unrealized gain on
outstanding interest rate swap agreements at
November 30, 1997 amounted to $163,000. The Fund
also bears the credit risk that the counterparty
will not perform under the contract.
16
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, APRIL 29
------------------------ TO NOVEMBER 30,
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.34 13.12 12.60 13.97
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 1.79 1.75 1.68 .87
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .06 2.25 .54 (1.60)
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.85 4.00 2.22 (.73)
- ------------------------------------------------------------------------------------------------
Less distribution from net investment income 1.80 1.78 1.70 .64
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.39 15.34 13.12 12.60
- ------------------------------------------------------------------------------------------------
Market value, end of period $ 19.81 17.75 14.25 13.50
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Based on net asset value 12.55% 32.63 19.29 (5.43)
- ------------------------------------------------------------------------------------------------
Based on market value 23.53% 39.99 20.70 (5.61)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses before interest expense 1.24% 1.23 1.26 1.13
- ------------------------------------------------------------------------------------------------
Expenses after interest expense 3.99% 3.89 4.35 3.41
- ------------------------------------------------------------------------------------------------
Net investment income 11.45% 12.43 13.56 10.95
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $53,129 52,944 44,776 42,390
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 16% 19 49 55
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Total return based on net asset value reflects changes in the Fund's net
asset value during the period. 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 period.
17
<PAGE> 18
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 INCOME FUND (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 of the Plan for the appropriate form. If your
shares are held in the name of a brokerage firm,
bank, or other nominee, you must instruct that
nominee to re-register your shares in your name so
that you may participate in the Plan, unless your
nominee has made the Plan available on shares held
by them. Shareholders who so elect will be deemed
to have appointed United Missouri Bank, n.a.
("UMB") as their agent and as agent for the Fund
under the Plan.
- --------------------------------------------------------------------------------
2 DIVIDEND INVESTMENT
ACCOUNT The Fund's transfer agent and dividend disbursing
agent or its delegate ("Agent") will establish a
Dividend Investment Account (the "Account") for
each shareholder participating in the Plan. Agent
will credit to the Account of each participant
funds it receives from the following sources: (a)
cash dividends and capital gains distributions paid
on shares of beneficial interest (the "Shares") of
the Fund registered in the participant's name on
the books of the Fund; (b) cash dividends and
capital gains distributions paid on Shares
registered in the name of Agent but credited to the
participant's Account. Sources described in clauses
(a) and (b) of the preceding sentence are
hereinafter called "Distribution."
- --------------------------------------------------------------------------------
3 INVESTMENT OF
DISTRIBUTION FUNDS
HELD IN EACH ACCOUNT If on the record date for a Distribution (the
"Record Date"), Shares are trading at a discount
from net asset value per Share (according to the
evaluation most recently made on Shares of the
Fund), funds credited to a participant's Account
will be used to purchase Shares (the "Purchase").
UMB will attempt, commencing five days prior to the
Payment Date and ending at the close of business on
the Payment Date ("Payment Date" as used herein
shall mean the last business day of the month in
which such Record Date occurs), to acquire Shares
in the open market. If and to the extent that UMB
is unable to acquire sufficient Shares to satisfy
the Distribution by the close of business on the
Payment Date, the Fund will issue to UMB Shares
valued at net asset value per Share (according to
the evaluation most recently made on Shares of the
Fund) in the aggregate amount of the remaining
value of the Distribution. If, on the Record Date,
Shares are trading at a premium over net asset
value per Share, the Fund will issue on the Payment
Date, Shares valued at net asset value per Share on
the Record Date to Agent in the aggregate amount of
the funds credited to the participants' accounts.
- --------------------------------------------------------------------------------
4 ADDITIONAL
INFORMATION Address all notices, correspondence, questions, or
other communication regarding the Plan to:
KEMPER SERVICE COMPANY
P.O. Box 419066
Kansas City, Missouri 64141-6066
1-800-294-4366
18
<PAGE> 19
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
5 ADJUSTMENT OF
PURCHASE PRICE The Fund will increase the price at which Shares
may be issued under the Plan to 95% of the fair
market value of the shares on the Record Date if
the net asset value per Share of the Shares on the
Record Date is less than 95% of the fair market
value of the Shares on the Record Date.
- --------------------------------------------------------------------------------
6 DETERMINATION OF
PURCHASE PRICE The cost of Shares and fractional Shares acquired
for each participant's Account in connection with a
Purchase shall be determined by the average cost
per Share, including brokerage commissions as
described in Paragraph 7 hereof, of the Shares
acquired by UMB in connection with that Purchase.
Shareholders will receive a confirmation showing
the average cost and number of Shares acquired as
soon as practicable after Agent has received or UMB
has purchased Shares. Agent may mingle the cash in
a participant's account with similar funds of other
participants of the Fund for whom UMB acts as agent
under the Plan.
- --------------------------------------------------------------------------------
7 BROKERAGE CHARGES There will be no brokerage charges with respect to
Shares issued directly by the Fund as a result of
Distributions. However, each participant will pay a
pro rata share of brokerage commissions incurred
with respect to UMB's open market purchases in
connection with the reinvestment of Distributions.
Brokerage charges for purchasing small amounts of
Shares for individual Accounts through the Plan can
be expected to be less than the usual brokerage
charges for such transactions, as UMB will be
purchasing Shares for all participants in blocks
and prorating the lower commission thus attainable.
- --------------------------------------------------------------------------------
8 SERVICE CHARGES There is no service charge by Agent or UMB to
shareholders who participate in the Plan other than
service charges specified in Paragraph 12 hereof.
However, the Fund reserves the right to amend the
Plan in the future to include a service charge.
- --------------------------------------------------------------------------------
9 TRANSFER OF SHARES
HELD BY AGENT Agent will maintain the participant's Account, hold
the additional Shares acquired through the Plan in
safekeeping and furnish the participant with
written confirmation of all transactions in the
Account. Shares in the Account are transferable
upon proper written instructions to Agent. Upon
request to Agent, a certificate for any or all full
Shares in a participant's Account will be sent to
the participant.
- --------------------------------------------------------------------------------
10 SHARES NOT HELD IN
SHAREHOLDER'S
NAME Beneficial owners of Shares which are held in the
name of a broker or nominee will not be
automatically included in the Plan and will receive
all distributions in cash. Such shareholders should
contact the broker or nominee in whose name their
Shares are held to determine whether and how they
may participate in the Plan.
- --------------------------------------------------------------------------------
11 AMENDMENTS Experience under the Plan may indicate that changes
are desirable. Accordingly, the Fund reserves the
right to amend or terminate the Plan, including
provisions with respect to any Distribution paid
subsequent to notice thereof sent to participants
in the Plan at least ninety days before the record
date for such Distribution.
- --------------------------------------------------------------------------------
12 WITHDRAWAL FROM
PLAN Shareholders may withdraw from the Plan at any time
by giving Agent a written notice. If the proceeds
are $25,000 or less and the proceeds are to be
19
<PAGE> 20
DESCRIPTION OF DIVIDEND REINVESTMENT PLAN
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 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.
20
<PAGE> 21
NOTES
21
<PAGE> 22
NOTES
22
<PAGE> 23
NOTES
23
<PAGE> 24
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JAMES E. AKINS DANIEL PIERCE HARRY E. RESIS, JR.
Trustee Chairman of the Board Vice President
ARTHUR R. GOTTSCHALK MARK S. CASADY JONATHAN W. TRUTTER
Trustee President Vice President
FREDERICK T. KELSEY PHILIP J. COLLORA RICHARD L. VANDENBERG
Trustee Vice President, Vice President
Secretary and Treasurer
DANIEL PIERCE J. PATRICK BEIMFORD, JR. LINDA J. WONDRACK
Trustee Vice President Vice President
FRED B. RENWICK JERARD K. HARTMAN JOHN R. HEBBLE
Trustee Vice President Assistant Treasurer
JOHN B. TINGLEFF THOMAS W. LITTAUER MAUREEN E. KANE
Trustee Vice President Assistant Secretary
EDMOND D. VILLANI ANN M. MCCREARY CAROLINE PEARSON
Trustee Vice President Assistant Secretary
JOHN G. WEITHERS MICHAEL A. MCNAMARA ELIZABETH C. WERTH
Trustee Vice President Assistant Secretary
KATHRYN L. QUIRK
Vice President
- ------------------------------------------------------------------------
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 64141-6066
- ------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 127 West 10th Street
Kansas City, MO 64105
- ------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
Printed on recycled paper.
KSIF - 2 (1/98) 1042010
Printed in the U.S.A.
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
[KEMPER FUND LOGO]
